With Passage of SB 309, Indiana Ditches Cronyism for a Freer Energy Market
May 23, 2017
After a dizzying array of state energy policy efforts over the past year, Indiana has shown that sensible reform is possible. New legislation, signed into law by Governor Holcomb two weeks ago, retools the state’s “net-metering” rules to minimize favoritism and better protect ratepayers. Indiana’s new law, SB 309, gradually changes the pricing system for energy produced via residential solar installations, giving solar panel owners a less generous deal for the “net energy” they produce. While current laws allow rooftop solar owners to sell excess energy back into the grid at the retail rate of electricity, SB309 would begin to phase out these privileges.
Homeowners installing solar panels after 2022 would only be able to sell their net energy at 125 percent of the average price that utilities pay to power producers. And, to be clear, 125 percent is still a generous amount. Homeowners who already have solar installations are grandfathered into the current scheme, and will continue to be able to sell their excess power back at the retail rate until 2047. Environmental groups have already come out in full-throated opposition, with the Hoosier Environmental Council casting the bill as a jobs killer and a “major step backwards” for clean-energy. These “green” activists, however, fail to see the unintended consequences that come with strict net-metering laws.
The current policy amounts to enormous subsidies for rooftop solar, to the detriment of everybody else. Because the law requires utilities to pay rooftop solar generators an above-market rate, utilities need to recoup costs elsewhere. Too often, utility customers in net-metering states wind up footing the bill.
Advocates of net-metering scoff at the characterization of solar household as subsidy hoarders, and point to resulting carbon emission reductions that benefit society as a whole. If the so-called “social cost of carbon” is high enough, then moving away from fossil fuel energy sources will avert ecological disaster and outweigh the current costs of net-metering. State governments across the U.S. have attempted to make sense of all the “cross-subsidization” taking place by producing detailed models with varying assumptions. Reports from California and Louisiana didn’t take environmental factors into account, and found that regular utility customers incur a net loss from net-metering schemes. State regulators in Vermont and Nevada factored societal carbon costs into their calculations, and found small benefits to utility customers depending on the discount rate used.
States with “green calculations,” however, fail to adequately consider the baseline that net-metering is deviating from. Even in states with few tax credits and subsidy schemes, utility-scale (ie. mass generation) solar is growing by leaps and bounds. Utility-holding companies such as Southern and Berkshire Hathaway, for example, are ditching fossil fuel generation in favor of wholly renewable projects going forward. Large scale solar projects promise to deliver the same carbon reductions as distributed solar but at a far lower price. Data from GTM Research shows that rooftop panel installation is more than twice as expensive as utility panel projects, on a per-watt basis. The cost of utility solar installation is also falling faster. Utility project prices plummeted roughly 70 percent in the 2010-2015 period, versus 50 percent for residential solar.
If, then, net-metering schemes crowd out utility solar projects, utility customers would be forced to pay far more for the same reduction in carbon emissions. This is likely to happen in states like Indiana where utilities own their own power plants and generate their own power. The National Renewable Energy Laboratory (NREL) warns that diminished revenue for these utilities resulting from “high PV penetration” can result in large “utility investment deferrals.” Since utilities own roughly 50 percent of existing utility-scale solar, revenue declines will directly eat into capital improvements. Fitch Ratings has repeatedly warned that onerous net-metering mandates, “could damage the creditworthiness of investor-owned utilities,” making it harder for utilities to gain the investment capital needed for new generation.
But as recent political developments in Indiana show, we needn’t chain ourselves to residential solar at the expense of more sensible generation methods. SB 309 provides an exit ramp off of an onerous net-metering regime, allowing a gradual path away from the retail rate. By signing the law, Governor Holcomb has shown that states needn’t kowtow to the interests of well-to-do residential solar owners, at the expense of everyone else.