Connecticut is on the verge of changing one of the key financial underpinnings for residential solar electric systems, and, for the first time in more than a decade, it appears no one is complaining.
The change is in how solar owners are compensated for the excess power their systems produce at certain times. The rates for how that is calculated and structured will be altered, but in exchange, systems will be allowed more flexibility to accommodate future larger electricity needs.
Solar systems obviously don’t make any power at night – but during the day, they often make a lot more power than the house they’re sitting on needs. For the most part, that power is sold back to the grid.
How a homeowner is paid for the power it sends to the grid has been a flashpoint for years. The battle has been between the utilities and just about everyone else.
On Jan. 20, the Public Utilities Regulatory Authority released a draft plan for a new way to handle that compensation. It is open for comment until Feb. 2. Unlike previous ideas floated over the last several years, it has elicited initial reactions that are a head-snapping 180 degrees from what all parties have come to expect.
“We thought this was going to be a disaster,” said Brad Mondschein, an attorney and deputy director for regulatory affairs at the industry group Solar Connecticut. “It’s a good thing.”
Bryan Garcia, president of the Connecticut Green Bank, which created and runs the current residential solar program called it: “Totally innovative.”
Amy McLean, Connecticut director of the advocacy group Acadia Center said she was “pleasantly surprised. It will be a better part of the solution going forward.”
“This looks like a solid structure,” said Charles Rothenberger, climate and energy attorney at Save the Sound.
And from the two utilities: “I think it’s pretty balanced and frankly good to see,” said Ed Davis, Eversource’s director of rates. From Patrick McDonnell, vice president of Connecticut regulatory affairs for Avangrid: “It’s a good thing. It shows a maturation of the industry.”
The problem
The longstanding gold standard for excess power compensation all over the country has been something known as “net metering.” It amounts to simple subtraction. Customers pay for the amount of power they use from the grid, minus the amount the grid takes from customers’ solar generation. In Connecticut, they are both valued at the same price – the retail rate of electricity.
Utilities nationwide have long complained that retail rate net metering is too expensive. And they’ve pushed the widely disputed argument of “cost shift.” That argument contends that a utility’s grid maintenance and power delivery costs don’t really change when residents have solar on their roofs. But since fees based on grid energy use go down for solar customers, utilities claim they have to make it up elsewhere, and they often say lower-income customers wind up paying the difference. Hence, “cost shift.”
Study after study has shown that not to be the case, especially at the low levels of solar adoption that exist in Connecticut. Such studies have shown that maintenance and other societal costs go down when rooftop solar is on the grid — helping everyone, not just solar owners.
The state has also contended that the retail rate exchange embedded in the current system costs ratepayers too much and that the price utilities buy excess solar power for should be lower.
The solar industry has complained that if a utility starts buying customers’ solar power at a lower price, it will lengthen how long it takes for buyers to recover the cost of their systems. That, in turn, will lower interest in solar, which will cost local jobs and tax revenue.
Industry leaders often point to the earliest years of the state’s residential solar program, when it was run by the Connecticut Clean Energy Fund. Incentive funding was given away annually until it ran out – which it always did – leaving solar companies in boom-bust cycles with jobs and whole companies gained and lost.
In 2011, the Green Bank, the successor to the Clean Energy Fund, developed a residential solar incentive program model (RSIP) that kept incentive money flowing, though diminishing over time, in support of its mission to catalyze the sustained, orderly development of a solar industry in Connecticut.
It has done that.
RSIP blew through its various goals far faster than anticipated. It was extended a few times. Since 2011, it has supported nearly 40,300 projects totaling nearly 323 megawatts. More than 4,000 projects totaling another 35 megawatts are in the pipeline.
These include systems for low and moderate-income homes – a major focus for the Green Bank and one of the most robust such programs in the country.
But the pressure by the state and utilities to change retail-rate net metering has stayed relentless, with several years of standoffs in the legislature, disputed studies, blown deadlines and a solar industry that has managed to persevere despite all kinds of uncertainties.
The battle over net metering moved to PURA. The plan that has emerged seems to show it is being considered a component of the larger effort underway there to modernize grid systems, overhaul how utilities do business in the state and meet Gov. Ned Lamont’s executive order to have a zero-carbon electric grid by 2040. That order is expected to be put in statute this session.
Pretty much everyone credits PURA Chair Marissa Gillett, approaching the two-year mark of her tenure, with coming up with what is being hailed as a creative and forward-thinking solution to a seemingly intractable problem.
PURA said it could not comment on the plan while it is still pending, even to verify its components, which are tough to unravel — including for those used to these sorts of things.
The solutions
Cited as one of the plan’s most creative components is allowing solar purchasers to build systems larger than their current electric needs to accommodate up to two electric vehicle chargers and/or conversion of the home to electric heat. The existing program is supposed to limit system sizes to avoid owners using their solar power to essentially become generators and make money from them.
That does happen, however, and such customers receive reimbursements from the utility once a year under the current setup. That reimbursement provision will end according to the draft plan – which actually offers customers a choice of two plans.
One plan is to stick with retail-rate net metering. And those who already have it will be grandfathered for a period of time. The caveat for new customers who choose net metering is that if they get a system that is larger than they need, instead of collecting from the utility once a year, the excess – calculated on a monthly basis – will rollover indefinitely.
Owners will only be able to collect if they close their utility account – which basically means if they sell their homes. It keeps people from saying they’re going to add EV chargers – but then not doing it to collect money.
The second option is what the industry calls a “tariff.” While it sounds like solar owners would have to pay an additional charge, a “tariff” in solar terms is exactly the opposite. It’s a credit. This system is also often called “buy-all/sell-all.”
Here’s how it works. Solar system owners sell all their power to the grid and buy back what they need at the retail rate, which will change a couple of times a year, the way it does now.
But the price at which solar system owners sell power to the grid would be at a rate set by PURA when the customer’s system becomes operational. It will be locked in for 20 years. That sales rate is the tariff. It’s what the utility pays the customer, and it will most likely be less than the retail rate.
PURA will actually adjust the sale rate once a year, but that’s only for new customers. Those who qualify as a low-income customer or live in an at-risk area will be paid a little extra under PURA’s plan.
“It’s a win for equity,” Garcia said. “From the Green Bank perspective – the plan results in things important to the future of the market.”
He noted that the larger grid modernization efforts underway now – many of which rely on the electrification of services such as EVs and are building towards adding battery storage to solar systems — will be easier to layer onto PURA’s plan.
“Those are big structural decisions,” he said.
McLean at Acadia called that approach thoughtful. “They’re taking into consideration how does this work in conjunction with the rest of the goals we have in the state as well as with renewables and climate,” she said.
“It allows PURA to pull all the levers to make sure everything lines up,” Avangrid’s McDonnell said.
Other changes
The utilities will take over running the residential solar program, and the Green Bank would be out of the solar business, other than providing loans if needed, according to the plan. And it would mean an end to any incentives from the Bank to help pay for solar systems. The federal tax credit for solar is still in place, though the Trump administration had started to scale back from its historic 30%. It is now 26%, but it’s unknown what the Biden administration may do.
The Green Bank would assist with the transition, and PURA is retaining some key elements the Green Bank put in place. One is the requirement for a Home Energy Solutions, or HES audit prior to approving the solar system.
A HES audit looks at the energy efficiency profile of a home. That helps ensure the solar system is properly sized and efficient. It also helps maintain the energy efficiency companies and jobs that grew up around the audit system.
PURA also is requiring that there be no less than 50 megawatts of residential solar installed yearly – roughly what the Green Bank was doing.
“Cheers to Chair Gillett’s wisdom and understanding about what Connecticut needs to reimagine its energy stance, which I think had been missing in the past,” said Brendan Sharkey, former speaker of the Connecticut House of Representatives, who has worked in the energy sector and lobbies on behalf of one solar company.
The Department of Energy and Environmental Protection, which is where the push to reform net metering started several years ago, was still reviewing the draft, but overall was said to be pleased with its direction.
Commissioner Katie Dykes said in a statement that the draft plan’s levels of solar deployment and focus on low income populations would help meet administration goals.
“We look forward to working through the details of the draft decision and continuing to participate in the PURA process to identify any refinements DEEP might recommend,” the statement said, without indicating what those refinements might be.
The new solar model is slated to start Jan. 1, 2022. The first tariff rate won’t be set until just before then so it can better reflect whatever other conditions may exist, such as higher or lower federal tax credits. But a calculation in a footnote that seems to provide an indication of what a rate might be if it were to be set now is generous enough to make stakeholders think it will not scare off homeowners.
While none of this requires legislative approval, an open question is whether to extend the existing RSIP program until the new one is operative. That would need legislative action.
And unlike earlier proposals, it should be simpler for both homeowners and contractors, said Mike Trahan, executive director of Solar Connecticut. “The new program has to be explainable by the contractors,” he said. “Customers have to understand what they’re getting. It has to be plain and simple.”
Davis at Eversource said the plan was very thorough. “I’m really excited to move forward with this.”