Impending Carbon Prices May Effect Policies on Residential Solar and Wind

This month, the EPA reported that power plants emitted 2.3 billion metric tons of carbon dioxide equivalent in 2010, accounting for 72.3 percent of greenhouse gas emissions of major industrial facilities or suppliers of fossil fuel and industrial gasses.[1]  This information, although not unexpected, is troubling for those anticipating an EPA rulemaking on carbon emissions or a renewed push for a cap and trade bill.  While utilities supplement their renewable energy portfolio with renewable distributed generation technologies, small scale facilities such as residential wind and solar photovoltaic generation are commonly hampered by disputes over who should shoulder certain economic burdens.

Even with state and federal subsidies, residential solar and wind facilities are costly to both the customer and the utility.  Besides the actual facility costs, two issues that make these facilities cost prohibitive are net-metering and interconnection costs, and standby charges.  Interconnection costs are the costs associated with connecting the facility to the grid, and standby charges are the result of the utility passing along the fixed costs of keeping customers connected to the grid such as line maintenance and maintaining load capacity. Utilities may have to make the choice of shouldering either the burden of the costs associated with net-metering and interconnection, and standby charges, or the costs associated with the risk of carbon taxes or penalties.  In short; are the savings from decreased carbon emissions by incentivizing more clean energy production cheaper than the cost of actually incentivizing it?

Many states have decided to make the choice for the utilities.  Currently forty-three states have implemented net-metering programs to regulate the compensation for the energy consumers send back into the grid.[2]  California, for example, responded to the rolling blackouts from the last decade by pushing to increase distributed generation by placing most of the cost burden on the utilities.[3]  Customers who generate more energy than they take from the grid are allowed to sell it back to the utility at a spot-market rate.[4]   From the utility’s point of view, this is considerably better than having to buy it back at retail rates, but worse than not having to buy it at all.  Additional costs that California places on the utility include charges for the actual net meters and studies for interconnecting.[5]  The State also outlawed standby charges for residential facilities with minimal capacities because of the de minimis effect on the grid.[6]

Other states have shown more deference to utilities.  Massachusetts, which has net metering rules similar to California, has set up their system to force the consumer to pay for the interconnection costs[7] and the utilities are free to contract with the consumer over standby charges as they please.[8]  It is unclear whether these policies have substantially affected the use of small scale solar or wind, but it should be noted that California leads the nation in per capita solar capacity, whereas Massachusetts is not in the top ten.[9]

For energy companies, the question is which policies lead to more long-term success.  Certainly, from their point of view, selling consumers electricity is better than consumers creating it themselves, so incentivizing residential generation may not make good business sense.  But if carbon prices make turning on generators during peak demand cost prohibitive, and states choose to place cost burdens from residential renewable energy on the utilities, the utilities may find themselves in a position where it is cheaper to shoulder the cost burdens before policy makers take it upon themselves to allocate the costs.

– Thomas Sundlof, Associate Member


[1]  See U.S. Environmental Protection Agency,  Greenhouse Gas Reporting Program: 2010 Data Publication, EPA (Jan. 2012) http://www.epa.gov/climatechange/emissions/downloads11/documents/2010data-factsheet.pdf.

[2] See U.S. Dep’t of Energy, Green Power Markets: Net Metering, (May 25, 2011), http://apps3.eere.energy.gov/greenpower/markets/netmetering.shtml.

[3] [3] See Steven Ferry, Law of Independent Power; Distributed Generation, 1 L. of Indep. Power § 10:144 (2011)

[4] See California: Incentives/Policies for Renewables & Efficiency, DSIRE (Oct. 13, 2011), http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=CA02R.

[5] See Cal. Pub. Util. Code § 2827 (West).

[6] See Order Instituting Rulemaking into Distributed Generation, 211 PUR 4th 280, 318 (Cal. Pub. Util. Comm’n July 12, 2001) (fact no. 29).

[7] See 220 Mass. Code Regs. 8.04.

[8] See American Council for an Energy Efficient Economy, State Energy Efficiency Policy Database: Massachusetts, http://www.aceee.org/energy-efficiency-sector/state-policy/Massachusetts/193/all/195, last visited July 6, 2011 (describing the process for contracting standby rate agreements in Massachusetts).

[9] See Interstate Renewable Energy Council, 2010 Updates & Trends 27, Oct. 11, 2010,  http://irecusa.org/wp-content/uploads/2010/10/IREC-Annual-Trends-Report-10-1-10_web.pdf

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