Lawmakers in Maine voted last week to override a veto by Gov. Paul LePage to pass LD 1263, a legislative resolution that could help end debates on how to fairly compensate distributed energy producers.

The Resolve, as the legislation is labeled in Maine, directs the Maine Public Utility Commission to convene a stakeholder group to develop an alternative to net metering for the state legislature to take up in the new year. Under the current policy, utilities in Maine are required to credit customers at the variable retail electricity rate (about $0.13 cents per kilowatt-hour) for distributed solar generation produced on-site that is sent back to the grid.

The stakeholder initiative opens the door for utilities and solar advocates -- which have clashed in several other states -- to collaborate on a new, long-term solar incentive policy, before the federal solar tax credits expire at the end of 2016.

“[The Resolve] overcomes the current gridlock around net metering because it acknowledges that net metering works now and should continue to exist in the near term, but because it also acknowledges that at a certain penetration point, net metering will be replaced by a mechanism that is more market-sensitive,” bill sponsor Rep. Sara Gideon, a Democrat from Freeport, wrote in an email. “In this way, it is good for all customers, whether they are energy producers, energy consumers or both.”

LD 1263 was supported by lawmakers on both sides of the aisle, despite Republican Gov. LePage’s opposition. LePage vetoed the bill earlier this year and has actively sought to dismantle Maine’s existing renewable energy policies (he has also pledged to veto every Democrat-sponsored bill until his opponents agree to eliminate Maine’s income tax).

The decision to override the veto passed last week by 119 to 28 in the Democrat-controlled House, and by 32 to 3 in the Republican-controlled Senate. The Resolve also won the support of Central Maine Power, the state’s largest electric utility; the Maine Office of the Public Advocate; and environmental advocates led by the Natural Resources Council of Maine; as well as several solar installers in the state. 

The bill itself doesn’t institute any changes to Maine’s existing net metering policy, but it does require stakeholders to build upon a market-based policy solution laid out in a white paper by Lon Huber of Strategen Consulting and the Maine Office of the Public Advocate, entitled “A Ratepayer-Focused Strategy for Distributed Solar in Maine.”

The paper was devised to help Maine avoid a net metering battle as Central Maine Power approaches its 1 percent of peak load net-metering cap this summer, and to leverage Maine’s value of solar (VOS) study to find a more sustainable solution that benefits all parties. The VOS study, submitted to the legislature earlier this year, determined solar’s actual value to be $0.33 cents per kilowatt hour -- well above the net-metering credit at a retail rate of $0.13 cents per kilowatt-hour.

“This [proposal] isn’t related so much to net metering as it currently exists in Maine. But as [solar] scales and the economics of solar improve or retail rates rise, we think that it will start to cause problems as a foundation for supporting distributed generation,” said Maine Public Advocate Timothy Schneider. “This is really designed to get out of that trap before it becomes a problem,” he said.

The role of a "Solar Standard Buyer"

Net metering is a simple way to credit distributed generation, according to the white paper. However, it’s also flawed, because as solar penetration increases, the retail rates underpinning the policy will no longer send the right price signals. Customers will either be compensated at rates that do not reflect the value of the resource, or at rates that fail to reflect the continuing decline in the installed cost of solar.

The Strategen paper offers an alternative policy framework based on the concept of a Market-Based Aggregation Credit (MAC). Under this model, a central aggregator, or “Solar Standard Buyer” (SSB), would aggregate solar projects to maximize and monetize the value of solar generation in relevant markets. The aggregator could be a utility or another third party selected by the PUC.

“Centralizing procurement with the SSB would allow for a more efficient aggregation and sale of the different attributes solar energy can provide,” according to the paper. “The SSB would aggregate the energy, RECs, capacity value, and ancillary services potential and monetize these in the applicable markets.”

“[T]he underlying goal of the policy structure is to allow Maine ratepayers to capture the benefits of distributed solar energy while minimizing the costs and inequities experienced in other states,” the paper states.

Figure 1: Overview of Market Transactions

The policy centers on a fixed-price, 20-year contract between residential or small business customers and the solar aggregator, or SSB. Initially, compensation would be based on a previously established value of solar analysis, which could be somewhere between Maine’s VOS price of $0.33 cents per kilowatt-hour and Maine’s net metering credit of $0.13 cents per kilowatt-hour. The paper proposed a $0.20 cent per kilowatt-hour cap based on the direct market costs.

As long as compensation does not exceed the predetermined value cap, whatever it may be, then all ratepayers will enjoy the financial and environmental benefits of solar. Compensation offered by the SSB would also decline in blocks over time. This assumes that as solar capacity increases, incentives will no longer be necessary as economies of scale help solar energy system costs fall.

The SSB would recuperate the costs the program by selling the energy and realizable value from an aggregated group of projects on the market. Stranded costs, or the difference between the amount recovered by the solar aggregator and the amount paid under the customer contract, would be allocated equitably across the entire rate base.

Figure 2: Overview of Step-Level Changes

Under the proposal, large commercial and industrial solar developers would bid for a specified level of installed capacity in a quarterly reverse auction mechanism (RAM). The SSB would purchase the output of the facilities under the same value cap used in the residential program. However, bids are expected to come in considerably lower, driving down costs to all ratepayers.

Wholesale solar projects on the utility side of the meter located within the distribution system would similarly compete in a competitive procurement. The buyer, the SSB in this case, would contract with the lowest-priced bids.

Based on these mechanisms, Strategen believes there’s the potential for Maine to add 300 megawatts of new solar capacity by 2025 -- 150 megawatts from the wholesale sector, 100 megawatts from the residential and small business sector, and 50 megawatts from industrial sector.

“I think this could be a model for other states, too, especially restructured markets,” said Huber of Strategen. “But also states in general that want to look into the costs and benefits of solar and create ways to actually capture those benefits at the lowest price for ratepayers.”

The devil is in the details

Exactly how big Maine's overall solar program would be is likely to be one of the hot-button issues as the proposal works its way through the PUC in the coming months. How much solar the state chooses to support depends largely on the legislators’ policy goals and the need for portfolio diversity, said Huber. 

The value cap is likely to be another source of contention. Should solar projects be compensated at the full $0.33 rate? Or is there a lower price point that would reduce costs on all ratepayers, but continue to support solar development? But if the price point is lower than the full value, are solar owners then subsidizing non-solar owners?

While the details still have to be ironed out, Schneider, Maine’s Public Advocate, said he likes the proposal because it avoids risk of transferring costs from one customer to another as solar reaches scale. Maine utilities are supportive because it ensures costs are transparent and allocated fairly.

Distributed solar customers should also like this option, because it’s more stable than relying on a net metering policy based on the current retail rate, which is subject to change. Theoretically, solar installers should like this option too, because it settles the net-metering cap issue, but does not replace net metering, and so customers would still have the option to pick that compensation method if they wanted to.

However, the conservative group Tell Utilities Solar Won’t Be Killed and The Alliance for Solar Choice opposed LD 1263, viewing an alternative to net metering as a threat to solar growth in Maine.

Other solar advocates have expressed more cautious optimism.

“The Public Advocate’s straw proposal is creative and shows important leadership that could bring parties together,” said Dylan Voorhees, clean energy director at the Natural Resources Council of Maine, in a statement. “However, refining it and agreeing on the details could make the difference between whether the outcome is a step forward or threatens to move us back.”

Several solar installers in Maine supported the collaborative process initiated under LD 1263, in hopes that it will increase the benefits Maine residents and businesses will receive for their grid-tied solar energy systems, bringing compensation closer to the $0.33 cent per kilowatt-hour mark.

Some companies acknowledge that the alternative presented by Strategen and the Public Advocate might be the only working solar incentive solution.

“The utility is never going to be the friend of solar; solar energy is a threat to the utility,” said Phil Coupe, co-founder of Revision Energy, Maine’s leading solar installer, in an interview. “So we’re thinking about plan B, and if plan B is in the form of an aggregator, we see that as a whole lot better than having nothing at all.”