What's a Kilowatt of Solar Worth?

By Patrick Sullivan | March 18, 2017

Concerned about the future of solar in Michigan? A new state law passed late in 2016 could significantly change the terms under which solar panel owners connect to the grid.

New Terms, New Arguments
The law, which consists of Senate Bills 437 and 438, was celebrated by some environmentalists because it increases Michigan’s renewable energy standard from 10 percent to 15 percent while preserving net metering, the mechanism through which utilities pay solar owners for excess energy they produce and put back on the grid.

But critics worry the language of the bill could cause the net metering rate paid to solar producers to be slashed from the retail rate customers pay per kilowatt of electricity by about half, to the wholesale rate.

Utilities argue that solar panel owners have gotten a free ride and have been taking advantage of the grid without paying their share of the cost to develop and maintain it.

On the other hand, solar advocates note a growing number of studies that show the benefits solar generators offer utilities are worth more than even the retail rate. Even setting aside carbon and clean air benefits, solar represents electricity production that strengthens the energy grid by spreading out generation and making the grid less susceptible to disruption, in part because solar is produced at peak times when energy demand is at its highest. On top of that, solar reduces demand for traditionally–produced electricity, so as solar grows, it lowers everyone’s energy costs.

Utility operators don’t agree. Increasingly, utilities view home–based solar systems as a threat because as solar takes up a larger percentage of their customer base, utilities have fewer paying customers. They say that unless solar producers are required to pay some kind of fee to access the grid, other ratepayers are subsidizing them.

This debate in Michigan officially begins Mar. 22, when the Michigan Public Service Commission (MPSC) holds its first meeting among stakeholders to talk about how to implement the new law. How it all shakes out will affect how much new renewable energy is installed in the state.

Price of a Solar Kilowatt
One person who makes the case that a greater value needs to be put on solar energy is Skip Pruss, Northport resident, former Granholm administration official and senior fellow at 5 Lakes Energy, a clean energy consultancy.

Pruss says we need to decide whether kilowatts of solar are worth the wholesale rate for the cheapest electricity derived from fossil fuels or if solar’s value should be much higher and take into account its practical and environmental value.

Around the country, solar is looked at in wildly different ways. The public utility commission in Nevada, for example, determined solar’s worth to be 3.5 cents per kW in 2013; in Maine in 2015, solar was valued at 33 cents per kW.

Michigan’s utilities have been pushing for a low valuation of solar. Pruss said the decision by the MPSC on what the solar tariff should be for small–scale solar generators will determine what message Michigan wants to send on solar.

“The leading states are going full bore on this, so we are definitely not leaders in Michigan, definitely not,” he said. “We are more like the proverbial caboose on the train.”

Pruss said rather than debating a retail versus wholesale rate, the state should try to determine how much more than the retail rate solar is worth.

“If they accurately do the analysis and take into account all the benefits and grid services solar energy provides, then it’s conceivable the Michigan Public Service Commission or the municipal utilities could come out with a tariff for solar energy that’s even greater than the rate for electricity today,” Pruss said.

There are 41 municipal utilities in Michigan. They are independent from the MPSC, so they can make their own policies. For this reason, they might represent the best chance for setting a priority for solar in the state, Pruss said. Traverse City Light & Power, for example, still offers true net metering.

As things stands, Pruss explained, consumers in Michigan are getting mixed signals about solar just as the technology is making it an increasingly attractive investment. “Because we don’t know where the MPSC is going to come out on all this, that’s the uncertainty – the tariff could actually be very good for consumers or it could be really quite bad,” he said. “That uncertainty is certainly a disincentive to establish a robust solar market, and that’s unfortunate.”

Legislated Uncertainty
Tom Gallery, an installer and owner of Leelanau Solar, said the legislation includes ambiguous and contradictory language to describe how small solar producers should be treated by the utilities. While Senate Bills 437 and 438 say owners of under 20–kW systems are eligible for true net metering, the bills also say those owners should only be credited for the power they produce. Gallery believes that means the utilities will argue that solar customers should only get a fraction of the retail rate because the portion of the rate that pays for distribution and transmission must be subtracted.

The language is similar to the old law under which the MPSC prescribed retail–rate compensation for excess solar energy, but that doesn’t make Gallery optimistic.

“My contention is, there’s a lot more money at stake now, a lot more money, and they might not be so content to let this go through,” Gallery said. 

Julie Baldwin, manager of the MPSC’s Renewable Energy Section, said the commission will come up with a policy by April of 2018. In the meantime, MPSC will conduct a study to determine what kind of rate to recommend.

“We are planning to conduct a study where we look at the cost to serve a customer with a solar project, and in order to effectively do that, we will have to consider the benefits also,” Baldwin said. “I know that there will be people on all sides of the issue offering input, so I feel that the study should be very useful.”

Meanwhile, at Other Utilities…
The MPSC decision won’t affect electric cooperatives or municipal utilities, which have taken varied approaches to solar producers in recent years.

Rachel Johnson, spokeswoman for Cherryland Electric Cooperative, said Cherryland offers consumers three choices regarding solar power. The cooperative still offers the net metering program, though it pays roughly half what it used to for excess power; it’s expanded its community solar project, enabling customers to buy into a remote solar farm; and it’s created the 10–cent “buy–all, sell–all” program.

“Right now, the feedback we’re getting from our members is that they love how we’re offering three different options, depending on their needs,” Johnson said.

Johnson said solar installers complained about the net metering tariff reduction instituted last year until Cherryland introduced the 10–cent program, which offers people a good deal to install solar on their own properties.

Gallery, a one–time critic of Cherryland’s efforts to cut its net metering program, said the 10–cent incentive is something he can work with. He explained that it’s a pretty good program, especially for larger users, who can afford to build a system to produce excess energy to sell back to Cherryland.

Unlike traditional net metering programs, Cherryland’s new program pays cash for excess electricity. Participants buy all their electricity from the grid at the retail rate, which is between 11 and 12 cents currently. Cherryland pays 10 cents for every kW produced for 20 years.

Traverse City Light & Power Executive Director Timothy Arends said his utility still has plenty of space left in its true retail–rate net metering program, which pays solar owners the retail rate for excess electricity.

Arends believes solar customers do benefit the utility by producing excess electric during times of peak demand, but he said these customers also take advantage of the grid, so he believes the retail rate is a “a bit of a subsidy.”

The Dilemma of the Grid
Under net metering, solar owners, especially in a place like Michigan, use the credits they receive in the summer when they produce 75 percent of their annual electricity to pay their utility bills in the winter, when the hours of sunshine are short.

Tim Johnson built an off–the–grid home in Leelanau County in 1988. As he got older and his life changed, the advantages of the grid proved irresistible. He connected in 2002 but continues to live “net zero,” meaning his home produces as much energy as it uses.

Now, that balance might be in jeopardy.

Johnson moved to Leelanau County’s Centerville Township near Cedar from downstate in 1985 with his first wife because the couple wanted to live in northern Michigan. They bought 20 acres on a hill with a clearing, land that was good for solar and wind energy. In 1988, Johnson cut down trees and built a house. At the time, there was no electricity near his property, and it would have cost a fortune to bring it in.

Those first couple of years, the couple used an icebox – a box cooled by an actual block of ice – instead of a refrigerator. They did have plumbing, hot and cold running water and enough electricity for lights and television.

As the house was nearing completion, Johnson bought a 12–volt Sun Frost refrigerator–freezer, an ultra–efficient appliance he still uses today.

He divorced in 1990 and lived off the grid for a dozen more years until he met his second wife. When she moved in, the couple built a garage and added laundry, and it suddenly made sense to connect to the grid.

Johnson said, “People had built past me, and wire was right there at the road. It was free, so I thought, ‘What the heck?’”

Although Johnson started out determined to be off the grid entirely, he now realizes he needs the grid in order to be “net zero” and not have to run a generator in the winter.

Over the years, since hooking into the grid, Thompson has used the utility (he’s a Consumers Energy customer) like a battery, and the utility has used him like a free energy producer, since it doesn’t have to concern itself with investment or maintenance costs for his electricity production.

“It didn’t cost them anything to put this system in, and any time I have excess, they sell it to my neighbors for [the] retail rate. That seems like a good deal for everyone,” he said. “They never have to pay me anything.”