How do local policies and variables within a city affect the cost to a customer of adopting residential solar? Can a city’s aim towards residential solar be defined as equivalent, equitable, or optimal and what does accomplishing that aim mean for the city and its citizens?
Some Context
Electricity consumption has been steadily growing over the 20th and 21st century using a recent leveling off; this increase in usage has generated an increase in electricity generation. Fears over ecological degradation, increased carbon emissions, an urge for North America energy independence and a diversified fleet of fuels have culminated in a greater drive for renewable energy.
The US federal government has laid out some basic regulations and prerequisites, but the onus is on individual states to enact further legislation in respect to renewable energy generation. With the passing of the Public Utilities Regulatory Policies Act (PURPA) in 1978 which allowed for separate energy producers2 along with the Energy Policy Act in 1992 (EPAct92) that removed restrictions on competition for wholesale electricity, 3 deregulation of many electric utilities followed. EPAct92 also decide on a number of laws to improve clean energy usage and energy efficiency, notably devoting tax incentives to encourage commercial sales and production of renewable energy technology.
Within each state there are a variety of utilities which operate differently from one another and function based on local agendas. Despite increased national and state mandates associated with renewables, local utilities and governmental agencies have a powerful impact on the energy fleet. It is crucial to explore and compare how cities and their respective utilities approach renewable energy to identify a version that best enhances financial results for the city and its citizens while also reducing carbon emissions and securing a diverse fuel fleet for the future.
The Question:
How do local policies and variables within a city affect the cost to a customer of adopting residential solar? Can a city’s aim towards residential solar be defined as equivalent, equitable, or optimal and what does accomplishing that aim mean for the city and its citizens?
Texas Regulation
The Texas Public Utilities Commission adopted rules for a renewable electricity mandate in 1999 that demanded 2,000 megawatts (MW) of renewables to be installed by 2009, a later amendment required 5,880 MW by 2015, and also the latest amendment requires 10,000 by 2025, a goal which has already been achieved.
Much of the renewable production has come from wind and as a reply the Texas Renewable Portfolio Bill (SB No. 20) establish a goal of 500 MW of non-wind creation by 2025. 28 All these requirements are applicable to all Texas investor-owned utilities and retail providers. An administrative penalty of $50 per MWh renewable production shortfall exists to penalize noncompliance and incentivize involvement in the renewable portfolio standard.
Local authorities and utilities may offer tax incentives, net metering and rebates and it is therefore normal to see different incentive arrangements around renewables from one city to the next. However, nationally renewable incentives do apply to Texas like the federal solar investment tax credit (ITC) that delivers a 30% tax credit for residential and commercial investors in solar energy property. 30 The ITC is set to measure down to 26% in 2020, 22% in 2021, and 0 percent to residential investors and 10% for industrial and utility investors following 2021. These conditions apply equally to the three towns in this comparative analysis.
Comparing Three Cities in Texas
The results indicate an overarching pattern present in the three cities and that is that a long-time horizon leads to positive net savings over a traditional electric bill, the ITC significantly improves savings, and the project is likely to be uneconomical without the ITC over a short project timeline. Another important takeaway is that a rebate or capital reduction incentive is more valuable than net-metering or a value of solar tariff.
The cost savings realized by the San Antonio households are higher than Austin and significantly higher than Georgetown despite both cities having a generous net-metering or value of solar tariff and San Antonio’s lack of net-metering. Installing solar PV is capital intensive and without a government tax credit, a project needs a lengthy time horizon to recoup the costs.
The findings also suggest that a potential buyer should consider installing solar sooner rather than later to take advantage of the ITC. Since the presence of solar panels does not generally impact the sale price of a home, the system must be considered a sunk cost and fully paid off if a home is to be sold. If a homeowner intends to adopt residential solar PV for the potential cost savings, they should consider a realistic time horizon and install prior to the expiration of the ITC.
If a homeowner intends to move in 10 years or less and the ITC has expired, they are financially better off foregoing installing residential solar and continuing to receive energy from the local utility.
Preliminary View
The policies and actions of Austin are reflective of an equal system. The city offers generous system rebates and worth of solar credits for those that could afford to install solar. The worth of solar credit was made in a way to treat a homeowner with solar PV as an energy producer that’s paid $0.097 per kWh while still paying for all energy consumed based on the tiered rate system.
Austin Energy decided to eliminate internet metering and handle all energy customers equally regardless of if a home has solar panels, further proof that Austin needs to be categorized as an equivalent system. Those who cannot install solar, as a result of poor solar insolation or living in a leased space, can pay an additional of $10-$18 in their energy bill to take part in Austin community solar.
The city offers the same solar programs and incentives to citizens and therefore the city behaves in an identical way. The programs do not 44 account for socioeconomic levels and can best be utilized by taxpayers that are able to pay a month or manage the high initial cost of installing solar.
San Antonio has created a more equitable system which enables fair access to solar. While Austin Energy provides a rebate that maxes out at $4,000, CPS Energy supplies a bigger rebate and one that maxes out at $25,000. The rebate is higher for residents that opt to use locally manufactured panels and inverters, implying that the city is trying to promote fairness among locally and internationally produced systems.
This high rebate in partnership with the SolarHostSA program gives a rewarding bonus that may benefit the lowest income household to the household that may put in a large and expensive system. CPS Energy comprises residential solar to the renewable energy generation capacity target and so incentivizing solar contrasts with utility objectives. It is appropriate to categorize San Antonio as having an equitable system once it comes to solar.
Georgetown utility services focused on securing long term, fixed rate, contracts to optimize energy savings. It is suggested by not offering solar rebates the city believes that there is a better utilization of capital. The net-metering in retail rate appears to be an incentive to the customer but it acts as a fixed payment to the city to purchase excess generation from homeowners. Georgetown Energy is researching and buying a virtual powerplant system and intends to compensate, through lease payments or royalties, homeowners at ideal locations that put in solar.
The intention is to stabilize prices and lower overall costs 45 by removing extremely costly peak demand costs.74 it’s evident that Georgetown’s energy policies and targets should be categorized as Optimal.
Our Conclusion: So what
It is evident, that in the case of Austin, San Antonio, and Georgetown, the approach taken towards implementing solar energy can have a substantial financial impact on residential utility customers. Cities that more heavily subsidize a solar PV system save clients far more than towns that don’t subsidize.
However, the most meaningful incentive is that the federal investment tax credit and the presence or absence of this may dramatically affect the net savings to a customer on a short-term job horizon. Apps such as SolarHost provide guaranteed savings for clients but in a lower rate than some of the classic solar PV scenarios.
Federal and local incentive structures reduce the capital cost of installing residential solar PV, but customers need to fully understand their energy usage, needs, and deadline to properly justifying partaking from the capital-intensive job of installing solar energy. Aside from the financial impact on residents, the solar policies and applications which cities set forth, speak into the overarching policy version found in every city.
The 3 cities, Austin, San Antonio, and Georgetown, fall into the groups of equal, equitable, or optimum, respectively. Austin, categorized as equivalent, promotes a version where all participants in solar are treated exactly the same, irrespective of socioeconomic standing. This is quite evident by both the tiered rebate system that yields $0.40 per kW around $4,000 regardless of system origin or home income, and especially the value of solar tariff that treats all solar panel owners as traditional energy consumers while crediting houses for the energy produced in their solar PV systems.
San Antonio, categorized as equitable, highlights a model that treats participants and residents in residential solar PV in a fair way. This is evident from the rebate system that incentivizes all participants in solar PV but rebates more to those that 47 select locally manufactured panels and inverters over internationally fabricated systems. The SolarHost program is especially equitable in that it provides all homeowners, regardless of socioeconomic level, the ability to take advantage of and benefit from home solar PV.
People who could afford it, can save even more by installing residential solar PV. Georgetown, categorized as optimal, puts very little emphasis on residential PV and promotes a model that’s meant to decrease and stabilize costs for your city. Georgetown has already agreed to purchase 100% renewable energy via its power purchase agreements and won’t benefit in precisely the same manner as Austin and San Antonio will by boosting residential solar PV. The city has improved cost savings over the next 25 years while reducing emissions. Rather, Georgetown has changed its attention on optimizing grid stability as can be understood by its implementation and research of virtual powerplants through compensating residential solar PV in advantageous solar resource locations. Knowing these versions and categorizations can provide a blueprint for other cities that wish to implement programs to boost renewable solar energy.
A city may decide whether it needs to be equivalent, equitable, or optimal and can choose policies and programs that best align with the planned model. Other cities can also use the financial model to analyze the worth of residential solar PV to their citizens and tailor the design to meet their perfect incentive structure.
An important result has been the potential costs of installing residential solar in the absence of the investment tax credit over the brief term, it is yet to be seen how cities will change incentive arrangements when the credit expires and how it will impact adoption prices.
