Growing Solar Power the Right Way

A state’s guide to solar policies that’s fair to all consumers

The costs for solar power are falling fast and more states are considering ways to incorporate residential rooftop solar as a big part of their regional energy plan. Growing the rooftop solar market requires decisions about how solar customers are treated in the broader utility system, what impact they have in cost-savings for others on the grid and future investments in infrastructure.

As policymakers and utility regulators mull these issues over, it’s important they recognize that not all solar policies are created equal. Finding a balance that maximizes solar growth, while treating all customers fairly, is key to effectively harnessing the renewable power of solar across the U.S.

Thankfully, a new report from Consumers Union and Synapse Energy Economics is available that helps provide a framework for states to better understand how various solar policies can impact solar growth and solar and non-solar customers alike.

The report lays out three critical questions that local communities and policymakers need to understand in order to develop effective policies:

● How will the policy affect the growth of distributed solar?

● How cost-effective are distributed solar resources?

● To what extent does the policy mitigate or exacerbate any cost shifting to non-solar customers?

In Show Me the Numbers: A Framework for Balanced Distributed Solar Policies, decisionmakers are walked through a series of analyses that answer the three questions above and provide a comprehensive, balanced understanding of the impact of different solar policies.

Growing Solar

Solar energy is a clean, renewable source for power and is an essential to developing a 21st century economy that meets our nation’s broader environmental goals. So it’s important to set policies that encourage the adoption of residential solar power.

One useful metric for understanding how likely it is it for solar to grow is the customer payback period — that is, how long it will take for customers to recoup the costs of installing solar panels. In general, short payback periods encourage faster adoption, while longer payback periods slow down growth.

Figure 1 Solar Policy and the Impact on Customer Payback Periods

There are a number of factors to consider when calculating the solar payback period including the average current bill, the upfront costs of installing solar panels, on-going system costs, and savings from solar. Knowing this can help states estimate how to changes in policy might affect how many residents will switch to solar power. For example, offering low-interest loans to help lower the costs of installing rooftop panels would shorten the overall payback period and would likely increase the number of residents who opt for solar.

A Holistic Look at the Cost-Effectiveness of Solar

There are a number of ways to understand the cost effectiveness of solar and each method has its strengths and weakness. The five tests covered in the report include: the Utility Cost Test, the Total Resource Cost test, the Societal Cost Test, the Rate Impact Measure Test and the Participant Cost Test.

Figure 2 Social Cost Test — the Broadest Look at Cost-Effectiveness of Solar

Each test provides a different perspective on cost and benefits. For example, the Utility Cost test is the most basic look at how distributed solar affects all customers as a whole and is widely used for energy resource planning. The Total Resource Costs test attempts to analyze the impact on solar customers and the utility system, but it often falls short of gathering the full impact for solar customers. The societal cost test takes the most comprehensive look at the impact on the customers as well as broader energy policy goals, like promoting local jobs and economic development and reducing environmental impacts. The figure above is an example of the societal cost test.

Is Cost-Shifting Inevitable?

No, but understanding the impact on non-solar customers is critical to designing an equitable program. Certain solar policies can cause electric bills to increase or decrease, depending on many factors, including load growth and utility cost forecasts. Assessing both the long-term and short-term rate impacts will help policymakers craft policies that are fair to all residents.

Figure 3 The Effect of Avoided Costs on Utility Bills

The chart above gives a hypothetical example of how increasing solar energy can either raise or lower rates. On the left, utility rates go up because the utility is paying solar customers more for power than they would otherwise spend to generate that amount of power.. However, in the scenario on the right, an increase in solar customers allows utilities to lower its costs for power generation, which results in lower utility bills for all customers. This example shows how critical it is to have an accurate estimate of a utility’s avoided costs, because that value may determine whether non-solar customers are likely to see a rate increase or decrease..

Good Policy Leads to Good Future

As we look to a clean energy future, policymakers should adopt a comprehensive process for assessing solar policies and rate design. Using this framework will help states embrace clean energy solutions to meet their energy needs in a transparent, data-driven process.

The findings from this report will also be presented at the 128th Annual Meeting of the National Association of Regulatory Utility Commissioners (NARUC) in La Quinta, CA on November 13.