NRRI 13-07-State-and-Utility-Solar-Energy-Programs

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The U.S. solar electricity industry is growing. In some jurisdictions, solar installations are
thriving. A few jurisdictions are already approaching solar grid parity, which means solar electric
power can be produced and delivered at prices equal to or lower than power generated from
traditional fuel resources. That is especially true in a few markets where high electricity prices,
combined with generous financial incentive policies, result in solar investment opportunities with
reasonably rapid paybacks and increasingly competitive rates of return on investment. Full grid
parity is sometimes defined to mean that solar electricity prices, without any special financial
incentives, are matching traditional resource prices, but all energy markets are complicated by
policies that influence prices. Pragmatically, many investors act as if grid parity exists when
solar energy investments achieve an attractive return within a reasonable time frame.
In any case, solar power policies designed and implemented many years ago might not be
ideal for larger, gradually maturing markets in the present or future. In the initial stages, policy
makers probably implemented some programs specifically because solar power was
uneconomical or only marginally economical: Solar therefore needed a boost to help meet policy
objectives for diversifying energy supplies and increasing the use of this indigenous renewable
energy resource. Most U.S. States enacted multiple policies supporting solar energy. The most
commonly adopted policies include net metering, solar-access property rights, special financing
and loan programs, direct cash incentives, and renewable energy portfolio standards or goals.
Although the majority of states have enacted at least a few of these policies, solar electricity
production still remains very small in all but a few jurisdictions.
Now, however, solar installations are proving economical in some markets, given the
continuing improvements in solar energy conversion technologies and economies in
manufacturing and system design and installation, coupled with the array of existing financial
incentives and other supporting policies. This shift leads some observers to recommend reducing
or eliminating solar incentives and rolling back other supporting policies. In particular, some
utilities allege that net metering allows participating customers to use the electric grid system
without paying their fair share of costs and results in cross-subsidies from non-participating to
participating customers. Some observers also claim that existing state and federal solar
incentives might now be too generous.
An alternative viewpoint held by some solar advocates is that utilities, fearing sales losses
to self-generation at the same time sales growth has stalled due to other reasons, are exaggerating
the costs and other potential problems that might be associated with net metering.
Multiple researchers are trying to assess accurately the full spectrum of costs and benefits
associated with increasing solar power generation and with net metering in particular. Some
analyses show positive net benefits from net metering in several states, thus reflecting crosssubsidies
in the opposite direction, from participating to non-participating customers. Some
observers point out that addressing these issues now is not particularly important, given the low
rates of existing net metering participation in most jurisdictions, the general simplicity and
relatively low cost of net metering program administration, and program caps that effectively
limit the amounts of any lost sales and cross-subsidies that might exist.

At least some solar advocates fear that policymakers might overreact to perceived
problems associated with current policies, in ways that will ultimately thwart progress just now
appearing on the horizon after decades of concerted efforts to initiate viable solar power markets.
From that perspective, policymakers should consider reducing or removing supporting policies
only when it can be demonstrated that the solar industry can readily compete without them. As
previous energy policy changes have sometimes demonstrated, removing supporting policies
prematurely can result in major disruptions. However, many states are considering legislative or
regulatory changes already, whether to address utility concerns or to expand existing or introduce
new solar energy opportunities. In any case, policymakers ought to consider refining or replacing
existing policies whenever it becomes clear that improved approaches can achieve the same or
better results at lower cost and with fewer negative side effects.
This paper explores the different policies used to promote solar energy with a primary
emphasis on net metering. Included is a timeline showing the year that net metering was adopted,
by state, along with the years that major amendments were made and the general subjects of
those amendments. Also included is a table of state and U.S. territory net metering and other
solar incentive policies, highlighting major similarities and differences in these policies.
The paper also offers some ideas about how existing policies might best be reviewed and
then adjusted, if revisions are needed. The major question explored in this paper is whether and
how policies might best be adjusted, when necessary, to reflect maturing and expanding markets
for solar energy, so that state policy objectives or requirements can be met at the lowest practical
cost while minimizing or avoiding altogether any unintended negative side effects.
Four recommendations are provided for policymakers that are considering changes to
existing state solar energy policy supports:
(A) To proceed with caution and on the basis of thorough analysis when revising solar
energy policies;
(B) To model and consider establishing specific Public Utilities Regulatory Policy
Act (PURPA) avoided cost rates for solar or for all distributed generation,
depending on the state’s other existing solar energy policies;
(C) To continue growing the solar industry by maintaining and further developing
programs that leverage voluntary contributions and non-ratepayer funding; and
(D) To consider changes in public utility regulatory incentives to better accommodate
increasing reliance on distributed energy resources.