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Renewable Energy's Rise Hurting Utilities

Solar energy is one of the nation’s fastest-growing industries. But it and other renewables are eating into utilities' profits, which have begun asking cities and states for help.

Over the past five years, solar has soared. Today, it is one of the fastest-growing industries in the U.S. Installed solar capacity since 2010 has increased a whopping 418 percent. It beat out natural gas in terms of new capacity in the first half of this year, and more than half a million homes and businesses now generate solar energy -- that’s enough to power 3.2 million homes. 

But as more Americans go solar, utilities are seeing red. At issue is something called “net metering,” and it’s eating into utilities’ profits. Net-metering policies were designed to encourage homeowners and other entities to put solar panels on their roofs or wind turbines in their backyards by enabling them to connect to the grid and then allowing them (in most cases) to sell any excess electricity they produce back to the utility. But with renewables slowly making up more of the energy pie, utilities are selling less and less electricity. “As people buy less, there is less revenue,” Steve Corneli, NRG Energy’s senior vice president of sustainability, policy and strategy, said at the SXSW Eco conference in Austin in October. “The more this happens, the less attractive energy-efficient technologies look to utilities. So utilities are pushing back.”

 The problem with net metering for some utilities is equity, says Jocelyn Durkay, a policy associate on energy with the National Conference of State Legislatures. Non-rooftop customers -- or clients that aren’t generating their own power -- are essentially paying more for electricity than net-metering customers because net-metering customers are using the grid infrastructure to sell power back, but not actually helping pay to maintain it. This inequity is forcing states to revisit their net-metering policies.

Forty-four states and the District of Columbia have some sort of net-metering law. So far, each state is dealing with the debate differently. In Wisconsin, for instance, utilities this summer increased the price to connect to their grid. Oklahoma utilities have created a new rate class for distributed generation customers (those that generate their own power onsite). Arizona wants to tax households that lease solar panels. And California moved last year to ensure that regardless of how the rules may change in the future, net-metering customers would be protected. 

But none of these approaches compare to New York’s proposal. More than a year ago, Gov. Andrew Cuomo directed his energy czar, Richard Kauffman, to transform utility regulation in the state to meet the needs of a more distributed, consumer-focused energy system. “The existing ratemaking structure falls far short of the pace of technology development that defines many parts of our economy,” Audrey Zibelman, commissioner of the New York Public Service Commission, said in a press release. “By fundamentally restructuring the way utilities and energy companies sell electricity, New York can maximize the utilization of resources, and reduce the need for new infrastructure through expanded demand management, energy efficiency, renewable energy, distributed generation and energy storage programs.”

Under New York’s Reforming the Energy Vision initiative, utilities will actively manage and coordinate a wide range of distributed resources, such as microgrids, wind turbines and solar panels. It is a big change for an industry that’s changed little in a hundred years. “Distributed generation will ultimately win,” says NRG’s Corneli, “but it will play out slowly, and state by state.”

Elizabeth Daigneau is GOVERNING's managing editor.
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