It’s no secret that Virginia lags behind neighboring states on renewable energy. We have no utility scale wind or solar projects and very little in the way of customer-owned projects—a total of 10 megawatts (MW) of distributed solar, at last count. But the renewable energy revolution now underway across the country has wrought some changes even here in the Old Dominion.
So this seems like a good time to review the status of the law and the sometimes-confusing array of pilot programs, policies and tariffs that affect renewable energy, especially wind and solar. I’ll also note where we can expect to see proposals for change in the legislative session beginning in January.
Renewable Portfolio Standard (RPS)
Virginia has a voluntary RPS, which means utilities have the option of participating but don’t have to. Under a mandatory RPS, which 29 other states have, utilities don’t have a choice, and are penalized if they fall short.
The term “voluntary” confuses many people, as it suggests that the RPS should be optional for consumers, like a green power program. This is not the case. If a utility opts to participate in Virginia’s RPS, all ratepayers foot a share of the extra costs incurred in meeting the goals.
Until this year, utilities could also qualify for a huge bonus for meeting the goals: more than $38 million annually in the case of Dominion Virginia Power. Widely regarded as a consumer rip-off and the subject of protests by environmentalists and a damning report from the Attorney General’s office, the bonuses were stripped out in 2013 as part of a larger package of changes. As a result, the only incentive utilities now have to participate in the RPS is their desire to look “green.”
Unchanged, however, are the extremely weak provisions of the RPS. In the case of Dominion Virginia Power, these have been met largely with out-of-state renewable energy certificates (RECs) from old hydro projects built prior to World War II. The Virginia RPS thus remains entirely irrelevant as a driver of new wind and solar projects.
Look for a bill this year from Delegate Lopez (D-Arlington) that will improve the goals but still won’t hit the gold standard of requiring emission-free power from Virginia sources. The problem is that once you make crummy stuff eligible for an RPS, as Virginia has, the producers of crummy stuff jealously guard their public subsidy.
Utility “green power” programs
Section 56-577(A)(6) of the Virginia code also allows utilities to offer “green power” programs. Unlike the RPS, participation by consumers is truly voluntary. Participants sign up and agree to be billed extra on their power bills for the service.
Ideally, a utility would use the money to buy renewable energy for these customers; however, Virginia utilities have not done this. Instead, utilities pay brokers to buy renewable energy certificates (RECs) on behalf of the participants. In Dominion’s case, these RECs meet a recognized national standard and are much superior to those bought for the RPS, but they primarily represent power produced and consumed out of state, and thus have no effect on the power mix in Virginia. For a fuller discussion of the Dominion Green Power Program, see my previous post, What’s wrong with Dominion’s Green Power Program.
In the case of Appalachian Power, the RECs come from a conventional hydro facility in West Virginia that was built in 1960, so the RECs don’t even meet most environmental groups’ standard for renewable energy.
Given the lack of wind or solar options from utilities, people who want renewable energy just have to build it themselves. The good news is that this is increasingly an option, as prices for these systems have fallen substantially. The change is most pronounced with solar PV. Prices for home systems on rooftops are now about $4 per watt installed, with larger commercial systems between $3 and $4 per watt.
For reference, 8,000 watts, or 8 kW, would provide the electricity required for the average Virginia home; but of course, houses and households vary. If it’s just you and your dog, you might need only 3 kW.
Virginia offers no tax credits or rebates, but a federal tax credit of 30% is available until the end of 2016. An installer can do the math to help you figure out how many years it will take to pay back the cost of a system. And if you’re in the market, you should also consider solar thermal, also known as solar hot water, which for some households can be an even better deal.
Section 56-594 of the Virginia code allows utility customers with wind and solar projects to “net energy meter.” System owners get credit from their utility for surplus electricity that’s fed into the grid at times of high output. That offsets the grid power they draw on when their systems are producing less than they need. Their monthly bills reflect only the net energy they draw from the grid.
If a system produces more than the customer uses in a month, the credits roll over to the next month. However, at the end of the year, the customer will be paid for any excess credits only by entering a power purchase agreement with the utility. This will likely be for a price that represents the utility’s “avoided cost” of about 4.5 cents, rather than the retail rate, which for homeowners is about 10.5 cents. Given the current cost of installing solar, this effectively stops people from installing larger systems than they can use themselves.
Virginia law also does not allow system owners to share the electricity with other consumers, either directly or indirectly. If this were possible, the market for solar would expand to include people without sunny roofs, who could join forces to install larger systems on good sites. In states that do allow these arrangements, the programs are variously known as community net metering, virtual net metering, or solar gardens, depending on their scope.
Under a bill introduced by Delegate Randy Minchew (R-Leesburg) and passed in 2013, however, owners of Virginia farms with more than one electric meter will be permitted to attribute the electricity produced by a system that serves one meter (say, on a barn) to other meters on the property (the farmhouse and other outbuildings). This is referred to as “agricultural net metering.” The law takes effect July 1, 2014 for investor-owned utilities (Dominion and Appalachian Power) and July 1, 2015 for the cooperatives. The State Corporation Commission is currently writing rules to govern the program.
For solar advocates, expanding net metering opportunities to include some version of community net metering is a high priority for the 2014 legislative session. Delegate Minchew’s bill had originally included community net metering, and he remains interested in the issue. So far, the utilities have shown no willingness to go along.
Standby charges and other limits
Utilities don’t like net metering. It reduces demand for their own product, threatening their ability to make money building new centralized generation. Customer-owned generation also introduces utility monopolies to competition for which they seem to be unprepared.
But lest you think they only care about themselves, utilities also urge that net metering is a subsidy to customers who use the grid but may pay little for the privilege, requiring the rest of the ratepayers to foot a larger share of the bill. Solar system owners, they say, aren’t “paying their fair share.”
Surely this is all theoretical in the case of Virginia, with so little distributed generation that any new installation that’s not on a house makes the local papers. Nonetheless, Dominion Power is at the forefront of a national pushback against policies like net metering that facilitate customer-owned generation.
When net metering was instituted in Virginia, residential systems were limited to 10 kilowatts (kW), and commercial systems to 500 kW. The solar industry succeeded in getting the residential limit raised to 20 kW in 2011, but the change came with a catch: the utility was allowed to apply to the State Corporation Commission to impose a “standby” charge on those customers.
Seizing the opportunity, Dominion won the right to impose a standby charge of up to $60 per month on these larger systems, eviscerating the market for them just as electric cars were increasing interest in larger systems. (SCC case PUE- 2011-00088.) Legislative efforts to roll back the standby charges were unsuccessful.
The existing standby charges supposedly represent the extra costs to the grid for transmission and distribution. This summer in a filing with the SCC (PUE-2012-00064, Virginia Electric and Power Company’s Net Metering Generation Impacts Report), Dominion claimed it could also justify standby charges for its generation costs, and indicated it expects to seek them after a year of operating its Solar Purchase Program (see discussion below). Presumably this would be a year from now.
Aside from residential systems between 10 and 20 kW and a provision attached to the Agricultural Net Metering bill, there is no express authority in the Virginia code for Dominion to seek new standby charges. Look for a fight in the General Assembly if Dominion seeks this authority.
Homeowner Association Bans
Another challenge to customer-owned generation is homeowner association (HOA) bans and restrictions on solar systems. Under a 2008 law, HOAs cannot impose bans going forward, but the law did not affect bans already in place. A 2012 bill that passed the legislature only to be vetoed by the governor would have overturned existing bans as contrary to public policy. The sponsor of that bill, Senator Chap Petersen (D-Fairfax), may introduce it again this year.
Even where HOAs cannot ban solar installations, they can impose “reasonable restrictions concerning the size, place and manner of placement,” which some HOAs have reportedly interpreted to mean they can prohibit systems that are visible from the front of the home, even if that is the only place that gets sun. Legislation may be needed to define “reasonable restrictions.”
Barriers to third-party ownership
One of the primary drivers of solar installations in other states has been third-party ownership of the systems. This model allows customers to get the benefits of solar energy, including net metering, without having to pay a large upfront capital cost
One model of third-party ownership is the third-party power purchase agreement (PPA), under which the customer pays only for the power produced by the system. For customers that pay no taxes, including non-profit entities like churches and colleges, this is especially important because they can’t use the 30% federal tax credit to reduce the cost of the system if they purchase it directly. Under a PPA, the system owner can take the tax credit and pass along the savings in the form of a lower power price.
In 2011, when Washington & Lee University attempted to use a PPA to finance a solar array on its campus, Dominion Power issued cease and desist letters to the university and its Staunton-based solar provider, Secure Futures LLC. Dominion claimed the arrangement violated its monopoly on power sales within its territory, notwithstanding what appeared to be an exception in §56-577(A)(5)(a) of the Virginia code authorizing third party sales of renewable energy.
The threat of prolonged litigation scuttled the PPA contract, although the solar installation was able to proceed under a different financial arrangement.
Secure Futures then went to the legislature seeking a more explicit authority for PPAs in the statute. Legislators in both parties rallied around the cause of the small business standing up against what looked like an abuse of monopoly power. The House of Delegates passed the requested legislation unanimously, but Dominion succeeded in getting the bill scuttled in Senate Commerce and Labor.
A year later, however, Dominion and the solar industry negotiated a compromise that did become law with the help of Senator John Edwards (D-Roanoke) and Delegate David Yancey (R-Newport News). Under the new provisions, customers in Dominion territory can use third-party PPAs to install solar or wind projects over the next two years under a pilot program capped at 50 MW. Projects must have a minimum size of 50 kW, unless the customer is a tax-exempt entity, in which case there is no minimum. Net-metered projects are subject to the net metering limit of 500 kW. Projects that are not net metered can be as large as 1 MW.
The law is still awaiting final regulations from the SCC, but it has already attracted a lot of attention from faith communities, schools, colleges and other non-profits. Financing these deals remains difficult; industry members and others are looking at various possibilities, from crowdsourcing to green bonds.
Appalachian Power and the electric cooperatives declined to participate in the PPA dealmaking, so the legal uncertainty about PPAs continues in their territories. Meanwhile, however, it is worth noting that Secure Futures has developed a third-party-ownership business model that it says works like a PPA for tax purposes but does not include the sale of electricity, and therefore should not trigger a challenge from utilities. Currently Secure Futures is the only solar provider offering this option, which it calls Customer Self-Generation.
One additional barrier to third-party ownership models has emerged with the rise of PPAs in Virginia: local machinery and tools taxes. Unlike customer-owned systems that are subject to real property taxes as fixtures, third-party-owned solar systems are taxable as “machinery and tools,” often at rates that make installations uneconomic. Localities can choose to offer exemptions, but this is proving difficult in practice due to fears of unintended consequences. Last year a bill that would exclude solar systems from local taxation lost in the legislature due to opposition from the Virginia Association of Counties and the Virginia Municipal League. Efforts are ongoing to resolve the issue.
Renewable Energy Certificates
Renewable energy certificates (RECs), sometimes referred to as credits or “green tags,” represent the “renewable attributes” of power generated from a renewable resource like wind or solar. RECs monetize all the good stuff about renewable energy even when the seller can’t provide the actual electrons to the buyer. The idea is that RECs allow users in Virginia to buy power from sellers elsewhere, like Iowa wind farms. It’s kind of like magic: you buy a REC, and suddenly the fossil fuel-fired electricity flowing through your wires is converted into renewable energy.
In states with real RPS laws, utilities are usually required to buy RECs to meet the targets, either without the actual power or “bundled” with it. These requirements mean RECs have a value that can be counted on when customers seek financing. If an RPS includes a solar minimum that can be satisfied with RECs alone, homeowners with solar panels can use the power to net meter and also sell the RECs to their utility. Selling the RECs earns cash that speeds up the payback period on their systems.
Given the lack of a solar or wind carve-out in the Virginia RPS, there is no REC market in Virginia. While RECs generated here can sometimes be sold to utilities in other states, their value is low and uncertain.
In 2011, the General Assembly passed a law introduced by Delegate David Toscano (D-Charlottesville) allowing Dominion to build 30 MW of solar energy on leased property, such as roof space on a college or commercial establishment. Dominion confusingly dubbed this pilot program “community solar,” but it has nothing to do with community net metering, discussed below.
In theory, the point is to study the effect on the grid of integrating solar energy. This strikes many people as ludicrous, given that New Jersey now has well over 1000 MW of solar and could probably tell us how it’s going. Still, it’s 30 MW more than we have now.
The SCC wasn’t as thrilled as solar advocates were, though, so one of the conditions of its approval was that the RECs that are generated must be sold to help reduce the cost. Thus the power will not be used to meet RPS goals. Bummer. (Remind us again why we have an RPS? Oh yeah, to pretend we’re green.
Dominion Solar Purchase Program
The same legislation that enabled the Community Solar initiative also allowed Dominion to establish “an alternative to net metering” as part of the demonstration program. As developed by the utility, the program turned out to be a sort of feed-in tariff for 3 MW of customer-owned solar. As approved by the SCC this year, the program allows owners of small solar systems on homes and businesses to sell the power and the associated RECs to Dominion at 15 cents/kWh, while buying regular grid power at retail for their own use. Dominion then sells the power to the Green Power Program at an enormous markup, a blatant rip-off that, shockingly, received the SCC’s stamp of approval.
I’ve ripped this program so often and so thoroughly from the perspective of the Green Power Program that I won’t bother to repeat my criticisms here. From the point of view of potential sellers, however, the program isn’t so hot either. Some installers who have looked at it say it’s not worth the hassle given the costs involved and the likelihood that the payments represent taxable income to the homeowner. There is also be a possibility that selling the electricity may make homeowners ineligible for the 30% federal tax credit on the purchase of their system. Sellers beware.
And then there’s the problem that selling the solar power means you aren’t powering your home or business with solar—which for many people is the whole point of installing it.
Nevertheless, the program has generated interest. Dominion reported that 265 customers had applied for the program as of July 25. The company did not report whether this number represented new systems, or simply converted existing net metering customers.
A Renewable Generation tariff for large users of energy
Currently renewable energy projects are subject to a size limit of 500 kW for net-metered projects, or 1 MW for PPA projects that are not net-metered. These limitations constrain universities, corporations, data centers, and other large users of energy that might want to run on wind or solar. And of course, the utilities’ interpretation of Virginia law would prohibit a developer from building a wind farm or a solar array and selling the power directly to users under a power purchase agreement.
In response, Dominion Power filed a proposal with the SCC for a so-called Renewable Generation Tariff (PUE-2012-00142) that would allow customers to buy large amounts of renewable power from providers, with the utility acting as a go-between and collecting a monthly administrative fee.
Putting the utility in the middle of the sale seems cumbersome and bureaucratic, but in a regulated market is probably to be expected. If customers insist on actual power (bundled with RECs) and specify wind and/or solar, this may be useful to the Virginia market. The SCC has not released its ruling yet.
What happened to utility-scale wind and solar?
A few years ago, Dominion Power had plans to build a 4 MW solar facility in Halifax. The project was dropped when problems plagued the battery storage system that was integral to the project.
Utility-scale wind almost had its moment, too. A few wind farm proposals made it to the permitting stage, including ones in Highland County and on Poor Mountain in Roanoke. For the past few years, Dominion Power’s website has listed 248 MW of land-based wind in Virginia as under development, without any noticeable progress. “Under development” turns out to mean “maybe someday.”
Plummeting prices for shale gas seem to have been the primary culprit for the demise of these proposals. Wind in the Midwest and Great Plains can outcompete any other fuel source, but it’s more expensive in the East. The SCC has also proved unfriendly to renewable energy, dismissing suggestions that it should take into account price stability, environmental benefits and other external costs when evaluating generating sources. If natural gas prices recover, if our RPS gets a serious overhaul, or private buyers step in, Virginia wind projects might move forward. Right now, it looks grim.
As for Virginia’s great offshore wind resource, the perception that offshore wind energy will be costly is also making that a hard sell. Dominion won the federal auction for the right to develop about 2000 MW of offshore wind power, and the lease terms call for the company to file construction plans within five years. The federal government’s timeline leads to wind turbines being built off Virginia Beach around 2020. As I’ve discussed elsewhere, Dominion is something less than committed to seeing the process through. This puts advocates in the legislature and the business and environmental communities in the odd position of being keener on a development than the developer is.
Meanwhile, however, Dominion is part of a Department of Energy-funded team proceeding with two 6-MW offshore wind test turbines that, if the team wins second-round funding, could be installed in 2017. Advocates hope to see a bill put forward from the Virginia Offshore Wind Development Authority that would get this power onto the Virginia grid.
Once (and future?) legislative options
In past years several bills have sought to address the fundamental misalignment of Virginia’s energy priorities that supports fossil fuels over renewable energy and energy efficiency. Virginia taxpayers currently subsidize fossil fuel use, including through tens of millions of dollars annually in direct payments to coal mining companies, as well as indirectly through, e.g., imposing on the public the added costs of health care for treating asthma caused by air pollution. Bills requiring the SCC and utilities to consider factors such as health care externalities (Senator Don McEachin, D-Richmond) and price stability (Delegate Alfonso Lopez, D-Arlington), unfortunately, never made it out of committee. Delegate Lopez has said he expects to introduce his bill again this year.
Delegates Scott Surovell (D-Mt. Vernon) and Kaye Kory (D-Falls Church) have previously carried bills that would allow state tax credits for solar thermal and other renewable energy installations, but these have not made it out of committee either.
If readers are aware of other upcoming legislation of particular interest, I invite you to share the information with me.