Thursday, December 15, 2016

ELC Essay #10: Questioning the Value of Solar

Shalanda H. Baker

At last, energy—that elusive thing that exists all around us, sustains myriad plant and animal life, and illuminates our homes—no longer requires massive infrastructure to be harnessed and converted into electricity. Technology now allows individuals and communities to erect solar panels that convert the sun’s rays into electric currents to power homes, hospitals and community centers. This rare moment in the transition of the energy sector from a system in which electricity is generated by burning fossil-fuels in centralized locations managed by public utilities, to a system where a range of electricity generation and management alternatives exists, has spurred a heightened level of regulatory and economic turmoil in jurisdictions around the United States. The disequilibrium created by customer-sited energy generation threatens to destabilize and reinvent our energy system. If only we would let it.

Industry observers attribute the swift rise of rooftop solar adoption over the past decade to progressive policies and rapid technological advancements. Tax incentives have effectively decreased the cost of owning and installing solar panels. Net energy metering policies pay rooftop solar owners at the customer’s retail electricity rate for each kilowatt-hour of electricity generated by the customer. These programs leave some customers with electricity bills totaling zero dollars, effectively turning their electricity meters backwards when solar panels are fully engaged.  

This dramatic increase in customer-sited distributed energy generation has challenged the utility sector and destabilized the so-called “regulatory compact,” whereby utilities receive a regulated reasonable return on electricity infrastructure investments in exchange for providing electricity. The overall dynamic confronting utilities in this transitional moment has led to what some have termed the “utility death spiral.” In the new, distributed-energy paradigm, utilities can no longer rely on the prior revenue levels from their customer bases to recover costs for infrastructure improvements or to recoup their regulated reasonable return on such investments. Further, in an era of increased distributed energy generation, utilities cannot easily predict what types of infrastructure investments are needed. Thus, they face a “death spiral,” a term that reflects an operating environment with rife economic uncertainty.

As a result of these economic challenges, utilities have fought for preservation of the status quo. They argue that net-energy metering places an unfair burden on customers who lack access to solar panels. To support this argument, they note that net-energy-metering customers tend to generate electricity during the day, during low electricity usage hours, and draw electricity from the grid during peak electricity usage times, but because net-energy metering zeroes out the electricity bill of such customers, these customers never pay their fair share to maintain the grid. Thus, utilities argue, rooftop solar customers create a “cost shift” to those who cannot, by virtue of poverty, home ownership status, or geography, install solar panels. 

These assertions have given rise to a debate. In regulatory proceedings exploring the fairness of such net-energy metering programs, regulators around the country have begun to ask, “What is the value of solar?” Said another way, does the compensation amount offered to net-metering customers overcompensate such customers for their contributions to the electricity grid and overvalue distributed energy contributions? If the answer is yes, as utilities have argued, then compensation should be adjusted downward to account for the cost of delivering distributed energy to the grid. Under this formulation, the utility’s guaranteed return on investment, which it recoups from the customer rate base, would be spread more broadly among the customer base because solar adopters would receive less economic value for the electricity service they provide. Further, by lowering the compensation rate for rooftop solar, the utility retains more economic value and is spared from “shifting” the cost of grid maintenance (and the regulated return) on to non-solar customers.

The foregoing framing sets the stage of this unique transitional moment. By most observations, what has emerged is a battle between the traditional and the disruptive. Indeed, the increasing number of individuals able to generate electricity through rooftop solar panels is perceived as a threat to utility incumbents, whose current business model depends on a stable base of electricity customers to contribute to the cost of maintaining the grid. Any economic gains rooftop solar customers receive harm non-solar customers in equal measure. The transition to a cleaner energy system, some utilities suggest, should be done through investments in large-scale renewable energy projects rather than distributed energy generation. For their part, solar companies, the disruptive innovators that make rooftop solar panels, see utilities as antiquated and resistant to change.  Solar companies have argued that increased rooftop solar adoption “greens” the grid and creates decentralized pockets of electricity generation that offer grid stability in volatile weather. Traditional utilities, they argue, must adapt their business models to the increasing amount of distributed energy resources on the grid, or become obsolete.

But this framing obfuscates what is at stake: a just energy transition.  Moreover, it limits opportunities for true transformation of the energy system and the regulatory model that supports it. In this zero-sum formulation, the direct benefit gained by solar adopters is a precise measure of the additional payments that must be paid by other customers to maintain the grid, pay for the costs of grid improvements, and ensure the utility’s return on investment. In this frame, the question whether the regulatory model is itself a useful or just feature of a modern energy system is sidelined, never asked, in favor of calculating whether non-solar customers somehow bear the cost of paying the utility’s guaranteed return. In its very asking then, the question regarding the true value of solar immediately loses its disruptive potential. Locked within a flawed frame, the question, and answer, will always be marred by the measure of what is lost by the utility customer and gained by some other party—a customer, a solar company. Most tragically, these calculations will almost always be made within a regulatory model that is itself undisturbed. 

At its core, the energy transition invites a reckoning and accounting of the existing energy system. The energy transition provides an opening to expose the injustice embedded in the existing energy system, and the ways this system’s ongoing reliance on centralized generation, centralized ownership, and the regulatory compact may actually foster climate change vulnerability, climate injustice, and environmental injustice. The transition offers a rare moment, within its early-design phases, to examine the myriad ways in which the old energy system divests individuals and communities of true choice and participatory decision-making with respect to meeting their energy needs. The transition also allows us to examine alternative economic models, such as community power, for the delivery of electricity. Such an analysis could help to expose the challenges of energy poverty, energy security, and energy access in this country; provide an opening to critique the socioeconomic aspects of the energy system itself that require families to make difficult choices between paying the electric bill and buying groceries; and offer viable alternatives to the existing energy system.

            To uncover these tremendous stakes, rather than ask, “What is the value of solar?,” legislators and regulators might instead ask, “What is the cost of a failure to transition to a decentralized, clean system of electricity generation and distribution, where ownership of energy is spread among diverse stakeholders and the cost of energy is drastically reduced?” Further, what is lost, and what remains, if the status quo ante persists? What might a new energy system, incorporating principles of economic fairness, energy democracy, and climate and environmental justice, look like? This new manner of questioning inverts the frame and allows for a broader exploration of what is at stake during this transition—as viewed from the perspective of what is possible, rather than from within the limitations of the existing paradigm. It places the incumbent in the foreground as a subject of critique and examination, rather than frame the disruptor as the subject of critique and examination or, misleadingly, as our collective savior.

This questioning further invites the exploration of the range of possible regulatory and economic solutions to facilitate a just transition to a clean energy future. It allows policymakers to trim away the irrelevant elements of the current electricity system to expose the vibrant aspects of the system that must be preserved during this moment of transition.  It also allows for deeper innovation in light of the opportunity posed by distributed energy resources and alternatives to large-scale energy development. In short, shifting the incumbent from background to foreground releases the blinders imposed by the “value of solar” frame—itself a zero-sum postulation that pits solar adopters against non-solar customers—and allows for a comprehensive consideration of energy justice.

When regulators ask, “What is the value of solar?” embedded at the end of the question, in an invisible parenthetical, are the words, “to the existing system.” Such framing answers the question before it is asked, because it assumes preservation of the system itself, which is to say, a centralized electricity grid, a traditional electricity utility, regulated returns on investment, and the same system of energy production and distribution. By virtue of this discursive framing, the question itself is relegated to the margins and value is evaluated within a pre-defined system, from which pre-defined units of value are extracted. Although some jurisdictions have begun to move beyond the purely economic framing of the answer to the value of solar question to incorporate environmental considerations, I would argue that the question itself must be interrogated.

| Permalink