Tucson Electric Power has announced plans to expand its rooftop solar program and launch a new community solar offering in 2016, which the utility said will help it surpass Arizona’s renewable energy goals.

TEP’s renewable energy plan, filed last week with the Arizona Corporation Commission, includes the proposal for a new residential community solar program. If approved, customers would be able to buy output from utility-owned, community-scale solar arrays under a 10-year fixed-rate contract.

TEP is proposing to spend up to $10 million next year to develop a 5-megawatt system to serve participating customers.

Building solar at community scale will allow TEP to offer more solar for less money, while also expanding consumer options, said Carmine Tilghman, senior director of energy supply at UNS Energy, TEP’s parent company, in a recent interview with Greentech Media.

The new program would come in addition to TEP’s existing Bright Tucson Community Solar Program, which allows customers to purchase some or all of their power from local solar arrays for an additional 2 cents per kilowatt-hour on the customer’s average rate.

By siting projects on customer property leased by the utility, the new community solar program would also count toward TEP’s distributed generation requirements under Arizona’s renewable energy standard, Tilghman said.

Under that policy, utilities are required to get 15 percent of their electricity from renewable sources by 2025. A portion of the requirement, 4.5 percent of total sales, must be sourced from distributed generation.

Whether or not the program should count toward the RPS is likely to be a point of debate as the commission takes up the proposal. There is also likely to be a lively discussion in Arizona over whether or not third-party solar companies should also be allowed to offer community solar. Under current laws and regulations, they cannot.

Arizona’s Residential Utility Consumer Office (RUCO) said it supports TEP’s initiative to offer more cost-effective options for customers to go solar. At the same time, however, RUCO said it believes third-party solar companies should also have the opportunity to bring community-scale solar to customers.

“RUCO supported utility access to the residential solar market, with limits and checks, so it follows that third parties should also get access to the community solar market where the utilities are the only ones currently playing,” said Lon Huber, director of Strategen Consulting and policy advisor to RUCO.

A bigger play in utility-owned rooftop solar

The Arizona Corporation Commission approved TEP’s first residential solar program late last year, limiting it to about 500 customers and 3.5 megawatts, with a $10 million spending cap. Participating customers are charged an initial $250 processing fee, then locked into a set rate for up to 25 years.

TEP reported that the first 200 available reservation slots booked in less than half an hour after the online form launched at noon on July 1. Additional applications will be accepted in August and September.

As part of the renewable energy plan submitted to the ACC last week, TEP is seeking to add up to 1,000 new participants in the rooftop solar program next year, with an additional $15 million investment.

Both the expansion of TEP’s residential solar program and the new community solar program would be funded through participants’ fees and future rate cases.

RUCO said it plans to carry out a detailed financial examination of the cost-effectiveness of TEP’s existing utility-owned rooftop solar program before offering a recommendation on the new proposal.

“We knew there would likely be some continuation [of the TEP rooftop solar program], but we still need to get results and data from their existing program before we can support expanding it,” said Huber.

RUCO supported the 2015 program on the condition of a cost parity principle to ensure a level playing field between third-party solar companies and utility-owned solar offerings. The cost parity issue will continue to be a strong focus for the consumer group, said Huber, particularly given the changes TEP has proposed to net metering.

Under the commission-approved cost parity requirement, the utility’s rooftop solar program must be equal to or less than the cost of third-party net-metered systems from the average ratepayer’s perspective. RUCO’s concern is that if the net metering policy changes, and falls to the wholesale rate as TEP as proposed, then the cost threshold for the utility’s solar program will fall too.

To illustrate the point (using made-up numbers), if solar customers cost non-solar customers $1,000 per year, and the utility’s solar program costs ratepayers $800 per year, then the investment is justified from RUCO’s perspective. But if net metering compensation drops, and solar customers with third-party-owned systems now cost non-solar customers $500 per year, then the utilities will also have to meet that lower benchmark to ensure the market remains fair.

RUCO is currently reviewing TEP’s plans and will work to ensure “benefits can accrue to all ratepayers over the life of the systems,” said Huber.

In addition to the two residential solar programs, the costs for which will be covered by participating customers and the rate base, TEP has proposed an increase in the Renewable Energy Standard Tariff (REST) surcharge, which predominantly funds utility-scale solar projects.

TEP has proposed a $57 million REST budget for 2016, which would increase the surcharge to 1.3 cents per kilowatt-hour from 0.8 cents per kilowatt-hour in 2015. For residential customers, the surcharge could not exceed $4.56 per month, an increase from the current $3.76 monthly cap.

To date, TEP has grown its renewable energy portfolio to 330 megawatts, which is enough to serve nearly 70,000 homes. New resources purchased with the REST surcharge will go directly toward fulfilling the requirements of Arizona’s 15 percent renewable energy standard.

All of TEP’s proposed programs and surcharges must be approved by the Arizona Corporation Commission, which is expected to review the company’s request this fall.