Why Is Virginia a “Dark State” for Solar Power?

PPAs
by Erik Curren

Around America, there’s a boom in solar energy. More solar power generation was installed in 2015 than ever before and 2016 could be even better, doubling in U.S. solar capacity. Although solar still provides less than one percent of America’s total electricity, it’s the fastest growing source of new energy since shale gas.

The benefits of solar are clear, from energy independence and greenhouse gas reduction to money savings and job creation to attracting high-tech industries.

But Virginia, which ranks a pitiful #30 for installed solar capacity, far behind neighboring states, including Tennessee at #18, Maryland at #13 and North Carolina at an impressive #3, is not seeing these benefits.

The state consistently ranks near the top in desirable industries from software and cybersecurity to higher education and even wine, yet the Old Dominion ranks in the bottom half of US states for solar power. Why?

It’s not lack of sunshine. If southern sunshine were required for solar power to thrive, then New Jersey, New York and uber-Yankee Massachusetts would never have made it to the list of the top ten solar states.

Nor does Virginia lack demand for clean electricity, especially from one of the state’s most promising high tech industries, the data centers of northern Virginia that host 70% of the world’s Internet traffic. Apple, Google, Facebook and other companies have committed to get 50% or more of the power for their server farms from renewables. In Virginia last year, Amazon.com commissioned what will be the largest solar array in the state, an 80-megawatt plant to be located on the Eastern Shore, to provide itself with clean power.

Finally, while Virginia’s average rates for grid electricity are certainly among the nation’s lowest, southeastern states that have utility power rates comparable to ours have much more solar than we do, including both North Carolina and Tennessee, as well as Georgia (ranked 11th).

None of these traditional explanations makes sense for a relatively wealthy state like Virginia (ranked 12th nationwide for gross state product) to fall into the bottom half of U.S. states for solar, in the company of much poorer states such as Arkansas, Alabama and Mississippi.

The obvious difference between Virginia and comparable states with much more solar? Public policy.

Given the 50% decrease in the cost of solar panels over the last five years, solar power no longer needs taxpayer subsidies to flourish. What solar does need is a market free of restrictions that do not serve the public interest and only serve to protect utility market share from competition.

“Solar can certainly compete in a level playing field with other energy forms, and already we are offering solar electricity at less than the cost of grid electricity for our schools, universities, churches and hospitals in Virginia, without any grants or state subsidies,” says Anthony Smith, CEO of the largest solar developer headquartered in the state, Staunton-based Secure Futures. (Full disclosure: I am a former employee of Secure Futures. The company has been a client of my marketing agency, but not for two  years).

“At the same time,” says Smith, “it’s very hard to compete with regulated electric power companies that get a guaranteed 10% return on investment paid by rate-payers for every dollar they spend on polluting energy sources and lobbyists, and virtually every activity in between.”

Smith and other solar company leaders in Virginia aren’t asking for more subsidies. Instead, they just want the freedom to sell solar power to customers as solar companies can in states with less restrictive rules.

Above all other policies, the one that Smith thinks would help Virginia the most would be to allow allow power-purchase agreements (PPAs) for solar across the state and across the board. Currently, Virginia’s pilot PPA program passed by the general assembly in 2013 only allows solar companies to sell power directly to large-scale solar customers (but not to homeowners) and only within the service area of Dominion Virginia Power.

Solar PPAs are widely used in twenty or so states, and letting homeowners in on the game has helped make states like Maryland and North Carolina into solar leaders. PPAs are so revolutionary because they allow homeowners, businesses and local governments to get solar at no-money down, removing the high initial cost that’s the main barrier to adopting solar power.

In a PPA, a solar company installs panels on the customer’s property, but retains ownership of the equipment. The company then sells the power to the customer below the cost of power from the grid, so that the customer saves money over the period of the PPA, generally 10-25 years. Afterwards, the customer can get the panels at a discount or at no additional cost.

For decades, utilities have long used PPAs to buy power from each other, especially in periods of high demand. In Virginia, Amazon will use a PPA to get the power from the big solar plant on the Eastern Shore developed by Community Energy, Inc., and purchased by Dominion.

So, Dominion and other utilities seem to like PPAs just fine for their own use. But utilities are somewhat less enthusiastic about allowing solar companies to sell power under PPAs. Utilities argue that, for the benefit of ratepayers, not just anybody should be allowed to sell power in a regulated environment.

Somehow, though, in states with widespread use of solar PPAs, the grid hasn’t collapsed and power rates haven’t spiked.

The solar industry argues that Virginia restricting PPAs is just a form of protectionism for utilities, which have great influence in the general assembly.

The solar array that Secure Futures is building now at the University of Richmond will be the state’s first solar project by a non-utility company to operate under a PPA. Smith wants to see other companies follow his example.

“The number #1 thing that needs to change for increasing solar in Virginia is to create more freedom of choice” for energy consumers, says Smith.

In the long run, that might involve decoupling utility profits from power generation. In that way, utilities could still make money even if solar companies sell power in their service area. In the short run, given their success in neighboring states, allowing wider use of PPAs is a policy that Virginia should adopt to catch up with other states on solar at no cost to taxpayers.

Erik Curren runs the Curren Media Group, a Staunton-based digital marketing agency serving industries including solar power.

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44 responses to “Why Is Virginia a “Dark State” for Solar Power?

  1. I don’t think it’s a mystery why Solar is not moving ahead in Va.

    Even Jim Bacon knows the answer!

    😉

    Jim rails against economic development “subsidies” and “incentives” but not so much over how Dominion “rules” Virginia – outright on energy issues.

    The other states have policies where the Utilities are truly regulated and Solar is allowed the compete. In Va – Dominion gets to decide if Solar will compete.

    Our General Assembly spends its time on requiring schools to report when “dirty books” are assigned and women need to have vaginal probes and local and State govt don’t have to provide FOIA requests but GAWD Forbid they even subliminally consider reining in Dominion!

  2. Great post and ditto larryg

  3. Erik, I’m still going up the learning curve on this issue, so maybe you can help sort out some issues.

    You say that public policy is hindering the development of solar power in Virginia, and you portray Dominion as a barrier to the adoption of solar energy — and perhaps it is. I have heard from others that Dominion does not go out of its way to help independent projects. But why is it that the PPA pilot project covers projects in Dominion territory only? Does this imply that Dominion is less intransigent and/or more receptive than, say, ODEC and Applachian Power?

    How, under the PPA pilot project legislation, are third parties inhibited from contracting privately with each other? What is stopping Secure Futures and other entities from cutting more deals with universities, local governments, mall owners, industrial facilities, even residential real estate developers just as Secure Futures did with UR?

    You say that “solar power no longer needs taxpayer subsidies to flourish.” My understanding is that the solar investment tax credits are essential to the financing of these deals and that they take so much time to assemble that there are economies of scale that favor larger projects. How did UR and Eastern Mennonite (another Secure Futures project) put their deals together? Did they forego the solar tax credits? Did they accept a higher cost for their electricity than otherwise would be the case? As a practical matter, would commercial customers not philosophically committed to green energy be likely to find smaller-scale solar projects financially attractive?

    • Hi Jim,

      Thanks for your questions. Let me try to tackle them each.

      As to Dominion. Though they originally came to it kicking and screaming (and after sending a cease-and-desist letter to Secure Futures for trying to do its project at Washington and Lee University through a PPA in 2011), at the end of the day, Dominion should be praised for allowing PPAs in their territory while AEP and coops still don’t. It’s my understanding that all other utilities in the state take their cue from Dominion as the biggest, so I hope that once the pilot program shows some success, PPAs will spread to other utilities’ service areas. But Dominion remains an obstacle to the spread of solar even in their territory by opposing PPAs for residential users. Of course, I understand why the company would want to protect their residential marketshare. But given the widespread use of residential PPAs in other states, there seems to be no compelling public interest to exclude homes from PPAs in Dominion’s area of Virginia.

      Second, since the pilot program does allow solar companies to use PPAs for larger solar installations, I do hope that commercial installations will spread once solar companies can get started offering PPAs. It will probably take some time for home-grown Virginia solar companies to arrange the financing on their end. And what’s preventing outside companies like SolarCity that do lots of PPAs around the country from pouring into Virginia is probably lack of state level support, especially a good price for renewable energy certificates (RECs). But with solar equipment prices continuing to fall, I expect that lack of state incentives will become a less important factor over time and that commercial solar PPAs will look more and more attractive to solar developers in Virginia.

      As to tax incentives, I probably should have been more specific that I was talking about public support at the state level. You’d have to ask the company for the details, but Secure Futures has taken advantage of federal support in previous projects. I don’t believe that many companies in any industry would voluntarily refuse existing ways to reduce the cost of their work 🙂 But since solar gets cheaper every year, the industry has gotten closer and closer to being competitive with less and less government support.

      Still, last year the whole solar industry nationwide supported the extension of the 30% federal investment tax credit for solar. Given the lack of state support in Virginia, until equipment costs decline even further, that 30% is still important to get any solar done here. In the future as installation costs drop, I expect that the solar industry will have weaned itself off the ITC by the time it’s due to decline (ultimately to 10% for commercial projects from 2022 onward) or completely expire (for residential projects after 2021).

      Of course, no discussion of public support for solar would be complete without mentioning that fossil fuels and nuclear power still continue to enjoy a variety of taxpayer subsidies as they have for decades. That still means an unequal energy playing field, tilted against solar and in favor of fossil fuels. The only truly fair and free market would be one where all energy sources were expected to fend 100% for themselves without government subsidies.

      • Thanks, Erik, that is helpful.

        Regarding subsidies for nuclear and fossil fuels. Nuclear subsidies include federally guaranteed loans, as I recall, without which many nuclear plants probably could not be financed.

        As for oil & gas… what subsidies are there other than the accelerated depreciation allowance?

        • You could say that the main subsidies to nuclear have not been cash payments or tax breaks but instead shifting the costs of construction and operating risks from investors to taxpayers and ratepayers, leaving the public to pick up the tab for cost overruns, defaults to accidents, and nuclear waste management that should be the responsibility of the industry. Factor these in and nuclear power seems to be getting lots of public assistance.

          Fossil fuel subsidies are a maddeningly complex subject. Credible estimates range from $10 billion to $52 billion annually, and include not just the oil and gas exploration and development expensing but also the foreign tax credit and the credit for production of non-conventional fuels. You can also add consumption subsidies.

          In total, the U.S. fossil fuel subsidy for consumption, production, exploration, and international finance totals $37.5 billion annually, according to Oil Change International (http://priceofoil.org/fossil-fuel-subsidies/). And that doesn’t include any costs for defending pipelines and shipping lanes in the Persian Gulf. Taking some of that cost would bring the total up to $52 billion a year.

          Further, many analysts argue to include as fossil fuel subsidies externalized costs for health impacts, infrastructure spending, costs from climate change or other military expenditures related to protecting oil supplies. Though these costs result from the production and consumption of oil, gas and coal, fossil fuel companies don’t pay them. The public does.

          Of course, solar carries none of these costs.

          • TooManyTaxes

            erikcurran – I must disagree with your argument that putting costs of investment and expenses (as well as revenues) into the regulatory process is an subsidy. Rather, it’s part of utility regulation that has been used in the United States for decades and decades.

            Done properly, utility regulation protects customers from rates that include the costs of imprudently made investments and unnecessary costs. It also caps profit levels; gives the customer a right to make a complaint to the agency; and the right to service if located in an area served by the utility at the same price as other similarly situated customers.

            I agree with your comments as they apply to nuclear power. There are subsidies, but they do allow for lower electric rates. I don’t see that as different from tax credits for solar. It’s not unreasonable in my mind to give a boost to an alternative energy source through tax credits that are limited in time and amount.

            But all and all, a very interesting and informative post.

  4. I think the way to go about it – is to go to other states and see what kinds of independent-from-the-utility projects that Va does not have then find out why.

    I do not believe in subsidizing solar. At the same time, I do not support subsidies for nukes nor coal by not putting a value on the pollution generated from burning coal – the mercury getting into the environment, the coal ash ponds, the number of deaths from air pollution.

    In other words – a truly level playing field.

    • Good point about subsidies, LarrytheG. As equipment costs continue to fall, solar will be more and more affordable without subsidies. But it would help if the playing field were level, and if the market were truly free and fair, without subsidies for fossil fuels.

    • Building the cost of externalities like air pollution into the price of each power source is the correct economic solution. I just don’t know how you’d do that as a practical matter. The utility would pass that cost on through its rates to customers; of course it would seek the lowest overall cost of producing energy and that might mean eliminating say coal entirely, but assume some of these externalities would end up reflected in rates: then, where would you direct that money? The utility certainly shouldn’t keep it. I think you’d need a mechanism like what’s been proposed for a carbon tax, with trading rights and payments to a third party (the government).

  5. “But Virginia, which ranks a pitiful #30 for installed solar capacity, far behind neighboring states, including Tennessee at #18, Maryland at #13 and North Carolina at an impressive #3, is not seeing these benefits.”

    According to the illustration, in “impressive” North Carolina PPAs appear to be “disallowed by state law or otherwise restricted by other barriers.” So, you need a more cogent argument Erik. It is true that Virginia, unlike North Carolina, did not enact a 35% tax credit on solar panels, but lawmakers down there have changed policy:

    http://www.newsobserver.com/opinion/opn-columns-blogs/ned-barnett/article38700429.html

    • Good point, Rowinguy. Let me quote from North Carolina’s ranking on http://www.cleanenergyauthority.com/solar-rebates-and-incentives/north-carolina/: “North Carolina is in an interesting place for solar policy right now. There is perhaps no other state at such a critical juncture. The state’s excellent tax credit will expire at the end of 2015, and rebates are small and hard to come by. Without some action in the next year, North Carolina—long a regional leader in solar power—could be getting a D or an F in our 2016 rankings.” So, though NC had a formula for solar success in the past, even without good PPAs, that may not be enough to keep it in the solar top ten in the future.

      In contrast to NC, California and Northeastern states are big on PPAs, which means more distributed solar on home rooftops, which is a much more resilient model in the long run.

  6. I agree with the thrust of Erik Curren’s argument: as I read it, he’s saying Virginia (specifically Dominion, which serves customers around Staunton) has bent public policy in order to obstruct solar power development. In fact the GA wrote (in 2007) a highly obtuse statute which gutted retail electric competition in Virginia, and there is little doubt that Dominion was behind that statute. In effect, retail competition was allowed to continue only in highly limited circumstances.

    However — what does killing off retail competition have to do with Virginia’s dismal track record in residential solar photovoltaic development? There are two arguments that it has nothing to do with it. First, the GA allowed retail competition in renewable resources power to continue. And second, who needs a third-party retail supplier when solar DG is a do-it-yourself thing anyway? Let me explain:

    First, the GA said it was not killing off retail competition in renewable power, if the local utility did not offer a 100% renewable power alternative itself. See Code §56-577.A.5.a– http://law.lis.virginia.gov/vacode/title56/chapter23/section56-577/ But what I’ve read since then is that Dominion has been throwing roadblocks in the way of anyone trying to exercise his competitive retail purchase options under that provision. Eg., http://powerforthepeopleva.com/2015/09/03/virginia-wind-and-solar-policy-2015-update/

    Second, there’s the own-it-yourself solar option: that’s always been allowed in Virginia. BUT: Mr. Curren isn’t talking about that; instead he wants to promote a “utility”-owned solar installation where the homeowner pays this “utility” directly for the electricity received — and, he has in mind another utility than Dominion, a little company he used to work for, which offers a solar equipment-leasing and power sales arrangement he calls a “PPA.” He doesn’t say whether this little company is a qualified retail electricity provider in Virginia. Mr. Curren’s enthusiastic endorsement of these leases or “PPAs” is tempered by his statement, “Currently, Virginia’s pilot PPA program passed by the general assembly in 2013 only allows solar companies to sell power directly to large-scale solar customers (but not to homeowners) and only within the service area of Dominion Virginia Power.” So, what exactly is the problem, here? Is it the fact that this solar “utility” is engaging in retail sales of electricity to homeowners? Then restructure the deal so it’s just an equipment lease and the homeowner owns all the solar power coming out of it. Oh, that doesn’t generate enough income/profit to the solar equipment provider? Well then, maybe the notion of an unregulated power sales markup under the PPA wasn’t such a good idea to begin with.

    I’m unimpressed by this argument that “public policy” is preventing Virginia’s slow adoption of solar PV distributed generation. Killing off retail competition in 2007 was totally unnecessary, a ham-handed way of dealing with its complications, but solar generation was not supposed to be a casualty. If you’re looking for the problem with solar in Virginia, try (1) building codes and uncooperative local building inspectors, (2) lack of tax breaks and other financial incentives, and (3) the total, abysmal, lack of encouragement or assistance to homeowners from Dominion Power and its ilk.

  7. I agree with the thrust of Erik Curren’s argument: as I read it, he’s saying Virginia (specifically Dominion, which serves customers around Staunton) has bent public policy in order to obstruct solar power development. In fact the GA wrote (in 2007) a highly obtuse statute which gutted retail electric competition in Virginia, and there is little doubt that Dominion was behind that statute. In effect, retail competition was allowed to continue only in highly limited circumstances.

    However — what does killing off retail competition have to do with Virginia’s dismal track record in residential solar photovoltaic development? There are two arguments that it has nothing to do with it. First, the GA allowed retail competition in renewable resources power to continue. And second, who needs a third-party retail supplier when solar DG is a do-it-yourself thing anyway? Let me explain:

    First, the GA said it was not killing off retail competition in renewable power, if the local utility did not offer a 100% renewable power alternative itself. See VA Code §56-577.A.5.a But what I’ve read since then is that Dominion has been throwing roadblocks in the way of anyone trying to exercise his competitive retail purchase options under that provision. See, eg., powerforthepeopleva[dot]com/2015/09/03/virginia-wind-and-solar-policy-2015-update/

    Second, there’s the own-it-yourself solar option: that’s always been allowed in Virginia. BUT: Mr. Curren isn’t talking about that; instead he wants to promote a “utility”-owned solar installation where the homeowner pays this “utility” directly for the electricity received — and, he has in mind another utility than Dominion, a little company he used to work for, which offers a solar equipment-leasing and power sales arrangement he calls a “PPA.” He doesn’t say whether this little utility company is a qualified retail electricity provider in Virginia. Mr. Curren’s enthusiastic endorsement of these leases or “PPAs” is tempered by his statement, “Currently, Virginia’s pilot PPA program passed by the general assembly in 2013 only allows solar companies to sell power directly to large-scale solar customers (but not to homeowners) and only within the service area of Dominion Virginia Power.” So, what exactly is the problem, here? Is it the fact that this solar “utility” is engaging in unregulated retail sales of electricity to homeowners? Then restructure the deal so it’s just an equipment lease and the homeowner owns all the solar power coming out of it. Oh, that doesn’t generate enough income/profit to the solar equipment provider? Well then, maybe the notion of an unregulated power sales markup for 20 years under the PPA wasn’t such a good idea to begin with.

    I’m unimpressed by this argument that “public policy” is preventing Virginia’s slow adoption of solar PV distributed generation. Killing off retail competition in 2007 was totally unnecessary, a ham-handed way of dealing with its complications, but solar generation was not supposed to be a casualty. If you’re looking for the problem with solar in Virginia, try (1) building codes and uncooperative local building inspectors, (2) lack of tax breaks and other financial incentives, and (3) the total, abysmal, lack of encouragement or assistance to homeowners from Dominion Power and its ilk (other than its token mention of Rider G, which is no substitute).

    • Acbar, we have discussed this a bit before. Even a third-party solar provider selling directly to PJM seems to be prohibited or at least very difficult in VA. (Although the Community Energy deal with Amazon was moving forward until Dominion snapped it up). Third-party aggregation of energy efficiency or demand response options is also difficult here.

      Natural markets for third-party solutions such as schools, government buildings, etc. are not available because of Dominion’s special rate structures that prohibit direct purchases or net-metering with these types of customers.

      Dominion’s thrust is to build large scale solar projects that they own. Although some “soft costs” are cheaper with bigger installations, the greatest savings are because the necessary transmission costs for large projects are not included in the calculated price for the solar project. So it is a false comparison of big vs small. And no cost advantage is given to the reliability benefit of distributed units. Plus, Dominion makes money on the transmission, but it is a cost for large-scale third-party developers.

      Why is energy efficiency, solar and other distributed services considered the domain of only liberal “greenies”? Where are the fair market, limited government, conservative voices in appealing to open up the market for more competition? Utilities need to be healthy. But it shouldn’t be just one voice that controls the whole show.

  8. Apologies for the repeat post! Thought I’d deleted the first version when WordPress kicked it out for “moderation” due to web citations. Then, despite deletion, the first version came back to life after “moderation.”

  9. how about dumbing down the discussion to the residential level.

    if I wanted to install SOLAR in my house in Va.. how would I fare compared to someone doing the same thing in other states… ???

    • Many of the easy solar programs that exist in other states such as zero money down rooftop solar, are not available in Virginia. Because of the lack of policies that exist in many other states, there are fewer installers (none of the big national ones), financing is more expensive and harder to get, the permitting and approval process is haphazard, building inspectors are not fully up to speed, and your utility can be slow in hooking you up after your system is ready to go.

      That said, you might be near a residential installer and can call and get a review of whether your property is suitable for solar and receive an estimate of the costs. The higher your rates the faster the payback, the greater access to full sun exposure the faster the payback, etc. Financing is tough with small organizations because if the panel is attached to the roof – banks like to have some collateral hold on the real estate too, not just the panel. These issues are smoothed out in states that are encouraging solar.

    • TomH is exactly right. Virginia’s “obstacle” is mainly the absence of financial support for residential solar, in the form of tax incentives and financing arrangements and no-money-down loans, that sort of thing. You can call those “subsidies” but they are necessary to get a grass-roots industry popularized.

  10. Erik, thanks for the great post. This information needs a broader discussion and Bacon’s Rebellion is a good place to start.

    One of the great barriers to greater adoption of third-party development for distributed resources is the utility mindset. In those states where utilities see this as a threat to their prosperity, policies enacted usually prohibit or discourage third-party development. In states where the utility and regulatory action is moving towards a more modern utility business model, new policies provide for more consumer choices and lower prices.

    For example many utilities in various states are fighting net-metering (there is a cap in Virginia) or are adding monthly charges that penalize solar installations. Much has been argued about the “subsidies” that others pay to those who have installed solar. In Austin, Texas a thorough evaluation of the value of solar was undertaken by a former Texas regulator to establish a fair charge for solar installations. An in-depth, even-handed evaluation showed that distributed solar installations provided a net benefit to the grid and reduced costs for all customers. This might not be true in all situations. Rocky Mountain Institute (RMI) has developed an excellent methodology that results in an appropriate assessment of the value of distributed solar in a variety of utility environments – for rate making purposes.

    Utilities that get more involved with deploying distributed resources in strategic locations are finding they can enhance reliability while cutting costs — resulting in long-term value for customers. For example, the New York utility Con Edison recently got approval to procure 52 megawatts of demand-side resources (efficiency, demand response and storage) in order to defer the build-out of new grid infrastructure for seven years. That project could save the utility $40 million.

    In New York, they are revising rates to encourage utilities to invest and become “distribution platform providers” and get fairly paid for it. A wide variety of solutions can then utilize the robust distribution system to provide value to customers, whether provided by utilities or third-parties.

    In this way the utilities remain financially healthy, grid reliability improves, and customers save money. There is enough opportunity to build an innovative energy sector in every state, especially Virginia.

    This is not an easy transition, there will be bumps in the road as the participants and regulators learn by doing. But it is the best road to a comfortable and affordable energy future. Trying to stretch 20th century habits far into the 21st century might benefit a utility in the short term. But it will end badly both for the utility and its customers.

    We need to encourage regulators and utility executives to remove the barriers to moving into this more open market, with utilities taking the central role of developing and maintaining a reliable grid. Emphasizing building long-term, large scale projects just to earn a return for shareholders when other options are cheaper, provide more jobs and are environmentally sound should become a habit that is left in the past.

  11. Not sure I got a good feel for what inhibits me from installing residential solar in Va that is the fault of our Virginia-special utility policies…. though…

    I thought earlier I had read that one of the bigger obstacles was the ability to feed excess solar power back into the grid – and get paid for it – and that that had a significant impact on the ROI cost.

    Do other states have such policies and Va does not?

    • Virginia policies only discourage you, they do not prohibit you from installing residential solar. For example, the net metering programs in many states price the excess electricity that your home solar panel generates at the same price as the electricity that comes into your house. This is where the concept of “running your meter backwards” comes from. In Virginia, what you sell back to the utility is reimbursed at a high “wholesale” rate, not at your retail cost. There are good arguments for this being the case (avoided costs, etc.) but it does slow down the speed at which you pay back your investment in your rooftop solar unit.

      There is a cap for net-metering (1% of peak load) in Virginia so if you are a late adopter, this might not be available to you. This past year electricity use in the U.S. declined by 1.1%. For 5 out of the last 8 years (all of which had growth in GDP) electricity use has declined in the U.S. – so the cap for net metering might be getting lower each year. Dominion is also exploring adding demand charges or grid service fees (even though solar benefits the grid) which will also make investment in residential solar less attractive.

    • No, and that’s important. You CAN feed back into the grid in VA. But you have to install some expensive interface equipment to be able to do so.

  12. What would happen if the Virginia Code were amended to permit instate third-party generators to bid against Dominion for an amount of power? VSCC decides the “auction.” If the third party is the lowest price, it wins. Dominion is forced to buy the power at the winning bid. Of course, third parties would have to guarantee availability or be forced to bid for only peak capacity power.

    This approach would force all bidders to have separate books for each activity – generation, transmission and retail delivery – to the extent they participate in auctions. The risk of loss forces everyone to become more efficient.

    • Acbar could answer this more thoroughly, but as I understand it, VSCC does not decide the “auction” – PJM does. This is how all power is generated in the state now. Whoever generates at the lowest cost is dispatched first, then the next lowest, etc. Renewables have their own market. Dominion and other generators in the state currently have to account separately for their generation, transmission and retail activities.

      Virginia (SCC) has already created the legislation and rate-making that enables this, we have just abandoned it. I think 20 or so states have deregulated their power production. California is one. Although, in the early days they made a mess of it, driven by greedy companies such as Enron. However, they have made many good adjustments. I am not recommending the California model (New York seems to be moving in the right direction). But California does create twice the amount of state GDP per unit of energy as Virginia does. They have higher rates but lower utility bills.

      Dominion has elected to put their new plants in the rate base rather than operate as merchant generators because gas-fired plants are risky. If gas prices rise more than expected, or solar prices fall faster than expected, or if load growth is flat or declining instead of increasing as they project – these plants will not operate at as high a capacity factor (and have a lower ROI). They want the ratepayers to shoulder this risk while they pocket a guaranteed return. Having an energy market with both utility and third-party providers keep the prices low and consumer choices high. As long as it is a fair market and not slanted in favor of the utilities as it is in Virginia today.

    • That’s right. Any third party generator can build anywhere in VA (subject to local zoning of course, and the ability of the local transmission system to absorb the power) and commence selling into the grid, whether it’s a homeowner or a big solar plant or whatever. It can offer to sell at a price it chooses to bid. And if its bid is low enough to be chosen, it will get paid by PJM based on the locational marginal price of energy at the generator’s location as LMP varies from moment to moment. In other words, we already have the competition you posit.

      • However, there does seem to be a difference between policy and practice. In North Carolina, for example, state policymakers enacted a state incentive for solar that rocketed NC to the top ten in state solar penetration. Many state representatives are complaining that Duke’s stranglehold on solar development in the state is now limiting solar installations to about 20% of what they could be. Now North Carolina is fading fast in new solar installations compared to other states.

        In Virginia the situation is similar, although we never promoted solar in the way North Carolina did. We have laws and regulations on the books that appear to allow third-party participation in the state energy system, but as you look into putting projects together Dominion policies or special laws pop up that make the execution of the project nearly impossible or at least less economically attractive.

        When Secure Futures developed the Washington & Lee solar project, it was only the large public outcry that convinced Dominion to make a special circumstance to allow the project to move forward.

        Third-party developers must be able to create a business case for a project that they can rely on and not be susceptible to the whims of Dominion. This, among other reasons, has kept the national installers out of Virginia.

        • TomH, you are omitting one critical factor that makes it difficult to put together smaller solar deals — the economies of scale associated with doing the labor-intensive legal, accounting and financial work to structure the deals to utilize solar energy tax credits. I’ve been poking around in this, and I know it’s a factor. I’m been so distracted by this coal ash business, however, that I have not had time to pursue it.

          • Jim you are exactly right. This is a complicating factor. In fact, part of me hoped that the Solar investment tax credits would not be renewed so that this would no longer be a complicating factor, and to make the case that other forms of energy production should also go without their existing, much larger, subsidies. It would also put schools and governments on an equal footing with private industry in being able to utilize solar.

            It has always been ironic that huge corporations (those that have the high taxable incomes that can use the ITC) have been a major beneficiary of the solar boom that was supposed to add more freedom to the energy system. Often they charge higher than market interest rates for providing the service of using the developers tax credits. There have been times when it was difficult to find investors with enough taxable income to make use of the sizeable credits for large projects. This has made financing an arcane art for solar developers and often a source of their competitive advantage.

            Master limited partnerships (a logical way attract investors and share the tax credits) are not available for solar projects as they are for oil and gas extraction. Why? – you fill in the blank. The big national solar installers have responded by creating Yieldco’s, an equity investment vehicle (listed on exchanges) which provides them access to capital and gives investors a way to protect their profits using the ITC. Obviously, this type of vehicle only works for the major solar installers.

            I was exploring using closely held LLC’s or Sub S corporations, that would allow local investors to support projects in their own communities while benefiting from the interest return and the tax credits. I stopped looking into this when it became apparent that the obstacles to building the projects would have to be dealt with first. But I think they might have some value in the future.

            It boils down to whether we want to encourage more widespread development of solar in Virginia or have it be the primary domain of utilities that develop only large central station plants.

            This would not require a monetary incentive, just policies that create a fair market and level playing field for third-party developers. Today, the Levelized Cost of Energy (LCOE) for solar is roughly equivalent to natural gas-fired combined cycle plants. LCOE includes a present value estimate of the lifetime fuel costs. So high capital cost solar projects with no fuel costs compete favorably with gas plants, whose fuel costs contribute 50% of their total energy cost. Acknowledging that solar units are not dispatchable or base load, their output is typically highest during the summer peaks. This is the most expensive time to obtain more generating capacity (peakers) and the increase in the peak drives the need to add more power plants.

            Solar costs are likely to decline by another 50% in the next five years while natural gas prices have nowhere to go but up. For anyone except a company that makes money when they build things, supplying peak loads with low cost generation saves everyone money.

          • Jim, the hassles are indeed an obstacle: it’s not just the financial paperwork, but also the building codes and electrical inspections and hassles with the utility interface, let alone the architectural and construction aspects of placing solar panels in the backyard or on the roof. Also, as TomH points out, there is money to be made in aggregating the output of many small solar units for purposes of sales to the grid ISOs. I think it makes excellent sense to develop a business model for this kind of service — sort of a cross between leasing an automobile and hiring an energy use manager — that doesn’t step on the grid utility’s toes but complements (and gets paid by) the grid for its load management and energy efficiency services.

            Remember your post on Oct 2, ’15 about Will Gathright, “When Dynamic Pricing Meets Energy Storage”? That’s the future, for commercial customers at least: a third party consultant for energy services who finds ways to save you money. For residential customers who want to go solar, there is no reason Virginia cannot be just as favorable a market as NC today, and there are lots of opportunities to achieve efficiencies of scale, and we should be all for that. It would be happening now in Virginia too, except for one thing: Virginia is not throwing as many tax dollars at it as NC is, and so the limited-but-growing solar development business is following the money. For now.

        • Thanks, TomH, I think your example illustrates the problem perfectly: there is no institutional impediment to distributed (homeowner-scale) generation, but there is also no tax credit or other financial incentive promoting it. If Virginia wants to emulate NC and get a lot of home solar generation going, all it has to do is put a generous tax benefit out there and, the example of other States indicates, solar generation will take off.

          The Secure Futures case at W&L is the kind-of exception that proves the rule. This is a company that wants to develop solar FOR the homeowner (or in that case, for W&L University). Their business model as I understand it is to make money by leasing the equipment. It works this way: they approach the homeowner and offer to install and maintain solar equipment on his premises for, say, 20 years, and sell him the solar power for less than the savings he achieves on his Virginia Power electric bill. SF’s sales price is enough to pay for the equipment (which it continues to own) and the installation cost and also provide a profit, yet the homeowner’s electric bill is lowered; that’s a win-win scenario. The problem is, the sale of SF’s solar power to the homeowner is at an unregulated (and, some might say, exhorbitant) price with uncapped profit to SF and an unfair business threat to Dominion. Even though the homeowner comes out ahead, you can argue he’d come out a lot more ahead financially if he built the identical facility for himself.

          I’m not opposed to SF’s business model as a way to promote solar DG, but let’s understand what they are offering: a hassle-free installation where they front the cost in exchange for a long-term (20 year or so) revenue commitment. In effect, it’s an equipment lease where they loan you the up front cost and you pay it back through an “electricity rate” for energy that costs them next-to-nothing incrementally to produce. What are the terms and financial benefits of that lease? What is the implicit rate of interest for this “loan”? Is the benefit shared fairly with the homeowner? These are the kinds of questions that should get raised. And, since SF’s model has it “selling electricity” at retail it falls under the statutory prohibition on retail electricity sales in Dominion’s VA territory, except to the extent Dominion wants to cooperate in looking the other way.

          My question: Why not simply do the same deal in a totally above-board way, completely legally in VA, by packaging it as a solar equipment lease from the get-go and stop calling it an “electricity sale”? I suppose someone has found that’s not as fashionably “green-sounding” or as easy to market, but financially it could be structured as an equivalent deal for the homeowner and without any regulatory implications.

          Your bottom line is, “Third-party developers must be able to create a business case for a project that they can rely on and not be susceptible to the whims of Dominion. This, among other reasons, has kept the national installers out of Virginia.” I won’t argue with your conclusion, but what I’m saying here is, there is a way to do this that’s NOT “susceptible to the whims of Dominion.” In fact, what I think happened at W&L was an entirely-predictable, knee-jerk reaction by Dominion to a perceived threat to its retail sales franchise which, in hindsight, was pointless and easily avoidable.

          I’m not defending Dominion here. I think they should take a hard look at where they are headed in a utility world which is going to be 10-20% solar, most of it DG, with or without them. There is plenty of money to be made from a business model based on regulated utility grid services and on unregulated generation selling to the grid, including renewables generation. They should embrace this change, not fight it. [One caveat: there really is no excuse for the “net-metering” subsidy of solar without an offset payment for grid costs — I’m with Dominion in fighting this; it makes much more sense and is much more transparent to eliminate net metering entirely and mandate a direct, visible tax-funded solar subsidy to the homeowner, assuming subsidy is your intention.]

          • Excellent points as usual Acbar. Installers in other states do offer the alternative of something along the lines of a dollar buyout capital lease. It is a bit more expensive than the zero money down option and requires more effort on the part of the homeowner. Often O&M costs are outside of the lease, the lessor requires more risk protection because their interest in the property is gradually declining, etc. But such arrangements do exist. Homeowners seem to prefer the no hassle, no money down option of the installer owned option. I understand in some areas the zero-down installer can aggregate the capacity and sell it into their ISO market as demand reduction and thus gain extra revenues which lowers the price to homeowners.

            The point I was trying to make on net metering was that it seems to make the most sense to charge (or pay) a value of solar tariff based on the cost or benefit of the installed unit rather than assume one size fits all. If solar installations in a certain area cause higher costs for other ratepayers, there should be a charge added to their bill. However, in many cases, the addition of distributed solar adds to reliability and lowers congestion on the grid that benefits the utility and its customers. Utilities often want to charge everyone for the few cases that cost more money and capture the savings and reliability benefits from other installations without compensating for it.

            I am not trying to make life harder for Dominion. Only to encourage them to move in a direction that will be better for their shareholders and their customers. But they will need new policies and rate structures to make the transition. It is unlikely they will do it on their own. They will need assurances that they will come out whole.

        • TomH, you say,”In many cases, the addition of distributed solar adds to reliability and lowers congestion on the grid that benefits the utility and its customers. Utilities often want to charge everyone for the few cases that cost more money and capture the savings and reliability benefits from other installations without compensating for it.” We completely agree! An “averaged” or “net” cost is another name for a hidden cost. Just unbundle these instances and let the chips fall where they may. There’s way too much cross-subsidization when Dominion averages/nets this cost and the homeowner averages/nets that cost and you can’t see all the moving parts, or assign costs cleanly to those who cause them.

        • Tom says, “Homeowners seem to prefer the no hassle, no money down option of the installer owned option.” I don’t think equipment ownership was the problem Dominion had with the W&L solar deal, it was characterizing the University’s payments as retail purchases of electricity. Why not simply set up the deal like an automobile lease, where the dealer retains ownership and throws in O&M too, and there’s even a purchase option for the lessee at the end? But use leasing terminology!

          Really, there’s not some Byzantine accounting or tax consideration that drives the “retail electricity sale” characterization of these solar equipment lease payments? Is there no good financial reason to do this? Because, from the regulatory point of view that characterization is asking everyone involved to dive into a huge steaming pile of it!

          • I’m not an expert in all of the details. But at one time Dominion’s net metering policy required the owner of the dwelling to own the solar unit too. Although, I believe that has changed to allow third-party ownership with certain requirements.

            The ITC has some complications too. The initial owner must own the unit for at least the first five years (I think) then they can sell or gradually transfer partial ownership. If not, refunds or recaptures are required. I don’t want to mislead anyone because I don’t know the particulars (and don’t have the time at the moment to check them out). The message is – this is far more complicated than it needs to be and is full of potential hazards for owners and investors. This convoluted system has slowed the adoption of a useful technology.

  13. Pingback: Georgia lawmakers approve pipeline moratorium | Southeast Energy News

    • “The message is – this is far more complicated than it needs to be . . . This convoluted system has slowed the adoption of a useful technology.” — You got that right!

    • You make a good point, Tom, that there must be something deterring solar development in Virginia because the results are damning, notwithstanding Amazon’s solar plant in Accomack.

      But there must be something going on other than Dominion’s footdragging. Take a look at the PJM website, at its map of the location of all the renewables projects in the PJM queue for interconnection. Find it at http://www.pjm.com/renewables/default.html and expand the portion covering eastern VA and NC. Two things will leap out at you: there’s a big cluster of 9 or so yellow dots (solar projects) on the eastern shore (Accomack and Northampton Counties, VA — a lot more than the one plant bought by Amazon), and there is an even bigger cluster of 22 projects in eastern NC. Now, that NC cluster is notable because that’s Dominion’s service territory – obviously, Dominion knows how to work with solar developers! Yet, the entire remainder of the State of Virginia has only 3 more projects. And look across the border in Maryland and I count over 70 of those yellow dots.

      So I conclude based on this small sampling that solar developers can work with PJM (hundreds of projects all over) , and they can work with Dominion (in NC), and they can work in the State of Virginia (on the eastern shore); but there’s something that’s not attractive about Virginia on the whole. Here’s my hypothesis: Virginia is not as attractive to solar developers because of the absence of State financial incentives, relative to NC and MD; but that disadvantage is slight and can be overcome where land is cheap and local authorities are supportive, which appears to be the case on VA’s eastern shore. Dominion the utility is not promoting third party solar or helping like it could, but it isn’t hostile either.

      What do you hear from solar developers actually building these projects in the field? Is my hypothesis wrong; do they think Virginia’s laws or Dominion’s policies are really the problem with third party solar in the Commonwealth?

      • I was aware that Dominion was doing much more in NC related to solar. Perhaps it is to take advantage of the North Carolina tax incentive for solar projects before it expires.

        There is a lot more that I need to understand about this. As you know, I began exploring the PPA route and then hit some roadblocks. I am going to try and get together with Tony Smith of Secure Futures and see what his perspective is. He has actually developed solar projects in VA (Washington & Lee and others). I expect he will have the most accurate perspective on the opportunities and obstacles. As I get more information, perhaps I can pass it through Jim so others can learn from it.

  14. What a great discussion … clarifying for many whom are not involved in trying to get things built. The obstacles in VA are not always very visible … hidden by Dominion’s clean energy ‘window dressing’.

    One example … Community Solar projects are now in a pilot stage at several Co-Ops, but previously they couldn’t be built because net-metering rules prohibited anyone from being credited for producing solar if the panels were not located on their specific property. A company based in CO has worked with utilities around the country to install community solar fields and sell the panels, a few at a time, to customers in the neighborhood. The company has software that can be incorporated into the utilities mainframe that will gather and assign the solar generation from the solar gardens to the specific panel owners. It’s a great idea as only 25% of rooftops in VA, and roofs averaged across the country, are suited for solar generation. The other 75% need a neighborhood solar garden to participate in panel ownership.

    And thanks for the reference to Commonwealth Magazine and the New England approaches. The articles understand how just tinkering with net metering is not enough. We are looking at a utility rate structure change. Basic net-metering only worked when there was very little distributed solar, which brings up another hindrance to solar in VA, Dominion cannot seem to view demand in a new way. Distributed energy generation, and retrofitted buildings too, are a threat to a company whose ‘for profit’ divisions are totally invested in natural gas projects. Efficiency and solar on-site reduce grid demand.

    Here is what the company says in defense of the $5+Billion Atlantic Coast Pipeline. ‘The need for the pipeline will only grow as energy demand is expected to increase by 165 percent by 2035″, Leopold said, “while the region lacks the infrastructure to meet even current demand.” In fact as the Commonwealth article says … “smarter and more efficient electricity use is causing demand to decline, benefitting customers who no longer have to pay for an ever-larger system, but threatening utilities whose profits accrue from building and maintaining infrastructure.“

    The to be built pipelines will assure that we continue to require lots of natural gas and high grid demand. “Combined, the seven projects — would be capable of transporting around 12.25 billion cubic feet of gas per day from the Marcellus Shale region. According to data from the West Virginia Department of Environmental Protection, that volume is more than four times the amount produced by the entire state of West Virginia on average in 2014.”
    http://www.wvgazettemail.com/article/20151010/GZ03/151019995#sthash.oOQ9LU4E.dpuf

    Demand for grid electricity in VA has actually been flat and now that storage is coming on line, and is becoming financially viable in different parts of the country, we need to see that customers in VA have options for financing and for a variety of ownership models or Virginia will be stuck with an expensive central system. Policy leads. The utilities will not, although Rocky Mountain Institute’s E-Lab has been trying to bring stakeholders together. They believe that is the real way forward and they don’t want to see customers dropping off the grid in order to take advantage of clean energy.

    Options for Virginians, in addition to PPA’s, could include … A Green Bank, backed by the state but involving our banks, would support commercial PACE (Property Assessed Clean Energy) lending. Community Gardens that let people buy just a few panels installed in a cheaper way. Residential PACE loans can actually occur with home whose mortgages are not purchased by Fannie, Freddie or the FHA who have blocked the residential PACE market. PACE is a better financing model than capital leases although leases are now available in some quarters, something that was not true a few years ago. Some banks remain skeptical of the savings from efficiency improvements and solar, but a capital lease does work for lower cost items as its payback time frame is shorter than PACE.

    I hope the information throughout this whole article, including taking another look at the real value of distributed solar, will help more understand why Virginia needs to change … NOW!

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