In Alabama, You Could Pay the Utility $9,000 for Having Solar on Your Roof

As residential solar markets go, Alabama is about as small as you can get. 

Among the 43 states plus Washington, D.C. that GTM Research tracks individually, it ranks 42. It has just 1 megawatt of residential systems installed. According to GTM Research solar analyst Austin Perea, it’s hardly “a blip on the radar.”

“In the realm of what’s happening in residential solar, I’d say what’s happening in Alabama may be the least important thing,” said Perea. 

How did the state win that distinction? Through a mix of regressive policies.

Alabama doesn't have net metering, but it does have a fixed fee on any residential installations in Alabama Power’s service area, which covers the southern two-thirds of the state.  

“I’d say it’s particularly regressive that they don’t have net metering. It’s middle-of-the-road regressive with respect to the fixed charges,” said Perea. “The more regressive element of their approach is not having a mechanism by which you can export energy back to the grid and still get the full retail rate. In most markets that is the primary revenue by which you can make solar economic.”

“The markets that see growth in residential solar are the ones that have enabling policy, the ones that allow folks to have some economic benefit,” he added. 

Alabama is one of just three states, including Tennessee and South Dakota, that doesn’t have a net-metering policy. Alabama Power, the state's largest utility, does not offer retail rate net metering. The fixed fee makes the economics worse. 

“There’s not any real value proposition for actually going solar,” said Perea. “In most cases it would actually cost money.”

Wednesday marks the fifth anniversary of state regulators' approval of Alabama Power’s fee. It requires some solar-generating customers to pay $5 per kilowatt each month (according to Alabama Power, whether or not a customer pays that fee depends on their rate). For a 5-kilowatt system, that equates to $25 a month, $300 a year, and $9,000 over an installation’s possible 30-year lifetime. At the current national average price per watt of $2.92, a 5-kilowatt system costs $14,600. That fee adds more than 50 percent to the original cost.

The utility said it did not feel the fee had a significant impact on the state's residential solar market.

Several years ago, many states were in the same position as Alabama. Small markets such as Kansas and Louisiana considered net metering changes as utilities worried about their bottom lines. The American Legislative Exchange Council drove many of those efforts with prewritten legislation that would reduce net metering or add fixed charges. Ultimately, few of those efforts succeeded.

Not so in Alabama. 

“If Alabama Power set out to prevent the development of a rooftop solar market in its territory, it has absolutely succeeded with this charge,” said Katie Ottenweller, a senior attorney at the Southern Environmental Law Center. “As far as I’ve been able to determine, this structure, and this fee in particular, is the most punitive fee that has been adopted by any regulated utility in the country.”

Aside from the fee and lack of net metering regulations, the state also has no renewable portfolio standard. According to the Energy Information Administration, the state ranked 14th for net electricity generation from renewables in 2016. That calculation includes hydroelectric power, which accounts for 70 percent of the state’s renewable generation. 

Alabama Power pays for residents exporting solar back to the grid, but at below retail rates. The legality of third-party financing also remains murky in the state.

An Alabama Power spokesperson said the capacity charge protects all customers from unfairly subsidizing small solar providers and added that all customers with a power plant that want backup service, including some industrial customers, are responsible for the same charge. 

Alabama lies far outside the country’s top 10 solar markets, which make up about 90 percent of the country’s residential capacity. GTM's Perea said Alabama hits on the extreme end of states struggling to engage with the rapidly growing industry. Without the policy infrastructure in place, there’s basically nowhere for interested solar customers to go -- except off the grid. 

“We’re at this place where customers who go solar, not only are they surely being underpaid for their solar credits, but they’re really being punished,” said Ottenweller.

This post has been updated and corrected to reflect statements from Alabama Power.