Throwing Shade on Texas

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By Paul Gonin and Ross Pumfrey, TXSES

The adoption of rooftop solar in some of the sunniest regions of the United States lags far behind regions with inferior solar prospects. Does this paradox suggest some states are squandering an opportunity to capitalize on the economic and societal benefits of distributed solar energy?

Will Texas, second in the nation in rooftop solar potential, embrace this important resource or will wind, buttressed by utility-scale solar, dominate our renewable energy landscape?

To address these questions, the Center for Biological Diversity released a report earlier this year titled “Throwing Shade: Top 10 Sunny States Blocking Distributed Solar Development.” The study identifies states whose poor adoption rates aren’t living up to their high technical potential for rooftop solar, and suggests the primary reason is problematic statewide policies.

The report analyzed all fifty states on six solar policy criteria and assigned “A” to “F” grades to each state. Of the 28 F-rated states, 10 were examined in more detail based on their overall rooftop PV potential, as ranked by the National Renewable Energy Laboratory (NREL). As of March 2016, these 10 states account for a whopping 35 percent of national customer-sited solar potential, but only 6 percent of installed distributed solar capacity.

Although all ten are behind in the distributed solar policy game, two states in particular stand out: Texas and Florida. Ranking number 2 and 3 for rooftop PV potential, they trail only California.

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Texas and Florida could enjoy some of the best rooftop solar markets in the country. But even though they command over 16 percent of the country’s total distributed solar generation potential, they account for only 2.7 percent of the nation’s installed distributed PV capacity.

This article will briefly summarize the Texas regulatory context, examine the policy issues in the “Throwing Shade” article, and draw tentative conclusions about directions citizens could take.

Regulation of Electricity in Texas

“Throwing Shade” raises important questions and examines policy issues relevant across the country, but can the report’s methodology adequately account for the market and political realities in Texas? Unique among the 50 states in several respects, the Texas utility regime is dynamic and complex.

As a result of legislation passed in 1999, Texas residents and businesses operate in one of four different regulatory regimes, depending on their location. Two of these regimes are the municipal utilities and electric cooperatives.

A third regime predominates with respect to population and total demand for electricity. In these areas, retail electricity providers (REPs) are de-coupled from the companies who own the transmission and distribution (T&D) lines. The T&D utilities are monopolies regulated by the state’s Public Utilities Commission, but the REPs are unregulated and therefore operate in a free market, under which customers can choose from a wide variety of retail plans.

These three regimes are within the territory of the Electricity Reliability Council of Texas (ERCOT), the nation’s only “systems operator” whose grid falls entirely within one state. But pockets of Texas, mostly around the edges, are outside of ERCOT. Electricity in those areas is delivered by the fourth regime — private, monopoly utilities regulated by the PUC.

The “Throwing Shade” report identifies a set of policy issues that affect the success of distributed solar, but presumes that the existence or absence of statewide policies on these issues is the only question. We would propose instead that Texas’ complex system makes statewide action on these policies unlikely, and that a more disaggregated approach is necessary.

Let’s look at the policy categories addressed in “Throwing Shade.”

Renewable Portfolio Standards and Solar Carve-Outs

Twenty-nine states have renewable portfolio standards (RPSs), which require utilities to obtain certain amounts or percentages of their electricity generation from renewable sources. These standards differ across states in both the renewable contribution they specify and the renewable technologies they recognize.

Of the ten states highlighted in the report, seven lack RPSs. Interestingly enough, Texas is not one of them. However, because Texas was one of the early adopters, its RPS has become largely irrelevant as market forces have continued to drive utility-scale renewable generation far past the target set by the state.

Yet Texas has not progressed as well with distributed solar, a concern we share with the report’s creators. A rooftop solar “carve-out” in the RPS would help, but energy experts believe this type of statewide policy action is unlikely.

Net Metering

The most common interconnection policy model for distributed solar is net metering, which allows solar customers to sell excess electricity back to the utility and receive bill credit.

As of early 2016, 44 states had statewide net metering policies. In 34 of these states, customers receive reimbursement at full retail rates, rather than wholesale rates. Net metering programs generally encourage distributed solar growth, but specific state policies vary widely.  

Many utilities oppose net metering and impose caps and fees to thwart the programs. More than half of all states with net metering saw efforts to weaken or eliminate their programs in 2015, according to the NC Clean Energy Technology Center. States are allowing utilities to decrease net metering credits and put caps on the amount of net energy purchased.

The six states without any statewide net-metering policies are falling significantly behind in achieving their distributed solar capacity potential. Texas is among them.

In 2007 the Texas PUC effectively blocked a bill passed by the legislature that attempted to mandate statewide net metering. Subsequent legislative efforts to circumvent the PUC’s authority have failed. Although a statewide supportive policy might be productive, the state’s complex utility mix would make articulation of such a policy difficult, and action is unlikely.

However, there are net metering programs in Texas, and they are growing. A number of municipal and cooperative utilities have adopted their own versions, and in the deregulated market there were at least four retail providers offering plans as of this past spring: Reliant, TXU, Green Mountain, and MP2 Energy.

Others of the municipals and co-ops, as well as the majority of deregulated retailers, are still like many utilities in the country — resistant due to concern that “behind the meter” rooftop solar threatens their business model and revenues.

Community Solar

Community solar enables multiple utility customers to obtain a pre-selected portion of their electricity from a shared solar facility and receive proportional credit on their bill. These programs broadly expand solar access to renters and businesses where customer-sited PV panels are impractical. Built in or near the communities they serve, community solar systems eliminate transmission charges and enhance the local economy.

Fourteen states have adopted statewide policies on community solar, but many of these policies are limited to pilot projects or designated utilities. Texas does not have a formal policy, but several Texas utilities have implemented or planned such programs.

Although Texas scored poorly in the report for the lack of a supportive policy, this market is new and the business model is undergoing extensive experimentation to determine best practices.

Interconnection Standards

Interconnection standards (requirements for connecting solar panels to the utility grid) determine the ease and cost of installing solar energy systems for homes and businesses. Without interconnection standards, the installation process can be unwieldy or even prohibitively expensive. Complicated or overly restrictive interconnection standards negatively affect installation rates.

Vote Solar and the Interstate Renewable Energy Council (IREC) assessed state interconnection and net-metering standards, assigning solar-friendly grades ranging from strong to weak. Of the 43 states with interconnection standards, the report scored 26 “weak,” including Texas and 5 more of the 10 states highlighted in the report.

Third-party Ownership

A significant percentage (although declining the past two years) of the 1.3 GW of residential solar installed nationwide have been third-party owned (i.e., not owned by the property owner). A common financing structure that has been beneficial to distributed solar growth, third-party ownership (TPO) generally occurs through two models:

  • Traditional lease: the customer pays for the use of the solar system over many years.
  • Power purchase agreement: the customer pays a specific rate for the electricity generated each month.

Throwing Shade reports that seven states currently ban TPO, including four of the ten poor performers. The legality of third-party ownership is unclear in 20 other states.

Texas permits TPO in competitive electricity markets. However, cooperative and municipal utilities set TPO rules in their territories, and TPO activity is currently very limited in those markets. Because cooperative and municipal utilities are governed with democratic input from local citizens, expansion of TPO programs could be achieved through grass-roots efforts.

Solar Access Laws

Local ordinances or private groups such as homeowners associations can sometimes restrict distributed solar development by claiming that solar panels reduce the aesthetic value of a neighborhood or obstruct sunlight to existing installations. Solar access laws provide protections from installation bans, unreasonable expenses, new construction, and other locally imposed restrictions.

Texas law prohibits homeowners associations from banning panels except in certain very limited circumstances, but offers no additional statewide protections.

Conclusions

The “Throwing Shade” report raises important questions for states that lag in rooftop development despite significant potential, and suggests policy options that merit consideration. However, we believe that given the systemic and political dynamics of Texas, some of these issues are best addressed locally and regionally, rather than exclusively as a statewide matter.

Texas arguably enjoys the most attractive economics in the nation for solar energy at any scale. Recent and significant utility-scale solar development is occurring and expected to accelerate, while Texas already leads the nation in deployment of wind energy. Both of these phenomena have been largely market-driven, although build-out of critical transmission capacity resulted from statewide policy.

For those of us Texans concerned about the slow development of distributed solar, we suggest a strategy that leverages a more disaggregated, grass-roots citizen activism rather than relying on changes in statewide policy:

  • Electric co-op members and the residents of municipally owned utilities can best influence local decision makers, and can democratically encourage supportive policy
  • Residents of competitive market areas should “vote with their feet’ by signing up with REPs that offer net metering (see the list above) and organize to lobby their regional transmission and distribution utilities if interconnection is an issue
  • Since high solar “soft” costs are partially affected by local, non-utility policies and programs, citizens should lobby cities and counties to:
    • join the federally funded SolSmart program for free professional guidance on a variety of topics, and
    • adopt PACE (Property Assessed Clean Energy) ordinances, providing an innovative financing option for commercial property owners

The Texas Solar Energy Society and other statewide organizations are eager to provide information and advice on any of these issues.

 

Paul Gonin is retired from a corporate banking career and resides in Georgetown. Due to his strong interest in solar and other renewable energy, he joined the TXSES board in March 2016.

Ross Pumfrey, chairperson of TXSES this year, is retired from 40-hour workweeks but continues to serve as a consultant. He spent a decade overseeing renewable energy programs at the U.S. Agency for International Development.