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Will Scaling Back Solar Incentives Hurt Adoption?

Vermont, one of the nation’s most solar-friendly states, is about to find out.

Depending on whom you ask, Vermont has either struck a life-threatening blow to solar adoption in the state or thrown it a critical lifeline. In late June, the Public Service Board announced a plan to rework its solar incentives. Under the new regulations, consumers who generate solar energy may be paid less and, in some cases, charged more.

For several years now, Vermont has encouraged homeowners, businesses and communities to build thousands of solar projects through a so-called net-metering program. Under the program, solar customers are able to sell any excess electricity generated back to the utility at a guaranteed price. That program is credited with making Vermont one of the most solar-friendly states in the nation. As of 2015, Vermont ranked seventh nationwide for the amount of solar energy it generates per person.  

But now the state wants to restructure those incentives, and some are worried those changes will set back solar adoption in the state. Under the proposed new rules, Vermont has suggested lowering prices for some categories of net-metering projects, imposing an annual cap on allowable net-metering development and subjecting existing project owners to new fees. These reforms are in part meant to protect the utilities, who are losing revenue to net-metering programs. The utilities say that as solar grows in the state, it’s eating into their profits. They argue that an ever-smaller base of traditional power customers could get stuck paying all the costs of maintaining the grid if things don’t change. 

It’s an argument utilities are making nationwide. Vermont is only the latest state to weigh changes to its solar incentives in an effort to balance the interests of utilities, solar companies and customers. In Nevada, for instance, the state abruptly ended generous incentives for homeowners with rooftop solar. As a result, energy providers SolarCity Corp. and Sunrun Inc. decided to lay off hundreds of employees and pull up stakes there in December. Hawaii has also slashed incentives; California, however, has retained high rates for the energy that solar customers sell back. 

If Nevada represents one end of the spectrum and California the other, then Vermont represents the middle. It still wants to incentivize solar adoption, but it wants to incent people to generate solar where it’s most valuable. In essence, the state wants to encourage solar in already developed areas, such as roofs, parking lots, landfills and other preferred sites. People who build solar projects in these places will be guaranteed a higher rate for the energy they sell back. “As solar becomes more important, you start making the system more sophisticated and encouraging people to adopt it,” says Nathanael Greene, a policy director at the Natural Resources Defense Council. “There can be tradeoffs, but we want to use those in the right places.”

Still, some solar advocates in Vermont worry that increased costs and reduced incentives could discourage residents from going solar. More than 900,000 homes across the U.S. now have solar panels thanks largely to these programs, which have helped reduce the cost of home solar panels by up to 30 percent. But it still costs residents between $15,000 and $25,000 upfront to install solar panels. If there’s no savings down the road, critics worry, then what’s the point of taking on such a large expense? 

 In addition, constantly changing the incentive system also hurts people’s faith in the future of solar energy, according to Olivia Campbell Andersen, executive director of the nonprofit Renewable Energy Vermont. “It’s difficult for customers and businesses to operate not knowing if they will be able to [earn a profit],” she says. “You can’t make investments -- in equipment, in project development, in employees -- if every single year you don’t know at what point, all of a sudden, it will change.”

Critics of Vermont’s new proposed rules are worried that they will also impact the state’s ability to achieve its goal of using 90 percent renewable energy by 2050. But David Hill, managing consultant of the Vermont Energy Investment Corporation, remains optimistic. “The overarching message,” he says, “is that Vermont’s [solar energy] process is growing and being responsible to public concerns about siting and long-term viability.” 

Amber Tong is a Governing editorial intern.
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