Why The Sun Isn't Free – By Joel Aaron Foster

May 14, 2014 by AFP

Georgia residents could see their energy rates go up as a result of two bills that will likely be revived in some form next session in the Georgia legislature. The two bills are: HB 874, The Solar Power Free-Market Financing and Property Rights Act of 2014 and HB 657, The Rural Georgia Economic Recovery and Solar Resource Act of 2014. While there is nothing inherently wrong with solar or any other renewable form of energy, these two bills effectively create an arrangement in Georgia that forces utility customers without solar panels on their property to subsidize those with them – a system often referred to in industry speak as “net-metering.”

While proponents of the bills have chosen verbiage that presents these ideas as “Free-Market”, the effect the bills would have are anything but. In fact, residents of states that have enacted similar net-metering legislation have seen their energy rates go up with the burden of higher payments shifted onto a disproportionate amount of the population. Not only would this net-metering policy in Georgia harm residents, it would effectively pick winners and losers in the market – harming the state’s economy as a whole.

Over the past decade, many Georgians have increasingly installed rooftop solar panels, commonly referred to as distributed generation (DG) sources. In fact, Georgia has added “so much solar to the power grid this year that the state could rank in the top five for solar installations by the end of 2014.” Clearly, Georgia doesn’t need to incentivize additional solar and net metering is not the solution.

Net-metering policies give customers that use solar energy systems (solar-customers) a credit at the full retail electric rate for any excess electricity they generate. That retail rate includes not just the price of generating power but also the fixed costs associated with the transmission, distribution and overall maintaining of the electric grid that all electric consumers rely on. Anyone that’s been in business knows that you can’t buy your product at retail, sell it at retail and stay in business very long. Customers that generate some of their own power avoid paying some of these costs because of the way rates were originally designed. And electric companies are forced to buy back any excess power at prices grossly above the wholesale prices they would pay absent this special sweetheart deal.

Even though solar-customers produce their own power, they must remain connected to the grid to buy power when their systems are not producing. Solar-customers are often simultaneously selling electricity to electric companies on the grid. Thus, solar-customers are benefiting from the grid at a rate almost double that of non-solar customers. The result is that solar-customers avoid paying their fair share of the costs of maintaining the grid, even though they benefit from the grid the most. In turn, the costs of maintaining the grid are shifted almost solely on non-solar customers. Add to this the perverse incentive of solar install companies now offering solar financing models, complete with long term contracts, in order to access taxpayer funded federal subsidies, and the cost to non-solar customers becomes two-fold.

The negative effects on electric companies and residents of states that have net-metering policies in place are similar across the board. For example, in Wisconsin, the average retail price of electricity paid by utilities under net-metering policies is “400 percent more” than the wholesale price would be. In Arizona, a recent study by Arizona Public Service found the amount paid by solar-customers is “actually below the utilities’ costs of serving those customers.” Thus non-solar customers are paying higher prices to cover the costs associated with this disparity. The study also found that under net-metering policies, utilities in Arizona pay triple the amount they would pay in the competitive market place.

In Hawaii, customers of Hawaiian Electric saw their rates explode in 2012 when “the fixed costs of that utility’s operations were being unfairly shifted from solar-adopting customers to those without solar panels. A handful of the utility’s customers installed 30 megawatts of nameplate generating capacity from solar panels, in turn “saving themselves about $7.4 million in electricity costs.” Inevitably, $7.4 million in lost revenue had to be replaced and non-solar customers were burdened with a rate increase of 1.7 cents per kilowatt-hour.

Similarly, California utilities recently experienced a revenue shortfall “totaling more than $1.3 billion today and growing.” Non-solar customers of San Diego Gas & Electric are now absorbing $20 million per year in additional costs. Non-solar customers of Pacific Gas & Electric, the state’s largest utility, will also soon be forced to pay “an additional $700 million per year” because of the cost-shifting effect of net-metered policy. Furthermore, a recent California study found customers of California utilities who do no install net metering devices “will pay an extra $1.1 billion” in shifted costs each year by 2020. These examples illustrate how policy changes giving a preference to one politically favored group of power users creates a situation where the lion’s share of customers are forced to subsidize their neighbor’s electricity bill every month.

Energy freedom means, among other things, an individual’s freedom to choose their own energy source – including renewable sources like solar – without putting undue burden on other rate payers. Net-metering has proven to be failed policy already in a number of states and there is no reason the results in Georgia would be any different.