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Power Politics

Understanding the GOP's civil war over off-the-grid energy
solar panels roof

If politics makes for strange bedfellows, few issues make for more peculiar sleeping arrangements than that of distributed energy. There aren’t many others that put former Republican congressman (and son of “Mr. Conservative” himself) Barry Goldwater Jr. on the same side as the Sierra Club. But when it comes to efforts by electrical utilities to add special fees for homes that use rooftop solar, Goldwater sees his opposition as the truly conservative stance.

“Technology is kind of replacing the old order,” Goldwater said recently. “There was a place for utilities and monopolies when they were first created, but the time has come for a change.” Viewing emerging technologies like solar as a means of adding competition to what has traditionally been a very uncompetitive sector, Goldwater formed TUSK—Tell Utilities Solar won’t be Killed—an organization that fights for policies friendly to distributed rooftop solar power.

Not all conservatives see things this way, however. Some conservative Republicans have found themselves in the unusual position of advocating stricter regulation and higher fees for distributed-energy generation. In Arizona, legislators recently tightened restrictions on solar leases, mandating more disclosure about lifetime cost to customers and giving homeowners a three-day grace period to get out of a solar contract after it’s been signed. The author of the legislation, State Senator Debbie Lesko, is a Republican whose campaign website stresses the importance of “limiting taxes and government regulation.”

thisarticleappears janfeb16The conflict scrambles political loyalties because it goes back to competing visions from the beginning of electrification. When Thomas Edison drew up the plans, the electrical grid was envisioned as a highly decentralized affair, with small power plants in each neighborhood. But with the advent of alternating current, it became possible for much larger plants to supply power over great distances. While the modern grid is a technological marvel, the politics of how it operates are less impressive: with a few exceptions—notably Texas—power generation is not open to competition. Instead, electrical generation is controlled by monopoly utilities and subject to stringent regulation on everything from the prices that can be charged to the mix of fuel sources that can be used.

But the allure of a decentralized power system never completely went away, and the rise of environmental concerns has led to widespread public support for cleaner forms of energy, which are often—as in the case of solar panels—more decentralized and distributed. For decades, a small proportion of consumers have opted for some form of distributed power. (When I was growing up in the 1980s, our semi-rural home used solar panels to heat water from our well.) Nevertheless, the growth of distributed energy has been limited by high costs, which have to be paid upfront, as well as by problems of intermittency.

That may now be changing. Since 2009, prices for solar power have fallen 70 percent. These declining costs, along with a healthy helping of government subsidies, have led to a rapid increase in solar deployment. And in April, Tesla Motors announced its new Powerwall battery, which can store excess electricity generated by solar during the day for use during less sunny periods.

Since utilities also can use storage technologies, low-cost storage needn’t necessarily privilege distributed generation over grid-provided electricity, and the combined cost of solar generation and storage is still above that of grid electricity in most places. Still, these developments have not only made solar installation more attractive to many consumers, they also have everyone from utility executives to political activists to tech gurus reconsidering what the future of electricity might look like.

Innovative business models also are overcoming some of the traditional challenges to distributed generation. Many consumers are wary of paying the high upfront costs involved with buying and installing solar panels. In response, solar companies have marketed solar leases, where the company pays all upfront costs and maintains ownership of the panels, while charging a set monthly fee to the homeowner. The company then acts as a middleman, reselling the excess electricity the panels generate during peak periods.

Known as “third-party power purchase agreements,” these leases have helped spur a boom in solar-panel installations in some states. But like many new business models, these have also run into legal roadblocks. In Florida, whose sunny climate should make it a solar leader, only utility companies are legally allowed to sell electricity. To change this, Floridians for Solar Choice, a coalition of distributed-energy advocates—which includes the Christian Coalition, Florida Republican Liberty Caucus, Florida Libertarian Party, and the Tea Party Network—have qualified a ballot measure for 2016 that would allow third-party power purchase agreements.

They face competition from Consumers for Smart Solar—allied with Americans for Prosperity—which has submitted its own ballot measure for 2016 that uses similar-sounding language but would in fact codify the existing practice whereby homeowners can only sell excess power back to the utilities themselves. Major Florida utilities Florida Power & Light, Tampa Electric, Gulf Power and Duke Energy have contributed nearly $2 million to Consumers for Smart Solar.

The biggest battles over distributed generation involve “net metering.” Required in some form in 44 states plus the District of Columbia, net metering mandates that utilities must purchase the excess electricity a homeowner generates and credit the purchase against the homeowner’s power bill, often at the full retail rate of electricity. But net metering schemes tend not to acknowledge that the price of electricity reflects not only the cost of generating the power but also the cost of building and maintaining the grid. Reimbursing homeowners at the full retail rate of electricity acts, effectively, as a subsidy.

Net metering tends to be popular across the political spectrum: in a recent poll by the ClearPath Foundation, 87 percent of self-described conservative Republicans supported policies that let them sell rooftop-generated solar power back to utilities.

As long as distributed generation remained a bit player in the electrical market, utilities regarded the costs of net metering as just an annoyance. As the proportion of distributed generation grows and the cost of grid maintenance is borne by a smaller and smaller base of electrical customers without distributed generation, the matter becomes more serious. The situation is roughly analogous to electric cars not paying for road repairs via the gas tax. A few electrical cars are fine, but what happens when most cars on the road aren’t paying?

Utilities aren’t eager to find out, and so they have been pushing for limits on net metering, including special monthly fees on net-metered homes. Last year the Salt River Project, an Arizona utility, imposed a monthly fee of up to $50 on homes that utilize net metering, effectively wiping out any monetary gain that comes from selling back unused electricity. While the rule has been challenged in court, the Arizona Public Service (APS), the state’s largest electricity provider, has pushed for similar fees. Many other states are also considering imposing fees, capping the total amount of distributed generation eligible for net metering, or doing away with the program altogether.

Utilities aren’t totally opposed to solar power: they increasingly like it, so long as they own it. At the same time APS was pushing for fees on homes that used solar power, it announced its own pilot rooftop solar program, which would see the utility install systems providing up to seven kilowatts of power and give participating customers a $30 monthly credit for 20 years. A similar program went into effect earlier this year in San Antonio. As with third-party power-purchase agreements, the utility would maintain ultimate ownership of the panels and the energy they produce.

Given the arguments typically deployed by utilities against solar, it may seem strange they would embrace the same model. Ultimately, what scares utilities most about distributed generation is the danger it poses to their monopoly over electricity generation. Shielded from competition for more than a century, utilities regard any technology that moves the grid back toward a more open and decentralized system as an existential threat. For the same reason, believers in the free market ought to look at the growth of distributed generation as an opportunity to move toward a more competitive generation system.

This isn’t to say that government ought to put its finger on the scales in favor of distributed solar, or any other energy source—state and federal subsidies and mandates for renewable energy ought to be scrapped, and net metering needs to be replaced with a sell-back system that can be scaled up without creating instability for the grid—but neither should we deny new technologies the potential to bring some much needed creative destruction to our out-of-date energy regulations. 

Josiah Neeley is senior fellow and Texas director for the R Street Institute.