Ronald Roedel Emeritus Professor of Electrical Engineering Arizona State University

1. Sierra Club Palo Verde GroupPVG November, 2016, ProgramHow the Corporation Commission Impacts Rooftop Solar in Arizona Ronald Roedel Emeritus Professor of Electrical Engineering Arizona State University

2. Ronald Roedel: Email: r.roedel@asu.edu Webpage: http://roedel.faculty.asu.edu Main Affiliation: Professional Science Masters – Solar Energy Engineering and Commercialization: http://semte.engineering.asu.edu/solar-energy-engineering-commercialization

3. Grid-Connected PV Systems Greentech Media

4. In the overall solar enterprise, the development and adoption of solar power depends upon the complex interaction among • Engineering and technology efforts • Business and economic components • Policy frameworks

5. What has fueled this growth? • Technological Factors • Silicon solar cells and modules • Inexhaustible input power at zero cost • Societal Factors • Problems with fossil fuels • Worries with nuclear power plants • Economic Factors • Steady reduction in cost of PV systems • Favorable government policies and business climate

6. What might impede this growth? • PV system components • Dependence on materials that are not earth-abundant • Not reaching BOS and labor cost targets • New PV system components • Problems with battery technology • Certain economic and business factors • Hostile interactions with utilities, utility regulating bodies • Net metering issues • Power demand charges • Expansion of low cost natural gas supply and use in utility scale electricity generation

7. DG – Utility Concerns • Intermittent generation • Inability to monitor and control systems • Excess energy • Reduced fixed cost revenues from DG users shift costs to non-DG users

8. Policy • What is policy, why is it necessary, and what are its essential elements? • What are some examples of existing policies? • What are the impacts of solar policies?

9. 1. What is policy? • A policy is a deliberate system of principles to guide decisions (and actions to) achieve rational outcomes • Wikipedia (and Roedel)

10. Policy and Solar Commercialization • There are several reasons why solar energy can be beneficial to any nation’s economy and society • But solar energy is not yet the lowest cost method to generate electricity, but it will soon reach “grid parity” Policy Incentives Economy of scale Grid Parity

11. 2. What are some examples of existing policies? Residential PV Systems • Renewable Portfolio Standards (RPS) • Often has a “solar carve-out” – a portion of the RPS must be met by Distributed Generation (DG), or rooftop solar • Incentives • Federal Investment Tax Credits (ITC) – Reduces Initial Investment • State Tax Credits • Utility incentives • Public Utility Commission Policies • Net Electrical Metering – Reduces Annual Cash Payments

12. Net Metering • At the end of each month, when the utility bill is calculated: • Generation = N(kWh imported from utility) – N(kWh exported to utility) +/- N(some credits from previous month) • A “kWh bank” balances this process, which is zeroed once a year • 8 out of 12 months in AZ, the exported electricity exceeds the imported electricity • This is all at the retail rate

13. Residence – with grid-tied PV

14. 3. What is the impact of solar policies? Simplified Cash Flow Diagram Increased by NEM Reduced by ITC

15. 3. What is the impact of solar policies? Payback –> 10.5 – 13.5 years

16. Pressure on existing solar policies The situation • 41 states have mandatory net-metering policies (for residential and community PV) • It was 43 states, but Hawaii and Nevada have replaced net metering with net billing • In 2015, 46 states took some form of solar policy action, 30 considered or enacted changes to net-metering rules • Hawaii grandfathered existing net metering customers • Nevada eliminated net metering for all solar customers • California adopted “NEM2.0” – net metering continues, but the 3 large IOUs no longer have to offer net metering after July 2017

17. Pressure on existing solar policies The situation, cont. • 61 utilities in 30 states proposed increasing monthly fixed charges on all residential customers • 21 utilities in 13 states proposed adding new charges to residential customers with rooftop solar • 24 states formally examined or resolved to examine some element of the value of distributed generation • 10 states have changed or are considering a change to the Aggregate Cap

18. Pressure on existing solar policies NC Clean Energy Technology Center: The 50 States of Solar, 4Q2015 “Some states have produced conflicting outcomes that indicate the lack of consensus regarding valuation approaches and methodology. The Public Service Commissions of Louisiana commissioned a study of the impacts of net metering and found that NEM customers do not pay the full cost of service and are subsidized by other rate payers. A similar study commissioned by regulators in the neighboring state of Mississippi in 2014 found that the net grid impact of distributed generation exceeded the retail rate of electricity.”

19. Pressure on existing solar policies The situation in Arizona • UNS Electric:General Rate Case • Net Metering, Fixed Charges, and Demand Charges • Filed 05/15; Hearings at ACC 03/16 • Docket E-04204A-15-0099 • Tucson Electric Power (TEP): Gen. Rate Case • Net Metering, Fixed Charges, and Demand Charges • Filed 11/15; Hearings at ACC 08/16 • Docket E-01933A-15-0100 • AZ Public Service (APS):Gen. Rate Case • Net Metering, Fixed Charges, and Demand Charges • Filed 06/16; Hearings not yet announced • Docket E-01345A-16-0036

20. APS proposal • Fixed charge increase for all rate payers • $8.67/mo $14.50/mo (R2) • $16.91/mo  $24.00/mo (R1 and R3) • Elimination of net metering, replacement with net billing for new solar customers • New power demand charge • UNS had proposed demand charge for all rate payers, but decided to keep it only for solar customers

21. APS – Net Billing • Import energy from APS - $0.123/kWh • Export energy to APS - $0.0299/kWh • Settle account at the end of every month – no “energy bank” permitted, although credits carry forward

22. Residential PV System – Net Billing Plotting the cumulative return for 25 years Payback – 19.5 years

23. Value of Solar Docket • Timeline • In 2013, APS proposed increases in fixed-charges, ACC scaled them back to a $5 grid access charge • In 2015, APS proposed increasing the grid access charge to $21 • In 2015, ACC opened the Value of Solar docket for a more comprehensive view • APS withdrew its proposals • UES filed its general rate case proposal (May)

24. Value of Solar Docket • Timeline, cont. • Also in 2015, Salt River Project implemented mandatory demand charges • In November 2015, TEP opened a general rate case hearing • In June 2016, APS opened a general rate case hearing • In August 2016, ACC divided the UES rate case into two parts, approving some routine matters, waiting until VoS docket finishes for rest

25. Value of Solar Docket • Timeline, cont. • And in October 2016, another ALJ issued a Recommended Opinion and Order (ROO) on the VoS Docket • In December 2016, the ACC will hold open hearings and then make a decision • In 2017, the general rate cases will go forward

26. Core Issue in the VoS Docket What should the utilities pay for rooftop generated electricity exported to the grid?

27. Recommended Opinion and Order • Utility Position • The best way to find the true Value of Solar energy is through a Cost of Service Study (COSS) • “The appropriate level of compensation to rooftop solar customers for their contribution to demand-driven infrastructure cost savings should be based on how effective the rooftop solar system is at offsetting peak loads”

28. Recommended Opinion and Order • Solar Advocates Position • The COSS approach is irrelevant as it calculates costs and revenues, not an evaluation of the net benefits of rooftop solar • COSS “omits savings for transmission and distribution costs, and does not include environmental and economic benefits” • COSS allocates costs based on solar customers’ total load, instead of delivered load

29. Recommended Opinion and Order • ACC Staff Position • Rooftop exports should be valued with an Avoided Cost Methodology • “specific eligible costs and values of energy, capacity, and other services delivered to the grid” • The above methodology should be used in conjunction with a Resource Comparison Proxy Methodology • “a weighted average cost of utility Power Purchase Agreements and utility-owned grid-scale PV systems” • Both to use 5-year rolling averages

30. Recommended Opinion and Order So what are the Value of Solar calculations?? • COSS -- 2.9 cents/kWh • Cost/Benefit (with Externalities) -- 25 cents/kWh • Resource Comparison Proxy -- 10-13 cents/kWh

31. Recommended Opinion and Order Any areas of agreement?? • The Corporation Commission has the authority to incentivize rooftop solar • Any final methodology must have: • Clear list of inputs, term lengths, models • Transparency, public accessibility, flexibility • Gradualism • Grandfathering

32. Next Steps • Contact the Arizona Corporation Commission with letters, written comments, testimony at the public hearings. APS does not practice Quaker Capitalism, and responds only to direct orders from the ACC. • Remind the ACC that APS recognizes that the Corporation Commission can incentivize rooftop solar • Tell the ACC that renewable electrical energy, especially solar energy, is still a start-up enterprise and needs additional support – just as all energy technologies before them

33. Next Steps • Go to the ACC open hearings on the Value of Solar Docket (December 19-20, 2016) • Tell the ACC that a proper VoS calculation must consider the benefits of solar energy, including the lack of emission of greenhouse gasses (GHGs) • Request that ACC Staff examine the Value of Solar models proposed by the National Renewable Energy Labs (NREL), Lawrence Berkeley National Labs (LBNL), and the Rocky Mountain Institute (RMI). Ask why the best thinktanks in the US have been overlooked! • Remind the ACC that the Solar Enterprise deserves incentives, just as the fossil fuel and nuclear industries have received and continue to receive

34. References • The Solar Energy Industries Association http://www.seia.org • Peter Kind, “Disruptive Challenges,” Edison Electric Institute, 2013 http://www.eei.org • Arizona Public Service Rate Review http://www.azenergyfuture.com/rate-review/ • GreenTech Media https://www.greentechmedia.com • Utility Dive http://www.utilitydive.com • National Renewable Energy Laboratory http://www.nrel.gov • US Energy Information Administration http://www.eia.gov