DISTRIBUTED SOLAR

OVERVIEW

The term “Distributed Solar” is widely used to describe solar generation systems with a nameplate capacity of not more than 20 MW.¹ While Americans have traditionally relied on centralized power, that paradigm is now being challenged by new, more competitively priced distributed generation (DG) technologies. This shift impacts not only the DG user, but also the cost and reliability of the centralized electric grid that everyone is still reliant upon. To meet this new reality, we need new policies that ensure both that the public has access to distributed solar generation and that the costs of maintaining the centralized power system are sufficiently covered.

ANALYSIS

In many areas, businesses using solar panel arrays ranging from 20 watts to 100 kilowatts can generate enough electricity to meet their needs. DG eliminates reliability issues that can arise with moving power from point A to point B, and it is clean.² These systems often are better able to recover from severe weather and are less susceptible to terrorist events. DG also allows Americans to hedge against rising electricity costs. Since 1999, electricity costs for American homeowners has nearly doubled, from 8.16 cents per kilowatt hour (KWh) to 15.3 cents KWh.³ By 2035, demand for electricity will grow 22%, driving costs up further under a business-as-usual scenario.⁴

The solar industry estimates that 33 jobs are created from every MW of distributed solar installed.⁵ While the levelized cost for solar DG remains high, experts note that the continuing reduction in solar panel prices is rapidly making solar competitive with centralized fossil fuels in many parts of the United States.⁶

Moreover, DG is cleaner than most centralized generation. Every gigawatt of distributed solar installed in the United States avoids an average of 5.8 megatons of carbon emissions.⁷ If the additional capacity from distributed solar is used to meet added demand, those additional kWh used by the U.S. would avoid a nearly 60 megaton increase in total emissions.

Yet there are tradeoffs in the widespread adoption of distributed solar. Centralized generation may be somewhat less efficient than DG,⁸ but economies of scale keep the price low. DG systems are often free-riders, relying on the grid to take unused electricity and for backup power, without helping to cover the cost of maintaining the distribution system. As more homes and businesses adopt distributed solar, these challenges will only grow unless the federal government develops policies that balance the benefits of DG with the need to maintain an affordable central grid.

IMPLEMENTATION

In order to increase access to distributed solar power regulatory barriers must be broken down, but must be done so in a balanced way.

Develop a New Model for Cost Recovery by DG Users

In 1978, Congress passed the Public Utility Regulatory Policies Act (PURPA), which allowed distributed generators to sell power to utilities. Currently, nonutility electric power producers are reimbursed for the cost the utility would incur if it were to generate this power or purchase it from another source. This is known as the “avoided cost” rate. The distributed generator, however, is not recovering the full value of the electricity generated, especially if that power is sold at peak periods. At the same time, the DG user is not paying their fair share of grid maintenance during times they are generating. This creates a free rider problem that could be resolved through a user fee assessed to all DG users.⁹ Section 210(b) of PURPA should be reconsidered and amended to take these challenges into account.

Ease DG Grid Limits

The federal government and many states cap the amount of DG systems, solar and otherwise, that can be installed on a circuit or in a neighborhood. These limits are determined by a set of screens that seek to ensure that a DG project that generates intermittent power will not stress or unbalance the grid. One particularly pernicious screen is that no DG project may be undertaken if it would result in a circuit’s DG capacity greater than 15% of the circuit’s annual peak load. The claim made by supporters of this screen is that increasing distributed generation beyond this cap would make it difficult to maintain appropriate voltages. But a closer look shows that the 15% rule is not based on any hard science. Instead, it is founded on an arbitrary rule based on a California regulation made in 1999. A recent study by National Renewable Energy Labs and Sandia Labs concludes that updating this regulation is timely and appropriate given the state of distributed technologies.¹⁰ The report concludes that the screen should be based on minimum daytime load rather than the annual peak load. FERC is currently considering rules that would amend this limit.

Property Assessed Clean Energy (PACE) Program

Many Americans who would like install solar DG on their homes cannot afford the upfront costs of such projects, even though these improvements will likely save them money over time by reducing their bills and lessening their reliance on the grid. Some homeowners found a solution to this problem through the PACE Program. This program provides homeowners with financing for projects that will likely save them money through clean energy and allows them to repay the loan through an assessment on their property for up to 20 years. The PACE Program is extremely popular, with 28 states passing legislation to allow PACE in their local communities. However, the Federal Housing Finance Agency was concerned that these property assessments would take seniority to their own mortgages if there was a default. In 2010, FHFA instructed Fannie Mae and Freddie Mac not to underwrite mortgages with PACE assessments. Congress should pass legislation similar to the bipartisan H.R. 2599 (introduced in 2011) to require FHFA to negotiate and change the terms that have stunted this extremely helpful and low-risk program.