Q&A: Sorting out solar
A primer on the Beacon Hill debate over financial incentives
It seems like solar power was going great guns under former governor Deval Patrick, but now everyone is fighting about it. What’s going on?
Solar did do phenomenally well under Patrick; Massachusetts became one of the nation’s leaders in solar power development. But now the Baker administration is having concerns about the high cost of Patrick’s success. The state’s electric utilities are making the case that solar power costs too much. National Grid says solar power costs 45 to 60 cents a kilowatt hour when the current price of electricity is in the neighborhood of 16 cents a kilowatt hour. The utility also says a 1 megawatt solar project costs as much as $2.5 million to build but receives subsidies from ratepayers over 30 years of more than $10 million.
I don’t have solar on my roof. How does this affect me?
The future of solar power in Massachusetts may be riding on the outcome of a debate taking place on Beacon Hill. Admittedly, the debate is hard to follow because it’s technical and plagued by energy jargon, but here are the basics. There’s a cap in place on one of the state’s solar incentives that’s preventing new projects from moving forward. There’s a struggle going on about what to do. Environmentalists want to lift the cap and use the existing incentive structure to expand solar across the state, basically keeping the momentum from the Patrick years going. Electric utilities such as National Grid and Eversource say the solar incentives are way too expensive and need to be reined in. Gov. Charlie Baker wants to lift the cap, but he also wants to sharply reduce one of the solar incentives once the state hits its current growth target for solar power. George Bachrach of the Environmental League of Massachusetts said Baker’s proposal would drive the solar industry out of the state.
National Grid says 99 percent of its customers don’t have solar but they are the ones absorbing the cost of the incentives that allow the remaining 1 percent to save or make money with solar. The Baker administration estimates the incentives will cost the 99 percent somewhere between $2.5 billion and $4 billion between 2014 and 2020.
That 1 percent claim is clever. Who’s part of this 1 percent?
It’s people with solar panels on their roof. It’s solar developers. It’s municipalities with solar panels on their capped landfills. It’s the Department of Transportation with panels along the Mass Pike and other state highways. All are financially benefitting from solar because of incentives paid for by those without solar.
Don’t I benefit from solar in other ways, like fewer carbon emissions?
Yes, you do. In fact, environmental advocates say utilities are hyping the cost of solar while ignoring its many benefits. The Acadia Center estimates the value of solar in terms of avoided costs and reduced emissions at nearly 30 cents a kilowatt hour. A state task force issued a report in April indicating solar subsidies yield more economic benefits to ratepayers than they cost. And a report by the Analysis Group in April accused utilities of putting out cost data that “is incomplete and misleading.”
Where are these solar subsidies? I don’t see them listed on my electric bill.
They’re in there, but they are not separated out. They are called net metering and solar renewable energy credits, or SRECs.
For every 1,000 kilowatt hours of solar power generated, the generator receives one renewable energy credit. These credits are sold at periodic auctions, where prices vary with supply and demand. The current price is about 30 cents a kilowatt hour. A solar power generator receives SRECs for 10 years. After that, the generator receives regular renewable energy credits, which are currently priced at about 4.5 cents a kilowatt hour.
Who buys SRECs?
State law requires any company selling power in Massachusetts to purchase SRECs equivalent to a small percentage of its sales.
What’s net metering?
It’s a billing system that allows anyone generating electricity on their own to receive credits on their utility bill for funneling power into the region’s electric grid. For example, a homeowner with solar panels on his roof is likely to generate more power than he uses on some days. That excess electricity is fed into the regional power grid and the homeowner receives credits on his bill from his local utility. The credits are equal to the retail price the homeowner pays for power, so it’s possible to zero out your bill or store up credits that can be used to offset to future bills. No one paid much attention to net metering when few people were taking advantage of it, but today solar developers are launching larger and larger projects on tracts of open land and landfills. These projects operate much like small power plants, funneling all their electricity on to the grid and receiving renewable energy credits as compensation.
What do solar developers do with these net metering credits?
Where a government entity is the host customer, the entity takes title and ownership to the net metering credits from the utility and uses the credits to reduce its electric bills.
Give me an example of how this works?
A Framingham solar developer named Ameresco recently struck a 20-year deal with the state Department of Transportation to erect solar arrays on open land adjacent to the Massachusetts Turnpike and other highways. Under the contract, Ameresco is expected to generate electricity and sell it to the Department of Transportation at an initial price of 7.3 cents a kilowatt hour, rising to 13.1 cents in 2036, according to DOT estimates. Ameresco designates the Department of Transportation as the host customer, which allows DOT to receive the net metering credits, valued initially at 16.5 cents a kilowatt hour, rising to an estimated 25 cents a kilowatt hour in 2036. The state will save an estimated $14.4 million over the life of the deal, the difference between what it pays for the power and the value of the net metering credits. The state will also receive nearly $2 million in lease payments on the land Ameresco is using.
How does the deal work for Ameresco?
Ameresco, the low bidder on the state contract, wouldn’t say. But the company’s return is probably significant. The company incurs the cost of purchasing and installing the solar arrays, lease payments to the state, and property tax payments to local communities. The firm would have qualified for a 30 percent federal tax credit on its project, reducing the cost by nearly a third. On the revenue side, Ameresco will make about $13.2 million from its power sales to the Department of Transportation and nearly $4 million from SREC sales over the life of the contract, for a total of $17.2 million.
So Mass DOT comes out ahead and so does Ameresco. What’s the problem?
The state and Ameresco come out ahead because electric ratepayers are absorbing the cost of the net metering credits and the SRECs. Environmentalists say these costs are reasonable and will come down over time as the cost of solar installations falls. The state’s utilities, however, have two beefs with this arrangement. First, they say, the cost of the solar incentives in Massachusetts is nearly twice as high as it is in other New England states, so we’re paying too much. Second, they say, the arrangement is unfair because 1 percent of their customers are benefitting at the expense of the other 99 percent.
How much of my monthly utility bill is paying for these solar incentives?
National Grid says a a typical customer pays $91 a month for electricity, with $7.10, or nearly 8 percent, going for the two solar incentives.
Why are utilities so eager to end or reduce solar incentives?
They say net metering allows solar power generators to use the regional electric grid without paying any of the costs of maintaining it. A letter-to-the-editor in the Boston Globe on Thursday highlighted this issue. The letter writer said he installed solar panels on his roof 18 months ago at a cost of $17,000. (He said state and federal incentives reduced the cost by $13,000.) The writer said he consistently produces more electricity than he uses, allowing him to earn $2,000 by selling that power to the grid. The utilities say that customer is profiting from incentives paid for by other customers. The utilities also say the customers is using the electric grid to sell his surplus electricity and as a backup in case his solar system goes down, but paying nothing to maintain it.
You make it sound like electric utilities are trying to protect their customers.
That’s the way utilities cast their arguments, but they have other motivations as well. If people and institutions are producing their own solar power, they aren’t paying the local utility to deliver electricity to them. As solar takes off, a utility’s bottom line could suffer. Joel Wool of Clean Water Action says the utilities are sabotaging solar to protect their business model. “National Grid doesn’t give a watt about your energy costs,” he said. “They care about their bottom line.”
Are utilities objecting to solar power in other states?
Yes, utilities across the country have mounted aggressive campaigns against net metering programs and other solar incentives. In some states, utilities have jumped into the solar business themselves to take advantage of the incentives. Utilities in Massachusetts are barred from becoming solar developers except with special permission from the state.
What’s happening on Beacon Hill with solar?
Remember the cap on net metering? Many solar projects are on hold because the cap has been reached. Environmental groups are pushing to lift the cap. Back in April, a majority of the members of a state task force recommended lifting the cap, but two members of the Baker administration who served on the panel said they wouldn’t favor that approach unless solar incentives were modified to reduce the impact on electric ratepayers.
Is the situation still stalemated?
Yes, but there has been some movement. Baker filed legislation to lift the net metering cap to allow the state to reach its short-term goal of 1,600 megawatts of solar power. Once that goal is reached, he wants to significantly reduce the size of net metering credits for public and large-scale solar projects. He basically wants to set up a tiered system of net metering payments, with homeowners continuing to get the current rate but public and large-scale projects receiving far less.
So is Baker siding with the utilities?
To some extent, yes. He believes solar incentives cost too much. Not long ago he told local officials to encourage solar developers to push ahead with projects even without net metering. He likened net metering to getting two scoops of ice cream instead of just one.
The Boston Globe recently ran an editorial urging lawmakers to “save the incentives” until a thorough review of the cost issues is completed. Is that a good idea?
It seems logical, but some say the issue has already been studied to death. The editorial was also a bit inconsistent. It said solar represents such a small share of the market that its overall cost right now is minimal. But the editorial also said the incentives should remain in place because solar offers the chance to avoid new pipelines and transmission lines, suggesting the impact is significant.What do you think is going to happen?
With the announcement that Pilgrim Nuclear Power Station is closing by June 2019, the energy debate on Beacon Hill has broadened and taken on new urgency. Baker wants to import Canadian hydropower and to build new natural gas pipeline infrastructure. Environmentalists are pushing solar and offshore wind. It seems like there is plenty of room for horse-trading.