Large scale solar plants provide energy three and a half times more cheaply than combined individual rooftop solar owners-Wall St. Journal op-ed

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5/17/15, "The Hole in the Rooftop Solar-Panel Craze," Wall St. Journal opinion, Brian H. Potts. "Mr. Potts, a utility lawyer, is a partner and member of the Energy Industry Team at the international law firm Foley and Lardner LLP."

"Large-scale plants make sense, but panels for houses simply transfer wealth from average electric customers."

"Most people buy rooftop solar panels because they think it will save them money or make them green, or both. But the truth is that rooftop solar shouldn’t be saving them money (though it often does), and it almost certainly isn’t green. In fact, the rooftop-solar craze is wasting billions of dollars a year that could be spent on greener initiatives. It also is hindering the growth of much more cost-effective renewable sources of power.

According to a recent Energy Department-backed study at North Carolina State University, installing a fully financed, average-size rooftop solar system will reduce energy costs for 93% of the single-family households in the 50 largest American cities today. That’s why people have been rushing out to buy rooftop solar panels, particularly in sunny states like Arizona, California and New Mexico. 

The primary reason these small solar systems are cost-effective, however, is that they’re heavily subsidized. Utilities are forced by law to purchase solar power generated from the rooftops
of homeowners and businesses at two to three times more than it would cost to buy solar power from large, independently run solar plants. Without subsidies, rooftop solar isn’t close to cost-effective.

Recent studies by Lazard and others, however, have found that large, utility-scale solar power plants can cost as little as five cents (or six cents without a subsidy) per kilowatt-hour to build and operate in the sunny Southwest. These plants are competitive with similarly sized fossil-fueled power plants.

But this efficiency is possible only if solar plants are large and located in sunny parts of the country.

On average, utility-scale solar plants nationwide still cost about 13 cents per kilowatt-hour, versus around six cents per kilowatt-hour for coal and natural gas, according to the Lazard study.

Large-scale solar-power prices are falling because the cost to manufacture solar panels has been decreasing and because large solar installations permit economies of scale. Rooftop solar, on the other hand, often involves microinstallations in inefficient places, which makes the overall cost as much as 3½ times higher. 

So why are we paying more for the same sun?

There are lots of reasons. Well-meaning—but ill-conceived—federal, state and local tax incentives for rooftop solar give back between 30% and 40% of the installation costs to the owner as a tax credit. But more problematic are hidden rate subsidies, the most significant of which is called net metering, which is available in 44 states. Net metering allows solar-system owners to offset on a one-for-one basis the energy they receive from the electric grid with the solar power they generate on their roof. 

While this might sound logical, it isn’t. An average California resident with solar, for example, generally pays about 17 cents per kilowatt-hour for electric service when the home’s solar panels aren’t operating. When they are operating, however, net metering requires the utility to pay that solar customer the same 17 cents per kilowatt-hour. But the solar customer still needs the grid to back up his intermittent solar panels, and the utility could have purchased that same solar power from a utility-scale solar power plant for about five cents per kilowatt-hour. 

This 12-cents-per-kwh cost difference amounts to a wealth transfer from average electric customers to customers with rooftop solar systems (who also often have higher incomes). This is because utilities collect much of their fixed costs—the unavoidable costs of power plants, transmission lines, etc.—from residential customers through variable-use charges, in other words, charges based on how much energy they use. When a customer with rooftop solar purchases less electricity from the utility, he pays fewer variable-use charges and avoids contributing revenue to cover the utility’s fixed costs. 

The result is that all of the other customers have to pick up the difference.

The California Public Utilities Commission projects that net metering will cost the state $1.1 billion a year by 2020. Arizona Public Service Company calculates that if the current rate of rooftop-solar installations continues through mid-2017, its nonsolar customers will pay close to $800 million in higher rates to subsidize rooftop-solar customers over the next 20 years. The total costs nationwide are unknown. On May 5, however, an interdisciplinary group of researchers and professors at MIT released a study about the future of solar energy and concluded that net metering is inefficient and should be redesigned. 

Large-scale solar power generally doesn’t get these same hidden-rate subsidies. When utilities build or buy output from large solar facilities, they spread the costs out evenly to customers. Every dollar spent on rooftop solar is a dollar not spent on other, more productive renewable sources.

Increasingly, utilities across the country have been calling attention to the problems with rooftop solar. They’ve been urging the pursuit of large-scale solar and other renewables, the moderation of rooftop-solar subsidies, and a restructuring of electric rates to encourage new technologies. They’ve been vilified by armies of PR consultants armed with sound bites about how utilities want to kill solar. 

Yet the federal subsidies for solar amount to about $5 billion a year, with more than half of that amount going to rooftop and other, more expensive, non-utility solar plants. If the federal government spent the $5 billion instead subsidizing only utility-scale solar plants, I estimate that it could increase the amount of solar power installed in this country every year by about 65%. And without net metering and all of the other nonsensical state and local subsidies for rooftop solar, we could save this country billions of dollars every year. 

It is time to stop encouraging people to pick a losing technology merely because it makes them feel good. There are greener, more cost-effective solutions."

"Mr. Potts, a utility lawyer, is a partner and member of the Energy Industry Team at the international law firm Foley and Lardner LLP."




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