Homeless in Arizona

Probably 20 years ago I read an article in "Home Power" which is a magazine for people who live in the boondocks and can't connect to the electric grid. Home Power mostly writes about using solar cells, wind power and water power to generate electricity for homes in the boondocks.

Home Power said that solar cells can't compete economically with electricity generated by the grid, something most people know.

Home Power also said that the production of solar cells is a rather filthy process and when you consider that, solar cells pollute much more then even dirtiest methods of generating power for the electric grid.

Source

Refereeing solar catfight

The Arizona Corporation Commission’s solar energy policy is about to drive into a ditch. Extricating it will be neither simple nor easy.

In 2006, the commission deemed that regulated utilities had to get 15 percent of their power from renewable sources by 2025. Although there’s a token amount of wind and other sources in the mix, in Arizona renewable principally means solar.

Since solar is more expensive than other sources, the commission has approved a surcharge on the bills of captive costumers to provide a subsidy. By the end of this year, APS customers will have paid nearly $550 million more for power than necessary to fund the solar subsidy.

The problem is that the subsidy is no longer going to provide an incentive for new solar. This year, virtually all the money, around $100 million, will go to underwrite solar that already exists and is producing power – purchase agreements APS has signed with merchant solar plants and commercial rooftop solar systems.

The commitments to these legacy subsidies are long-term. Which means that APS’s captive ratepayers will be forking out $100 million or more a year for the foreseeable future with little in the way of new solar to show for it.

And now, the commission is going to be asked to referee a catfight between APS and residential rooftop panel companies over a thing called net metering.

Incentives for rooftop residential systems from the subsidy fund are basically gone. Net metering refers to the commission requirement that APS in essence buy excess power generated by residential systems at its retail price. APS says that’s a subsidy and unfairly shifts the burden for paying for the grid to other customers. Rooftop companies say the industry will die without it.

In the course of this catfight, APS and the rooftoppers will both produce studies purporting to breakdown the costs and benefits of rooftop solar. The key to a sound understanding of the issue is to ignore them. Both sides are trying to get a group of politicians – the commissioners – to stick the other with a price more favorable than would prevail in a competitive market.

Of course, there isn’t a competitive market. APS is a monopsony when it comes to this surplus power, a monopoly buyer. But a thought experiment can illuminate what a market price would approximate.

If a rooftop owner went to his neighbor and offered to sell his surplus power at APS’s retail rate, the answer would be no. To sell the surplus to another buyer, the price would have to be something less than the price APS is required to pay by the commission. Moreover, the rooftop owner would have no way to deliver the power. He would have to pay APS to provide a distribution service that, under existing rules, he gets for free.

APS says it has no final position, but certainly seems to believe it should only pay what the power is worth to it, the cost of power that could be purchased from other sources. That’s a fraction of the retail price it currently pays, perhaps as little as a fifth.

But the power would clearly be worth more than that to other buyers if they could purchase it. Some slight discount from APS’s retail rate would find a buyer. APS is trying to use its monopoly grid status to buy the power for less than its market worth. But the right way to think of APS’s role is as a distribution service, not really as a purchaser.

So, net metering at the current price is a subsidy. But less of one than the case APS is mounting.

As the commission attempts to untangle all this and get its policy out of the ditch, it should be guided by two principles: solar subsidies should be as transparent as possible; captive ratepayers should be stuck with as little above-market power as possible.

Solar plants owned by regulated utilities flunk these two tests the most, since they are folded into the rate base and the subsidy is hidden. Rooftop solar passes them the best, since there is no long-term commitment taken on by captive ratepayers.

But only if the subsidy is transparent. The commission should wring the subsidy out of net metering and substitute a more transparent one if thought necessary.