High Noon for Solar Costs in Arkansas?

AEV Solar of Little Rock is a new player in the commercial solar market. Left to right are Jonathan Garcia, Jaimin Vashi, Kevin Mach, Corey Stafford and John Ekdahl. Vashi, Mach and Ekdahl are partners in the firm.

The sun never sets on Arkansas’ solar power pricing battle, it seems, but a swirl of cases before Arkansas regulators and a major ruling in Louisiana favoring Entergy Inc. suggest a reckoning may be near.

All parties won’t be happy, and nearly three dozen parties and intervenors are involved in the tangle of Arkansas cases, including utilities, solar installers, customers and environmental groups.

The rate issues are complex, involving arcane terms like tariffs (not the trade kind) and net metering, but the nutshell comes down to who pays what when solar customers connect to the grid. To encourage solar development, state rules have until now allowed certain customers a full retail rate for the excess energy they put on the grid, something that Entergy says cannot continue without shifting infrastructure costs to other customers.

On the other hand, cutting the benefit solar customers get would affect how long it takes for rooftop arrays to pay for themselves, and Louisiana solar contractors recalculating the economics of new projects fear the surging industry will suffer.

Jockeying in several Arkansas Public Service Commission cases, known as dockets, intensified after the state’s amended renewable energy law, Act 464, went into effect this summer. It allowed more large commercial solar arrays to go up, and cleared non-taxed entities like cities and schools to partner with independent providers in solar energy services contracts, while requiring regulators to balance all interests and avoid cost-shifting.

“That’s a whole new wrinkle,” said William Ball, a renewable energy proponent and owner of Stellar Sun of Little Rock, an array designer. “The utilities understand they’re facing a new paradigm. The floodgates are open and now they are being inundated with requests to connect large-scale systems.”

Entergy Arkansas, the state’s largest electric utility with about 700,000 customers, has asked the commission to set an interim rate for net metering, the highly contested accounting for excess power that solar generators push to the grid. Entergy’s motion urges either a “grid charge” on solar systems for their use of utility infrastructure or a two-channel billing system to charge one rate for the power that solar customers pull from the grid and and a lesser credit, perhaps half, for the power they contribute.

Entergy’s filing also argues that the state’s current net metering structure (which credits solar customers using a 1-to-1 retail rate for energy taken off and put onto the grid) results in “an unreasonable allocation of or increase in costs to other utility customers.” The idea that solar customers are shifting utility costs to non-solar customers has become a staple in utility arguments against a 1-to-1 credit, and as expected, solar installers and environmentalists have responded, opposing Entergy’s positions.

The Louisiana Decision

The two-channel billing option prevailed last month in Louisiana, where regulators approved Entergy Inc.’s plan to pay solar customers the “avoided cost” of the power they supply to the grid, about 4 cents per kilowatt-hour as opposed to the retail rate of 10 cents. Solar providers said they fear sales could be hurt nationwide if the value of solar power declines. More than 40 states and the District of Columbia are reviewing renewable energy rates and regulations.

Part of Entergy’s argument for interim rates was that years have passed without a decision on Docket 16-027-R, the initial net metering rate case before state regulators, which was filed in 2016. Independent solar installers like Ball and former Lt. Gov. Bill Halter of Scenic Hill Solar, as well as the Arkansas Advanced Energy Association, have asked the commission to deny the motion.

Solar developers and environmental groups intervening in the case argue that Entergy’s interim rate proposal would “hijack” the commission’s work on existing renewable energy cases.

In their response to the PSC, the AAEA, Scenic Hill Solar, the National Audubon Society and the Sierra Club said Entergy “contends that circumstances necessitate rapid action by the Commission — namely that the pace of solar development in the state has accelerated,” threatening Entergy’s bottom line. The urgency is also tied to federal investment tax credits that make solar investments more economical and are set to begin rolling back at the end of the year.

The credit, which allows the owners of new residential and commercial solar projects to deduct 30% of the cost of their systems, will decline to 26% next year and 22% in 2021.

Young Disruptors

The tax break is a major factor in return-on-investment calculations, and a selling point for solar entrepreneurs like Jaimin Vashi, co-founder of AEV Solar in Little Rock. His company, which has been installing mostly residential systems for two years, is owned by a trio of twentysomethings with an Arkansas-specific solar supply line and pricing structure. The company recently received its commercial license and will be building a business array for Alweld Boats of Lonsdale (Garland County). But as other solar developers fretted about pricing uncertainty, Vashi is confident AEV can compete regardless.

“By using a supply chain unique to Arkansas and using top-quality Q Cells solar panels built in Georgia, we can beat any price out there,” Vashi told Arkansas Business. “The tax credit gives homeowners and businesses an incentive to act quickly, but falling prices on solar installations in general are going to make solar an economic bargain for years to come.”

Amid the crush to beat the tax incentive deadlines, Entergy has been accused of unnecessary delays in processing requests to connect larger solar arrays to the grid. That led the general staff of the Public Service Commission, which regulates Arkansas utilities, to ask the full commission to hasten the process.

Entergy has also faced hurdles with a solar energy purchase option the utility promoted in August, giving cities, counties, schools and nonprofits a potential chance to buy renewable power from its 81-megawatt Stuttgart Solar power generation project near Almyra (Arkansas County) for about 5.3 cents per kilowatt-hour. “This is about Act 464, no question,” Entergy Director of Resource Planning Kurt Castleberry told Arkansas Business in August. “The act allowed third-party solar developers to pursue business with our customers. Of course we talk to these customers, so this also provided us an opportunity.”

Extending a Solar Option

Castleberry took care weeks ago to frame the Solar Energy Purchase Option for non-taxed entities as an idea pending PSC approval, and the commission’s general staff has requested and obtained more time to study the proposal, a development the utility said was relatively common. After first agreeing to the extra time, Entergy Arkansas filed a motion on Wednesday to expedite a ruling or hold a hearing.

“Circumstances have changed significantly” since the revised SEPO plan was filed Aug. 16, the filing says, noting that “approximately 26.9 MW of solar projects had completed preliminary site reviews” in the interim, “a 300 percent increase from the total solar capacity currently taking service under net-metering.” In August and September alone, Entergy said, it received requests for preliminary site reviews on projects involving nearly 8 megawatts of additional solar. The filing also noted plans for Hot Springs to power city operations with a 12.75-megawatt solar plant to be built by Scenic Hill.

“All of these, in addition to the other solar projects announced in [Entergy Arkansas’] service territory, if approved, rival the amount of capacity available” under SEPO in the two months after Act 464 took effect, the filing said.

Entergy spokeswoman Kerri Jackson Case wrote in an email last week that the investor-owned utility is committed to serving all its customers. “Customers who install solar do not unplug from the grid,” she said. “They continue to use the services of their utility and, in fact, use those services 18-20 hours of each day.” When the sun shines, she said, systems tend to produce more energy than the customers use, and Entergy is required to buy the excess.

“Under the current rules, the price we pay is two or three times more than the cost of energy we otherwise would buy or generate,” she added. The full retail price includes not just the cost of the energy, but also the cost of poles, wires and all other services and equipment Entergy provides to solar customers, she said. “The exorbitant rates paid for this private solar in turn drives up bills for all other customers.”

Ball, the Stellar Sun owner and author of Arkansas’ original renewable energy law, said he understands Entergy’s push for interim rates. “What we have now is a law with no rules,” he said. “It’s the Wild West of solar.” Compromise is needed, he said, favoring a “grid charge” that would apply to all utility customers, covering the cost of keeping up the infrastructure. But by paying the grid charge, solar customers would be entitled to about the same rate for the power they provide as well as the power they pull from the grid, Ball said. “That’s one aspect complicating integrating solar. The utilities, owning the generation, transmission and distribution systems, hold all the cards. Whether by strategy or the fact that they’re overwhelmed, these interconnections for solar projects are taking longer than they did in the past.”

‘No Consensus’

The utility argument, he said, has validity, even if it underplays the society-wide benefits of renewable power: If too many residential customers go solar, the cost of maintaining the grid could be shuffled to other customers. While it’s a complex calculation, Ball doesn’t think the process accounts for the social benefits of renewable energy like an improved environment and better health. “There is no consensus,” he said, “and there has been little consensus through the years that the parties have been seeking compromise on net metering and distributed generation.”

Matt Bell, a partner in Entegrity, an energy services company specializing in energy conservation and renewable power projects, saw the Louisiana ruling as “a definite blow to the solar industry in Louisiana, and it’s not what we’d like to see, obviously, here in Arkansas.” Entegrity built a 750-kilowatt array for the Batesville School District and has several city and county projects going. “It does hurt the economics of solar when you discount the rate on solar power’s value.”

He also fears market uncertainty. “Act 464 gave a clear direction on the need to clarify our net metering law,” Bell said. “Some of the issues before the PSC run counter to the intent of that legislation, and I think at the end of the day the PSC has wanted to encourage fair competition. The legislation provided us with a clear market signal. If Entergy offers a SEPO plan or develops solar projects, that is a competitive market function, and we are glad to compete. But a lot of the discussion on changing the pricing rules runs against that passed legislation, and there’s going to have to be some argument on what the intent of that legislation was.”

Case, the Entergy spokeswoman, said Entergy is confident the PSC will “act in the best interest of all customers,” making sure that customers installing solar generation will “pay for their own personal installations and the service they take from Entergy Arkansas” while sparing non-solar customers any associated costs.

Entergy opposed the independent solar companies’ intervention in the case, arguing that they have no legitimate interest in stopping Entergy from extending an existing solar energy purchase option to non-taxed entities like cities and counties. Case said the independents’ only interest was to “prevent us from pursuing a second solar option so that they can pursue, unchallenged, lucrative solar deals with a select few customers at the expense of everyone else.”

Ball said his motive in intervening was to ensure that Entergy doesn’t use ratepayer money to subsidize solar offerings.

All parties are hoping for some certainty by the end of the year. “It’s our hope that the Commission will be able to provide some clarity within the next one or two months,” Case said. “We expect the Commission to remedy the compensation gap expeditiously.”

Bell also hopes for quick action, but a different outcome.

“We just want an even playing field and very clear direction as to what the future looks like for our industry,” he said.