Arizona Utility Would Like to Rent Your Rooftop

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Arizona Public Service (APS), often considered a staunch opponent of Arizona’s burgeoning rooftop solar industy, has made a surprising about-face. This week, APS announced its intentions to enter the residential solar market. Under the purview of its solar initiative program AZ Sun, APS plans to install PV panels on up to 3000 residences by 2015. If approved by regulators, this installation project will supplant a proposal for new ground-mount power plant construction and could provide up to 20 MW of energy to the existing grid. APS also intends to compensate residents for the use of their roof space, to the tune of about $30 per month for the next 20 years.

This proposed installation represents a departure from what has been a previously contentious posture toward residential solar. In November of last year, APS won a symbolic legal victory when the Arizona Corporation Commission approved its request to charge solar homeowners a fee for net metering agreements (although the ACC-approved fee was significantly lower than the one APS recommended). The legal wrangling surrounding this issue, complete with a well-funded media campaign, appeared to place APS firmly in the role of traditional utility provider intent on resisting incursions into its monopoly. Barry Goldwater, Jr., leader and spokesman of the solar advocacy group TUSK (Tell Utilities Solar won’t be Killed), decried the attempt to charge solar customers for the energy they produced. “Innovation is happening all around APS,” he said, “and they are sitting there like an elephant in a mud puddle.”

But this latest proposal indicates that APS is not only sensitive to the growing influence of the residential solar market, but also keen to compete for a share of the value. While it has been involved in commercial-scale solar projects in the past, this latest proposal differs in that it seeks to use residential rooftop space as the platform to host its panels. This program also offers the utility provider a share of Renewable Energy Credits that count toward its overall quota. The ACC has mandated that 15% of all electricity generation in the state come from renewable sources such as solar by the year 2025.

APS will hire PV installers through contract bidding, with preference given to local Arizona-based companies. This has caused a division of opinions among residential solar companies; on the one hand, smaller-scale local installers who win bids stand to benefit from a significant increase in production, while advocates for larger out-of-state companies like SolarCity and Sunrun question the fairness of preferential bidding.

The Solar Energy Industries Association (SEIA) expressed doubts about the project, suggesting that APS might use the installation as a “Trojan Horse” to enter the residential PV market and then exert control over it.

Bryan Miller, VP of Public Policy for Sunrun and co-Founder of The Alliance for Solar Choice (TASC), said “We strongly agree with SEIA. This is a clear attempt by APS to assert monopoly control over a competitive market.”

But according to Cory Honeyman, a solar analyst with GTM Research, APS could create a favorable market climate for local installers and provide consumers with benefits that compare favorably to the overall residential PV sector.

“APS has expressed a preference to work with in-state installers, which puts SolarCity and other national players at a disadvantage as potential partners with APS in this program. But by offering a $30 monthly credit to solar customers, the AZ Sun’s value proposition is a competitive offering compared to monthly lease terms offered by leading installers active in AZ,” said Honeyman.

This latest proposal represents a shift in strategy for APS. While in 2013, the primary focus was securing approval from the ACC to extract a net metering fee from residential solar customers, this year the focus seems to be on incorporating more and more of the growing rooftop PV market into the overall power production strategy. APS claims it can effectively serve as a grid manager, and provide state-of-the-art inverters and organized management of distributed energy sources. Furthermore, the lack of installation costs to consumers means that residents who are unable to buy or lease their own solar equipment could still see a portion of the cost-avoidance that rooftop PV provides.

But while policy mandates mean that rooftop solar will figure more prominently into the energy production strategies of large utility providers such as APS, the extent to which it can replace conventional power plants in the generation portfolio of a macrogrid provider is limited under the current setup. Solar’s intermittent nature makes it useful for providing a boost during peak demand times, but at present the APS grid still relies largely on conventional power generation. While ever-improving battery storage technology allows individual solar homeowners to collect and use PV-produced energy much more efficiently, the establishment of a battery storage system at the macrogrid scale currently remains outside the capabilites of the AZ Sun program.

Distributed generation from utility-funded residential solar could potentially carry PV cells into otherwise impenetrable areas of the consumer population — namely, low-income residents who are unable to afford leasing costs, or buildings that belong to nonprofit organizations who are unable to take advantage of federal tax subsidies to cover the cost of installation.

APS is seeking to be the first utility provider to make a competetive entrance into residential rooftop generation. With the residential PV market forcasted to grow by 60% this year, it is impossible for traditional utility providers to ignore solar’s increasing influence. Up to now, the classic response from APS has been to push for fees to compensate revenue lost to residential solar generation. With this latest proposal, APS has taken a new tack in its dealings with renewable energy. Whether it leads to increased cooperation or continued antagonism remains to be seen.