Washington state was recently ranked No. 1 in the U.S. for combined wage and job growth. It was selected as a top state for technology and business innovation this year and is said to be the world’s center for coffee roasting. But when it comes to solar, Washington’s performance is just mediocre.
Some states, such as New York, have taken an ambitious approach to incorporating sustainable energy into their policy vision, while other states, such as Nevada, have become renewable energy policy battlegrounds. Washington state appears to be right in the middle when it comes to solar policies, earning a “C” grade on the 2016 Solar Report Card and ranked 25th best on solar policy in the nation.
Washington is also smack-dab in the center when it comes to solar deployment rankings. There are 76 megawatts of solar energy currently installed in the state -- 64 megawatts residential and 12 megawatts commercial -- which puts Washington 26th in the nation for installed solar capacity, according to the Solar Energy Industries Association (SEIA).
There are no statewide rebates available for solar in Washington. Instead, state policymakers have chosen to incentivize distributed solar adoption through a sales tax exemption on purchases of solar systems smaller than 10 kilowatts, and through net energy metering and a performance payment system for residential solar systems.
Under the performance payment plan, solar panel owners get paid for every kilowatt-hour of electricity their systems generate through 2020, on top of the money they’re saving by not needing to buy as much electricity from their utility in the first place. The performance-based program is a state-funded incentive that utilities can opt to administer on a voluntary basis.
Yet, as good as it may sound, utilities have highlighted challenges with administering the program. Not only does it place a significant administrative burden on the utility, but it also creates unrealistic customer expectations that utilities claim they're struggling to meet.
Fixing the performance-based incentive program could go a long way toward moving Washington state up the solar leaderboard.
What’s the problem?
The solar production incentive rewards Washington homeowners for the electricity their solar panels produce over time, giving projects a meaningful financial boost. In fact, the Washington Production Incentive has been targeted as the primary reason for Washington’s strong solar growth in recent years. According to the SEIA, the state installed 26 megawatts of solar electric capacity last year, up 85 percent over 2014.
Officially titled the “Renewable Energy System Cost Recovery Incentive Payment Program,” the performance incentive is managed by Washington’s Department of Revenue and is based on the total electricity produced by eligible renewable energy systems from July 1 to June 30 of each year through June 30, 2020 (with an extension possible when the current program expires). It was first enacted in May 2005 under Senate Bill 510. The program is largely targeted toward solar, but also includes wind generators and anaerobic digesters.
Incentive rates vary depending on project type (single-owned systems vs. community solar projects), technology type and where the equipment was manufactured. The producer base rate starts at $0.15 per kilowatt-hour and is adjusted by multiplying the incentive by different factors: 2.4 if your electricity is from Washington-manufactured solar panels, 1.2 if your solar or wind project is equipped with a Washington-manufactured inverter, 3.6 if both the panels and the inverter are Washington-manufactured, and 0.8 for all electricity produced by wind. This produces an incentive range from $0.12 to $0.54 per kilowatt-hour, which is capped at $5,000 per year.
To illustrate, an average 5-kilowatt residential solar system in Seattle costs between $15,000 and $25,000 before incentives, according to Seattle City Light. Assuming the system produces 5,000 kilowatt-hours per year, the customer can expect to receive a production incentive payment between $750 and $2,700.
So what’s the problem?
The production incentive is cutting customer costs, incentivizing solar in Washington and reducing emissions in the process. But things look different from the utility perspective. The problem is twofold: First, there are two different “caps” for the incentive program, which have created uncertainty for both utilities and customers, leading to inconsistent expectations. This feeds into the second part of the problem: the significant administrative burden and managing expectations.
It’s important to recognize that the production incentive is voluntary for utilities. If they choose to participate, which most do, they take on the administrative responsibility of managing the program, including the caps on incentive payments and reimbursements.
There are two caps: a cap on how much utilities can pay to customers with single-owned systems and a cap on how much utilities can be reimbursed by the state. The latter cap is a much bigger part of the problem.
“How does a utility be solar-friendly?”
The utilities pay incentives to customers by reducing the customer’s utility bill up to $5,000. In turn, they’re reimbursed with a tax credit from the government equal to the cost of those payments. However, there is an annual limit or cap on the state funds available for each participating utility. For payments to single-owned systems, the amount the utilities can receive via tax credit will only go up to $100,000 or 0.5 percent of a utility’s taxable power sales.
When a utility reaches its incentive cap, the state provides the utility with two options: 1) proportionally reduce the incentive payments to all solar customers or 2) stop accepting new solar applications for the state incentive program and continue paying customers already in the program the incentive at the current rate.
During the first few years of the incentive program, before utilities began reaching their caps, this wasn’t such a big problem. However, now that customer solar production has grown and utilities have begun to reach their limits, there is a lot of uncertainty for customers and utilities alike, creating dissatisfaction on both sides.
In the past, if a customer was certified, utilities could just calculate their production, multiply to find the payment, and then send off the customer’s payment application. Now that the majority of Washington utilities have reached the cap, they have to calculate the incentive payment rate for every customer before they can proportionally reduce any individual payment and send out applications.
This has put utilities in a difficult situation. “How does a utility be solar-friendly?” asked Leslie Moynihan of Puget Sound Energy, speaking at a Utility roundtable during the Washington State Solar Summit on October 15.
“Is it being ‘friendly’ to existing customers and their previous investments” to close the cap and keep the incentive payment existing customers were expecting? she continued. Or should the focus be on “being friendly to the growth of the industry locally and the new opportunities for all of our customers” by proportionally lowering the payment rate for each kilowatt-hour customers produce so that more participants can be included?
A moving target
Currently, 17 utilities, serving 71 percent of Washington utility customers, have reached their statutory incentive cap. A number of Washington utility companies have already been processing payment requests that exceed their incentive limits by as much as 30 percent.
In response, different utilities are taking different approaches. Eleven utilities, including Benton and Franklin Public Utility Districts (PUDs), are no longer approving applications. The other six, including Seattle City Light, Puget Sound Energy, and Jefferson PUD, are proportionally reducing payments to their generating customers.
“Last year, we had a big enough increase in solar installations that we had to reduce payments by 30 percent. But it wasn’t a question of whether or not to cut people off; that never even came up,” said Adam York of Jefferson PUD. “We don’t have any intention of going off the program for anybody. Our doors are wide open.”
However, even utilities that close the program to new customers are still susceptible to exceeding the limit. At the close of its 2015 fiscal year, Franklin PUD had 29 solar installations in its service territory. That number doubled during this past fiscal year. The utility closed its program to new participants in January 2016, and managed not to exceed its limit. But Puget Sound Energy's Moynihan noted that dodging that cap is a tricky process.
“Even if you close your program off to new participants, there’s no exact timing of it,” she said. “There are moving numerators and denominators: 0.5 percent of taxable sales is a moving target; production based on weather and total capacity is another moving target.”
“If someone asks, ‘Have you exceeded your limit?’ that’s not a yes or no question, because what they’re trying to ask is, ‘Do you have enough generating capacity installed so far that you could exceed the limit in production credit in a given year?’” she said.
In the case of Franklin PUD, the utility mustered its best guess and ended up not having to reduce payments this year. But even though it closed its program off for the upcoming year, it might still have to reduce payments next year since so much of the capacity was installed partway through 2016. In other words, the 2015-2016 payment didn’t capture all of the capacity that the utility has on its grid.
Mismanaged expectations
The fact that utilities don’t know the actual production amount until all production reads have been collected and their total taxable power sales have been calculated is an issue for Washington’s solar market. Not surprisingly, customers don’t like not knowing how much they’ll be paid -- and utilities don’t like guessing at incentive payment rates. When incentive payouts are lower than anticipated, expectations are not met, trust in the utility drops, and customer dissatisfaction increases.
“The hardest thing for me to hear from a customer is, ‘This was a bait-and-switch from the utility. I was promised 54 cents per kilowatt-hour,’” said Moynihan, who implied that not all installers and salespeople are being upfront with their customers about the possibility of reduced incentives. In fact, utilities have noted that many customers report being told they would receive a specific amount for per kilowatt-hour, when in reality that number is a moving target.
Mismanaged expectations that result in time-consuming reassurance calls to frustrated customers, along with all the necessary paperwork, is creating a significant administrative burden for utilities. “We’ve held a lot of customers' hands as they get the necessary forms filled out to comply with the production incentive,” said Adam York of Jefferson PUD. “It’s a lot of time spent with customers just completing a single sheet of paper, and we charge all of our customers the same basic [administration] rate.”
York mentioned that the utility is now wondering if it’s fair to start charging an additional administration fee.
As far as the administrative burden goes, many utilities are beginning to leverage the power of the internet to streamline program administration, capture vital data and boost customer satisfaction. Several utilities, like Puget Sound Energy, are turning toward PowerClerk, an online application processing service. At the moment, it’s being used mainly to manage interconnection, but it has a lot of potential for long-term reporting capabilities in the future. However, in its current state, where PowerClerk isn’t connected to metering and billing systems, the service is relatively useless in the unique role of helping to administer Washington’s production incentive.
Another solution, noted by Linda Esparza of Franklin PUD, is potentially replacing the state production incentive program with an alternate approach that incentivizes solar upfront. According to Esparza, Franklin PUD is currently looking at what it would take to create the necessary policy changes. One drawback to an upfront incentive mechanism is that utilities might lose their monitoring capabilities, according to concerns voice by panelists at the Washington State Solar Summit.
Fixing a "lose-lose situation"
Despite its imperfections, Washington’s production incentive has indeed done its job -- it has incentivized solar for homeowners. As of June 30, 2016, more than 3,500 new solar applications had been processed this year, compared to around 2,500 year-to-date applications in June 2015 and slightly fewer than 1,500 in June 2014. The state is making progress.
In order to foster more growth, the Joint Legislative Audit & Review Committee recently recommended that the Washington state legislature review and clarify its preferences for the performance incentive, including targets for how many solar systems they want to see installed and how much solar power capacity they want to see the policy promote. The committee recommended that the legislature also determine whether utility credit caps can affect these targets.
For utilities, these clarifications would be more than welcome.
“I’m not trying to throw a pity party for utilities -- we all have tough roles here in this state program -- but utilities have really been forced into a lose-lose situation with some of our customers,” Moynihan said.
***
Talia Haller is co-founder and director of the Green Greek Representative Program at the University of Washington, and a freelance writer on sustainability, energy and the environment.