After two controversial attempts to change net metering policy in San Antonio, CPS Energy, the utility serving the city, thinks it has found a new incentive model for solar that local installers can support.
Rather than trying to adjust net metering by adding fees or a new way to calculate solar's value, CPS wants to overhaul solar support structures completely. And it’s looking to the wholesale market for inspiration.
Under a pilot plan proposed earlier this month, CPS would create a competitive bidding process for residential and small commercial power-purchase agreements (PPAs). The systems would be hosted on customer rooftops but connected to the grid on the utility side of the meter. CPS says the plan will drive down pricing, help it account for fixed grid costs and also provide an opportunity to deploy smart inverters for grid support.
“Why does the wholesale market work? Because it’s so predictable,” said Raiford Smith, the vice president of corporate development at CPS. “Power-purchase agreements lock in a utility to buy a certain amount of energy and the developer gets a steady pipeline of work. That's what we modeled it after.”
Net metering also provides that needed consistency, say solar installers. However, CPS and many other utilities argue that net metering payments, which are based on retail rates, do not reflect the cost of maintaining the grid.
CPS Energy’s PPA program would set up an independent body to create a bidding platform and provide customer acquisition support for local installers. Those installers would compete to enter into long-term energy supply contracts with CPS, just as an operator of a large power plant would. Installers would own and maintain the systems, and the customer hosting the system would get a credit on their monthly bill. Installers could also bundle various projects through the third party managing the procurement.
The proposal would strip ownership of solar from customers, which worries many installers. But it would also allow CPS to target low-income customers, thus expanding the market in a more equitable way.
Details about the bidding process, PPA terms and the value of bill credits still need to be worked out. But CPS is touting the plan as a win-win-win for everyone.
“We think we came up with a plan to satisfy all parties,” said Smith. “This allows us to recover fixed grid costs, create stable pricing and a large pipeline of projects for installers, while also reaching new customers with a third-party offering.”
Divided opinions
Net metering wouldn’t be replaced immediately. The utility would still offer rebates and pay customers retail rate for solar electricity through at least 2015.
For that reason, the local solar industry hasn’t come out against the plan. But installers are divided -- particularly among those who don't want to see a complete end to net metering or traditional rebates.
“Opinion is split. It’s split between one group of companies that says the plan will severely restrict their ability to make a profit. But another group says it will provide opportunity to develop more projects,” said Lanny Sinkin, executive director of Solar San Antonio, a nonprofit that represents the local solar industry.
Solar San Antonio has come out in favor of running the pilot, but the group is adamant that net metering must stay in place.
Comments from the organization's members range from disgusted to cautious to supportive.
"This is an incredibly concerning development," wrote one member in comments to Solar Antonio. "CPS is suggesting that in a year's time, the only DG solar that would be deployed is that for which the utility has issued an RFP. That is a death knell to the industry."
Another member supported the idea in theory, but worried about utility control over the industry: "In general, I don’t oppose a PPA concept....[but] what appears to be manifesting here is a monopoly, single-provider concept in the distributed arena."
Others expressed the need to be flexible and work with the utility: "As proponents of the equitable expansion of solar energy, we see this as a potential solution."
At this point, there are far more questions than answers about the proposal.
Local installers would need to become third-party service providers able to guarantee the output of a system over fifteen or twenty years in order to maximize the PPA. That adds new business complications related to operations and maintenance. Installers would also need to find investors who can monetize tax credits, thus adding another layer of financing requirements.
CPS Energy will have to create a new bidding platform, which could take up to eight months. And if it takes too long for installers to secure PPAs when the program is up and running, some worry that it will hurt their sales cycles.
Even as some worry about the details, solar advocacy organizations say they're not opposed to the idea of competitive bidding.
"There's nothing wrong with a utility issuing an RFP to buy wholesale solar. In fact, they should be encouraged to do so," said Adam Browning, executive director of Vote Solar. "But doing so should not supplant or replace an energy user's ability to install solar and use the electricity onsite."
Vote Solar recently put out a policy guide outlining its take on how to create fair promotion policies for solar. Keeping policies in place that allow for customer ownership is a central theme.
Long term, that's the main sticking point related to CPS' proposal for wholesale distributed solar. If it's used in conjunction with net metering, the firms that make up San Antonio's solar industry seem willing to go along with the plan. If it completely supplants the policy, they are much less enthusiastic.
Solar San Antonio's Sinkin said he hopes CPS will also consider other pilots, such as on-bill financing or a minimum bill that might help the utility recover fixed costs, while also allowing customers to own their systems.
CPS Energy is not yet ready to kill net metering, but it seems set on the PPA model. The utility hopes the successful bidding process will convince solar installers to eventually move beyond net metering as part of a compromise.
"We wanted to make sure we didn’t have a jarring transition from net metering to this PPA model. We agreed to pilot the PPA through next year. At the same time, we’d concurrently run net metering. This makes sure PPA terms and conditions are workable and the industry can adjust to this new world," said CPS Energy's Smith.
Figuring out exactly what that "new world" will look like is causing a lot of fear among installers. But many seem willing to try the new pilot out and work collaboratively with CPS.
"I believe, based on conversations with the leadership at CPS Energy, that they truly want to become No. 1 in distributed solar. If that is their goal, then they have no motive to use the RFP process to limit deployment," said Sinkin. "Again, we shall see how the PPA unfolds."