Does the State of Arizona Hate Solar Power?
Zachary Shahan just put together statistics on the amount of solar installed by state on a per capita basis through 2012.
The results are interesting (and the full post can be found here) but none of these results are more interesting than the curious case of Arizona.
Arizona has historically been a large coal producing and consuming state and despite recent growth in solar has not been a leader on renewable energy policy or deployment.
A lot of solar generating capacity went in service in 2012, so these two representations (combined with the fact that a relatively small percentage of power nationally is solar-generated) don’t actually conflict. It is also worth noting that a significant portion of the electricity generated from solar in Arizona is sold to neighboring California. History (and power prices slightly below the national average) notwithstanding, it makes sense that Arizona had a rapidly growing solar industry – it is sunny, borders one of the most dynamic clean energy markets in the world, and has drawn hundreds of solar companies to the state, including the headquarters of First Solar, one of the world’s largest solar companies.
So with a rapidly growing industry and the associated economic benefits to the state (not to mention the importance of diversifying power supply in the face of likely significant coal plant retirements in the near future and inadequate water resources to easily build new fossil generation) is this the start of a new industrial love story?
Rather than embracing the economic engine (and long-term insurance on the cost of future generation) that the solar industry could provide, Arizona is moving aggressively in the opposite direction. The Arizona Corporation Commission (ACC), which is Arizona’s version of a public service commission (it is an all elected body – unusual, as only 9 states have publicly elected commissioners – and is presumably representative of the state), has taken three distinct steps against the solar industry.
This is part of a broader trend to attack state based policies supporting clean energy. Underpinned by the American Legislative Exchange Council, which has taken a very public stance against renewable portfolio standards and has drafted a model bill for repealing state RPS programs, and supported by other conservative groups that have publicly proclaimed state support for clean energy a key target, there are a number of actions to reduce clean energy support being tested across the country.
In Virginia, the Attorney General is leading efforts to remove financial incentives for renewable energy projects. In North Carolina, rumors are rampant that the state tax credit for renewable energy is at risk (though there are also broader efforts to repeal the whole of the state income tax regime). However, while these are noteworthy developments, it is in sunny Arizona that the anti-clean energy campaign (and this is really about solar in Arizona) has found an ally.
The ACC has taken a series of measured and cumulatively important steps to undercut support for solar. Most recently, the ACC has introduced a measure that would remove sales to the largest customers from the basis on which renewable portfolio targets are calculated. Since the RPS is based on a ratio, reducing the baseline for calculating the target will reduce the absolute amount of renewable power needed to meet the targets and the associated support. This action comes on the heels of a widely criticized decision by the ACC to eliminate state incentives for solar installations on or attached to commercial buildings. The elimination of support for commercial solar appears likely to have a measurable cooling effect on the fast growing market for larger distributed solar projects. It was the first and arguably most innocuous of these three steps, however, that provides some insight into why the ACC has acted as aggressively against the solar industry as it has.
In March, Arizona Public Service will begin charging what is effectively a reliability fee that was approved by the ACC last May. In announcing this Lost Fixed Cost Recovery Fee (LFCRF) to customers, APS specifically references renewable (and energy efficiency) adoption by ratepayers as the cause for the utility selling less power, and therefore the reason for the need to recover an additional fee from all power customers to cover the utility’s fixed costs. The fee is small, no more than a dollar or two per month for residential customers – but it is important.
At first look this doesn’t seem much different than other typical rate adjustments used as part of the process for tweaking utility rates to ensure adequate revenue for utilities. It also looks much like some decoupling arrangements, which are used to remove lost revenue concerns from utilities for energy efficiency and distributed generation penetration by ensuring adequate revenue collection regardless of the actual number of kilowatt hours sold by the utility. As a stand-alone item, the LFCRF wouldn’t mean much (other than the clear effort to associate higher bills with solar power and energy efficiency), but in context with the RPS reduction and the elimination of support for commercial solar it can be seen as both a key element of, and the foundation for, the coordinated action against solar development in the state.
While solar can be built as large centralized utility projects where a utility (either with its own generation or through purchased generation can compete effectively on price or react), it is extremely well suited to be put on a roof or next to a building. This shifts the point of competition to the other side of the utilities distribution network allowing solar to compete not with just the electricity generating costs, but with the fully delivered price of power, which includes transmission and distribution costs.
The characterization of the LFCRF as the result of demand destruction caused by customer investment in energy efficiency and distributed energy systems acknowledges that the utility was failing to compete for the delivered price of electricity. More importantly that shift in competitive balance will only become more severe as the installed price of solar continues to decline (because most of the utility’s electricity delivery costs are fixed infrastructure costs).
A utility has a requirement to maintain reliable service, and with that comes substantial infrastructure costs. The admission that APS was losing in the market where it competes directly with on-site solar generation for the customer is not a market most utilities are ready, or well positioned to face – this is true both with respect to customer engagement in the market and because of a regulatory market that requires the reliable provision of electricity and the enormous associated costs.
So maybe Arizona doesn’t actually hate solar – it might just be that given the rapid pace of solar growth, and the potential disruption of the traditional utility model that it is just scared of the change it represents.