Massachusetts State Senator Benjamin Downing probably knows as much as anyone in the legislature about the battle between the electrical utilities and the solar industry. The Pittsfield Democrat is Chairman of the Joint Committee on Telecommunications, Utilities, and Energy. He is also a member of the Net Metering and Solar Task Force, which includes representatives from the state legislature, the Department of Energy Resources (DOER), Massachusetts utilities, and the solar industry, and is charged with making recommendations for comprehensive solar policy changes by the end of March, 2015.
Downing, who is a strong advocate for solar and other distributed generation (DG) solutions, such as wind, nevertheless supports some of the changes to the current Massachusetts solar regulations that the utilities would like to see. The utilities think it is only fair that their solar customers who remain connected to the utility grid pay a minimum charge on their bills, also referred to as a grid-connection fee, because these grid-tied customers are still using the grid and should pay their fair share of grid-maintenance costs. After all, the utilities argue, solar customers go back on the grid when the sun goes down, or when their solar generation does not meet their electrical needs. These customers also sell their excess solar power over the grid to the utility, a process called net-metering. Utilities in 44 states are mandated by law to reimburse solar customers for their net-metered electricity at the full retail rate, which the utilities strongly object to, contending that the wholesale rate (the rate the utilities themselves pay for electricity from other utilities) would be more fair.
David Owens, a vice president of the Edison Electric Institute, the trade association of investor-owned utilities, stated in a recent NPR interview, if customers “want to put on rooftop solar, that is their right. And we think it’s a great technology. What we are arguing for is fairness in paying for the grid.”
Commenting by phone interview about the minimum bill and net-metering rate issues, Downing said, “I don’t have a philosophical opposition to either of those….the minimum bill I understand: to recognize the service provided by the utility company, without which the distributed generation model would be impossible.” Downing emphasized that his support for a minimum bill and for lowering the net-metering rates are contingent upon a larger package of pro-solar reforms, including the elimination of net-metering caps (the percentage of solar power generation that is reimbursable) currently in place for larger solar installations.
Asked about reforms to Massachusetts solar regulations, Jake Navarro, a spokesman for National Grid, said by email, “National Grid supports solar and other forms of renewable energy… Now is the appropriate time to create a balanced approach, since the subsidies sustaining these programs are currently higher than necessary to continue the growth of solar power, and customers without solar are footing a large part of the cost.”
Mike Durand, a spokesman for NStar, gave a more measured response by email: “NSTAR is always mindful about the effect programs such as this have on the prices our customers pay for electricity, so we’re closely watching these proceedings.”
Downing commented, “The utility companies in Massachusetts have not taken the tack that utilities in other states have taken, which is to fight, tooth & nail, against any expansion of renewables. So, they deserve credit for that.”
By contrast, the three major utilities in Florida (the “Sunshine State”) lobbied hard against the existing solar regulations. Their efforts resulted in a Public Service Commission 3-2 decision on November 29, 2014 to, according to the Tampa Bay Times, “gut Florida’s energy-efficiency goals by more than 90 percent and to terminate solar rebate programs by the end of 2015, giving the investor-owned utilities virtually everything they wanted.” Stephen Smith, executive director of the Southern Alliance for Clean Energy, reacted strongly to the Florida decision: “It’s completely inconsistent with what the other states are doing… We believe there may have been laws broken today by not setting goals.”
For almost 100 years, the traditional electrical utilities have functioned as regulated monopolies, generating electricity from centralized coal, natural gas, nuclear and hydroelectric power plants and distributing that electricity to often-distant service areas over transmission lines (the grid), with each state establishing the regulatory policies governing those utilities. But this centralized monopolistic business model is now threatened by the rapid growth of distributed energy resources (DER), comprised of smaller-scale, localized methods of energy generation, including solar, wind, geothermal, and biomass.
Solar power production in the United States is growing exponentially, up an astounding 139,000 percent in the last decade. The precipitous drop in solar hardware costs and generous financial incentives to go solar have fueled this growth. The regulatory environment makes Massachusetts one of the most solar-friendly states in the country, which currently ranks fifth in total installed solar capacity (678 megawatts). California is by far number one, with 8,544 MW of solar capacity, enough to power 1,897,300 homes.
According to an October 26, 2014 Deutsche Bank report, by 2016, solar electricity will be as cheap or cheaper than average electricity-bill prices in 47 U.S. states. This cost equivalency is referred to as grid parity, and assumes that the U.S. maintains its 30 percent tax credit on system costs, which is set to expire in 2016. Even if the tax credit is reduced to 10 percent, the report predicts that 36 states will still reach grid parity by 2016. So, from a purely economic standpoint, within two years, most American homeowners and businesses will have no reason not to install solar. The fact that solar energy is environmentally friendly may also help persuade many to go solar.
A January, 2013 policy paper from the Edison Electric Institute, the trade association of investor-owned utilities, sounded ominous warnings of “disruptive challenges” posed by the rapid growth of distributed generation, resulting in “irreparable damages to revenues and growth prospects” of the utilities.
In a move that sent shockwaves through the utility industry, in May, 2014, Barclays, a major global financial services provider, downgraded the high-grade bond market for the entire electric utility sector because “we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo.” Commenting on this downgrade, energy consultant Elias Hinckley warns, “This a sophisticated bank not just acknowledging coming changes to the utility model, but pointing to the risks that have given rise to the idea of the utility death spiral and determining them to be a clear and present danger.”
The term “utility death spiral” was first used by Wall Street Journal journalist Liam Denning in his now-famous December 22, 2013 article, “Lights Flicker for Utilities.” The article begins, “What if the stock market’s safest sector was doomed? Utilities seem indispensable. Yet suddenly there is talk on Wall Street of a looming ‘death spiral’ for the business, with solar power being the culprit.”
The death-spiral argument goes: solar is rapidly stealing away the utilities’ customers (government, business and residential), leaving behind fewer customers to pay for grid improvements and maintenance. Utilities are therefore forced to raise rates to cover their expenses, which convinces even more customers to go solar. Hence, a hopeless, dismal spiral downwards for the utilities into irrelevancy. The term “utility death spiral” has been endlessly thrown about in regulatory debates and in financial and environmental articles and discussions, as a quick google search will attest.
However, the November 4, 2014 Moody’s Investor Service newsletter, entitled “Warnings of a utility ‘death spiral’ from distributed generation premature,” disputes the idea of a death spiral, contending that “the electric grid is a critical piece of infrastructure, and its value could be even greater in the future. Consequently, we believe utilities will continue to receive reasonable regulatory treatment.” The report predicts that each state will pass regulatory protections for the utilities, preventing their decline, because the utilities are just too important to be allowed to fail.
Charlie Coggeshall, Renewable Energy Manager at the Southern Alliance for Clean Energy, believes that the utilities must continue to exist, for one practical reason: “It’s not like everybody in the country could go solar, only 25 percent on average. In fact, the majority of the country probably couldn’t put solar on their roof. So, there’s always going to be a need for some central power source,” he said by phone interview.
Senator Downing strongly avoids any talk of the utilities being on a death spiral. “If you’re someone who believes solar has a huge role to play in the future, as I do, then the words ‘utility death spiral’ shouldn’t come out of your mouth…because the success of solar and distributed generation is contingent on having a healthy and well-maintained and well-operated grid to be able to make the whole thing work.”
Former Energy Secretary and Nobel Prize winning physicist Steven Chu believes the electrical utilities can avoid a death spiral by not fighting the rapid growth of solar, but by becoming large-scale solar providers themselves. Speaking at the University of Chicago in February, 2014, Chu said, “I’m telling utility companies, this is coming down the line, so let’s think of a new business model where you can profit from this.” His solution involves having the utilities purchase large quantities of solar panels and battery back-up systems and allowing private solar installers to do the actual roof-top installations. The utilities retain ownership of the solar systems and sell the solar power to the customer at a much lower rate. Utility companies, meanwhile, would benefit from a distributed network of panels and batteries “where they need it the most, at the end of the distribution system, for grid stability.”
National Grid announced just yesterday one of the largest solar build-outs in Massachusetts history, involving 19 sites and over 50,000 solar panels, generating 16 megawatts, enough to supply 3,200 homes. These large solar installations will be non-residential, many built on brownfields on both public and private land. Utilities in Massachusetts are allowed to own solar facilities that can generate a combined 50 megawatts of electricity, a provision under the Green Communities Act, passed by the state legislature in 2008.
With a new Republican administration set to take office in a few weeks, Downing remains optimistic. “I’m fairly confident…that Governor-elect Baker will continue with the policies that Governor Patrick has put in place….If we did nothing, there would be a death spiral, but nothing isn’t a solution, and utilities dying on the vine doesn’t get us to a place where we can solve climate change. And, really, that’s what this is all about.”