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Solar Reality

September 18, 2012

An Arizona Public Service (APS) General Manager spoke the truth about net metering when she said, “[with] net metering, and other rate factors, fewer customers must share these fixed costs, which cause their rates to rise. This spirals until the utility is left with a small class of customers bearing all the costs of service at prohibitively high rates.”

The fixed costs she refers to are ignored with net metering, which forces the utility to buy electricity from individual solar installations at the same rate individuals pay the utility for electricity.

In other words, if the utility can generate electricity for 3 cents per kWh, it must buy back electricity at 11 cents per kWh.

When it sells electricity at 11 cents per kWh, the price includes the cost of overhead, e.g., depreciation of existing investments, salaries, pensions, health care, maintenance, and taxes, and approximately 3/4 cent for profit. Half the 3/4 cent from profit is used to pay for new investments, while the remainder is used to pay dividends to stock holders.

None of these “overhead” costs are covered when the utility must pay the owner of a solar installation 11 cents per kWh, or even worse, perhaps 50 cent per kWh with a feed-in tariff.

Compounding this travesty is the fact that solar is uneconomic without subsidies that come from taxpayers.

In other words, the customers of Arizona Public Service (APS), as elsewhere whenever the law requires net metering, feed-in tariffs or Renewable Portfolio Standards (RPS), are getting hit by higher rates for their electricity because of net metering, plus higher taxes to pay for the subsidies for solar.

The same can be said for wind energy that is also an inefficient, unreliable way to generate electricity.

In an effort to offset the effects of net metering, APS has been creative. They have decided, if I understand their strategy, to install roof top solar themselves, provide electricity to their customer and use the excess for themselves. This eliminates paying net metering rates for the electricity, while still collecting whatever subsidies are available for solar installations.

To implement this strategy, APS used $3.3 million of tax payer money, provided in a grant by the Department of Energy.

APS has also had to go before regulators to get approval of a Lost Fixed Case Cost Recovery mechanism, that doesn’t replace all of the fixed costs from net metering, but does recover some. This supposedly allows APS to continue to promote solar installations with net metering so as to meet the state’s RPS requirements, and recover a little of the overhead costs they would otherwise lose.

What a tangled web we weave, with incoherent energy policies that require net metering, feed-in tariffs and RPS.

We would be better off if we accept the fact that solar and wind are uneconomic and unreliable, and did away with net metering, feed-in tariffs and RPS for so-called clean energy.

Note: More about APS and their approaches can be seen in the guest column “Solar Meets the Smart Grid” in the October 12, issue of energybiz magazine.

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10 Comments leave one →
  1. September 18, 2012 1:08 pm


    Thanks for the post on how APS is evaluating PV and how to allocate costs for service. The ratepayers in CA (PG&E) are now going to receive the output from the Agua Caliente PV facility located in the Yuma County, AZ. –

    “Agua Caliente is owned by NRG Energy (NYSE:NRG) and MidAmerican Solar. First Solar will build, operate and maintain the site. PG&E has a power purchase agreement in place for the electricity generated by the project.”

    NRG bought this facility recently. PG&E is going to be paying a premium for the generation as the PPA Time of Delivery (TOD) factors will be pushing the generation costs to $.23+ kwh at peak times in the summer months. How those costs are going to get allocated seems to have had an impact on CA Senate Bill 843- “a piece of legislation that would have extended the benefits of renewable energy to millions of Californians, died last Friday in the state’s Assembly Committee on Utilities and Commerce………..” It’s kind of difficult to talk about benefits without at some point in time talking about marginal costs and who pays these costs.

    Thanks for the posts on how China is developing too! It’s been 16 years since I spent much time there.

    • September 19, 2012 9:39 am

      It’s my first trip to the PRC, though I have been to Taiwan and most other countries in Southeast Asia as well as Japan and South Korea.
      I made certain my trip was extensive enough to see as much as possible in three weeks.
      They have made tremendous progress, but so much remains uncertain.

  2. September 19, 2012 7:20 am

    Great inside information Donn. It does seem at times that the inmates are taking over the asylum.

    • September 19, 2012 9:39 am

      It’s important that people understand what is actually happening with solar and wind.

  3. September 23, 2012 10:24 pm


    As you know, I own a 10KW grid-tied system in Central Georgia, and I’m paid 8 cents/KWH by my Electric Membership Cooperative (EMC). My EMC was required by law to come up with that net-metering rate (it charges me about 13 cents/KWH for anything I consume) based on the costs my array’s electricity helps it avoid (“avoided costs,” as defined by a deliberately vague statute).

    I agree that solar should stand on its own, and that means no subsidies of any kind, even on the production of solar. But please assume the following facts are true and share with me your disagreement:

    1. Within the next 5 years Solar PV (if all goes well and the trade wars end) costs fall all the way to $1/watt installed — without subsidies.

    2. In response, people do what I did by the tens of millions (at 8 cents my system makes/saves me $1000/year).

    3. They do it because 10KW costs $10,000 ($1/watt) and if it’s guaranteed for 30 years and makes/saves $1000/year then that’s $20,000+ tax-free upside on the back 20 years.

    4. Tens of millions of arrays throws a lot of clean-power into the grid.

    Would you have a problem with that scenario? Is 8 cents fair to you? Yes, base power wholesales as low as 4 cents/KWH, I’m told, but peak power costs more, sometimes past 13 cents/KWH, and Solar PV operates in much of the peak phase of electricity demand.

    I’m guessing you’ll agree that 8 cents is fair. Note that my EMC came up with it, as there is no PSC in Georgia with jurisdiction over it. My EMC thus was only “forced” by law (hence, I could have sued it) to interconnect and come up with a net meter rate that matches what it pays elsewhere (hence, the wholesale cost that it pays for peak power — the cost that I now enable it to avoid).

    I get no other “extras” from my EMC. And, I don’t perceive that my EMC’s unhappy, or that my fellow ratepayers are being forced to pay me something extra out of their pockets. Note that I’m also purchasing night-time power at full retail rate. And to the extent that I’m consuming my own power when the sun shines, you can argue that my EMC’s losing revenue but the same dynamic results from its energy conservation program, at lest to the extent some of its customers actually upgrade their insulation, etc., and thus reduce consumption (hence, revenue for the EMC). A non-profit EMC in theory retrenches if, via conservation or otherwise, demand diminishes, and sure, it raises minimum monthly minimum rates over time to force every member, including me, to cover capital and other fixed costs.

    I can’t imagine you being opposed to any of the above.

    Now let me ask you if you’d be in favor of the next layer of my scenario: Tax brown-power electricity sources (coal, gas, anything that emits pollution and consumes water) and exempt green power (my array which, after embedded pollution costs on panel production, emits NO pollution during the 30 years of its life and its panels get recycled at the end).

    Why tax brown power? Because hey, we’re living in a big fish bowl and brown power is pooping up the water to make a buck and thus making me ingest that poop. Green power producers like me aren’t browning up the bowl. By assigning a cost, we incentivize the brownies to take the brown out of brown power — go green! No, not a confiscatory tax, but one that stings enough to make it worthwhile to find ways to curtail brown power’s polluting effects.

    Under this additional layer of my scenario, there is SOME government entanglement (taxing brown power, which makes green power more competitive). But solar PV would otherwise live or die in a relatively free (of government entanglement) market.

    Would I have your support for that additional scenario layer?

    It is in that sense that I join you in urging that we ditch the RPS and other unfunded mandate laws, including turf-protecting laws like what we see in Georgia, where no one can compete with the local utility companies. And yes, net metering should be limited to true avoided costs — otherwise it’s just a tax on fellow ratepayers.

    — Chris

  4. September 24, 2012 10:28 am

    I wouldn’t have a problem with a net-metering price of 6 – 8 cents / kWh.
    I doubt whether the installed cost for solar will get as low as you suggest, but my view is to let the economics decide whether PV solar makes sense. No subsidies.
    I don’t accept you comments re fossil fuels. The world needs inexpensive electricity, and fossil fuels, and in some cases hydro and nuclear, are the only ways to produce large quantities of electricity at low cost. PV, CPV, CSP and wind can’t do it.
    PV solar on roof tops is a drop in the bucket. PV roof top solar produces electricity in sunny areas during the daytime, but not very well in northern areas and not at night. Installing PV solar on apartment buildings in the big cities isn’t practical, though someone will try to do it. Some PV in office buildings is also being tried, but I doubt whether it will ever be more than an “environmental” statement.
    I grew up in the city so I know that apartment buildings are ill-suited for PV solar. In many cases other buildings block the sun. In most instances there are fifty to 500 or more apartment or condo owners, and the PV solar installation would have to be immense to make any real difference, assuming the electricity could be distributed and metered to each apartment or condo.
    You have a good arrangement where you live, where it’s sunny enough to make PV solar worth the effort, and with the reasonable price you get for the excess electricity you produce.

  5. September 25, 2012 9:52 am


    It appears that the reduction of the FIT in Germany is having an effect on the overall cost to install a PV system in Germany-

    “Why are residential PV prices in Germany so much lower then in the U.S.A. – Scoping Analysis”

    Click to access german-us-pv-price-ppt.pdf

    The paper is an interesting read. The chart on page 24 shows how PV installed costs in the USA vs Germany are allocated- “Total soft costs for residential PV in Germany, including margin, are just 19% of the implied soft costs for U.S. residential PV ($0/62/W vs. $3.34/W).

  6. September 28, 2012 3:32 pm


    Good to see the depth of common ground we share here. Yes, under free market principles, if it makes sense to erect Solar PV in my neck of the woods, then we’ll do it. And if it doesn’t make sense in urban landscapes, then no, don’t do it.

    Georgia, in that regard, has no Renewable Portfolio Standard and in fact just this week private interests have filed with its PSC to become the first (privately owned, absorbing only the 30% Federal Tax Credit and no other form of subsidy) Solar Powered Utility — to compete with Georgia Power, a monopoly. Hence, a relatively free market (no state source forcing utilities to buy, say, 33% of its power from renewables) is now enjoying free market solar power — precisely the name of my blog and what I’ve been advocating.

    More on that development here:

    Taxation — Surely you agree that government must tax SOMETHING. I’m arguing against taxing productive activity (no corporate taxes, no taxes on savings and investments — production!) and replace those lost taxes with uniform taxes on negative consumption (all junk foods, cigarettes, recreational drugs when legalized, etc.), and that includes anything that craps on the environment. I’m producing relatively clean power with my solar array. Mr. Coal is spewing crap on all of us. Tax him, not me — the essence of American politics (special interests buy access for special tax breaks), no?

    Sure, don’t tax brown power (coal, nukes, gas) out of existence, but tax it and other brown power sources intensely enough and uniformly enough that they at least pay us all for some of their crap. At the same time, that tax drives up brown power’s market price and better equalizes the price-competition between brown and green. And at the same time, we should de-subsidize both.

    I don’t see any principled objection to that (taxing bad behavior, not taxing good) in your words. And at all times, we agree that government should not simply mandate X amount of green power no matter what it costs to reach that goal — that leads to Solyndra, Range Fuels and other boondoggles.

    Georgia gets more solar because myself and now other free marketeers are producing it — at the 100-Megawatt+ scale, and not because politicians simply decreed it.

    Yes, I agree, Solar PV’s not going to solve America’s energy needs. Despite 69 square miles of installed solar panels in Germany, solar still supplies only 5.3% of that nation’s power output. But what’s wrong with letting solar be a nice stick in a bundle of sticks representing a nation’s total power generation? Especially since it’s getting better (more efficient, less costly) all the time? My roof alone can supply 3 families of four. And, of course, solar puts money in the little guy’s pocket (my utility’s saving money, not losing money on me — paying me below peak power costs).

    Ponder this, OK? By the way, in response to the new Georgia Solar Utility company, Georgia Power just applied to Georgia’s PSC for authority to buy 210 MW of Solar power at $.13/KWH, and it claims it won’t increase rates for its customers. We’re thus witnessing a free market entrant fomenting positive change in a brown power monopolist. I view that as a positive step, don’t you?



  7. Mark permalink
    November 25, 2012 10:06 pm

    I stumbled upon this thread, because I was searching for what is a good amount per kWh. I didn’t feel as if I was paid a well enough price compared to what I used to pay them. I should add that my electric company paid me for my excess generation 3 cents per / kWh.

    Do you think that is fair? I don’t because as stated before this is PEAK hours. Which they charge 14 cents per / kWh.


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