Utility Proposal for Solar Procurement Won’t Work

By Cynthia A. Arcate 20 February, 2014

Recently, the two largest utilities in Massachusetts – Northeast Utilities and National Grid – have become very vocal about the risk of increased costs for consumers from the well-established and successful solar program enacted by the Legislature and administered by the Patrick Administration.

As a consequence of their newly found concern for the ratepayer, the utilities have proposed that the entire solar development regime in the state be replaced with a utility procurement long term contract model, eliminating financial incentives and shutting down the current robust competitive market for development. They claim, but have little proof, that this approach will result in lower costs to consumers. The recent benevolent canary in the coal mine persona of the utilities is late to the game and their proposed solution won’t work.

When the PowerOptions solar program was launched over three years ago, we received 15 proposals to our competitive solicitation. Since then, we have over 23 MWs of projects under contract with non-profit organizations and government entities across the state. These projects are both behind the meter (physically offsetting the customer’s usage) and utility scale net metering credit type projects (where the customer purchases the output of a remotely located project and gets a credit on their bill.)

These projects will provide those PowerOptions member-institutions with substantial savings on their electricity costs, allowing them to reinvest those savings into their respective missions. The 1,600 low-income families of several housing authorities taking part in the PowerOptions program are examples of the direct beneficiaries of the current structure of the Commonwealth’s solar program. In each instance, the customer had other options to pursue but  the competitiveness of the PowerOptions program, including very favorable terms and conditions in the customer-friendly Purchased Power Agreement (PPA), won out. This customer choice is eliminated in the proposed utility approach.

The solar development market today in Massachusetts is robust. So why do these utilities, which have relatively little experience with solicitation of solar projects, think they can do it better? What evidence do they have that their regime will result in low costs for solar energy? Very little. Indeed, putting aside the costs, it won’t work.

The utilities’ lack of understanding of the market is evidenced by the fact they are offering their proposal and how it is structured. The essence of how behind the meter solar gets developed is not just the financial incentives to the developer but the financial incentive to the property owner. It’s the willingness of property owners to allow a developer to build on their property and tie it up for 20 years that make development happen. The value of using the property in this fashion is reflected in the PPA pricing.

Under the utility procurement model, the property owner is taken out of the equation. The value of using the property becomes monetized in a lease payment to the property owner. That cost will be substantially higher if the customer gets no electricity related benefit from the project. Consequently the cost of the project will increase. This is a commonly understood dynamic in the solar world which the utilities proposal does not recognize.

To be sure, this may not be the case for utility-large scale projects, where the electricity buyer is often not the property owner. But the problem with the utility proposal is that it is picking winners and losers at a snapshot point in time. It is far better to have the market constantly at work with a myriad of developers and potential subscribers than to have all of the focus on a couple of periodic large scale solicitations. The utility approach removes the very essence of what has made the Massachusetts solar approach so successful to date.

Just as important to keep in mind, is that the state’s current approach has spurred a revolution of alternative resources at all levels of consumption – from the very biggest consumers to the smallest residential. This is the future. The utility procurement model is a throwback from the old days when utilities thought they could do it all and better. That’s no longer the case.

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