A key program that has incentivized small-scale solar projects in recent years is nearing its cap in two utility service territories.
That’s raising concerns about stifling the state’s solar industry as the clean energy sector tries to recover from significant pandemic-related job losses.
For years, the state required utilities to offer net metering programs, which credit utility customers who generate their own power — mostly with solar panels — for sending their excess electricity to the grid. While net metering was replaced in sweeping 2016 energy reforms with new “distributed generation” programs, both are capped at small percentages of the utility’s average peak load.
Once the cap is reached — which is happening faster as solar installation costs decline — utilities are no longer legally obligated to interconnect new solar-generating customers onto the grid.
The number of distributed generation program participants varies by utility, but the Upper Peninsula Power Co. (UPPCO) reached its initial cap and is close to hitting it a second time for its largest category of customers. Consumers Energy — the state’s largest energy provider — could meet its cap by the end of the year.
“We’re getting to essentially a land of unknown,” said Laura Sherman, president of the Michigan Energy Innovation Business Council. “The utilities have committed (to state lawmakers) multiple times that they’ll continue to interconnect people, but there’s really no Michigan law to require that.”
Moreover, if utilities do agree to interconnect these systems to the grid, it’s not clear how much customers would be credited for excess power sent to the grid. This makes it virtually impossible for installers and their customers to determine how long it might take to earn a return on investment.
Once the cap is hit, “There’s no program, timeline, set fees or dispute process — it’s very unclear what will happen,” Sherman said. “Especially of concern is that whatever happens with one application that goes in does not mean that same thing will occur for the next one.”
According to UPPCO, the utility’s Category 1 distributed generation program is more than 95 percent subscribed while a second category till has nearly 60 percent of program space available. UPPCO's distributed generation program was expanded last year based on customer demand. Consumers’ commercial and residential programs are about 90-percent full, according to the utility.
Consumers spokesperson Katelyn Carey said the utility prefers not to speculate when or if it would reach its program cap.
“While projections range, it is possible that the cap for smaller commercial and residential customers is reached later this year or at some point in 2021,” Carey said.
Legislation to raise or eliminate the program cap has languished in the state Legislature for years, despite bipartisan support. The cap is set at 1 percent of a utility’s peak load for the preceding five years, which is further broken down based on the size of a customer’s installation.
Most recently, a bill introduced a year ago by state Sen. Ed McBroom, R-Vulcan, to eliminate the cap has stalled in a legislative committee that held hearings over the summer but never put it up to a vote. Supporters of lifting the cap include environmental groups and the cities of Grand Rapids and Ann Arbor, which are looking to expand renewable energy generation. Opponents to McBroom’s bill include the Michigan Manufacturers Association, which cited “significant impacts on system costs and system reliability.”
In mid September, the Senate Energy and Technology Committee approved resolutions encouraging the Michigan Public Service Commission to study both the compensation side as well as the potential grid effects of more distributed generation.
“We’re taking a serious look at that,” MPSC Chairman Dan Scripps told MiBiz. “There are a lot of issues at play in terms of essential costs to maintain the grid.”
Senate resolutions 142 and 143 ask the MPSC to complete a rate design study by October 2021 as well as examine interconnecting distributed generation resources to the grid.
Consumers and utility officials across the U.S. have maintained that small-scale, customer-generated solar power sent to the grid is far more expensive than power produced by large utility-scale projects and therefore reflects a cross-subsidy paid for by non-solar customers.
Clean energy supporters have long disputed these claims, saying customer-owned generation provides a net benefit to the grid while noting that such programs act as an existential threat to the utility business model. Solar installations also are a long-term energy cost-saving measure for entities that install them.
However, at least eliminating or raising the cap on who can participate is a more immediate concern than compensation rates for the solar industry.
“There’s a lot of space between the bills that would lift the cap entirely and what we have right now,” Sherman said. “We’ve been trying to negotiate to something that gives us some certainty for a few years.”
Despite the uncertainty, Sherman is still holding out hope for legislative action this year.
“We would love for this to be a lame duck play,” Sherman said.
Other venues, options
Separately, Consumers has a rate case pending before the MPSC involving a distributed generation tariff, which could potentially determine the rate at which solar customers are credited and how the interconnection process works. The MPSC is expected to issue an order in the case in December.
Aside from the cap, utilities and clean energy supporters have disputed how much customers should be credited for their excess generation even though the MPSC has already determined what it believes is a fair rate, roughly between the retail and wholesale price of electricity.
While that may be an ongoing discussion, Sherman is more concerned now with the cap.
Scripps can’t comment on active cases before the MPSC, but he said the complexity and conflicting viewpoints on the issue make it an ongoing debate.
“There are a whole lot of issues at play,” Scripps said, including determining an appropriate cost of service for utilities, the full “value of solar,” and utility concerns about potentially losing revenue.
“Sometimes we’re having three conversations at the same time, which contributes to ongoing disputes on some of these issues,” he said.
Absent certainty over compensation and assuming future projects are connected, Sherman said installers are increasingly recommending right-sizing installations to more closely match the energy consumption of a home or commercial entity, or coupling panels with battery storage, to essentially avoid sending excess power back to the grid. MEIBC’s membership includes more than 15 commercial and residential solar installers.
“More people are installing batteries and trying to use as much of the power they generate with panels themselves,” Sherman said.
Carey said Consumers “is not seeing a noticeable increase in customers who are installing battery storage systems.”
Still, MEIBC’s members — especially smaller solar companies — are “really, really worried” and attempting to diversify revenue streams or move into other utility territories.
“The cap is a cliff where we don’t know what’s going to happen,” Sherman said.
Editor’s note: This story has been corrected with more recent data from UPPCO showing that it has not yet hit its distributed generation program cap for the second time.
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