Solar energy is no longer in its infancy, but the industry is refusing to grow up. See the tantrum the government-funded industry is throwing at Nevada’s rollback of its net-metering subsidy.
Last week the Nevada Public Utilities Commission voted to sunset the state’s net metering program, which compensates customers who remit excess solar power generated from their rooftop panels at the retail rate of power. The retail price is about two times higher than wholesale because it also includes transmission, delivery and grid maintenance costs.
More than 40 states have net-metering programs. The principal beneficiaries have been solar-leasing companies like SolarCity and SunRun, which install solar panels at no upfront cost to customers, pocket the sundry government subsidies, and then rent the panels at rates that typically escalate by about 3% annually but are initially lower than power from the grid. Homeowners can shave 20% from electric bills.
Sounds like a great deal—but there’s no free green lunch, and non-solar utility customers must underwrite this hidden subsidy. Nevada’s utility commission estimate that non-solar ratepayers—who tend to be lower income—subsidize each solar user in southern Nevada to the tune of $623 per year. Most of this flows to solar-leasing company investors such as J.P. Morgan Chase, Goldman Sachs and Citigroup.
In short, net metering is regressive political income redistribution in support of a putatively progressive cause. Several states including Hawaii, Arizona and California have recently proposed changing their net-metering policies to reduce the cost shift. In October the Hawaii Public Utilities Commission cut by roughly half the rate paid to new solar customers after finding that the subsidy was unnecessary to encourage solar adoption.
Nevada’s regulators went even further by slashing payments to existing solar customers from retail to the wholesale rate and raising their fixed charge for using the grid. Solar can strain the grid because the sun doesn’t shine all the time.
You’d think the solar companies would be grateful for the subsidies they still receive, accept the policy change and move on. But SolarCity reacted by announcing that it would cease sales and installations in the state. CEO Lyndon Rive griped that “the Nevada government encouraged these people to go solar with financial incentives and pro-solar policies, and now the same government is punishing them for their decision with new costs they couldn’t have foreseen.”
The solar lobby, which intends to challenge the commission’s decision in court, has also denounced the retroactive change in policy. But the state has always maintained its prerogative to modify net metering. Solar customers must sign an interconnection agreement with the NV Energy utility stipulating that “the Public Utilities Commission of Nevada (‘Commission’) or the Utility may amend its tariffs upon Commission approval.”
SolarCity’s financial statements have long acknowledged this regulatory risk to investors. “Our ability to sell solar energy systems and the electricity they generate may be adversely impacted by” changes in net-metering policies including “reductions in the amount or value of credit that customers receive through net metering,” the company’s third quarter 10-Q notes.
Most current solar customers won’t even be affected unless solar-leasing companies jack up their rates to bail out their investors. One lesson is that corporate welfare encourages dependency and entitlement that’s difficult to break. The 30% federal investment tax credit for solar began in 2006 with a two-year sunset. Congress recently extended the subsidy through 2021 in its year-end budget.
Nevada’s three public utility commissioners and Governor Brian Sandoval deserve credit for attempting to wean the overgrown solar babies. As the Governor stated, “Nevada has provided tremendous support to the solar industry” but the government must ensure that “families who consume traditional energy sources are not paying more just to finance the rooftop solar marketplace.” Lawmakers everywhere, please take note.