Vermont regulators cut incentives to switch to solar energy

A new report says solar energy has saved Vermonters $79 million and New Englanders $1.1 billion in just six years. 

That narrative runs counter to the long-running contention from utilities that solar development is driving up retail electricity prices for ratepayers. The study by Synapse Energy Economics, an environmental research and consulting firm in Cambridge, Massachusetts, was commissioned by three solar industry groups: Renewable Energy Vermont, Vote Solar, and Clean Energy NH. 

The state's largest utility, Green Mountain Power, and the Vermont Public Power Supply Authority say the Synapse study is based on inaccurate assumptions. 

In a recent review of net-metering rates, state officials agreed, and the Public Utilities Commission did not allow the report into the public record. Last month, the commission subsequently lowered net metering rates by 3 cents. Net metered solar operators are currently paid between 13.4 cents per kilowatt-hour to 17.4 cents per kwh. 

Solar industry officials say the rate change and the end of federal solar tax credits next year will hurt expansion of solar in Vermont and will likely lead to the loss of jobs in the sector. 

Because of incentives offered by the state and federal governments over the past decade, solar development has mushroomed quickly and now generates about 7% of Vermont's electricity needs. That’s enough to power 58,000 homes. Much of that electricity comes from the state's net-metering program, which allows public utilities to pay individuals and companies for solar electricity.

Patrick Knight, the lead author of the Synapse study, explained that when more small-scale “behind the meter” solar energy is produced, less electricity is purchased from the grid. “Behind the meter” includes residential solar installations and other installations designed for a single building or facility. 

Knight says everyone benefits from solar. “When solar operates, it reduces electricity prices,” he said. 

The decrease in demand from the grid then leads to a lower cost of electricity for all consumers because there is no longer a need to run the most expensive types of power plants that run on natural gas, oil and coal, Knight said. Natural gas accounts for about half of the electricity used in the Northeast in a typical year. Over the past five to six years, the price of natural gas has ranged from as high as $13 per thousand cubic feet to as low as $2. 

“One of the main points of my study is that natural gas has a price. You have to buy the gas that you burn in a power plant. So it’s zero compared to something that costs money. Regardless of the cost of natural gas, high or low, you’re comparing it to something that’s free on an hourly basis,” Knight said. 

Knight says his study should be considered alongside existing information. “The price effects we’re talking about in this study are usually not accounted for. If you did account for them, then perhaps the cost impacts on people who don’t have solar would be lower or maybe even negative. I can’t say for certain that the cost impacts would go away entirely, but you should consider the benefits,” he argues. 

Olivia Campbell Andersen, executive director of Renewable Energy Vermont, says that, based on Synapse’s findings, savings were about $150 per household in Vermont in 2019. “If not for local solar, electric rates would be higher for everyone,” Campbell Andersen said.

Less carbon dioxide

The Synapse report calculates that solar in New England cut carbon dioxide pollution by 4.6 million tons in a six-year span, roughly the equivalent of 1 million fewer cars on the road. Carbon dioxide reductions from solar in Vermont last year were the equivalent of taking 42,000 cars off the road. 

Solar experts also point to the public health benefits of solar, which is replacing energy that would have otherwise come from fossil fuel-fired plants. The Synapse report places an $87 million public health value on the use of solar over six years in New England, in addition to the $1.1 billion the report attributes to wholesale energy market benefits.

“Things like asthma, premature mortality, heart attacks, those are things real Vermonters have because of pollution,” Knight said.

James Moore, one of the co-founders of SunCommon, the largest solar company in Vermont, says the PUC's rate reduction is a significant disincentive for local solar development at a time when emissions reductions should be higher. Moore said the report puts the regional debate about the value of solar to bed, “clearly showing that utilities are getting more than they pay for when homeowners and businesses go solar across New England.”

“We are addressing a climate crisis, and here in Vermont we’ve had this increasingly go-slow approach,” Moore said. “It’s time to put the pedal to the metal and get policies in place to accelerate this clean energy transition.”

Darren Springer of Burlington Electric said policy conversations tend to focus on net metering, but “for the future, we need an even greater focus on those types of technologies that reduce emissions from transportation and thermal,” which are the largest sources of carbon dioxide pollution in the state.

Accuracy of report questioned

Utilities maintain that net-metering is driving up retail electricity prices, a concern the PUC shares. Every two years, the Vermont Public Utilities Commission reviews the rates that utilities pay for net metering. 

When individuals go solar, they are producing their own energy, instead of buying it from a utility. So utilities lose out on electricity sales and their market share decreases. And, because the cost of the electricity supply is spread among fewer people than in the past, the per-customer price goes up.

The commission has raised concerns about equity issues related to net-metering. In Vermont, the Department of Public Services found that residents of higher-income communities were more likely to have solar panels than lower-income towns. Incentives had to be reduced to lower the cost of net-metered power, the commission said. Maintaining the current incentives would shift "even more costs to ratepayers who do not net-meter and further increasing statewide electric rates.”

Kenneth Nolan, general manager of Vermont Public Power Supply Authority, which represents municipal electric companies, said his members are “losing money on every product you’re selling” by paying more for a product than it’s worth.

“We’re seeing cases where a utility’s retail rates are set at 16 cents, and they may have a person putting solar on their home for close to 18 cents,” Nolan said.  

Moore disagrees and says taking too narrow a view of solar benefits is problematic. “It makes sense to pay a little more for 5% of your electricity if you’re going to save on 95% of your electricity,” he said.

When Renewable Energy Vermont tried to submit the Synapse report as documentation for the commission’s consideration, utilities raised questions about the accuracy of the report. The study focused on the sunniest summer season and painted too broad a brush across the region, Nolan said. 

“In the initial document, one of the things we started with was an examination of only summer hours,” Knight said. But he said, the final version of the report takes into account all of the weeks in the six-year period. “Where we landed for the final report is we looked at all of the weeks and all of the years between 2014 and 2019,” he said.

Nolan also had concerns with the methodology and the conclusions. “Two-thirds of the benefits they were showing was related to emissions, which are not reflected in the markets."

The published report attributes $1.06 billion in savings to the combined savings of lower rates and decreased demand. It also calculates $515 million in climate benefits, using $112 per metric ton in the “social cost of carbon.” 

New data this summer

In a letter to the public utilities commission, Green Mountain Power also detailed concerns about the report. 

“The Synapse Report itself notes that it contains only ‘initial findings’ based on ‘preliminary estimates of solar savings in New England,’ making clear that additional work would be needed to verify the accuracy of the assumptions and findings if it were accepted as a filing,” the letter states.

GMP also points out that the report doesn’t factor in the costs associated with solar construction in its calculation of savings. It argues that by ignoring other long-term renewable and “low greenhouse gas sources common to distribution utilities,” that the report “is potentially significantly overstated for Vermont.”

Knight said that this was a choice he made in the scope of the analysis. “My whole focus was that nobody has ever done an hourly look at the benefits before,” he said.

Many cost-benefit studies have been released over the years, but Knight says that his study, which uses hourly data points from ISO-New England, is only possible now because of data published for the first time this summer.

“It’s the regulator’s job to take into account different studies that take into account cost and benefits and be thoughtful about how those get combined,” Knight said. 

While the study uses regional prices for electricity, it includes Vermont-specific data about demands as well as hourly solar production in the state. 

The Vermont Department of Public Service, which regulates utilities, recommended that the PUC not include the Synapse report in the review of net-metering rates. 

“One concern is that the Synapse report only looked at the highest-value weeks for solar and then made a blanket attribution. It never looked at the fact that solar gets paid all weeks out of the year,” said Ed McNamara of the Department of Public Service.

“It was putting a thumb on the scale to begin with,” McNamara said. 

According to Campbell Andersen of Renewable Energy Vermont, the version of the report filed with the state was preliminary, and Synapse was able to incorporate some of the feedback into the final version of the report. The published version of the report does not only look at the highest-producing week, but “it’s actually extrapolated over the year and that weather normalization is taken over the year.”

“It’s really key to keep in mind the basis of that report, which is that it was commissioned by and paid for by the solar industry in order to promote the solar industry and solar industry profits,” said Kristin Kelly, a spokesperson for Green Mountain Power.

Solar slowdown likely

After a review of the solar program, Vermont’s Department of Public Service recommended that the Public Utilities Commission reduce solar incentives, which are also called “adders,” by 3 cents. SunCommon estimates the average household investing in solar would earn $3,000 less. The cuts would be phased in. The rate would be reduced by 2 cents per kilowatt on Feb. 1, 2021, and by an additional 1 cent on Sept. 1, 2021. 

The federal incentive, or the Federal Solar Tax Credit, is shrinking, too. At the end of this year, the credit will drop from the 2020 rate of a 26% credit to 22% for systems installed in 2021. In 2022, a credit won't be offered at all.

“That’s really going to hurt residential, individual Vermont homeowners that want to go solar,” Campbell Andersen said of the cuts. She said she expects to see a slowdown in solar development next fall, and job losses in the solar sector in 2022 as a result of these changes. 

She said that specific policy conversations for the upcoming legislative session are still taking shape, but “we’d like to see some intentional policy towards making sure every Vermonter can participate and benefit.”

“We’re going to see a lot less activity when these rates kick in,” said Jim Merriam, CEO of Norwich Solar Technologies. He expects a “significant decline” in both residential and commercial solar projects. 

Merriam acknowledged concerns about shifting the cost of solar to low-income Vermonters, but he said that policy should be focused on making solar accessible to those who can benefit from it the most.  

“It doesn’t benefit low-income Vermonters to not participate in a program that can save them money,” Merriam said. Half of Norwich Solar Technologies’ projects went to organizations that provide affordable housing to Vermonters, he said, but financing these projects and providing discounts will become more difficult because of the federal and state cuts.

 Grandpa’s grid

Old infrastructure is another limiting factor for solar development. In some parts of Vermont, the grid is too old to handle additional capacity from new solar projects. 

The PUC held a workshop on Dec. 1 to discuss the Sheffield-Highgate Export Interface constraint. Because the system capacity is limited, only so much energy can be produced at a certain time and solar projects have been put on hold until the grid can be updated. 

“From time to time, generation resources in the northern tier are required to curtail their output due to the lack of capacity to export power,” according to the Vermont System Planning Committee website.

Campbell Andersen, who runs Renewable Energy Vermont, says grid capacity issues are separate from the broad benefits that solar delivers in the region.  

“Upgrades are underway in that section of the grid that’s going to alleviate the large majority of the constraint,” Andersen said.

Dan Clapp of ReVision Energy says public policy determines whether the solar industry will create more jobs or lose them. The latter is what’s happening in New Hampshire, where solar installations have been decreasing since their peak in 2016.

“Our legislators need to work to improve on policies, now that we know from this report it will result in millions of dollars of ratepayers’ savings, not work to tear them down,” he said.