The solar industry is no stranger to whiplash-inducing policy decisions.
Among the most recent: In November South Carolina regulators slashed the rates paid to some large solar projects in the state, only to backtrack and raise them again earlier this month. Solar advocates had urged the change, arguing that the rates were so low they’d foster a “doomsday scenario” for South Carolina solar deployment.
While the turnaround only raises rates for projects selling to utility Dominion Energy — advocates may later ask regulators to consider changes for Duke Energy — industry watchers say it helps put South Carolina back on the right course.
“It’s a challenging environment for solar investment with where we are right now, but the Dominion decision gives us at least an opportunity,” said Hamilton Davis, director of regulatory affairs at developer Southern Current, which is based in the state.
The change comes at a potentially pivotal moment for solar in South Carolina. The state passed its Energy Freedom Act last year, which set a minimum contract period for projects paid through the Public Utility Regulatory Policies Act, or PURPA, and lifted a cap on net metering. With the new law in place, analysts were expecting 431 megawatts of installations in 2019, surging from 147 megawatts the year before.
The industry saw the bill as a legislative endorsement of a strong future for South Carolina’s solar market, which has been susceptible to the same booms and busts that have bedeviled many states. But in the eyes of solar developers, the November regulatory decision threatened that path.
And while the commission’s decision doesn’t alleviate all concerns, it does lift much of the industry’s panic.
Seeking "energy freedom"
PURPA compels utilities like Dominion and Duke to buy solar power from third-party projects at established rates over a distinct contract term. While the law’s importance for solar has waned in many states, partially due to utility pressure, it remains relevant in states like South Carolina that lack a strong renewable portfolio standard (South Carolina’s target is 2 percent by 2021) and where developers are unable to sell into wholesale markets or directly to corporate customers.
South Carolina ranks third nationally for PURPA-related solar development.
Because the decision cut rates paid to projects through PURPA, developers said it would have obliterated their ability to finance those projects. The new rates would “stifle solar energy development in South Carolina,” argued the Southern Alliance for Clean Energy and the South Carolina Coastal Conservation League in a regulatory filing imploring the commission to reconsider. Analysts, too, recognized the impact, but categorized the decision as “a setback” rather than an existential threat.
In their criticism, advocates highlighted the contradiction they saw between the commission’s original decision and the pro-renewables Energy Freedom Act, also known as Act 62. Now that the commission has changed its position, kicking Dominion rates from near $20 per megawatt-hour up to around $30 per megawatt-hour, Davis said the state can better honor legislative intentions.
“The purpose of Act 62, in large part, was to introduce more competition to allow low-cost resources to compete and enter the market for the benefit of customers,” said Davis. “There’s ample opportunity to deliver value to customers in additional investments in low-cost resources like solar.”
Dominion, however, said the reversal would hurt customers — a claim State Senate Majority Leader Shane Massey, a Republican, called a “fake lament” on Twitter.
“The Commission’s decision to change its ruling on avoided-cost rates means customers unfortunately will have to pay more for their electricity than they would have under the Commission’s original ruling,” the utility said in a statement.
Monopoly vs. competition
Differing opinions about what the commission’s decision means for ratepayers echo larger points of disagreement on PURPA between solar developers and the utilities they sell power to.
While investor-owned utilities like Duke and Dominion are increasingly outlining solar plans of their own, PURPA remains a point of tension. Utilities have continually attempted to rein in PURPA's terms, offering them more say in how solar gets deployed in their service territory and how much it costs. Solar advocates have pushed back, saying the restrictions impair competition.
Though utilities have notched many wins to limit PURPA in states such as Montana and Michigan, decisions like the one in South Carolina show that the push-and-pull continues. And in this case, the commission still has more decisions to make.
Beyond rates for Dominion, regulators will also reconsider contract length. In November, the commission set contract duration at 10 years; the Energy Freedom Act requires 10-year minimums. The industry could also ask the commission to reconsider rates for Duke.
Those unknowns left the Southern Alliance for Clean Energy “cautiously optimistic” about the outcome of the most recent decision, the organization said in a statement.
Duke declined to comment on how the Dominion decision might impact the rates it’s required to pay to PURPA projects in the future. But because the rates the commission set for Duke started higher than those of Dominion, Davis said it’s unlikely that the commission will raise them markedly.
“We’re still in the same situation that we were back in November with Duke,” said Davis. “We wouldn’t necessarily expect to see as dramatic a change, but certainly the rates adopted for Duke, we think, undervalue solar and make it challenging — if not impossible — to finance new projects.”
No matter the commission's final decisions for Duke and Dominion, it won't be the end in a broader clash between solar companies and utilities, especially as the resource gobbles up more of the generation mix.
“What we pointed to repeatedly during this proceeding is that we’re operating in a vertically integrated monopoly utility market, and we are competition for those monopoly utilities. To the extent that we are meeting demand on their system, we’re reducing their ability to invest capital and make a return for their shareholders,” said Davis. “That’s the tension that exists in these monopoly markets, and it’s why you need good policy and good regulators to make sure competition and consumer choice are able to function.”