Why is Nevada in danger of losing its solar industry?

The Nevada Public Utilities Commission ruling impacts NV Energy utility territory, highlighted in green.

The Nevada Public Utilities Commission ruling impacts NV Energy utility territory, highlighted in green.

One of America’s sunniest states, Nevada, is shutting its door on the solar industry.

A decision by the Nevada Public Utilities Commission (PUC) to burden past, present and future solar customers with steep fees and inequitable price structures has thrown the state’s industry into disarray. As advocates, hopeful for relief, try to convince the PUC its decision is wrong, solar customers and businesses alike are struggling to make sense of the decision’s economic impact.

The PUC’s decisions could eliminate the grid-tied residential and commercial solar business in Nevada, according to interviews with solar installers in the state. It could even make sense, in some situations, for current solar owners to unplug entirely and let their systems collect dust instead of sunlight.

At issue is net energy metering (NEM) and the rates and fees solar customers within the NV Energy utility territory must pay to take advantage of the program. NV Energy services most of the state’s most populated areas, including Las Vegas, Carson City and Elko. In short, the PUC’s decision makes residential and commercial solar in the state prohibitively expensive, with payback periods on some systems extending longer than solar equipment is typically warrantied to function. The smaller the system, one analyst said, the longer the payback period could be.

The impact was surprisingly negative, said Kyle Jones, analyst at Robco Electric.

“If you look at the paperwork that was filed with PUC, everyone was expecting a grandfathering of old customers, and we weren’t expecting future solar customers to be so devastated with these rates,” he said. “We thought there might be a $10 or $20 fee, but not a [nearly] $40 fee and that the excess energy rates would be slashed so dramatically.

“We thought we could continue business, but it just wouldn’t be so fruitful. We thought we were going to take a hit on business, but could keep everyone working.”

Perhaps the most disturbing element of the commission’s ruling is that it’s retroactive, failing to grandfather old systems, impacting thousands of existing solar customers in the state.

As a result, companies have already laid off workers, new solar orders have grinded to a stop and the financial impact of the decision on solar owners is just now becoming known.

“Once word gets out how bad this is for existing customers, it’s going to shake the ground everywhere,” Jones said.

Making sense of the decision

This decision traces to March, when state legislators, through HB 374, empowered the PUC to create a new class of customers that use solar panels. In a political swap to raise the net metering cap, it also enabled the PUC to increase fees on solar customers for using the grid.

In December, the commission voted to allow NV Energy to increase a monthly fee on solar customers (working out to about $38 each month by 2020) and reduce the credits customers receive for excess energy from about $0.11/kWh to $0.02/kWh—a reduction from the retail rate, which is what utility customers pay for energy, to the wholesale rate, which is what the utility itself pays for energy.

The change was needed, according to NV Energy, due to cost-shifting. Cost-shifting describes the benefits solar users get from the grid while paying nothing or little to support electricity infrastructure, shifting the cost to other non-solar customers.

Today a debate rages about the true nature of cost-shifting and how much solar users really burden the system, if it all. Several studies have shown solar users can be a benefit to utility grids. Lauren Randell, manager of public policy at Sunrun, said the idea that solar users create a cost-shift has been discredited by every independent study across the country, including one in Nevada.

“The PUC commissioned a study to look at costs and benefits of rooftop solar,” she said. “What the study found—which somehow doesn’t get any air time in the press—is that solar is a net benefit to rate payers.”

NV Energy, arguing the PUC study didn’t provide accurate results, commissioned its own. The utility-funded study found, to little surprise among observers, a significant cost shift created by solar users. That study has informed the PUC and its latest decision, bringing the state’s solar industry to the edge of its demise.

Impact on customers

For solar customers and companies alike, the most disturbing aspect of the PUC decision is that it applies retroactively, meaning people who purchased solar expecting a certain return can throw out those calculations altogether.

“Now all of this stuff is so backward,” said William Ramsdell, president of American Solar Electric—a company primarily dealing in solar-powered LEDs—and owner of a solar array. “People who have solar are now going to be charged more money, more money per kWh, for energy than their next door neighbor who doesn’t have solar … that’s ludicrous.”

Louise Helton, co-founder of 1 Sun Solar and outspoken advocate, said the PUC misled the public to believe that rate changes would not impact current customers. She said solar leases are likely to become a financial liability under the new rules, rather than an advantage.

“At the end of the day, most of the leasing companies are only saving customers $20 to $30 a month, and by 2020 just the monthly fee will be $38 a month,” Helton explained. “And when you take into consideration that they’ll be valuing excess energy at such a low rate, if you’re leasing you’re so upside down, it will cost you thousands of dollars more than it would have cost you if you hadn’t had solar at all.”

Jones of Robco Electric has been tinkering with the new fees and rate structures for days, applying them to real properties and testing the outcomes. To help customers understand the impact of the PUC decision, he developed a web-based calculator available here. Under one calculation, a customer would have saved about $5,417 by going solar, but with the new NEM rules, the customer will spend $6,422.64 to $17,846.12 more than people who did not go solar.

Another test Jones ran was based on his own boss’s system, a 4.14-kW array with 98.7% offset. If it had been purchased last year and installed at $3.57/W (about the installed cost of most residential systems, according to SEIA), the return-on-investment (ROI) would have been seen in 2027. With the new fees and reduction in credits for excess energy from NV Energy, payback is shifted to 2058, Kyle said.

“This most definitely means we won’t do rooftop systems in Nevada anymore,” Jones said. “There will be some people who want to do it, but in reality it will kill everybody.

“We’d have to be at 1.50/W to install this system and give them the same payback, if you did it right now. It’d be closer to $1/W install cost after all the fees are put in place by NV Energy.”

Impact on Business

SolarCity and Sunrun, two of the largest solar-lease companies in the country, recently halted business in the state because of the devastating policy decision. Vivint Solar also paused operations this summer citing policy uncertainty.

SolarCity’s move will reportedly cost 550 jobs, a quarter of its workforce, subduing an industry that was rejoicing a five-year extension of the solar’s federal investment tax credit just a few weeks ago. The true impact of the PUC’s decision, which is likely to be contested, is yet to be seen.

“This is a very difficult decision but Governor Sandoval and his PUC leave us no choice,” SolarCity CEO Lyndon Rive said in a scathing news release announcing the decision to leave the state. “The people of Nevada have consistently chosen solar, but yesterday their state government decided to end customer choice, damage the state’s economy and jeopardize thousands of jobs.”

Sunrun offered similar words about its decision to leave the state, which ranked third in solar installations in 2014.

“Nevada passed incentives to attract residents to go solar. But after baiting homeowners with incentives, the state switched the rules, penalizing solar homeowners to deliver additional profit to NV Energy,” said Bryan Miller, senior vice president of public policy and power markets at Sunrun, in a news release. “This bait and switch hurts Nevada families, many of whom are retirees on fixed incomes, and who use solar savings to meet their monthly budgets.”

The decision isn’t just impacting the larger, headline-generating companies like SolarCity and Sunrun. Nevada is home to more than 100 solar companies, according to SEIA—companies with smaller workforces and trusting clients. Workforces have already been laid off, according to interviews, and solar customers are growing wary as news about the decision spreads.

“My customers are not pleased about the fees and decreased sell back rate,” said Jim Korzeniewski, owner of High Desert Electric. “Some are considering action against me. [I’m] not sure what to do as far as a future plan.”

Moving forward

Randall, who also participated in the advocacy group The Alliance for Solar Choice, said Sunrun will be filing suit against the PUC’s action in court. The Bureau of Consumer Protection is also filing motions to stay the PUC’s decision. Other organizations, including the Southern Nevada Home Builders Association, have come out against the decision, as well.

“[Nevada] could be a state that’s a net exporter of solar energy. It has the highest potential to be a leader in solar. Last year it had the highest level of solar jobs per capita in the country,” Randall said. “But now, because of this political decision, it will be one of the last states for solar in the country, which is just sad.”

The PUC met with solar advocates related to SolarCity today in Carson City to hear concerns. The author of HB 374, which allowed the PUC to make this decision, has expressed concerns herself.

State Senator Patricia Farley, the legislation’s lead author, told Bloomberg Business she is “absolutely concerned” about the decision and did not expect two major solar companies to leave the state as a result.

“I’ll have to take a look at the numbers,” Farley told Bloomberg. “I have to assume that the PUC would do the right thing. People who already had solar relied on the old rate structure. They should have a remedy.”

Helton suggested compromise.

“I don’t want to be unreasonable, and I certainly don’t expect everything to go my way 100%,” she said. “We could come up with a flat monthly fee of $20 to $25, maximum. I think that for small residential customers and small commercial customers, we could still manage that and people would be satisfied with their investments and want to go forward. But this very one-sided decision that has been made will not serve to encourage anyone, and it will be very damaging.”

Update; January 14:

After hearing hours of testimony from solar advocates on January 13 in Carson City, the Nevada PUC decided to uphold rate hikes. Read an article about this decision here.



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