Fixed Solar Fees Are Tesla’s Best Friend and a Utility Own Goal

Two developments yesterday, one quiet, one rather loud, suggest the long-predicted existential threat to the traditional utility model may be at hand.

The quiet news came from the California Independent System Operator (CAISO), which reported that utility-scale solar generation crossed the 5-GW mark for the first time yesterday. Between 10 a.m. and 2 p.m. PST, nearly 20% of the CAISO load was being served by solar. This total, by the way, does not include behind-the-meter residential and commercial solar, which makes up roughly one-third of the state’s 8-GW total solar capacity, according to statistics from the California Solar Initiative and the Solar Energy Industries Association.

In case you haven’t looked at the calendar lately, it’s mid-February right now, which is not exactly prime season for solar generation. (And as I sit here writing this around 10:30 a.m., the solar trendline on the CAISO web site is about to cross the 5 GW mark again.) That means that output is only going to increase as we move into spring and summer. Solar generation in areas such as California, Arizona, and Nevada is no longer a niche.

The much louder news came by way of Tesla CEO Elon Musk, who during the company’s earnings call yesterday announced that the company would have a version of its lithium-ion electric vehicle battery designed for home installation going into production in six months and available for purchase some time this year.

I’ve previously reported on the degree to which the battery storage market has exploded in the past year or so as costs have fallen far enough to become competitive with some forms of conventional generation. This is something that’s happened with almost none of the subsidies and incentives that have driven wind and solar. It’s happening because storage now makes economic sense in many applications.

But the attention on storage has mostly been at grid and commercial scale. Few people I’ve talked to seem to have thought much about residential storage. Storage systems for those few homeowners who wanted or had to go off-grid have been around for a while, but they’ve so far been based around inefficient lead-acid batteries. Further, the process of pulling the plug was too do-it-yourself for the vast majority of homeowners. Tesla—which has a partnership with residential solar firm SolarCity—aims to change that.

Most utility folks have been telling themselves that the overwhelming majority of their ratepayers are too used to the security of their grid connection to want to disconnect entirely. That is probably true, as far as it goes. But strangely enough, some utilities seem committed to driving those ratepayers right into Tesla’s arms.

The culprit is the growing campaign to levy fixed solar fees, that is, fixed charges on customers with rooftop solar panels. The argument has been that these customers are using the grid as a storage battery and, by cutting their bills through net metering, are not paying their fair share of infrastructure costs.

The validity of this argument is hotly debated, and it’s not really clear whether rooftop solar is a burden on the grid, as the utilities and lobbying groups like the American Legislative Exchange Council argue, or whether it lowers utility costs though peak shaving and avoided generation.

The drive to levy fixed solar fees to counteract this problem is gaining momentum, most notably in Arizona. Last year, APS tried to levy a $50 fee on homeowners with solar panels, though the Arizona Corporation Commission ultimately allowed only a $5 fee. Then, late last year, the Salt River Project (SRP), the state’s largest utility, announced that it was considering levying a $50 fee of its own. Other states and utilities have looked at such fees or moved to levy them.

Whether or not these fees are justified is beside the point here. The assumption behind these fees seems to be that ratepayers have nowhere else to go—but that is an assumption that may well become untenable this year.

Personally, I can’t think of anything that would more motivate homeowners with solar panels to look seriously at Tesla’s battery system than these kinds of fees. It’s almost as if SRP is trying to sell Tesla’s batteries for them.

Without knowing what Tesla will charge for its product, I can’t say precisely how the economics will shake out. But Elon Musk is a smart guy, and I can’t imagine he would bring a product like this to market unless it offered substantial savings over a traditional grid connection.

If Arizona ratepayers have a choice between paying SRP another $50 a month because they put solar panels on their roof, or paying Tesla $50 a month for a battery that disconnects them from the risk of more arbitrary fees, what are they likely to choose?

Most ratepayers probably would prefer remaining grid connected, all things being equal, but fixed fees for solar are certain to tilt the playing field in favor of home storage and going off-grid. Rather than collecting an extra $50 a month, it’s possible SRP might end up with nothing at all from many of its soon-to-be-former ratepayers.

If utilities are looking to keep their customers connected, penalizing them for installing solar panels is probably the last thing they should be doing. Elon Musk is watching.

—Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).