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Arizona has some of the most abundant solar resources in the country. The state’s renewable energy standard (RES) of 15 percent by 2025 has helped Arizona generate more solar power than any state in the country save California, and the most solar energy per capita. Rooftop solar is particularly popular in Arizona because of the 30 percent distributed generation (DG) carve-out, half of which is reserved for residential rooftop solar. The thriving solar market in Arizona has benefited from a combination of the state’s unique RES and robust competition among many solar companies active in the state.
The state’s competitive solar market is now facing disruption by a new proposal from Arizona Public Service Company (APS) to get into the rooftop solar business. In its proposed 2014 RES Implementation Plan (for PowerSuite users; other PowerSuite links are designated PS), APS is asking the Arizona Corporation Commission to approve “AZ Sun DG” – a program that would allow the utility to own residential solar and offer monthly rebates to its customers that undercut its third party competitors.
Private companies like Advanced Energy United (previously Advanced Energy Economy) members SolarCity and Sungevity have been helping Arizona customers overcome the upfront cost of solar through leasing and power purchase agreement (PPA) programs for years. Arizona’s net metering policy provides a way for solar customers to “bank” the excess power that they produce and get full credit for that power when they need power from the grid.
Last year, net-metered customers in Arizona faced a challenge when APS petitioned the Commission to impose a monthly charge of $8 per kilowatt of installed capacity to be connected to the grid. The Commission then adopted a compromise, authorizing utilities to charge a “connection fee” of $0.70 per kilowatt of installed capacity per month (PS) for net-metered customers. For the average 7-kilowatt residential solar system in Arizona, that adds up to about $5 a month.
In that battle, APS argued before the Commission (PS) that the fee was necessary to offset the utility’s cost of maintaining the transmission and distribution network for net-metered customers. A spokesman for the Alliance for Solar Choice countered that “there is a list of benefits that solar provides, including decreased line losses, the reduced need for new infrastructure, and the reduced need for utility capital expenditures. Only APS, which profits from more electricity sales, does not benefit from them.”
Now APS has done a 180, proposing to waive these fees and own residential rooftop solar systems outright without fretting about burden on the grid. AZ Sun DG would install 3,000 residential 4-8kW solar systems in low-income communities and at strategic points in the distribution system, feeding power into the grid rather than the households. APS would essentially be renting participant’s rooftops for a $30 a month savings on their bill. The project is estimated to cost between $57 million and $70 million in total.
APS says that the program will benefit low-income residents—who often can’t afford to install solar on their own—and boost the economy by using local solar installers. American Solar, a local installer, estimates it will double its workload if the proposal is approved. CEO Joy Seitz said, “We’re excited that such a large utility sees solar as an asset and is putting a strong focus on Arizona companies.” APS also views AZ Sun DG as a way to test the effects of DG on its grid. In its proposal, the utility argued, “Deploying utility-owned residential DG provides an exciting chance to explore the operational advantages of installing rooftop solar with advanced inverters.”
However, other solar firms think AZ Sun DG would kill the solar market in Arizona, not improve it. Of concern to competing solar companies is the fact that the $30 monthly savings APS is proposing is more than the $20 average monthly savings that third party companies in Arizona can offer customers. The question is whether the higher monthly savings is a function of the utility’s advantages as a regulated utility rather than its ability to deploy solar at lower cost.
APS is guaranteed a 10 percent return on equity from its rate base, which it collects from its customers. While it’s still unclear whether APS would be able to spread the cost of this particular investment to its customer base, as monopolies, utilities have certain advantages that give them a leg-up in a competitive marketplace. They already have proprietary system data available which allows them to install DG strategically, in areas that extract the most value out of the installations. In addition, they have strong brand recognition and an existing relationship with their customers, which allows for significant marketing cost savings.
Some question whether utility competition in the DG market is really fair. “This latest tactic by APS has a ‘Trojan horse’ smell to it,” said SEIA spokesman Ken Johnson. “Our member companies welcome fair and equal competition, but this move would stack the deck in favor of a company which can rate-base solar with a guaranteed rate of return. How is that fair?”
Echoing these concerns, a spokesman for The Alliance for Solar Choice said, “Monopolies are intended to be rare things in American society, and monopoly rights are not extended where functioning markets already exist. If APS wants to compete on a level playing field then they need to do so through an unregulated subsidiary.”
The Commission’s decision could have a significant impact on the future of the solar market in Arizona, third party solar installers, and public utility customers, not to mention set a national precedent. APS has asked the Commission for a decision by September. If all goes according to plan, the program could be up and running in 15 months. Stay tuned.
Image courtesy of Grand Canyon National Park.