In Support of LD 1504
An Act Regarding Solar Power for Farms and Businesses
Supplemental Testimony of Steven L. Weems, Executive Director,
Solar Energy Association of Maine
May 11, 2017
To: Senator Woodsome, Representative Berry, and members of the Joint Standing Committee on Energy, Utilities, and Technology
This is supplemental testimony submitted in response to Representative Berry’s inquiry about how I see the electrical energy situation, from a business perspective. I’m responding as a businessman and electricity customer. Like you, I see the complexities and competing points of view in what you are considering. Energy policy is a complicated, gnarly subject – like business and life, no doubt.
It’s hard to respond succinctly without being general. In both business and life, it is essential to boil complex situations down to their essence so one can make a decision and take action.
Let’s start with the premise distributed solar energy is a desirable outcome that should be encouraged, provided the price is right. [Jobs, clean energy, stable cost, free “fuel,” reliability (albeit intermittent power generation), energy security, local control, reduced T&D costs, declining power costs, independence, keeping money in Maine.] At the same time it has to be a good deal for all Maine people – with positive net benefits.
A contemporary solar energy system should have a productive life of 30-40 years. A typical annual degradation factor is 0.5%/year, so even after 40 years a solar array should be producing at 70-80% of original performance. Investments in a solar energy project are long-term investments, with long-term costs and benefits. This simply means solar energy investments have to be evaluated over a long period, certainly at least 20-25 years, to make a rational decision about them.
This, of course, is what everyone contemplating a solar energy project (utility-scale project developers, municipalities, businesses, individual customers, colleges, etc.) is doing. The durability and stable costs of solar projects validate the idea of long-term contracts or billing agreements, despite any protestations of utilities, the PUC, or others. This is no different from other energy projects. Long-term contracts are a staple of the industry.
By definition an evaluation of benefits and costs requires the use of assumptions. This is hard work and involves uncertainties, but so what? It’s what we do, despite the difficulties. Regulators, too. This is necessary to reach a logical conclusion and make a decision. And stranded cost experience from the “old days” doesn’t indicate long-term contracts are bad. Many old contracts were mandated at the highest avoided cost of power. Today, many developers, investors, and energy customers are happy to lock into long-term contracts, based on the predictability of the costs of solar energy generating facilities.
It is essential to look at the long-term costs of projects or energy policies involving long-term investments. For solar projects and policies, this typically means 20-25 years, and the development of “levelized” cost and benefit projections, for evaluation purposes. In establishing a good policy or program, or making a good project decision, it is also essential to consider both benefits and costs. How could it be otherwise? It is tortuous to hear the PUC say, over and over again, that it “considered” both benefits and costs in its net energy billing (NEB) rulemaking, and then based the rule solely on its crude extrapolation of costs alone. This is a painful example. Both benefits and costs are as important to consider in ratemaking as they are in policy or project decisions. If the benefits outweigh the costs, and important objective(s) can be achieved, this is a strong positive indicator.
This can get complex. First, it involves the uncertainties of projecting into the future. And secondly, it may be difficult to quantify some of the non-monetary costs and benefits in this type of analysis, so a more holistic judgment is sometimes required. This “comes with the territory” in the energy policy business. Let’s boil this theory down to some concrete numbers. Although simplified, these numbers are representative of current knowledge and studies. Consider the following set of parameters:
1. “Standard buyer” of solar project output = T&D utility.
2. 20-year contract prices for various solar procurements = $0.08-0.12/kWh (projected under the provisions of LD 1444 and LD 1504).
3. Current NEB credit rate = $0.13/kWh (1/2 energy, 1/2 T&D credits). T&D portion of the credit = $0.065/kWh.
4. Fixed, minimum T&D rate paid by CMP residential customers = $12.88/month.
5. 25-Year levelized estimated value of all the “output” from a solar array = $0.12/kWh [with the “output” (as defined in LD 1504) = all the monetized elements of the project, including energy, capacity, renewable energy certificates and all other environmental attributes and market products of a distributed generation resource].
6. 25-Year levelized value of (i) avoided generation capacity cost, (ii) avoided transmission capacity cost, and (iii) avoided natural gas price uncertainty = $0.093/kWh (from the value of solar study).
LD 1444 (large-scale community projects, with multiple participants) and LD 1504 (large-scale commercial, municipal and industrial projects, and small business projects) envision 20-year contracts and a standard buyer, with the contract price set through a competitive bid process, except for the small business program where the price would be set by formula. Assuming the contract rates (as bid or determined by formula) would be in the $0.08-0.12/kWh range, and the bundled value of the output is $0.12/kWh, these are good deals on the face of it. This is especially true because the economic (jobs) benefits and clean air benefits are not included in this simple analysis. Plus, over time the procurement bid prices are likely to decline, based on the trend of costs for solar installations. There is no specter of a burden on other electricity customers to be concerned about with these larger projects.
Net energy billing (NEB) is built on a different concept. The T&D utility simply credits the NEB customer for the energy the customer self-generates (a wash) plus the variable component only of the T&D charge for the energy generated and used (currently about 0.065/kWh in the CMP service area). [Note all residential CMP solar customers pay a fixed charge of $12.88/month ($154.56/year) to be connected to the grid. There is no free ride.] The amount of this variable credit is more than offset by the value to all CMP customers of $0.093/kWh (see above assumptions), before taking into account the additional value to all customers of clean air, lower greenhouse gas emissions, and lower peak energy costs, plus the additional benefits of more local control of our destiny. This shows the existing NEB rule is a good deal for all Maine ratepayers.
These numbers are too simplified to “prove” anything, although they are illustrative of current conditions and knowledge. However, considering the limited penetration of solar installations we have in Maine, and the general benefits of encouraging more solar development, they show the merits of all three major solar bills, and the net benefits that could come from these proposed solar initiatives. This underscores how essential it is to consider all the benefits of a solar policy or program, as well as the costs, when deciding what to do, and get the best possible data on these factors. This is equally true for adjudicating rate cases and crafting legislation to serve the common good, as well as making business and personal decisions.
It is essential to take a long view, do the best we can to identify and understand all the benefits and costs, and make decisions based on both benefits and costs. It’s what businesses do and what consumers do. It’s what we all do. I respectfully suggest our government (including the legislature), our utilities, and the PUC should do the same thing.
Steven L. Weems
Solar Energy Association of Maine
P.O. Box 5417
Augusta, ME 04330