Navigant Research Blog

Solar Customers in Nevada Compensate for Changes in Net Metering with Storage

— February 22, 2016

clean energy backgroundThe Nevada Public Utilities Commission’s (PUC’s) recent decision to dramatically alter the net metering policy for rooftop solar customers has created an uproar and cast doubt on the state’s solar future. The fight began in December of last year when the PUC voted to not only increase the fixed charge to NV Energy customers who own rooftop solar from $12.75 per month to $38.51 per month in gradual increases over the next 4 years, but also decrease the credit solar that customers receive for the excess energy they send back to the grid from $0.091/kWh to $0.026/kWh. However, perhaps the most controversial part of the decision is its retroactive effect on nearly 18,000 existing rooftop solar customers. The new pricing took effect on January 1 of this year.

Regulators argue the new pricing scheme makes solar customers pay their fair share for use of NV Energy’s grid. But the new pricing could be a deal breaker for most solar customers. According to solar companies, the pricing changes could erase all the savings from going solar over the next couple of years. That prospect has spurred a group of solar customers to file a class action lawsuit against NV Energy, seeking payment for being misled into purchasing solar systems “that do not provide the promised rebates, discounts, and rates.”

Operations Shutting Down

Solar companies say the new pricing will effectively kill Nevada’s rooftop solar market. Several companies have already been forced to shut down operations in Nevada, including Sunrun, Vivint, and the largest solar installer in the United States, SolarCity. In fact, SolarCity has begun laying off 550 employees and closing the doors of a new training center. Due to this backlash, the PUC released a draft order saying it will reconsider “grandfathering” in existing solar customers to protect their investments, but there is no mention of reconsidering the net metering policy overall.

Despite the seemingly dismal future for rooftop solar in Nevada, existing solar customers still have options. Naturally, higher fixed charges and lower net metering tariffs can incentivize existing solar consumers to use as much of their self-generated power as possible, as opposed to selling the excess power back to the grid. This is where solar plus storage comes into play. Integrating solar panels and energy storage allows customers to generate energy during the day and store that energy to use at a time when the consumer would otherwise be paying a retail electricity rate. Products like the Tesla Powerwall can change the equation for customers, and many anticipate that these types of technologies will forever change the energy industry.

Instead of harshly fighting trends and upsetting customers, smart utilities and PUCs must find a balance and be more willing to embrace new technologies and the reality that customers now have more energy choices than before.

 

TEP’s Program a Win-Win for Solar Proponents and Utilities

— October 7, 2015

I’ve written extensively about the solar/net metering brouhaha in Arizona over the past 2 years (you can see related blogs here and here). I’ve also previously posited (here, here, and here) that electric utilities worried about solar encroaching on their core business and profitability need to embrace solar, suggesting that if you can’t beat ‘em, join ‘em.

That is exactly what one offering from Tucson Electric Power (TEP) attempts to do. Well, sort of. My analysis indicates that the deal is pretty good for all involved.

In August 2014, TEP proposed a rooftop rental arrangement for customers in its territory whereby TEP would rent its customers rooftops and install solar panels for its own generation needs. In exchange, the utility fixes customers’ monthly bills at their current level for the next 25 years, which TEP considers to be the life of the panels. According to the company website, TEP intends to accept 500 participants in 2015 and was still accepting applicants through September. The plan has been viewed with caution—but not outright hostility—by solar advocates because TEP is subcontracting out the panel installation business rather than creating its own internal, division.

Long-Term Benefits for All

TEP’s proposal could have a substantial positive financial value to customers in its territory. Here’s why: If you run a discounted cash flow analysis, using an 8% cost of capital assumption and a 25-year time horizon, the present value of the savings that TEP customers might enjoy is substantial—assuming that electric prices in Arizona continue to rise at historic rates.

In running my calculations, I assumed a customer would start the program at the beginning of 2015 and that the current $0.12/kW cost rises 3.4% annually through 2040 (this is the average annual increase between 2003 and 2013 in Arizona).

A current $100/month TEP customer is using 852 kWh per month; a $240/month customer is using 2,044 kWh. Keep that usage fixed for 25 years, and the net present value to these customers of the fixed rate versus projected actual monthly bills ranges from more than $6,000 to more than $14,000. The nominal (undiscounted) value of the savings amount to more than $20,000 for the $100/month customer and an eye-popping sum of more than $50,000 for the $240/month customer.

Tucson Electric Power Solar Rooftop Proposal: Potential Net Benefits to Consumers

Richelle Table(Source: Navigant Research)

Even if the rise in electric rates were to fall to half of its historic rate in Arizona (1.7% rather than 3.4%), the savings to TEP rooftop renters would be $2,600 and $6,200 respectively on a present value basis, and the nominal benefits accrue to $9,000 and $21,000 for $100/month and $240/month customers. Considering the heat in Arizona, I’d be willing to bet there are quite a few $300+/month customers for whom this is an even more attractive proposal.

It Takes a Village

Solar installers in Tucson do not view TEP as a competitor because they continue to get the business. Customers do not have to worry about credit scores or qualifying for financing. TEP expands its solar generation capabilities. The deal truly appears to be a win-win-win. In fact, the financial benefits to TEP are probably the lowest on management’s totem pole. The program helps the utility meet renewables requirements and keeps customers happy—and that is worth quite a lot.

 

Net Metering Fight Comes to New Mexico

— January 8, 2015

The fight over solar interconnection and net metering – a topic I’ve covered previously in several blogs (here, here, and here) – has come to my home state.  In a rate case filed in December, Public Service of New Mexico (PNM) asked that customers with their own solar generation capacity solar customers be charged $6 per kilowatt (kW) of capacity, per month, beginning in 2016.  It also proposed that “banking” of excess power sold back to the utility be discontinued; this means that rather than selling back excess kilowatt-hours (kWh) generated in March for top dollar in July, solar customers will receive the net value of the energy in the same month that it’s generated.

Girding for a Fight

Solar industry advocates suggest that the plan will severely dampen demand.  New Mexico has abundant sunshine, but a relatively poor economic base, and solar adoption in the Land of Enchantment has been lower than one might expect.  According to IREC, New Mexico ranked 9th nationwide in total PV installations, with 257 megawatts (MW), at the end of 2013.  With accelerating economic recovery and the expiration of federal tax credits just 2 years away, New Mexico is poised for strong growth in 2015-16.

And that’s why PNM is making this move now.  Its argument that non-solar customers are increasingly subsidizing solar customers has merit, and growth in installations is only going to cost PNM more as it not only loses revenue from solar customers, but also must invest in its grid to support increased two-way electricity flow and changing load profiles.

Hitting Home

I’ve studied the proposal with more than just professional interest.  I recently got a quote for a solar array on my own home, in southern New Mexico, and while PNM isn’t my utility, El Paso Electric, my local provider, will surely be watching the proceedings closely.  Here’s my take on the situation, both as an analyst and as a potential solar customer.

First, $6/kW is fairly substantial, from a solar customer’s point of view.  PNM says that the average New Mexico system in its territory is 3-5 kW, but solar installers suggest that recent installations average 6 or 7 kW.  In order to serve my 2,800 square foot home, a 10 kW system was proposed.

So while PNM says its fee would average $18-$30/month, my own system would cost $60/month under the PNM proposal.  That would extend the payback period for my system from 8 years to 11 years.  But, unless I sell my house in the next 10 years, it’s still a good investment.

The solar industry, however, doesn’t agree.  A recent article in the Albuquerque Journal offered detailed numbers to illustrate how PNM’s fees will change the solar equation to the point where consumers are better off sticking with the utility.

Payback Period

There are some flaws with this analysis, however.  First, solar panel prices have been falling dramatically, and should continue to do so for many more years.  So the math outlined in the Journal, based on current prices, will likely become moot in another year or two.  Second, the article fails to ascribe value to the fact that once the system is paid for, the homeowner pays only the connection fee to the utility.

In my case, the average monthly bill would fall from $223 (today) to $60.  Call it a $200 per month saving to account for rate increases.  Even with PNM’s proposed connection fee, the system will easily last long enough to support the investment.

New Mexico’s installed base of solar systems is likely to double or triple over the next decade.  It’s not reasonable to expect utilities to interconnect these customers for free, pay them peak prices for non-peak production, and spread those and other costs over the shrinking base of ratepayers.  But I do think it’s reasonable to question the $6/kW figure and ask PNM to justify it—especially since Arizona’s compromise plan last year came in at a far lower level.

 

Facing Solar Waves, Utilities Should Learn to Surf

— March 5, 2014

In my last blog, I described the relatively rapid fall that many incumbent telephone companies have suffered as wireless technology has replaced landlines as the dominant service providers for not only our voices, but also our data communications needs.

Why, as a participant in the electric utility industry, should you care?

Because the very same thing could happen to incumbent electric utilities, and maybe sooner than you think.  Solar panels and plug-in electric vehicles (PEVs) are spreading rapidly, allowing consumers to generate and even store their own power.  Prices are falling, and with or without government incentives, the penetration of renewable, distributed generation will continue to accelerate.  Storage will get better and commercial customers like Walmart will put panels across thousands of acres of rooftops.

All of this creates challenges for grid operations and (especially) electric utility business models.  (See my blogs on net metering and feed-in tariffs.)  As the fight over net metering has made abundantly clear, the century-old utility business model wasn’t designed for distributed generation – and this transformation is still in its early days.

Ride the Wave

But, couldn’t it also provide an opportunity?  In the first 10 years of wireless telecom service (according to surveys by CTIA), subscribership grew to just under 34 million.  In the second 10, it added 174 million, and since 2005, that figure has nearly doubled again.  That hockey stick phenomenon will happen in the solar and PEV industries, too.

NRG Energy, a retail energy marketer based in Princeton, New Jersey, has taken a proactive stance to solar.  Its NRG Solar division creates large-scale solar facilities and performs installations on commercial rooftops.  The NRG Residential Solar Solutions (RSS) division leases solar systems to homeowners, providing the panels, system design, monitoring, and performance guarantees, as well as several termination options (system removal, lease extension, or purchase).  RSS operates in 10 states, plus the District of Columbia, and has expansion plans in more states.  What’s more, NRG’s eVgo network is a privately funded electric vehicle infrastructure network of home charging stations and public fast charging stations.

NRG’s Alternative Energy division (which encompasses its solar activities) grew revenue to $83 million in 3Q 2013, up from $49 million the year before.  And while it still bleeds red ink, I can assure you that telcos lost money on their wireless divisions for many years before those units became the cash machines they are today.

Sizing the Competition

Vivant, SunRun, SolarCity, and SunPower are the big names among standalone solar financing and installation companies today; $1 billion was raised in 4Q 2013 alone for solar system financing.

SolarCity intends to grow its customer base to 1 million by 2018, while SunPower is reportedly about to announce a deal with Meritage Homes.  SolarCity earns about half of its revenue from solar system sales, with a low 5% operating margin, but it earns an attention-getting 66% margin on its lease business.

The level of competition and the public valuations of many of these solar companies demonstrate the market’s belief that solar (panels, financing, installation) will be a growth market for some time to come.

In order to enter the fray, regulated utilities will have to run their alternative energy ventures as unregulated subsidiaries (that’s how the telcos got into cellular), but the consolidated bottom line is what matters to investors.  And, as a consumer, I’m more likely to trust my solar installation and management to my longtime local power provider than an unknown, independent installer.  Ride the wave!

 

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