By Jim Kennerly
PV Solar Report guest contributor
Having grown up in Texas, I can tell you that Texans can lay claim to a proud and unique history. One of the most stirring and vivid chapters of Texas history is the siege at the Alamo, which took place in present-day San Antonio, Texas. Outnumbered by more than 10 to 1, the “Texians” fought a pitched battle with General Santa Anna and the Mexican army, and were simply overrun. While the Texans went on to claim their independence, fighting the Battle of the Alamo cost Texas some of its most promising young leaders, including William B. Travis, Jim Bowie, and Davy Crockett.
As a former Texan, and someone who follows the many state-level solar policy skirmishes, one striking parallel to the Battle of the Alamo seems to shine through. In short. it looks increasingly as if solar’s declining costs and growing customer demand for greater control over their utility bills now have a momentum all their own – and fighting them represents another doomed struggle against inevitability.
Ironically, one of the emerging examples of such a struggle is CPS Energy, San Antonio’s large (and, not infrequently, quite forward-thinking) city-owned electric utility.
CPS Energy’s proposals to restructure solar payments
In recent years, CPS Energy has made two formal attempts to change its approach to solar PV in its service territory, all of which have thus far been abandoned.
In April 2013, CPS first offered its “SunCredit” program for consideration. The SunCredit proposal was twofold: it ended net energy metering in its service territory, replacing it with a “value of solar” tariff that valued few of solar’s benefits, and required customers to sell all their energy back to CPS Energy. After the proposal was criticized by the solar industry and San Antonio’s elected leaders, CPS withdrew it. In 2014, CPS then chose to apply a fixed fee per kW of solar PV capacity, a route favored by Arizona Public Service, Rocky Mountain Power, We Energies, and a variety of other utilities. Just recently, though, CPS withdrew it once again, citing the uncertainty associated with San Antonio Mayor Julian Castro’s departure to join the Obama Administration.
Finally, CPS indicated that it would develop a (familiar-sounding, by now) third approach: it may end net metering by the end of 2015, in exchange for offering a pilot program capped at 1 to 3 MW total, in which customers cannot own their system, or their solar energy onsite. (Net metering is guaranteed to continue only through 2015, and CPS says they want an “alternative” to the program.) As one installer put it to Solar San Antonio, “the only DG solar that would be deployed is that for which the utility has issued an RFP.”
Understanding the CPS process: Adapting a top-down mindset to a bottom-up economy
While I confess I am not deeply familiar with happenings on the ground in San Antonio, it is fairly clear that much of the trial and error that CPS is going through is related not to the specifics of their proposals, but to a particular mindset. More specifically, there appears to be a mismatch between how customers are beginning to think and act about their energy future, and about how utilities like CPS Energy view that relationship with their own customers.
In the 1950s and 1960s, the dominant view of how to govern our nation could be traced in part to central economic and social planning. Much like our economy and society of that time, this approach reflected the view that those at the top – David Halberstam once called them “The Best and the Brightest” – knew better than citizens (and customers) what was best for them and their lives.
However, advances in technology and our society since the 1950s and 1960s have allowed us to build a more collaborative economy. Instead of top-down planning that emphasizes avoidance of risk and uncertainty, our present-day economy is, fundamentally, more service-based, consumer-centered, and “bottom-up.” As the famed economist Joseph Schumpeter explained, economies that are supplemented by governments that make targeted interventions in the marketplace spur competition and innovation, and lead to an appropriate amount of “creative destruction” of investments that no longer add value. Indeed, the process of “creative destruction” is why we have a high technology industry in the first place. The innovation and cost reduction for solar PV and other distributed energy technologies is but one of thousands of examples of “creative destruction” in the energy space.
Despite all this, utilities and their regulators still use the older-style top-down process (called integrated resource planning, or IRP) to evaluate most, if not all, utility investments, and the process tends to be limited to those who have resources to participate in the regulatory process. Once investment decisions are initially made through the IRP process, the costs of those investments tend to be passed on to utility customers. What’s more, despite the fact that nearly 70% of residential customers are demanding more ways to mitigate their utility bills, a critical mass of utilities tend, like CPS, try to skirt the issue by continuing to insist on placing themselves and their investments at the center of their customers’ world, with no one else.
Of course, once these massive, macro-scale assets are built, utilities have a significant incentive to do whatever is necessary to protect their own investments even if they turn out to be too costly, more expensive than an alternative investment, or otherwise imprudent. This is the heart of the common utility argument about the intolerability of “cost shifting” (and CPS’s repeated efforts to end net metering) – the unstated fear that these assets will be stranded because of the very innovation and “creative destruction” our economy is built on.
Thus, like CPS Energy’s pilot proposal, almost all utility solar programs have capacity or participation limits, caps, or other devices (like ending net metering) to ensure that the utility remains, once again, at the center of gravity, with ultimate market power.
Accepting and embracing market forces: Solar markets and utility regulation for a “bottom-up” world
Let’s not kid ourselves — electric utilities deserve the broader solar community’s respect and admiration. They have built and served, in large part, the spectacular growth of America’s industrial economy and modern society, and serve as the backbone of the interconnected, collaborative world in which we live. They truly do, as they often say, “keep the lights on.”
That being said, the onset of a two-way utility system driven by distributed energy resources makes the job of planning our power system one that must be transparent, accountable, and most of all, shared. Indeed, all of this is why New York has engaged in the Reforming the Energy Vision process – they do not want only one, narrow vision of the “utility of the future.” Indeed, New York’s regulators have a broad vision: a distributed energy platform, but one in which both the utilities and the clean energy industries share market power and compete, to the benefit of customers.
Later this year, our team at the NC Clean Energy Technology Center at NC State University will produce a short report on how utilities can effectively own, operate, and engage in the rooftop solar PV market in a way that reflects and respects today’s bottom-up economy. The report’s findings will be based on our exploration of emerging solar technology – friendly best practices.
It is clear that America’s states can match their energy markets and utility regulation to the world in which we live. Indeed, all stakeholders have much to gain from reform, and from abandoning the costly defense of an unraveling status quo.
Jim Kennerly is a senior policy analyst at the NC Clean Energy Technology Center at NC State University, where he works on the Department of Energy’s SunShot Solar Outreach Partnership (SolarOPs) and the Database of State Incentives for Renewables and Efficiency (DSIRE). He will present at Solar Power International 2014 on how minimum bills, time of use pricing and decoupling can allow states to raise net metering caps.
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