One of the sunniest parts of the U.S. is threatening to pull the plug on solar

The News

Arizona regulators voted on Wednesday to consider lowering the rates that electric utilities must pay homeowners with rooftop solar for their excess power. Clean energy advocates say the move will undermine the state’s booming solar industry and unfairly pad utilities’ profits.

The decision follows a deep cut to solar benefits in neighboring California, an indication of how states with high rates of rooftop solar — regardless of their political leanings — are struggling to integrate solar power with the legacy electric grid.

“It was a straight-up dumpster fire,” Jason Gallagher, chief operating officer for Chandler-based solar installer Fusion Power, told Semafor of the Arizona meeting.

Tim’s view

The decision in Arizona illustrates how solar power, in spite of its plummeting global price and unprecedented federal backing, is still subject to local political whims and the rehashing of decade-old arguments.

In Arizona, as in most states, when a home’s rooftop solar panels generate more electricity than the house needs, the excess can be sold into the grid, a practice called net metering. The rate utilities offer for that power differs between jurisdictions; usually it’s the same rate the house would pay to buy power from the grid, or a bit less. In 2016, after an expensive lobbying campaign by the state’s biggest utility, regulators adopted a plan that would gradually step down the rate over time (pre-2016 customers were able to keep a grandfathered higher rate). The justification was that the retail rate, being higher than the wholesale rate utilities would typically pay to acquire electricity, raised utilities’ costs in a way that was eventually passed on to non-solar customers.

Over the last few years, Arizona’s net metering rate has now fallen the wholesale rate, such that excess rooftop solar power is actually a bargain buy for utilities. Yet the perception that net metering constitutes an unfair cost-shift or subsidy has persisted in some corners. At Wednesday’s hearing of the Arizona Corporation Commission, which regulates the state’s utilities, chairman Jim O’Connor, a Republican, argued that anyone wanting a solar roof “shouldn’t do that at the expense of their neighbors and communities.” O’Connor, along with two other Republicans on the five-member commission, voted to reopen the 2016 policy and potentially allow for much steeper annual cuts in the net metering rate.

The decision makes solar a hard sell for homeowners in one of the country’s sunniest states, Gallagher said, because it makes it impossible to calculate a realistic payback period, and most likely extends any such period. That view was echoed in a filing by Tesla, which sells solar and battery systems in the state and said the decision will “harm investor and customer confidence in Arizona.” Even the utility companies that originally pushed to lower the rate were against reopening the existing policy.

“They’re setting a precedent that whatever they decide in one meeting doesn’t really matter,” Gallagher said, because it’s liable to be re-litigated every two years when the commissioners are up for reelection. “There is no major renewable energy company in the nation that, if they looked at what happened [on Wednesday], would feel comfortable investing in Arizona.”

Room for Disagreement

In defending his vote, O’Connor pointed to the example of California, which in April deeply slashed its net metering rates in spite of its liberal, climate-focused politics. That state is by far the country’s top solar market, and net metering had become a legitimate problem for the grid. Midday peak solar production in California is now so high that it sometimes more than covers the entire state’s electricity needs — but then forces power companies to massively ramp up other forms of generation as the sun goes down, raising costs and the risk of blackouts.

In the new system, the net metering rate is variable, increasing at times of low solar production and falling to almost zero at midday. The effect is essentially a subsidy for home battery systems that can preserve excess solar, explained Kunal Girotra, CEO of California-based home-battery startup Lunar Energy: “Utilities are going to insist on storage so they can take the power when they want it, not when the weather dictates.” Variable metering rates will be coming soon across the U.S., Girota predicts. For now, that idea isn’t being discussed in Arizona.

The View From New York

Renewable energy also suffered a setback from regulators this week in New York state. On Thursday, the state’s Public Service Commission voted against raising the price offshore wind developers can charge utilities for their power. Orsted, Equinor, and other large wind companies are locked into power delivery contracts at rates set over the last few years that are now too low for them to turn a profit, as inflation and supply chain bottlenecks have increased the developers’ costs. The message from New York this week: Too bad. The position is easy to understand from the perspective of regulators who otherwise would have to explain up to $12 billion in extra costs for ratepayers. But it could put the state’s ambitious clean energy targets at risk if offshore wind companies pull the plug.

Notable

• The global price of solar would be even lower, an Oxford University lecturer wrote this week, if not for a century-old kidnapping. George Cove was a Canadian engineer in New York who invented the first solar panels in 1909, to much publicity, and was shortly thereafter kidnapped, with a term of his release being that he give up his solar patent. After his release, he never returned to the idea. In a paper, economist Sugandha Srivastav argues that if he had continued, solar would have become cheaper than coal power by 2002, 14 years earlier than it did in reality.