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Arizona’s utility-owned solar programs: New price models, grid integration and collaboration

By K Kaufmann

The news that two Arizona utilities were going ahead with pilot rooftop solar leasing programs broke right before Christmas, when most solar and utility industry publications had already published their 2014 recaps of key events and trends in the United States and global markets.

REC Solar Install CO 2012
(Photo courtesy of National Renewable Energy Laboratory.)

The Arizona Corporation Commission approved Tucson Electric Power’s plan for a 3.5-megawatt (MW) program on Dec. 18, while later giving a tacit nod to Arizona Public Service’s (APS) similar 10-MW project. And far from being an addendum to all those top-trends lists, these two projects may be 2014’s watershed development, signaling utilities’ ever-widening integration of distributed solar generation into the nation’s power grid and their own business models.

Primary documents: Arizona Corporation Commission decision on Tucson Electric’s renewable energy programs, including plan for rooftop solar leasing and its decision on the similar APS rooftop solar program.

Unfortunately, a great deal of the media coverage of the APS and Tucson Electric programs focused more on concerns about market competition — utilities vs. third party providers — than on their more innovative features.

Rather than the potential setback for solar some advocates and installers fear, the Arizona programs could be a pivotal step toward much-needed new pricing models and technology for integrating more renewables onto the grid. They could also open the way for a new level of collaboration between all industry stakeholders, with benefits for the grid and consumers.

A new pricing model: While the APS program will give customers a free solar installation for a $30 monthly credit on their bills for 20 years, the Tucson Electric program is a more radical departure. The company’s initial program will offer 500-600 customers the opportunity to get solar on their roofs in return for locking in a fixed monthly electricity payment for 25 years, with the amount based on their average bills.

Customers will pay an upfront fee of $250, but their monthly bills will only go up if they increase their monthly power use more than 15 percent. Bill reductions will also be available to customers cutting their annual usage more than 15 percent.

“This is perhaps the first significant step away from volumetric-based rates,” said Carmine Tilghman, Tucson Electric’s senior director for wholesale, fuels and renewable resources. “Our focus is not simply beating 10 cents per kilowatt hour; it’s cost-effective integration of renewables into the whole grid for stability and reliability. To get there you have to move away from this volumetric concept that’s been in place for 100 years.”

It could also help to  at least partly defuse ongoing conflicts over net-metering in Arizona and other states.

The APS and Tucson Power programs are both designed to ensure “cost parity” with net-metered solar — the compensation solar owners get for power they feed into the grid — said Lon Huber, a policy specialist for the Arizona Residential Utility Consumer Office (RUCO), the state consumer advocate.

While not a straight comparison, he said, parity should guarantee that the revenue levels that utilities seek for their rooftop systems will be about the same as the revenue for fixed system costs that is lost on net-metered solar systems and must be shifted to other customers.

One thing Huber will be watching is whether utility-owned rooftop solar could lead to systemwide savings over net metering, ultimately benefitting all customers.

“Maybe it can, maybe it’s close to even,” he said. “It’s worth exploring because we know, with parity written into the policies, it’s not going to cost more.”

Grid integration and management: Both programs are aimed, first, at locating rooftop installations in areas where the distribution lines have adequate capacity, addressing the growing challenge of grid integration that utilities face in markets with high levels of solar, such as Hawaii.

They will also test out the use of advanced “smart” inverter technology to tap distributed solar for additional grid services, such as voltage support.

“What we’re doing is preparing our system to handle the advanced inverter-smart meter communication nexus, more or less reconfigure how we see rooftop solar being installed,” said Marc Romito ,renewable energy manager for APS

“Almost every inverter out there has these (advanced) capacities,” Tilghman added. “They are not being utilized because there is no single entry into the operating grid.

“Besides the obvious challenges associated with a utility operating a customer’s private equipment for grid management, there is no centralized communication system in place to manage all of these systems,” he said. “You have to have control — via a secure network — between the balancing authority and the inverter on a secure network.”

Romito said the APS program is intended to research several different aspects of grid integration, from handling periods of high generation to using west-facing panels to better match the late-afternoon, early-evening ramp in demand that can occur as solar generation decreases — better known as the solar duck chart.

The APS project will be set up in two phases, installing 8 MW without storage and then a final 2 MW with storage added, he said.

Want more information on APS, Tucson Electric and other utilities’ solar programs? Check out the Solar Electric Power Association’s Utility Solar Database here.

To do all this, coupling inverters with advanced communications will be critical, Tilghman said, and that will require a higher, more complex level of administration and security to ensure compliance with federal regulations.

“Our goal is to bridge that gap,” he said. “It’s a fundamental shift in how utilities operate and it’s necessary. It really comes down to how you are going to manage these systems. It’s a step that allows utilities to move toward actively managing renewable energy resources for the purpose of the grid.”

The Electric Power Research Institute (EPRI), a research and development nonprofit focusing on electricity and the grid, is keeping an eye on Arizona as the group develops its own industrywide models for grid integration of renewable energy, officials said.

“The whole premise of the integrated grid is to maximize efficiencies of all these technologies in a way that would optimize their use in the distribution system (and) make the system more accommodating for more rooftop solar,” said Clay Perry, EPRI’s senior media relations manager.

Arizona Corporation Commissioner Bob Burns also sees the APS and Tucson Electric programs as a testing ground for technology that will increase the integration of a broad range of renewables onto the grid.

“Let’s find out what kind of interconnections can be designed with inverters to accept a lot of different things,” he said. “If you have the ability to handle a two-way flow, it should be able to handle anything.”

Collaboration: The program’s impact on Arizona’s solar market, and particularly third party providers, such as SolarCity or SunRun, remains to be seen, but the more intriguing question is whether a bit of healthy competition could be a springboard for a new level of collaboration.

Bruce Tsuchida, a principal at the Brattle Group, a business consulting firm, sees a future where third-party providers or individual customers still own rooftop installations, but contract with utilities to operate the systems’ inverters. Rooftops, residential and commercial, are an underused asset, he said.

RUCO believes even more collaboration could be achieved and will, in fact, be needed to ensure that utility-owned rooftop programs are part of a “balanced and level playing field” for solar development. In a filing supporting the Tucson Electric plan, the agency laid out seven core principles for utility-owned solar programs.

1. Cost parity: Utility-owned rooftop or other distributed generation should not cost more for all ratepayers than any cost shift or revenue loss from third-party owned solar.
2. A shared commitment, for utilities and solar companies, to provide accurate information and quality systems to all customers.
3. Fair interconnection policies for third party-owned systems
4. Shared responsibilities for grid safety and physical and economic resilience as issues arise with higher levels of solar penetration.
5. Rate designs that avoid gross over- or undercompensation for customers with third-party owned systems.
6. Transparent sharing of nonconfidential information between utilities and third party developers.
7. A utility focus on serving markets not optimally suited for third party developers.

Huber called the principles “guardrails” that could create “more options for consumers, not less, and potential models that can maximize benefits to non-solar customers.”

Read RUCO’s full policy statement on utility-owned rooftop solar here.

The final point on underserved markets will bear close monitoring. The economic gap in solar access has long been an issue of concern and contention in the industry. The upfront costs of solar ownership and the high credit scores required for most third-party solar leases have left many consumers out of the market.

The APS program is not primarily a low-income program, Romito said, but where possible, the utility expects to work with local nonprofits and community groups to target limited-income customers.

“We’re screening customers from limited-income, (home) weatherization programs,” he said. “Those types of customers would be ideal because the home has already been made energy efficient.”

Similarly Tilghman noted that Tuscon Electric’s low-income customers may already be on subsidized rates, which could make them ineligible for the rooftop program. However, he said, the potential savings could draw a lower middle-income demographic when the program is officially launched later this year.

Certainly, the interest is there. With no more advertising than word of mouth, hundreds of customers at both utilities have signed up to receive more information on the programs.

Tilghman sees utility-owned solar —and the changes it will bring — as part of the learning curve his and other utilities must now navigate as the energy industry continues its inevitable evolution.

Regulated utilities will still be needed to ensure grid stability, he said, but “as policies change, there are going to be winners and losers. It needs to be a slow evolution.”

K Kaufmann is communications manager for the Solar Electric Power Association. She can be reached at [email protected].