Arizona Implements Net Metering Charge Amid Continuing Disagreements Over Cost

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In part II of a 2-part series on net metering in Arizona, PV Solar Report Arizona correspondent Carl Haessler looks at recent developments in the state.

Arizona’s decision to charge customers for net energy metering becomes official as of 2014. Policy disputes continue to surround the issue as advocates and opponents alike debate the actual value of energy produced through rooftop PV installations. As Arizona reacts to the implementation of the fee, the solar industry seeks to evaluate the outlook for the coming year.

The first week of 2014 brought continued disagreement over net metering fees between Arizona Public Service Co. and residential solar proponents. As Arizona’s largest utility provider, APS sought to implement pricing strategies intended to offset the loss of revenue from customers who are increasingly turning to rooftop solar to supplement their energy needs. But despite the newly introduced net metering charge, consumer demand for distributed solar generation continues to strengthen. 

The primary point of contention among utility providers, policy makers, and solar advocates is a disagreement about how to define the value of solar energy in terms of billing cost. Net metering still represents only a small share of the overall energy market (0.01% of national energy sales in 2012). But the explosive growth of distributed residential solar, particularly in recent years, has made it a market force that neither utility companies nor policy makers can ignore. Arizona will revisit the net metering issue in 2015, effectively making 2014 a year-long test case for the introduction of the new fee. 

Arizona hosts one of the largest populations of net metering customers in the country, and the pressure to accomodate these customers is twofold. APS and other utility providers are required to meet percentage quotas for renewable and distributed generation. These quotas are set by the Arizona Corporation Commission (the same regulatory body that voted to approve the APS request for a net metering charge). Additionally, third-party financing has displaced the high introductory expenses for middle-class residential customers; this increased accessibility coupled with strong consumer demand has produced a significant proliferation of rooftop PV installations in 2013, and statistics from the latter half of 2013 suggest continued growth in the coming year.  

Fixed costs 

The central complaint of traditional utility providers in Arizona is that the practice of crediting customers for surplus energy at retail value means that fixed costs of grid maintenance will be redistributed to non-solar customers. Their contention is that the loss of revenue from both decreased usage and the payout of net metering credits will unfairly compensate customers who can afford to install rooftop solar.

However, APS already builds fixed costs into the monthly bills of every customer, regardless of usage. For example, customers are charged a Basic Service Fee that ranges from $0.258 per day to $0.773 per day, depending on usage and billing status. Even customers who use zero energy in a given billing cycle will still be charged a base service rate. Additionally, customers can be charged on a per-day basis for services such as meter reading, metering, and billing — all independent of actual energy use.  

Other ways to examine costs

Opponents of distributed solar generation have long decried the high initial costs associated with installing rooftop PV panels. This led to a sterotype that wealthy homeowners, whether for personal or environmental reasons, were able to afford a much higher cost of energy production for themselves, while allowing lower-income households to shoulder more than their share of the bill for the upkeep of a grid that benefitted all users, solar or not.  

However, data from recent years indicates that it is in fact primarily middle-class customers who have provided the driving force behind the rapid growth of rooftop solar in Arizona. The largest growth in PV installations in 2012 came from solidly middle-class households, which suggests that successful marketing strategies and financing arrangements aimed at the middle-income demographic have bolstered the number of potential PV customers.  

While inital installation costs for residential PV are still high, material and technology advances, combined with increasing economies of scale, have driven down the startup price. Perhaps the largest factor in the increased accessibility of residential solar has come in the form of companies such as SunRun that use innovative financing strategies to control up-front costs for middle-class consumers. Under the new APS system, a typical customer can expect anywhere from $5.00 to $10.00 in monthly net metering fees. The attraction to residential solar lies in the potential for cost avoidance, which at present still appears to be greater than the additional fees imposed on the practice.  

Other environmental costs exist in traditional power generation that do not always figure directly into the dialogue surrounding net metering. Arizona is a state with high summer temperatures, low annual rainfall, and a climate very favorable to solar generation. Nuclear generation, for example, is cheap to produce, yet it requires large amounts of water for cooling towers. Arizona produces nearly one-third of its enegry in nuclear plants, yet until recently has generated a negligible amount of its total energy through rooftop PV. The environmental impacts of high water usage in a desert ecology can offset the reduced cost of nuclear production.

Water Usage For Power Generation By Type

 

A lack of dependence on limited water resources for energy generation makes distributed PV solar especially suited to Arizona’s dry, sunny climate. Furthermore, during the peak energy consumption months of late summer, PV panels can be particularly useful to customers seeking to offset the high costs of cooling their homes on hot, sunny days.  

Outlook for net metering

In the short term, the new APS fee for net metering does not appear high enough to prohibit access to rooftop solar for the majority of current and potential customers. The fee will be in place until 2015, at which time the ACC will revisit the issue and possibly update its policy. APS finds itself astride two divergent policy directives: on the one hand, it is required to meet increasing quotas for renewable and distributed generation, while on the other, it has been allowed to charge fees that seemingly de-incentivize the spread of PV solar.  

What is clear is that the Arizona fee will set a precedent for other states that are undergoing similar debates. In a state with one of the largest percentages of distributed PV customers, Arizona consumers and PV professionals will closely monitor the industry’s reaction to the implementation of the net metering charge. Colorado will weigh in this Febuary as it examines its own net metering policy. The outcomes of the net metering debate in these two states will reverberate on a national scale. While the near-term prospectus for residential solar continues to show strong potential, the monetary value of PV-produced energy in the grid will continue to be a subject of debate for the forseeable future. 

Read more about the Arizona decision in part I of this series