Nevada’s Solar Move Makes Economic Sense

The argument over the economics of distributed solar versus utility solar got played out in the real world in Nevada earlier this year. Utilities won decisively. While there is much gnashing of teeth and moaning of doom from the rooftop troops, the outcome is positive for most Nevada electricity consumers — those who don’t have solar but pay for costs imposed by those who do.

In December, the Nevada Public Utility Commission voted to eliminate rooftop solar net metering for new and existing customers, effective January 1. A variety of solar interests, including many net metering customers, objected. So the PUC held a hearing this month on the December order. After a day-long proceeding dominated by rooftoppers, the commission affirmed its earlier action by a 3-0 vote.

The PUC argued that its decision stops a cost shift from 17,000 solar roofed-customers to the vast majority in the state without photovoltaic generation. The PUC staff estimated the shift at about $16 million annually. Under the new rules, those with excess generation would see their payments from NV Energy decline from the retail rate to the wholesale rate over the next four years.

Existing rooftop solar homeowners and solar providers such as SolarCity and Sunrun protested that the new PUC rules should have grandfathered existing contracts. The PUC was unmoved. PUC chairman Paul Thomsen said, “It doesn’t make me uncomfortable to try to protect 98 percent of residents in this state who don’t have net metering on their roofs. I think we can find a balance.”

Paul Thomsen
Paul Thomsen

The solar companies mounted a major lobbying campaign to get the PUC to reverse the course at the January hearing. Gov. Brian Sandoval (R) accused the solar companies of resorting to “bullying tactics” and trying to “improperly influence the PUC’s independent decision making process.”

In this day of mega-partisanship, the two leading Democrats running for their party’s presidential nomination weighed in on the side of the rooftop solar generators. Hillary Clinton in an interview with the Las Vegas Sun said, “I don’t think any change in rules should penalize people who were permitted and encouraged to do what folks have done. They shouldn’t see that investment absolutely destroyed.” In a tweet, Bernie Sanders said, “I stand with the hundreds of Nevadans asking to protect NV solar jobs and investments in our clean energy future.”

It’s unlikely that either knows anything substantial about the Nevada dispute. But the politics are obvious. Nevada has Democratic presidential candidate precinct caucuses (county-by-county) on Feb. 20, following the Iowa caucuses on Feb. 1 and the New Hampshire primaries on Feb. 9. (Just to be confusing, Republicans hold their South Carolina presidential primary on Feb. 20 and Nevada caucuses on Feb. 23, while the Democrats hold the South Carolina primary Feb. 27.)

Party activists, special interests, and ideologues determine primary caucuses; rooftop solar enthusiasts are likely to turn out in the Democratic event in Nevada. Hence, the interest of the Clinton and Sanders campaigns to make an appeal.

Nevada’s action caused SolarCity and Sunrun to exit the Beehive State. That’s no real loss (except for the folks who worked for the companies). Their business was built on an unstable house of subsidy cards, including federal tax goodies and net metering payments in excess of their worth. The leasing model hides the real cost of the rooftop arrays to the customers, mostly well-to-do homeowners, yielding further tax advantages to the lessor. The costs of those subsidies end up in the rates of the customers who don’t, or can’t, take advantage of solar photovoltaics.

Rooftop solar advocates charge that utilities, specifically NV Energy in Nevada, oppose solar energy. That’s a canard. Many utilities, including NV Energy, prefer utility-scale and utility-owned solar. They are making big solar investments.

As my colleague Robert Marritz wrote recently in, “It is understandable that utilities should prefer to install their own, utility-scale solar projects — cost-effective plants that require investments on which they earn a rate of return. This is in sharp contrast to customers’ solar installations, which cost the utility revenue …. Credible reports by The Brattle Group and others have confirmed—no surprise—that utility-scale solar produces energy at roughly half the cost of small-scale rooftop solar.”

Marritz also notes that “too much is made of net metering. It has become, in fact, a red herring. After all, of the total kWh that customer solar produces, nearly all of it consumed domestically, how much is actually provided the utility on average?” Most likely, not much.