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Can we find a common framework for solar cost-benefit studies?

When the general, electric-bill-paying public hears about cost-benefit studies on the value of solar energy and its impacts on the power grid or on the bills of non-solar utility customers, many of them probably envision a straightforward, ledger-sheet kind of tally. Costs go on one side, benefits on the other; total up the columns and you’ll see if the sides are in or out of balance.

Unfortunately, it’s not that simple — as becomes abundantly clear in two recent studies looking at the costs and benefits of solar, one from Nevada and the other from Oregon. As noted in the study from Oregon, one of the challenges of even beginning to look at solar’s costs and benefits is the total absence of any national or industry standards.

Individual reports often start from different sets of questions and assumptions and use different sets of data and methodologies — as is the case with the Nevada and Oregon studies. And since both the Oregon and Nevada studies are intended to guide review and reform of their states’ solar incentives, their potential impacts may also be different.

For example, Energy and Environmental Economics (E3), the San Francisco consulting firm that did the Nevada study, based its cost-benefit analysis on a number of assumptions about the solar market that would appear to run counter to current and predicted trends.

First, E3 presumes that going forward all new residential installations in Nevada will be done under third-party leases or power purchase agreements — an assumption based on current trends and aimed at simplifying projections, said E3 associate Jenya Kahn-Lang. In general, such contracts allow solar customers to lock in below-market energy prices, but may not offer the same savings as outright ownership — a potentially significant factor in solar’s long-term costs and benefits for these customers.

E3 also assumes that beyond 2014, installed costs for solar, both hardware and soft costs, will not continue the downward trend of recent years, but will level off and remain stable, through at least 2016, at more than $4 per watt.

Working from these and other assumptions and coupled with a significant cut in state solar incentives, the study comes up with a scenario that reverses conventional wisdom on the cost-shifting impacts of rooftop solar. E3 concludes that, with the state’s significantly lower incentives, solar customers will end up paying a premium of 2 cents per kilowatt hour (kwh) for their power over non-solar customers.

Solar customers receiving Nevada’s original, higher solar incentives will show a positive cash flow from their systems, the report says, but using an expected system life cycle of 25 years, it estimates overall that solar customers will lose $135 million on their rooftop installations.

On the flip side, the report finds that net-metered solar could provide the state’s utilities and other ratepayers with a long-term payoff of about $36 million, potentially lowering rates by a modest 1 cent per kwh. Leading factors here include avoided costs and the inclusion of net-metered solar as part of the state’s renewable portfolio requirements, which, in turn, cuts the amount of larger-scale projects utilities have to procure.

But market drivers such as third-party leases and installed costs are in flux according to some industry analysts. In its most recent solar market report, Boston-based Greentech Media projected that the third-party solar market will peak in 2014 and recede slightly, going from 68 percent of the market to 63 percent by 2018.

Greentech sees rooftop installed costs trending down as well, with prices per watt already below $4 in some areas. Oregon’s cost-benefit study finds installed costs ranging from $11 per watt to as low as $2.25 per watt in some parts of the state, averaging out to $4.73 per watt.

Oregon also draws on projections from the National Renewable Energy Laboratory (NREL) and Department of Energy (DOE) to forecast installed costs below $2 per watt by 2020 for residential installations. The DOE’s SunShot program — which has a particular focus on lowering installation soft costs, such as permitting fees — is also aiming low with a 2020 target for residential solar installation of $1.50 per watt.

The Oregon study does find some cost-shifting from solar to non-solar customers. The state’s solar programs — which include net metering, rebates and a pilot feed-in-tariff type of program — each come at a cost to ratepayers, ranging from 6.4 cents per kwh for net metering to 21 cents per kwh for the pilot feed-in tariff.

However, the study notes overall impacts are minimal when offset by benefits, such as avoided costs for future generating capacity, which it pegs at 5.5-6.7 cents per kwh.

The Oregon study also brings in benefits that, it admits, are not quantifiable, such as a 42,000-ton annual drop in carbon dioxide emissions. Oregon officials are using the current study — a modest 47 pages versus Nevada’s 179-page deep dive — as a jumping-off point for a more in-depth effort.

Looking at the different approaches and results of the Oregon and Nevada studies underlines the importance of not drawing quick conclusions from such reports and resisting the urge to cherry-pick facts and figures. Coverage of the Nevada report in the green and clean-tech media, for example, focused almost exclusively on the $36 million benefit to non-solar ratepayers, while barely mentioning the $135 million extra in energy costs it predicts for rooftop solar owners.

Of course, generalization is almost unavoidable when summarizing complex reports — this blog post being a case in point — but one must at least acknowledge limitations.

Certainly, the range of methods and findings from current solar cost-benefit studies reflect a robust industry that is rapidly growing and evolving. The solar sector wants to maintain its momentum as solar moves into the mainstream with lower prices and more financing options. Meanwhile, utilities are developing new business models, and state regulatory agencies are wrestling with the challenges of finding rate and incentive designs that balance the interests and needs of all stakeholders.

Is it confusing and frustrating for all involved? At times, absolutely — but the resulting debates and discussions are vital and extremely healthy.

What might be most effective at this point is a framework or set of best practices that provide a common foundation but can be adjusted to reflect regional differences.

Efforts to set customer incentives through a formula-based “value of solar” for utilities — an approach pioneered by Austin Energy and the state of Minnesota — is a first step being closely watched by other states and utilities. Basically, VOS rates separate electricity consumption from solar generation, so solar customers are billed for all the power they use but receive credit for their solar production at the VOS rate.

The Solar Electric Power Association is working with NREL on a project researching VOS program design and will issue a report in the coming months. The Electric Power Research Institute earlier this year launched its Integrated Grid project, aimed at providing a common framework for valuing and integrating all renewables into the grid.

At least one thing these efforts to quantify the costs and benefits of solar have in common is a desire to ensure that a full range of stakeholders — utility, consumer, local government and solar industry representatives — have a voice in developing their approaches and methodologies.

Such inclusiveness should be a given of any future work on these issues. Getting as close as possible to solar’s real costs and benefits requires capturing the complexities of our industry while at the same time making them transparent and accessible to all.