by Julia Pyper
April 14, 2016

Massachusetts Governor Charlie Baker signed a bill on Monday that will raise the state’s net-metering cap, ending months of uncertainty and stagnation for the local solar industry.

The bill, An Act Relative to Solar Energy, represents a compromise between solar companies, utilities and policymakers -- a compromise that took nearly a year and a half to reach. Last week, stakeholders in New Hampshire also reached an agreement to extend net metering after months of negotiation. Meanwhile, several other states are currently re-evaluating their net metering programs, looking for middle-ground solutions in what are often contentious debates.

In Massachusetts, the new legislation provides immediate relief to the solar industry by raising the net metering caps by 3 percent, increasing them from 5 percent to 8 percent of a utility’s peak load for public projects and from 4 percent to 7 percent of a utility’s peak load for private projects.

At the same time, the bill reduces the value of net-metering credits by about 40 percent, lowering compensation from 17 cents to 21 cents per kilowatt-hour to 11 cents to 12 cents per kilowatt-hour. Credits are issued for the excess electricity distributed solar customers don’t use and thus send back on the grid.

The changes apply to commercial and community solar projects. Government-run and residential solar projects are not affected by the cap and maintain higher reimbursement rates.

Lowering the credit proved to be an important step in winning support from policymakers who view net metering as a subsidy for solar at the expense of other ratepayers. Several lawmakers said the legislation’s “balanced approach” will protect consumers, while serving Massachusetts’ environmental and economic needs.

“The compromises reached in this bill recognize the important role that the development of solar energy plays in contributing to the clean energy goals of the Commonwealth, as well as fostering green jobs and community development while ensuring that incentives are more closely aligned with costs to achieve affordability and sustainability,” said Brian Dempsey, chair of the House Committee on Ways and Means and lead House conferee of the Solar Conference Committee.

Tough choices and confusion

The net-metering issue ended up in conference committee after Massachusetts lawmakers failed to pass a bill before the end of the last legislative session. In November, the Senate approved a bill that would have maintained net-metering remuneration near the retail rate and raised the cap to 1,600 megawatts, the state’s goal for solar generation. Shortly after, the House passed a bill that would have raised the caps for public and private projects by 2 percent, and lowered the net metering credit from roughly 17 cents per kilowatt-hour to 4 cents per kilowatt-hour.

Solar companies favored the Senate bill, while utilities favored the House version. Governor Baker introduced a separate proposal. But ultimately, stakeholders could not reach an agreement and the bills died.

March 2016 marked one year since National Grid hit its net-metering cap in Massachusetts, rendering most commercial solar projects financially unviable. Other utilities in the state have since approached their limits. Amid the policy uncertainty, 550 solar projects valued at a total of $617 million stood in limbo, according to a recent analysis conducted by Vote Solar and the Solar Energy Industries Association.

After the compromise bill was signed into law, Vote Solar’s Sean Garren wrote in a blog post that it would provide “much-needed cap relief,” but that lawmakers had to make “tough choices to get it across the finish line.”

Garren criticized the bill for reducing net-metering reimbursement, which he said would hit community solar projects for low-income customers the hardest, given that the margins are much tighter in that segment. He also lamented that the bill would allow utilities to propose a minimum bill charge for solar customers to help cover their fixed costs.

An overwhelming majority of Massachusetts legislators were supportive of raising the net-metering caps and maintaining a retail-rate value for the credits, Garren said in an interview. More than 100 representatives signed a “dear colleague” letter that asked for an immediate cap increase and retail-rate net metering for at least community shared, low-income and municipal solar projects. The Senate was on record supporting a much stronger bill.

The weakened bill that ultimately passed -- the compromise version -- stems from the electric utilities and their allies at the Associated Industries of Massachusetts (AIM), which led a massive lobbying and public campaign to attack net metering and influence the legislature, according to Garren. A significant amount of confusion contributed to the delays and compromise legislation, he said, primarily around the difference between net metering and the Solar Renewable Energy Credit (SREC) program.

“The utilities and AIM used combined, and exaggerated, numbers from both programs to attack 'solar subsidies,' while focusing their entire attack on net metering rather than the much larger SREC program. As a result, legislators thought of net metering as a subsidy, rather than the fair compensation it is, and the debate focused on net metering,” said Garren. “Solar supporters were pushing for a reduction in the cost of the SREC program right from the start, but these significant cost savings were not given much air time in the debate.”

A sustainable path forward?

The conference bill directs the Massachusetts Department of Energy Resources (DOER) to begin crafting a new version of the SREC program, which serves as a major solar incentive in the state but is now almost fully subscribed.

Acknowledging that a long-term sustainable solution will take time to develop, the DOER filed an emergency regulation last week that extends eligibility to all projects above 25 kilowatts constructed by January 2017, and also extends eligibility to all projects 25 kilowatts and under that are interconnected by start of the next program. While the emergency regulation takes effect immediately, it can only remain in effect for 90 days pending a full rulemaking proceeding.

So while there’s now some policy certainty in Massachusetts, the debates are not over. The SREC emergency regulation only brings certainty for three months until a new program is crafted. The net-metering compromise is also considered a temporary solution. The solar industry anticipates the increased caps will only last for a few months, at which point the issue will come up again. At the same time, Massachusetts lawmakers are taking up an omnibus energy bill that is expected to support hydropower and offshore wind, but could theoretically address solar, as well.

Going forward, National Grid said it remains committed to serving the high volume of solar demand and continues to increase distributed generation staff to help get projects interconnected.

“While we do remain concerned about the costs of these programs borne by our non-solar customers, we are dedicated to developing a sustainable solution that provides the necessary incentives to continue growth,” spokesperson Mary-Leah Assad wrote in an email. “In order to truly address the challenges that have been debated over the last year, National Grid believes the solar community, utilities, business groups and state officials need to come together to develop a sustainable path forward that prevents uncertainty in the future and ends the need for lengthy debates that leave customers and the industry waiting.”

A sustainable solution for National Grid would be bringing net-metering compensation closer to the wholesale electricity rate, Assad explained in a follow-up call. “The costs of installing solar have declined over the last several years and continue to decline,” she said. “We would like to see that translate into savings for our non-solar customers, so they’re not paying the same subsidies they did years ago.”

In pursuit of compromise

Facing program caps, New Hampshire policymakers recently came up with their own net-metering solution following months of debate.

On April 7, the legislature passed HB 1116. The bill doubles the state’s net-metering cap from 50 megawatts to 100 megawatts, and maintains retail-rate compensation. It also directs the Public Utilities Commission (PUC) to come up with a fair compensation rate for both net metering customers and other customers. Regulators have 10 months to complete the process and announce a new rate plan -- one option being to extend the existing net metering rate plan. The cap increase is expected to support the industry over that period, but could be reached before the 10 months are up.

Solar proponents cheered the passage of HB 1116, which Governor Maggie Hassan is expected to sign. “This bill underscores the importance of net metering for continued solar growth,” The Alliance for Solar Choice said in a statement.

New Hampshire is one of several states to have recently passed a net-metering policy that offers credits at the retail rate. For instance, California preserved retail-rate net metering in a high-stakes proceeding earlier this year, and South Carolina introduced retail-rate net metering in a settlement agreement in March 2015. These developments show that for some policymakers, a compromise deal still includes full retail-rate remuneration for distributed solar.

Other states, including Massachusetts, view the term differently. Mississippi, for instance, approved a net-metering program in December that credits customers at the wholesale electricity rate, plus 2.5 cents per kilowatt-hour. The deal took five years to negotiate.

Maine is currently considering its own unique compromise solution that would boost the state’s overall solar mandate, and lower net metering to the wholesale rate over five years. The bill (LD 1649) recently passed out of committee, but faces a rough road ahead with declared opposition from Republican lawmakers and Governor Paul LePage.

Meanwhile, in Vermont, regulators are considering new net-metering rules that would lower the amount of money net-metering customers receive and create new rate classes. Utilities in the state are also pushing to add a grid service fee, although Green Mountain Power told NPR that if the price for net-metered solar reflects the value it brings to the grid, there is no need for additional fees. Vermont law requires net metering regulations to be revised by January 1, 2017.

Earlier this year, Nevada put in place some of the highest new fees for solar customers seen to date. The fixed charges increase to nearly $40 per month over 12 years. Over the same period, the net-metering credit will drop from roughly 11 cents per kilowatt-hour to 2.6 cents per kilowatt-hour. The changes apply to both new and existing solar customers.

The decision has been heavily criticized, not only by solar advocates, but also by policymakers and business leaders who view the decision not to grandfather in existing customers as a sign of regulatory instability in the broader Nevada market. Governor Brian Sandoval has appointed a special energy task force that is expected to try to craft a more palatable solution. But a compromise deal seems elusive with regulators holding firm that they made the right call, while solar advocates pursue a ballot initiative and lawsuit.

Arizona is yet another hot spot for net-metering policy debates; utilities and solar companies have been battling each other over rooftop solar policies in the state for years. In an attempt to find common ground, the Arizona Corporation Commission (ACC) will hold hearings on a value-of-solar proceeding starting April 18. The docket is intended to guide regulators on how to set net-metering compensation, but it’s uncertain how this proceeding will actually affect ratemaking.

“It’s unclear how the interplay [between the value-of-solar docket and rate cases] will happen,” said Tom Broderick, head of the ACC utilities division, in an interview. He said the proceeding is unlikely to affect the UniSource Energy Services rate case that’s currently before the commission, but acknowledged that it could “inform cases over time.”

All of these regulatory and legislative proceedings demonstrate just how difficult it is to achieve a compromise on net metering. Even states that have reached deals, such as Massachusetts and New Hampshire, have only settled on interim solutions. In all cases, protracted and resource-intensive debates appear to serve no party well, especially the consumer.