Strategy& and Public Utilities Fortnightly recently collaborated on an innovation roundtable in Washington, D.C. at the offices of the Edison Electric Institute. The experiences of...
Arizona on Value of Solar
Turning Point for Distributed Energy
2016 was an important year for solar and distributed energy resource (DER) policy.
California concluded a multi-year evaluation of its successful net metering program with a decision to preserve full retail credit. In New York, an exhaustive assessment of DER policy is underway. Regulators there proposed preserving net metering for residential customers while more data is collected on the value of distributed resources.
Nevada reversed course on its 2015 net metering decision by grandfathering existing customers. Regulators there declared that further expanding net metering is in the public interest. And Massachusetts regulators rejected punitive fees in a major rate case, concluding "the department is not persuaded that a cost-shift from DG (distributed generation) customers to non-DG customers exists."
All across the country, policymakers have been looking at net metering, the cornerstone policy for distributed energy resources. They have largely found that the policy is a fair and easily understood tool for compensating valuable ratepayer investment in solar and local energy infrastructure. It is especially notable that Arizona's policy, in the home of one of the most extensive solar resources in the country, stands in contrast to those other outcomes.
In late December, 2016, Arizona's utility regulators concluded a multi-year process to determine how to value distributed generation. They set in motion a new policy many believe is likely to undermine investment in solar and other distributed technologies in the state. We urge advocates and regulators looking for sustainable models of state DER policy to think carefully before following Arizona's example.
Arizona's new policy rightly recognizes that what happens behind the meter is the customer's business. It preserves the important principle of self-generation and self-determination. It also compensates customers with a credit rate for exported generation.
Any customer has the right to reduce load, whether through better insulation, high-efficiency appliances, battery storage or the installation of rooftop solar. Whether Arizona utilities can treat customers differently based on what technology they adopt to reduce load will be decided in ongoing rate cases.
By separating self-generation from exported power, Arizona has built a foundation for both solar and broader DER compensation. In the U.S., we are progressing toward a more transactional distributed energy system. Credit rates should capture the value of energy fed into the grid by rooftop solar, energy storage, vehicle to grid chargers, and other customer-centric technologies.
In the future, the export credit rate should be refined to price energy at certain times of the day and in specific geographic locations. That will incent economically beneficial DER deployment across the grid.
But when it comes to DER progress, the rates at which customers are compensated are just as important as what they're being compensated for. The methodology Arizona adopted for determining the credit rates themselves, in our opinion, is shortsighted.