A 2008 state law capped net metering at 1% of a utility’s peak load — a threshold some companies are now nearing.
Michigan clean energy advocates are concerned that the growing popularity of solar installations could mean utility customers will soon be shut out of programs that compensate them for sending power back to the grid.
The Michigan Public Service Commission reported earlier this month that the number of small-scale solar installations enrolled in utility net metering programs increased nearly 57% in 2018. Installations have steadily increased over the past decade, and now number 5,379 at 43.5 megawatts of capacity.
The problem, as advocates see it, is that participation in these programs is capped at 1% of a utility’s average peak load over five years. That’s further broken down by size, with a 0.5% cap for the most-used “category 1” small residential installations.
Consumers Energy and DTE Energy, which host 88% of the state’s net metering capacity, have about two-thirds of their cap space left for residential customers. The Upper Peninsula Power Co., which reached its 1% cap in 2016 and agreed to increase it to 2% in a rate case earlier this year, has 39% of space left. (Demand in the Upper Peninsula is driven by high electric rates in UPPCO’s territory.)
Despite program room available, solar’s steady cost decline is expected to continue driving installations.
“The caps were put in place in 2008, a long time ago when we were feeling out how this transition to more small-scale distributed generation was going to go,” said Charlotte Jameson, a program director with the Michigan Environmental Council. “Now that we have a lot of experience with it, these caps just don’t make any sense.”
Michigan Public Service Commission Chairperson Sally Talberg said reaching caps will vary among utilities, “but there’s been continued strong interest from customers with the tax credit and declining solar prices. Reaching caps is certainly possible.”
Laura Sherman, president of the Michigan Energy Innovation Business Council, said proposed legislation that would eliminate the 1% cap is a priority for her group in 2020. Sherman said DTE and Consumers could reach their caps in the next year.
“No matter how you value solar, not having any ability for customers to have rooftop solar at all and shutting down that growing industry of lots of jobs that can’t be outsourced is a huge deal,” Sherman said.
Replacing net metering
Michigan net metering programs, composed mostly of solar installations, are in a transition. Sweeping energy reforms passed in 2016 required regulators to design a distributed generation program to replace net metering. Utilities are now required to propose new programs as part of rate cases.
DTE was the first in the state with a distributed generation program, which took effect in May. Consumers plans to file its program design in February, which may not take effect until the end of 2020.
Unlike net metering, the new programs are based on an inflow/outflow tariff that requires customers to pay for all electricity used from the grid and be credited for excess power sent back to the grid. Utilities and advocates have wrangled for years over what the value of the power sent to the grid should be.
Since moving to its distributed generation program, DTE has seen a decrease in customers looking to sign up compared to net metering. Since May 9, 686 customers have applied to participate in DTE’s distributed generation tariff, according to DTE spokesperson Cynthia Hecht. Over the same time period in 2018, DTE received 930 applications for net metering.
DTE also downplayed concerns over its distributed generation cap. Hecht said the company is “unlikely to hit its residential cap anytime soon,” noting 68% of the cap remains unfilled.
‘Powering Michigan Forward’
Utilities can voluntarily expand their 1% cap, as UPPCO did in a contested rate case based on strong customer demand. It’s unclear whether DTE and Consumers would follow suit.
In the meantime, bills introduced in October — known as “Powering Michigan Forward” — would lift the cap as well as require a “fair value of solar” tariff. The legislation would effectively undo the distributed generation program and return to net metering. The bills have bipartisan support in the House but face opposition from utilities.
Jameson said DTE’s new distributed generation program “pushes back the payback period for your average system.” Advocates and solar installers have also raised concerns about the way credits are calculated in real time rather than monthly usage, making it difficult to determine an investment payback.
“Both of those things combined make it a little less appealing for people,” Jameson said. “Then add into that the cap, and it really does create a pretty difficult picture for small-scale solar in Detroit’s territory.”
Consumers, which plans to invest in 5,000 MW of solar by 2030 under its Clean Energy Plan, has said utility-scale projects are a better value for ratepayers than power it has to purchase at retail price from net metering customers.
DTE and Consumers did not respond directly to emailed questions about whether they’d be willing to lift the cap.
“We support the right of any customer to put solar on their premises and strive to provide solutions that meet their energy needs,” said Consumers spokesperson Katelyn Carey. “Unlike others in this debate, we don’t believe that our customers should pay for excess rooftop solar generation at triple the price of the solar being built as part of our Clean Energy Plan.”