Solar Energy

Credit Suisse Analyst: APS Plan Would Kill Off New Rooftop Solar Installations in Arizona

A new Arizona Public Service rate plan would essentially kill off new solar installations by top companies Solar City, SunRun, and Vivant by next year, a Credit Suisse analyst said on Tuesday.

The statements in a research report by analyst Patrick Jobin added to fears already voiced by the pro-solar community that the plan being presented for approval to the Arizona Corporation Commission aims for more than a general rate increase by the state's largest utility. The plan, which drew protesters to the Corporation Commission on Tuesday, would hike rates by an estimated $11 monthly for customers by instituting "demand charges" that penalize people for spikes in usage and could reach as high as $200 or more per month.

Demand charges, coupled with a slash in so-called net metering payments to home solar owners in APS territory, would have a horrific effect on the solar industry in Arizona, say advocates like former Corporation Commission member Kris Mayes.

According to Jobin, who's based at the financial company's New York City office and specializes in alternative-energy equity research, the cost of doing business would become too high in Arizona for the solar companies and their customers.

"Net metering" is the term given to programs, used to some degree in most states, in which utilities reimburse solar customers for the excess power they produce during daylight hours. On a per-kilowatt-hour basis, APS pays those customers the retail rate it charges other customers. The new plan cuts the payments to something more like the wholesale rate it pays for the power from large solar plants.

Rooftop solar would become "unequivocally uneconomical" in Arizona under the plan, Jobin wrote in his "Solar Snippet" report, which followed an in-depth analysis. The report is available to Credit Suisse subscribers but Jobin allowed New Times to review it.

"We conclude that the rate structure, if adopted as proposed, would make residential rooftop solar unequivocally uneconomical," the report states. "The silver lining is that all the systems are expected to remain grandfathered and the current rates remain available until July 1, 2017 — we expect a demand rush (and sudden cliff) to follow."

The new rates would reduce the compensation for rooftop-solar owners by 73 percent, Jobin estimates. That means the cost of the systems would have to decline by half to make the business worthwhile for anyone.

Arizona has about 5.9 percent of the U.S. market share of solar installations.

But what's important is that other states might follow Arizona's lead, Jobin writes.

(SolarCity's stock jumped at another report Jobin released this week, but it had nothing to do with the Arizona angle. He reported on how a new loan program launched by SolarCity would be good for the company.)

APS confirmed that its plan calls for a net-metering payment reduction from a ballpark 12.9 cents per kilowatt-hour to about 2.9 cents, beginning in July 2017. A kilowatt-hour is equivalent to the energy used by 10 light bulbs burning at 100 watts each for one hour.

The proposed decrease in payments would come following state approval in 2013 of a small fee levied against the monthly bills of solar customers. APS backed off a plan for a higher fee last year, but the Phoenix area's other main utility, Salt River Project, added demand charges to solar users in early 2015, resulting in new installations being cut in half.
Utility representatives have long aimed to slow the rooftop solar market, which is a threat to their business model. It's not that solar customers can cut their umbilical cord to the grid, leaving utility companies with fewer customers. Solar power isn't quite that good — not without better batteries or other ways to store energy gathered during peak sunlight hours. But utilities claim that as more customers go solar and reduce their electric bills with lopsided net-metering schemes, the remaining customers must pay more. APS claims that $42.7 million is "shifted" each year to non-solar customers, and that because the shift is growing, in 20 years it'll be more than $1 billion.

Solar advocates, however, point to studies showing that home-solar power generation allows utilities to put off building expensive new power plants, and therefore saves money for all ratepayers.

In April, SolarCity and other solar companies announced a plan to spend $5 million to put an initiative on this November's ballot that would would lock in current net-metering rates for six years. Anti-solar lawmakers responded by preparing to use the referendum process to put two spoiler bills on the ballot. After Governor Doug Ducey stepped in and brokered peace talks between the various parties, Mayes — as head of the Energy Choice for America, the political committee that was the front group for the initiative — declared that the pro-solar proposition would be dropped for now.

On Thursday, though, Mayes told New Times that the peace talks have been "suspended."

"Unfortunately, that's all I can say at this time" about the talks, she said.

The APS rate case before the Corporation Commission may take a year to decide, she said, and the pro-solar groups will stay focused on stopping APS' planned rate changes. She's also a spokeswoman for the Energy Freedom Coalition of America, which fights plants to net-metering changes in Arizona and other states.

She pointed out that in Nevada, a similar proposal was put into place that drove companies from the state and led to "layoffs of thousands of people.”

In a strongly worded response to the Energy Freedom Coalition that was published on (a pro-APS site) last week, APS doesn't deny that it aims to eliminate net metering.

"Our proposed changes would not affect the 44,000 APS customers who have already installed rooftop solar," the company asserts. "We would continue to compensate future rooftop solar customers for the excess electricity they produce, but we would reduce the amount of the subsidy, which is not sustainable and is driving up rates for our non-solar customers."

The utility, owned by Pinnacle West Capital Corporation, writes that Mayes' group "has a great name, but it is another front group for SolarCity and other for-profit companies ... Kris Mayes may refer to herself as a 'solar advocate,' but her employers have an enormous financial stake in delaying any action by the Arizona Corporation Commission that would reduce today's subsidies for their industry."

The utility also decried threats of lost jobs as "fear-mongering," asserting that a study found that solar companies' "profit margins are so large," they'll be fine in the future, and customers will still be able to choose rooftop solar as an option.

The company repeatedly states that it likes solar and has been building more solar farms that benefit all ratepayers equally.

"We want more solar for more customers without raising prices unfairly for any particular group of customers," APS spokesman Jim McDonald told New Times.
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Ray Stern has worked as a newspaper reporter in Arizona for more than two decades. He's won numerous awards for his reporting, including the Arizona Press Club's Don Bolles Award for Investigative Journalism.

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