5/17/15, "The Hole in the Rooftop Solar-Panel Craze," Wall St. Journal opinion, Brian H. Potts. "Mr. Potts, a utility lawyer, is a partner and member of the Energy Industry Team at the international law firm Foley and Lardner LLP."
"Large-scale plants make sense, but panels for houses simply transfer wealth from average electric customers."
"Most people buy rooftop solar panels because they think it will save
them money or make them green, or both. But the truth is that rooftop
solar shouldn’t be saving them money (though it often does), and it
almost certainly isn’t green. In fact, the rooftop-solar craze is
wasting billions of dollars a year that could be spent on greener
initiatives. It also is hindering the growth of much more cost-effective
renewable sources of power.
According to a recent Energy Department-backed study
at North Carolina State University, installing a fully financed,
average-size rooftop solar system will reduce energy costs for 93% of
the single-family households in the 50 largest American cities today.
That’s why people have been rushing out to buy rooftop solar panels,
particularly in sunny states like Arizona, California and New Mexico.
primary reason these small solar systems are cost-effective, however,
is that they’re heavily subsidized. Utilities are forced by law to
purchase solar power generated from the rooftops
of homeowners and
businesses at two to three times more than it would cost to buy solar
power from large, independently run solar plants. Without subsidies,
rooftop solar isn’t close to cost-effective.
Recent studies by Lazard and others,
however, have found that large, utility-scale solar power plants can
cost as little as five cents (or six cents without a subsidy) per
kilowatt-hour to build and operate in the sunny Southwest. These plants
are competitive with similarly sized fossil-fueled power plants.
this efficiency is possible only if solar plants are large and located
in sunny parts of the country.
On average, utility-scale solar plants
nationwide still cost about 13 cents per kilowatt-hour, versus around
six cents per kilowatt-hour for coal and natural gas, according to the
Large-scale solar-power prices are falling because
the cost to manufacture solar panels has been decreasing and because
large solar installations permit economies of scale. Rooftop solar, on
the other hand, often involves microinstallations in inefficient places,
which makes the overall cost as much as 3½ times higher.
So why are we paying more for the same sun?
are lots of reasons. Well-meaning—but ill-conceived—federal, state and
local tax incentives for rooftop solar give back between 30% and 40% of
the installation costs to the owner as a tax credit. But more
problematic are hidden rate subsidies, the most significant of which is
called net metering, which is available in 44 states. Net metering
allows solar-system owners to offset on a one-for-one basis the energy
they receive from the electric grid with the solar power they generate
on their roof.
While this might sound logical, it isn’t. An
average California resident with solar, for example, generally pays
about 17 cents per kilowatt-hour for electric service when the home’s
solar panels aren’t operating. When they are operating, however, net
metering requires the utility to pay that solar customer the same 17
cents per kilowatt-hour. But the solar customer still needs the grid to
back up his intermittent solar panels, and the utility could have
purchased that same solar power from a utility-scale solar power plant
for about five cents per kilowatt-hour.
cost difference amounts to a wealth transfer from average electric
customers to customers with rooftop solar systems (who also often have
This is because utilities collect much of their fixed
costs—the unavoidable costs of power plants, transmission lines,
etc.—from residential customers through variable-use charges, in other
words, charges based on how much energy they use. When a customer with
rooftop solar purchases less electricity from the utility, he pays fewer
variable-use charges and avoids contributing revenue to cover the
utility’s fixed costs.
The result is that all of the other customers
have to pick up the difference.
The California Public Utilities
Commission projects that net metering will cost the state $1.1 billion a
year by 2020. Arizona Public Service Company calculates that if the
current rate of rooftop-solar installations continues through mid-2017,
its nonsolar customers will pay close to $800 million in higher rates to
subsidize rooftop-solar customers over the next 20 years. The total
costs nationwide are unknown. On May 5, however, an interdisciplinary
group of researchers and professors at MIT released a study about the future of solar energy and concluded that net metering is inefficient and should be redesigned.
solar power generally doesn’t get these same hidden-rate subsidies.
When utilities build or buy output from large solar facilities, they
spread the costs out evenly to customers. Every dollar spent on rooftop
solar is a dollar not spent on other, more productive renewable sources.
utilities across the country have been calling attention to the
problems with rooftop solar. They’ve been urging the pursuit of
large-scale solar and other renewables, the moderation of rooftop-solar
subsidies, and a restructuring of electric rates to encourage new
technologies. They’ve been vilified by armies of PR consultants armed
with sound bites about how utilities want to kill solar.
federal subsidies for solar amount to about $5 billion a year, with
more than half of that amount going to rooftop and other, more
expensive, non-utility solar plants. If the federal government spent the
$5 billion instead subsidizing only utility-scale solar plants, I
estimate that it could increase the amount of solar power installed in
this country every year by about 65%. And without net metering and all
of the other nonsensical state and local subsidies for rooftop solar, we
could save this country billions of dollars every year.
time to stop encouraging people to pick a losing technology merely
because it makes them feel good. There are greener, more cost-effective
"Mr. Potts, a utility lawyer, is a partner and
member of the Energy Industry Team at the international law firm Foley and Lardner LLP."
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