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Solar advocates are concerned that the transition to a localized value-of-solar rate is happening too soon.
Solar installers in Ameren Illinois’ territory have hit a key milestone, prompting a regulatory process with high stakes for the future of rooftop solar in the state.
Illinois’ 2017 Future Energy Jobs Act calls for replacing retail net metering with a localized value-of-solar rate as soon as distributed solar capacity reaches 5% of a utility’s total peak demand.
The law requires state regulators to begin investigating how to determine that value when solar reaches 3% of any utility’s peak demand, which happened this month in Ameren’s territory.
But before the Illinois Commerce Commission launches the process, solar advocates are questioning how the thresholds are determined and asking to slow the process, worried it might hurt the state’s nascent solar market by unfairly lowering payments to some customers.
The commission is scheduled to discuss the matter at its April 15 meeting, and clean energy advocates are hosting the first in a likely series of stakeholder workshops (via videoconferencing) on May 5.
“These conversations are happening across the region,” said Nikhil Vijaykar, staff attorney for the Environmental Law & Policy Center. “These are really important conversations, to make sure we’re growing the distributed generation market as opposed to killing it off.”
ELPC and Vote Solar, which both plan to intervene in the proceedings, want to see a definition that would mean it takes longer for the thresholds to be triggered. They say that with the math Ameren has used, the 5% threshold could be reached by the end of 2020, which would not allow enough time to explore the best way to compensate solar customers for the true value of their installations.
ComEd, the utility serving northern Illinois, is further from reaching 5% solar, and would not switch compensation plans until that happens. But the method of valuing solar that the commerce commission develops in response to Ameren will also apply to ComEd once they hit the 5% mark.
“We are concerned that ambiguity in [the Future Energy Jobs Act’s] statutory text could result in a rushed process that could impair the Commission’s ability to develop a robust locational value framework to support a strong and growing DG [distributed generation] market in Illinois,” says a letter from the ELPC to the commerce commission, noting that the pandemic and stay-at-home orders will make the process even more time-consuming.
The Future Energy Jobs Act did not specify exactly how the 3% and 5% thresholds for solar penetration would be calculated. “We’re talking 3% of what and 5% of what?” Vijaykar asked.
As the ELPC outlined in its letter, the numerator — the amount of solar in the utility’s service territory — could include only on-site (mostly rooftop) installations, or it could include community solar installations of up to 2 MW that are being quickly built thanks to incentives in the 2017 law. Ameren, which told the commission it reached 3% on April 2, did include community solar in its calculations.
“If you have a bigger numerator we’d be getting to that 3% more quickly,” Vijaykar said. “That is the approach that utilities have proposed. We’ve suggested it would make more sense to be counting traditional net metering customers,” not community solar.
Then there’s the question of the denominator.
The total amount of peak demand in the state could include only the customers that buy energy from Ameren, or the much larger number of customers that buy energy through an alternative retail electric supplier but have it delivered on the grid by Ameren. In 2018, customers buying energy from Ameren represented only 1,948 MW out of the 7,052 MW that Ameren delivered to customers, according to the ELPC. Solar advocates want the larger number of total customers to define peak load. A bigger denominator will mean it takes longer to reach the 3% and 5% thresholds.
“We think our interpretation of how the values should be calculated is supported by the statutory language and the intent of the statute if you look at [the Future Energy Jobs Act] as a whole,” Vijaykar said. “It wouldn’t have been the legislature’s intent for [the investigation and shift] to happen in a severely accelerated way, as it would if we were calculating these numbers the way the utilities are proposing. In general we would like to see the clean energy market develop in a steady stable way in Illinois, that supports financing, that gives customers predictability. We’d like to have a little more time for this market to grow.”
Ameren Illinois spokesperson Tucker Kennedy said the utility doesn’t agree with advocates’ interpretation of the Future Energy Jobs Act or lingering ambiguity in the threshold calculations.
“These organizations were at the table when FEJA was being drafted and they were part of the negotiations that created the law. There should be no surprise about how the solar penetration calculation is determined,” he said. “Ameren Illinois followed the regulations as stated in the legislation when we developed the methodology for calculating the 3% threshold. That process was filed with the Illinois Commerce Commission in 2017 and no party objected. The ICC approved that methodology later in 2017 and we have been using it to calculate and report solar penetration levels since it was approved. No third party has intervened and questioned our reports. Now that some don’t like the outcome, they want to change the rules.”
While states are increasingly debating the question of how to compensate customers for solar, Illinois is among the first wave of states — including California, New York and Minnesota — attempting to enshrine solar’s value to the grid into policy. And as a deregulated state where customers are billed separately for the distribution and generation of energy, figuring out the specific value of solar to the distribution grid — rather than the larger energy system — raises particular challenges.
“Our view is solar adds a lot of value to the grid rather than just the energy coming across it,” said Will Kenworthy, Midwest regulatory director of Vote Solar. “That full stack of value needs to be acknowledged and credited to the customers. If we do it fairly, then we are comfortable with the outcome whatever it is.”
Kenworthy said that Minnesota is a model in how it compensates customers for the value of solar. But Minnesota is a regulated state where utilities own both generation and distribution, so the calculations can view solar holistically.
In Illinois, customers will still be compensated for the actual energy they are sending back to the grid, but that value will be determined separately from the value that solar provides to the grid. Distributed solar can help the grid function by helping maintain stable voltage or relieving pressure and congestion that might otherwise mean grid infrastructure upgrades or expansions.
Energy prices are low in Illinois, meaning generating one’s own energy leads to smaller savings than it does in states with higher energy prices. Hence in Illinois, compensation for the value to the grid becomes even more important. California and New York are also deregulated markets, but with higher energy prices the value placed on solar’s grid services is less crucial.
“We are blessed with low energy rates here in Illinois relative to a lot of the rest of the country,” Kenworthy said. “So any change in the total compensation will have an impact on the economics. … In the big picture, California and New York led the way in different directions and helped us identify some of the challenges and problems that we’re going to face in trying to sort this out in Illinois. There’s tension between simplicity and accuracy that we need to find the balance for.”
While some fear the end of retail net metering will be a blow for solar customers, solar advocates say that a more sophisticated model is necessary as solar becomes more prevalent, in part to address utilities’ concerns that customers with solar aren’t “paying their fair share” to keep up the grid.
“There’s this idea that retail net metering doesn’t really represent the value and costs of the solar PV system you have on your roof in a very accurate way,” said Vijaykar. “There will be situations where it severely undervalues distributed generation, and there are situations where it overvalues it. It’s this proxy value that isn’t perfect, but if you’re at very low levels of distributed generation penetration it’s not as important to get that exactly right, you want a number that allows it to grow. There’s acknowledgement that as it grows, it’s a little more important to get accurate.”
The Future Energy Jobs Act says the value of distributed generation should be decided based on factors including “geographic, time-based, and performance-based benefits, as well as technological capabilities and present and future grid needs.”
That means the actual location of a solar installation is crucial, and solar in a densely populated area or a place with aging or insufficient grid infrastructure could be more valuable, since taking pressure off the grid or helping to modulate electricity flow would be more needed there.
This is especially true if solar installations include smart inverters that automatically interact with the grid, and such grid services are expected to become increasingly useful and helpful as technology advances and solar penetration increases.
But Vijaykar emphasized that policy must not create inequity in how different customers are compensated for their solar. Calculations based on location could mean people in rural or lower-income areas get less compensation for their solar.
“The concept underpinning locational value is where would distributed generation be more valuable in avoiding costs that the utility would otherwise be incurring,” Vijaykar said. “That tends to be in areas where the utility was otherwise going to be incurring capacity-related costs — an area where there’s growth. If that’s the case, are there going to be equity issues implicated in providing increased compensation to areas where there’s growth versus not?”
A spokesperson for the Illinois Commerce Commission declined to answer questions but provided a statement saying in part: “Staff is currently preparing a staff report that it will submit to the Commission suggesting the Commission open a proceeding to address these matters. This item has been placed on the Commission’s April 15, 2020 Regular Open Meeting agenda. The scope and schedule of the proceeding will likely be addressed within the proceeding if and when the Commission opens it.”