Will Customers Get Burned by Solar?

As more businesses and residences install solar panels, the rooftops of America are taking on a different look. But that blue-ish hue for some could mean more green for others. That’s because distributed power from solar panels presents basic equity problems for electricity customers, a phenomenon that has caught the attention of several news outlets in recent weeks.

For example, energy editor Michael Burr explains in a recent piece, “As [solar] PV gets cheaper, an increasing number of PV-owning customers will pay less than their fair share of utility system costs, leaving a shrinking number of non-solar customers to pick up the tab for keeping the lights on.”

Burr’s commentary is dead on. So was the analysis of David Owens, executive vice president of the Edison Electric Institute, who said in a recent New York Times article, “Low-income customers can’t put on solar panels — let’s be blunt. So why should a low-income customer have their rates go up for the benefit of someone who puts on a solar panel and wants to be credited the retail rate?”

The advent of more solar power presents a basic math problem. Customers with solar panels use less electricity, meaning they pay less money. Customers without solar panels pay what they’ve always paid. In the meantime, the cost to maintain the electrical grid remains relatively fixed, whether or not customers install solar panels. Someone has to pay these costs. Short story: those without solar panels pay more to pick up the slack, while those who can afford solar panels get back-up generation for which they aren’t really paying.

The reality is that utilities plan capacity based on what some call the “Easter Sunday” model. When determining the amount of seating, church leaders plan for Easter Sunday, the highest attended service of the year. Utilities, in a similar fashion, build capacity for the hottest or coldest day of the year when power demand is greatest. No matter how many solar rooftops we install, utilities assume there will be days when the sun doesn’t shine at all. Someone must pay for that back-up capacity, whether customers use it or not. In some states, large users of electricity such as heavy manufacturers pay a fee for this emergency margin. But what happens when the conversation shifts to residential households? And what happens when there are thousands of them? Hundreds of thousands?

These are questions being posed right now in states with aggressive public subsidies for solar power, especially California where companies such as Pacific Gas & Electric (PG&E) are grappling with how to fairly assess rates for customers who can afford solar rooftops and those who can’t. Burr says that PG&E is interconnecting about 1,000 solar roofs each month. Similar debates are being held in New York, Massachusetts, Louisiana, and Virginia, all states with solar incentive programs. It’s also happening in Georgia where lawmakers recently turned down legislation that would have allowed solar customers in that state to avoid paying their fair share of fixed costs.

Similarly, in Alabama, the City of Huntsville is considering rules that would make it easier for residents to install solar panels. Keep in mind that the Tennessee Valley Authority (TVA), which provides power to the city, allows solar arrays up to 50 kilowatts on its system. That’s enough to run as many as ten homes. Of course, even those with solar systems of that size remain firmly tied to the grid, requiring electricity from their utility when the sun doesn’t cooperate. Except, under the current rate structure, other customers in the Valley will pay the cost of maintaining that contingency. If the solar measure passes, TVA could become a glorified back-up battery for some residents of Huntsville. Clearly, policy makers have some thinking to do.

The consequences of doing nothing could be staggering according to Ron Litzinger, president of Southern California Edison, who told an audience recently that growing solar installations could cause rate increases of 40 to 50 percent by 2020, if nothing is done to address the distribution of fixed costs to customers. The tragedy is that those who will bear these inflated costs will be those less likely to install expensive solar arrays. In other words, the poor get poorer.

Solutions to the problem exist. At least one state, Virginia, has allowed its main utility to begin charging a monthly fee for solar power owners whose systems are larger than 10 kilowatts. That doesn’t sound like a bad idea. Utility systems cost money, and someone has to pay. Unless something changes, those privileged enough to harness the power of the sun could be getting a free ride, while the rest of us just get burned.