Despite efforts from some U.S. states to reevaluate their net-energy metering (NEM) policies, the impact of any potential changes on the U.S. photovoltaics industry is expected to be negligible this year, according to a new report from IHS Inc.
IHS reports that 85% of distributed solar PV capacity installed to date in the U.S. is located in states with full retail-rate NEM. An estimated 70% is located in states that are reviewing their NEM policies. The debates in Arizona, Colorado and California has focused on determining the value of NEM PV power to non-NEM ratepayers, and how to recover the difference – if any – between the retail rate and this value.
‘The proceedings in Arizona, Colorado, and California all indicate that avoided utility costs are emerging as the way to determine NEM PV's value,’ says Wade Shafer, senior analyst for North American PV at IHS. ‘However, with no single methodology for determining avoided costs, the debate over NEM benefits to the greater power system are likely to continue. Given that Arizona is currently positioned for NEM reform in 2015, and that California must create a new NEM tariff by 2016, the arguments are likely to continue through 2014 and 2015.’
Avoided fuel costs, capacity and distribution losses seem to be common areas of value, but what percentage of these utility-cost categories are avoided will be debated, IHS says. Other categories that are likely to be the subject of debate are avoided transmission and distribution investments, renewable power purchases and emissions. In addition to these debates being shaped by local power market dynamics, IHS says the local political environment will also influence the final determinations and lead to fragmented outcomes across the U.S.
Shafer acknowledges that these debates have spurred some concern about the development of distributed solar in the U.S., since NEM incentives are critical to supporting the customer-sited PV market. However, with utility costs generally seen as increasing over time and PV costs expected to continue to decline, he says the future of distributed PV generation could be promising in select areas.
‘After examining proposed changes and recent utility commission rulings, IHS has determined that net metered PV project economics will not be significantly impacted in 2014,’ Shafer says.
IHS advises distributed solar developers to focus on driving project costs lower through improved installation, streamlined customer acquisition and innovative financing/business models in order to prepare for a future of avoided-cost valuations.