State officials want to restructure the way solar power producers are reimbursed for their electricity, saying the existing system rewards the wealthy and burdens most ratepayers unfairly.
Net metering, a system that pays corporations and individuals more for their renewable power than the retail cost, has triggered a burst of solar installations in Vermont, from almost nothing in the early 2000s to more than 300 megawatts today — enough to power roughly 60,000 homes.
The number of new net metered solar installations has leveled off over the past two years, but Vermont has one of the highest amounts of small-scale power generation compared to electricity usage in the country. Nationally, Vermont is ranked 25th for total amount of solar installed in-state.
Despite the drive to have more renewably sourced energy and reduce fossil fuel use, the state Department of Public Service thinks the payment Vermonters can now receive for installing residential solar should be cut almost in half, largely to prevent cost shifting to other ratepayers.
Background
The Vermont Public Utility Commission, the three member quasi-judicial panel that regulates utilities, opened a formal review in March of the net metering rule, seeking to streamline its approval process and clarify previous rule changes.
Net metering — enshrined by the Legislature in 1998 — allows homeowners and businesses who install up to 500 kilowatts of renewable energy to offset the electricity they use with the power they produce and, if there is extra, get paid for power going back to the grid. The vast majority of net metering projects in Vermont have been solar.
Proponents say net metering has promoted the construction of in-state solar generation, helping meet the state’s emissions reduction goals, reduce peak demand and support a thriving clean energy economy.
Vermont utilities are subject to a renewable energy standard, which requires utilities to procure 75% of their electric sales from renewable sources by 2032, with 10% of that coming from in-state, small-scale generation. Lawmakers are considering bumping the renewable energy standard up to 100% while increasing the amount of in-state generation utilities must procure.
But critics of Vermont’s net metering system say it disproportionately burdens regular ratepayers while rewarding the wealthy and large corporations like Killington resort. The state’s largest ski area, owned by the Utah-based POWDR, generates solar energy on its rooftops and in fields in Addison County and sells it back to the electric utility at higher-than-market rates.
Vermonters for a Clean Environment, a small Danby-based nonprofit run by activist Annette Smith, said in a PUC filing that large arrays that do not serve local customers benefit “wealthy investors with high passive income” seeking to take advantage of tax credits.
“This rarely disclosed practice is enriching the wealthy at the expense of ratepayers who are paying the above-market rates given to net-metered projects,” it wrote.
In 2011, Vermont passed a law setting net metering compensation at 19 to 20 cents per kWh depending on the size of the system. After a few subsequent reductions, net metering compensation for new systems dropped to around 14 cents to 18 cents this July.
Meanwhile, the state’s most recent round of contracts awarded under the standard offer program, which requires utilities to enter into long-term contracts for a certain amount of in-state renewable electricity from developers, will pay between 8 and 12 cents per kWh for larger solar projects. And last year, the average cost for wholesale electricity purchased from grid operator ISO New England was between 4 and 5 cents per kWh.
The Department of Public Service thinks the significantly higher payment for net metering is no longer needed.
“We wanted small distributed generation, so we introduced incentives … the issue then is when do you get to the point of saying, actually, you are a mature industry now, you don’t need this anymore,” said Ed McNamara, director of the department’s regulated utility planning division. “We have passed that point, we passed that point a while ago.”
Net metering review
Adjusting the system will be a long and complex task.
While the PUC initially focused its proposed changes to the net metering rule on streamlining the approval process and clarifying what a “preferred site” means for solar developers, the commission decided this summer to also review how net metering is compensated. One of the goals of the net metering statute is that the program not “shift costs” to non-net metering customers.
In August, the PUC asked utilities, solar companies, state agencies and other interested parties to answer specific questions about costs and benefits of net metering and criteria for assessing preferred sites. Comments were filed this month by electric utilities, multiple solar companies, trade group Renewable Energy Vermont and nonprofit Vermonters for a Clean Environment.
Washington Electric Cooperative, which serves 11,460 customers in rural north-central Vermont, estimated that net metering cost non-participants $798,508 in 2019. The state’s largest electric utility, Green Mountain Power, estimated that the 263,515 MWh of net metering generation installed in its customer territory will lead to $33 million in cost shifting in 2020 — equivalent to 5% of its total annual cost of serving customers.
In testimony to the PSD, Vermont Electric Cooperative estimated that the existing compensation rate will cost it about $2.5 million more than the power is valued. That difference is expected to be $2.3 million in 2020.
Both utilities and PSD say there’s now an unfair cost shift associated with net metering. By analyzing the number of residential net-metered solar arrays per household in towns around the state, the PSD determined that residents of higher-income towns are more likely to have solar panels than those in lower-income communities.
“This inequitable distribution of the benefits of net metering makes the cost shift to non-participating customers more problematic,” the department said in a Nov. 1 filing.
In that Nov. 1 filing, the department proposes allowing new net metering customers to net out their consumption and generation on a monthly, not annual, basis. Excess generation fed onto the grid would be compensated through a bill credit at a 10-year price of 9 cents per kWh. (The compensation rates for net metering customers would remain the same.)
The department says that the “current compensation structure encourages significant over-generation” during the summer, when wholesale electricity in New England is relatively cheap and clean.
Solar growth levels off
Since 2012, Vermont’s solar generation has expanded dramatically, with much of the growth coming from net metering, according to installation data reported by utilities to grid operator ISO New England. In 2010, Vermont had a total of 5.06 MW of net metered solar installed; in 2018, that figure had increased to 196.21 MW.
That expansion has created an industry of solar companies like SunCommon and Encore Renewable Energy, which have grown rapidly in recent years by installing solar arrays. The Waterbury-based SunCommon, Vermont’s largest solar installer, has 160 employees and is expanding geographically, recently acquiring a business in Rhinebeck, New York.
State officials want to move carefully, mindful they could damage a fast-growing industry that employs an estimated 6,000 people in Vermont.
“We do have concerns about just changing the structure entirely and essentially putting thousands of people out of work,” McNamara said. “Those are good jobs, so the department is definitely concerned about a very abrupt change that would have pretty significant impacts.”
Starting in 2017, the amount of new metering solar capacity installed started to level off and 2018 saw the first decline in the history of the Vermont program.
SunCommon has seen its own Vermont business level off, though it’s still seeing growth at its outpost in New York state, said co-founder James Moore.
The PUC, at the direction of the Legislature, significantly overhauled net metering in 2017, in part to slow down solar development in the state. One of the major changes was that systems larger than 150 kW must be built on “preferred sites” — like landfills, gravel pits, quarries, brownfields and parking lot canopies.
That change and a slight decline in net metering compensation last year contributed to the recent decline in annual installed solar capacity, say solar developers and the Department of Public Service.
Moore said SunCommon supports the reduction of the net metering benefit.
“I actually think that’s good and appropriate,” he said. Reducing power costs for everyone, he said, will ultimately promote more environmentally sustainable choices. “We think it should continue to be reduced in a measured way to reflect the reduction in equipment costs and operational efficiency.”
Renewable Energy Vermont director Olivia Campbell Andersen argues the reduction stems from a “shrinking pool of investors” willing to inject capital due to regulatory uncertainty in Vermont, which in turn means fewer jobs and slower progress toward clean energy goals.
Developers and REV also say in PUC filings that increased distributed generation improves the grid’s resiliency, pays for needed grid upgrades and lowers ratepayer costs by reducing peak demand.
Norwich Solar Technologies, a commercial and municipal solar developer, takes issue with utilities’ claims that net metering is costing customers, noting in a filing with the PUC that Green Mountain Power’s power supply costs have actually decreased by $33 million in the past six years, factoring in bill credits for net metering customers.
Decline of community solar
One sector of net metering that has been particularly hard hit by rule changes in the past couple of years: community solar.
Around five years ago, some solar companies in Vermont started developing group net metering projects that allow Vermonters who rent apartments or have unsuitable properties for solar to pay into a remote solar array and receive credit on electric bills.
A 2018 report from the Vermont Law School described community solar as an “important avenue for participation” in solar projects for low- and moderate-income Vermonters.
“Both the lower cost and the ability to buy fewer panels help make community solar more accessible to low-income individuals so they can reduce their electricity bills and reduce their carbon emissions,” states the report.
Moore, of SunCommon, said the company started offering community solar in 2014 and had around 700 participating households. But changes to the net metering rule and increased permitting costs have stopped SunCommon from pursuing new community solar projects in Vermont.
One major change disallowed solar arrays over 150 kW on farm fields unless the landowner was using more than half of the electricity generated. And last year, Dummerston-based community solar firm Soveren Solar closed up shop.
“True residential community solar was kind of collateral damage when the PUC made changes to Vermont’s net metering program a couple years ago,” Moore said, whereas “really big arrays that had a single participant like a town or a big business could still move forward because they had a different economy of scale.”
Some Vermont solar companies are still developing larger net metered solar projects for businesses, municipalities and school districts. Last year, lawmakers passed a law, Act 81, that raised the cap of net metering projects for schools from 500 kW to one megawatt.
However, virtual solar projects for businesses and other entities have taken a hit as well, developers say. Gregg Beldock, CEO of Bullrock Corp., has developed over 30 MW of solar projects in Vermont, mostly for commercial clients. He used to employ hundreds of people in Vermont; now, due to declining reimbursements and other rule changes, he has moved almost all of his solar development over to New York.
“If you have high rates on day one … and then you change those rates and you don’t expand the size of the project you can build, you limit the size of the project, you’ve now created a reverse economy of scale,” he said, adding later, “Putting individual solar on everyone’s households, it’s a nice ethos … but it’s not an efficient way to become renewable.”
Beldock also thinks regulators erred in capping the total amount of net metered solar a single entity like a hospital or business could obtain.
David Blittersdorf, a longtime renewable energy developer who founded AllEarth Renewables, doesn’t want to see the compensation change. He, too, said he wants the Scott administration to show more support for renewables.
“I believe the PSD is basically against the success of net metering,” said Blittersdorf. “Businesses in solar are decreasing; we’re in trouble. For them to say, ‘They’re going to knock your rates down again,’ they just basically want to put us out of business.”
How necessary is net metering?
While Vermont has a stated goal of reducing greenhouse gas emissions over 50% by 2018, emissions have actually been rising in recent years. Solar developers say net metering is crucial to curbing emissions.
Williston-based AllEarth Renewables said in a PUC filing that a “truly electrified, renewable energy-powered economy will require a vast increase in electric demand and the generating facilities needed to meet that demand.”
But electricity only accounts for 10% of the state’s greenhouse gas emissions — far below the national average of 28%. The bulk of the state’s emissions — almost 70% — comes from transportation and heating. In a rural state with long winters, lowering emissions from those sectors has proven difficult. Agriculture, meanwhile, contributes to 11% of the state’s emissions.
The Department of Public Service argues that the higher cost of net metering actually holds Vermont back from meeting climate goals, which hinge on switching from fossil fuel-powered vehicles and heat to electric alternatives.
“Given that customers are much more likely to switch to electric technologies if the economics favor this decision, the cost of electricity will have a significant impact on the pace of electrification,” states the department in its Nov. 1 filing.
Yet Vermont does need more in-state renewable generation to meet requirements of the renewable energy standard — a lot of it.
As of the end of last year, Vermont had 306.30 MW of solar installed, according to grid operator ISO New England. If utilities were to meet their in-state renewable requirements, that would require 345 MW of additional in-state energy generation to be installed by 2032, according to the PSD.
There is no requirement what the mix of renewables must be to comply with the requirement.
Tier 2 of RES caps project size at 5 MW. Standard offer program caps projects at 2.2 MW.
“We fully expect that net metering would be a component going forward,” said McNamara, of PSD.
Utilities have started to partner with developers to build their own solar projects, in part to meet the renewable energy standard. And while new net metering installation have declined in recent years, 2018 saw the largest amount of solar installed by utilities to date, according to a report from the Solar Energy Industries Association.
In the past few years, Green Mountain Power has built multi-megawatt solar arrays paired with battery storage in Essex, Ferrisburgh, Milton, Panton and Rutland, which it says saves customers money by allowing the utility to draw on stored energy during summer peaks. And Vermont Public Power Supply Authority has been working with its member municipal utilities to build solar in their customers territories, said Ken Nolan, the authority’s general manager, in an interview this summer.
“They’re under great pressure to build these projects to avoid the future impact because the renewable energy standard standards, they start out fairly low … but it ramps up quickly,” he said.
What’s next
Rep. Sarah Copeland-Hanzas, D-Bradford, said in an interview in September that the Climate Solutions Caucus will introduce a bill next session to require utilities to procure 100% of their electricity from renewable sources, with a greater share coming from in-state generation. As it stands, electric utilities meet a large portion of the renewable requirement through buying out-of-state renewable energy credits.
“Buying hydropower from Hydro Quebec or offshore wind from Massachusetts is renewable and it’s better than natural gas or coal powered plants,” she said. “But it does not improve Vermont’s economy to be buying from out of state.”
While he supports continued reduction in compensation rates for distributed electricity generation, Moore, of SunCommon, said he hopes to see Gov. Phil Scott’s administration reduce the permitting hurdles that have been put in place for larger renewable systems.
“Our governor talks about economic development,” he said. “I would hope that the administration would take a very cautious, measured approach to further shrinking the solar industry in Vermont.”
The net metering rule view can be viewed on the PUC’s online system under 19-0855 RULE. Another round of comments will be due in December, said Jake Marren of the PUC.
Clarification: An earlier version did not not make clear that the department’s proposed changes to net metering compensation would only apply to new systems.