Understanding Rates and Tariffs for Solar Energy Compensation
Net-metering and other energy compensation programs that offer a special rate for energy from renewable sources can be used to incentivize smart land use, including smaller-scale arrays, those located on preferred sites, and agrivoltaic or dual-use arrays designed to work with agriculture. These programs generally require that utilities distributing energy to consumers procure that energy using specific contract terms set by law, rather than negotiated by the utility.
Owners of solar arrays are compensated for the energy they generate through a variety of state-law mechanisms.
Policymakers can identify preferred categories of solar development and preferred locations for solar arrays by establishing thoughtful eligibility requirements and rate adjustors that modify compensation based on a project’s characteristics (like size, location, and design) within state laws governing compensation for solar energy.
Power Purchase Agreements
A power purchase agreement (“PPA”) is a contract between the developer of a solar array (or other source of distributed energy generation) and a customer desiring to purchase solar energy. The developer is usually responsible for the design, permitting, financing, and installation of the solar array on the customer’s property or off-site, at little upfront cost to the customer, and sells the generated electricity to the customer at a fixed long-term rate (often 10-25 years). The developer usually takes advantage of tax credits and other incentives, while the customer benefits from lower electricity costs.
However, not all states allow solar energy to be bought and sold under PPAs. When lawmakers and regulators have not taken steps to specifically allow PPAs, these contracts may violate electric utility regulation rules. Lawmakers should ensure that PPAs are available under state law to promote renewable energy development.
State laws governing PPAs may direct utilities to enter into PPAs with independent generators of renewable energy; they may set certain contract terms for PPAS, such as contract length; or, they may more broadly exempt certain independent generators of renewable energy from the definition of a regulated public utility.
For example, North Carolina allows an exclusion from the definition of “public utility” for consumers who self-finance on-site solar arrays, but prohibit PPAs between a customer and a solar developer, finding that they would function as impermissible public utilities. NC WARN, Docket No. SP-100, SUB 31, at 31, 2016 WL 1572367, at *31 (Order Issuing Declaratory Ruling).
Net Metering
Net metering programs allow owners of distributed generation solar installations (often residential rooftop and smaller ground-mounted installations) to receive credit on their electric bill for energy contributed to the grid when their solar panels generate more electricity than can be used on site. States net metering programs differ in approaches to “eligible project capacity, eligible technology, net metering credit retention, and REC ownership.” Net metering is essentially a retail transaction regulated by states and is not subject to FERC Regulation, as “no sale occurs under the Federal Power Act when an entity installs generation and accounts for its dealings with the utility through the practice of netting.” (94 FERC § 61,340, 62,263 (2001)). This removes the sale of net metered energy from the definition of “wholesale sales” of energy regulated by the federal government, and leaves states with significant leeway to design creative incentives for specific types of solar installations. This leeway also means that each state program defines its key terms differently.
Size or Type of Electric Service Provider
State laws allowing net metering do not necessarily require utilities to offer net metering to any, let alone all of their customers. Some states limit net metering obligations to investor owned utilities, while excluding municipal utilities and/or electric cooperatives from the requirement to provide net metering to eligible customers. Other states may require only large utilities to establish a net metering program.
Eligible Technology
Net metering programs define by law the sources of distributed energy eligible for enrollment. Solar energy is the most common source of net metered energy, but lawmakers may define additional eligible distributed energy generation technologies, including wind, biogas, and geothermal, among others. Net metering programs have also begun to include provisions incentivizing energy storage in addition to energy generation.
Eligible Customers
Net metering may only be available to customers in a given utility’s service area, and may be further limited to certain classes of customers, such as residential, or commercial users. Some states have established a special category within their net metering program for agricultural customers.
Program and Project Capacity
States are likely to impose both eligible project capacity limits and total net metering program capacity caps. Some states establish different project or program capacity limits for different eligible technologies. Net metering rules may also limit individual project capacity to relatively small-scale projects (i.e. less than 10 to 50 kilowatts in capacity), may include larger community or commercial-scale projects (i.e. 50-500 kilowatts in capacity), or may be available to projects of more than one megawatt. Eligible project capacity may also be defined in relation to the average electric load of the enrolled customer or customers, with or without an allowance for excess energy generation.
Program “caps can be expressed in different ways, such as a percent of historical peak demand, a percent of electricity sales, or in absolute megawatts of capacity.”
— Tim Woolf, et al., Show Me the Numbers: A Framework for Balanced Distributed Solar Policies , Synapse Energy Economics
Metering and Compensation for Energy
State net metering programs differ in how costomers are compensated for excess electricity generation.
- Compensation may occur at an established retail or wholesale price or at a promotional price.
- Consumers may or may not be charged for certain fixed costs, even if they offset their entire electric consumption with solar generation.
- Compensation may consist of net metering bill credits alone or a per-kilowatt-hour dollar rate paid for excess generation.
- Some net metering programs allow excess credits to carry forward for a defined period of time if unused, and others put strict time limits on credit expiration.
- Consumers may or may not be able to “cash out” unused credits for a dollar payment amount.
For example, in Oregon, excess generation credits roll over to a low-income assistance program if they remain unused annually in March. OR. Admin. R. 860-39-55(2).
It is worth noting the difference between “net metering” and “net billing,” as the terms are easily confused and policymakers should understand the distinction. Net metering originated as a service provided with a single meter that rolls forward when a customer uses more power than it generates and rolls backwards when the customer generates more power than it uses, thus erasing the customer’s prior usage. This means the kilowatt-hours the customer consumes from the grid are valued the same as kilowatt-hours the customer contributes to the grid. Net billing either uses two meters or a single sophisticated meter to separately track energy flows to and from the grid. This allows flexibility for setting different rates at which the utility and the customer exchange energy.
Project Location
A few states have begun to modify the rates paid for solar energy based on the location of the solar installation. Existing structures and cleared areas, like former parking lots, industrial areas, brownfields and redevelopment sites, and former landfills or mining areas should be considered by policymakers as prime candidates for solar project incentives.
REC Ownership
State net metering programs differ in how RECs generated by enrolled projects are allocated between consumer-generators and host utilities. REC ownership significantly impacts the financial implications of most solar projects and affects which parties can claim to use or consume solar energy. Some states specify that RECs are to be retained by the consumer-generator, who may retain or sell the credits. Other states assign RECs generated by enrolled projects to the interconnecting utility. In this case, utilities may be required to retain the RECs for compliance with state renewable portfolio standard obligations, or may be allowed to sell the RECs into more profitable markets.
For example, New York’s “Value Stack” tariff for renewable energy compensation specifies that RECs generated by participating customers are transferred to the utility by default. The utility uses the RECs for compliance with state Renewable Portfolio Standard obligations and customers are compensated for the REC value. Customers may choose to retain their RECs, but then are compensated at a lower rate that excludes the environmental value of the RECs.
Community Solar and Group or “Virtual” Net Metering
Group or virtual net metering allows a group of customers to share the net metering credits generated from a single, larger solar array. Group members do not have to be connected to the generation source, which may be located on a host customer’s property or on another site. Group members share credits with others in the same electric service territory. Group net metering allows expanded participation in renewable energy, as it makes economies of scale available to save on regulatory compliance and system installation costs.
SPOTLIGHT: Virginia’s Net Metering Program
VA Code Ann. § 56-594 (2019)
Feed-in Tariffs
Feed-in tariffs are similar to net metering programs, except that the power generated by the solar array is contributed to the grid and not used to offset a customer-generator’s electricity consumption. A feed-in tariff establishes long-term standard contracts for generators of renewable energy, typically offering a specified rate set by law for every kilowatt-hour of electricity produced under a contract lasting 10-25 years. This provides financial certainty to renewable energy developers and investors, stimulating solar energy development.
State lawmakers can vary feed-in tariff rates to promote a preferred technology, project size, location, or other resource quality to align with specific policy goals. Feed-in tariffs are also similar to net metering programs in that the program details are likely to differ among states, including program definitions, eligible projects and technology, total program capacity, compensation for energy, and REC ownership. Some feed-in tariffs may provide a set dollar amount for per-kilowatt-hour compensation, while others request bids from potential developers, and others may establish a series of rate adjustors that change based on project characteristics, like solar array size, location, or design.
For example, Vermont’s Standard Offer Program is a feed-in tariff open to renewable energy projects up to 2.2 megawatts in capacity, with a cumulative program cap of 127.5 megawatts through 2022. New projects are solicited annually through Requests for Proposals, with generators bidding for a contract, subject to a price cap. In 2019, the price cap for solar projects was $0.13 per kilowatt-hour. RECs generated by standard offer projects are transferred to the interconnecting utility, and may be sold out-of-state in REC markets. 30 V.S.A. § 8005a (2019). The Standard Offer Program is implemented through Public Utility Commission Orders in Dockets 7523, 7533, 7780, 7873, and 7874.
As the cost of solar infrastructure has decreased significantly, some states and even local governments have found that rates established through feed-in tariffs are overly generous, burdening utilities locked into long-term contracts. Policymakers can establish periodic reviews for feed-in-tariff contracts or set pre-established declines in feed-in tariff contract rates. This helps to provide a predictable regulatory framework, while leaving room for policy flexibility.
Value of Solar
A Value of Solar rate is not by itself a compensation mechanism for solar or renewable energy. Rather, it is a method of calculating compensation for renewable energy contributed to the grid by renewable generators, designed to capture the value of the renewable energy to both utilities and larger public policy goals, like ensuring that costs of renewable energy development are spread fairly among ratepayers. Net metering or other solar compensation mechanisms may consider the value of solar to the distribution grid and to public policy goals when setting energy compensation rates.
A Value of Solar rate is calculated by studying, analyzing, and accounting for the benefits and costs of the solar system to the grid. Rates may be locked in for a fixed contract length or can be open to revision based on changes in solar energy value over time or based on market conditions at specific times and locations. Value of Solar rates may decrease the burden of solar development costs on rate payers, but do not expand solar growth as much as the above-market rates generally used in state net metering programs and feed-in tariffs.
When solar arrays are compensated at above retail or full retail rates for energy contributed to the grid, it reduces utility revenues and may lead to general rate increases, which can shift costs to customers that aren’t using or directly benefitting from the solar energy. However, cost-shifting may not significantly affect non-participating customers until the percentage of electricity coming from solar, or solar penetration, reaches 4%-9%.
For example, the city of Gainesville, Florida offered a feed-in tariff for solar PV systems. “The aggressively high tariff drove installation of 18.5 MW of solar capacity at 259 sites. The Gainesville City Commission approved its suspension in 2014 ‘to help control upward rate pressures.’” (Herman Trabish, RIP FITS: As US Feed-in Tariffs Fade, Adopting Elements Could Spur Solar Growth, Utility Dive (July 18, 2016)).
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Rate Adders, Subtractors, and Adjustors
Some states have established rate “adders” and “subtractors” within their compensation mechanisms for solar energy to encourage preferred project size, location, or design. For example, an additional $0.01-$0.06 per kilowatt-hour might be provided to small-scale solar arrays, low-income projects, community solar installations, projects located on structures or previously disturbed land, or those using solar tracker technology or incorporating battery storage.
Policymakers might subtract a per-kilowatt-hour amount from large-scale arrays or for projects located on greenfields. See the next section, “Options for Smart Farmland Solar Policy,” for information about using rate adders and subtractors to protect agricultural land and encourage farmer access to clean energy.
Other Per-kilowatt-hour Rate Incentives
States have established a variety of additional “performance-based incentives” for solar energy. Performance-based incentive payments depend on the energy output of a solar installation. Because these per-kilowatt-hour incentives are paid as energy is generated, they can provide an additional revenue stream to support solar projects over the long-term.
For example, Connecticut requires utilities to solicit Zero-emissions Renewable Energy Credits (ZRECs) under 15-year contracts from customer-generators up to one megawatt in capacity that emit no greenhouse gases, including solar installations. Generators earn one ZREC for each megawatt hour of energy produced, with different payment rates for small (< 100 kW) Medium (100 – 250 kW) and large (250 kW – 1 MW) ZREC projects. C.G.S.A. § 16-244r (2019).
PURPA Qualifying Facilities
The federal Public Utility Regulatory Policy Act (PURPA) of 1978 required utilities to purchase the renewable energy generated by “qualifying facility” (QF) projects up to 80 MW in capacity at an “avoided cost” rate and to facilitate the interconnection of these projects to the grid. PURPA rates may be available for projects that do not otherwise qualify for other state energy procurement programs. The Energy Policy Act of 2005 amended PURPA to remove the mandatory purchase obligation on certain utilities for most QFs greater than 20 MW, but the obligation remains to purchase power from generators less than 20 MW.
If a solar array is a QF, it generally has the option of selling energy to a utility either at the utility’s avoided cost or at a negotiated rate. An “avoided cost” rate is the “incremental cost to an electric utility of electric energy or capacity which, but for the purchase from the QF, such utility would generate itself or purchase from another source.” 18 C.F.R. § 292.101(b)(6). PURPA has been a significant driver of utility-scale solar projects, and is essential to the continued growth of solar.
For example, National Grid, the largest electric distribution utility in Rhode Island, notes on its website, “Distributed generation facilities, which are not eligible for Net Metering Services, may alternatively register as Qualifying Facilities in order to sell excess power to National Grid at wholesale rates.” It directs interested customers to a separate tariff establishing a power purchase rate for Qualifying Facilities.
How do Rates Paid for Solar Energy affect Farmland?
Integrating renewable energy into agriculture supports farm viability, among other benefits.
Farmers and agricultural landowners can create additional income streams by leasing land to solar developers or participating directly in net metering programs and other compensation programs for solar development.
Solar energy can also support farm viability by significantly reducing the burden of a farm’s electric bills. When rules are established to incentivize agrivoltaic or dual-use projects, farmers can create dual income streams from a single parcel of land that remains in agricultural production while generating solar electricity. However, farmers and agricultural landowners may be excluded from participation in net metering and other special energy compensation programs when the rules fail to consider the specific needs of agricultural electric customers.
Demand for solar development
Like state Renewable Portfolio Standards, state compensation mechanisms for solar energy that provide an above-market rate incentive are likely to significantly increase the sheer amount of solar development occurring in a given area, increasing the risks to agricultural land and uses. Farmers and agricultural landowners may experience increased pressure to lease land for large-scale solar development. To address this pressure, lawmakers can include project siting conditions in solar compensation rate eligibility requirements or provide rate incentives to steer solar arrays away from farms and other greenfields.
Opportunities for Reduced Electricity Costs
While farms of any size can benefit financially from solar energy, “farm businesses” are poised to drastically reduce electricity costs if a beneficial compensation mechanism for solar energy is available. The U.S. Department of Agriculture defines a “farm business” as a farm where the primary operator spends the majority of time on agricultural production, or, if the operator is largely employed off-farm, the farm operation has over $350,000 in annual gross-cash income. While only 41% of U.S. farms are “farm businesses,” they account for 93% of the country’s agricultural production value and 90% of fuel and electricity consumption. Electricity costs average about 1-6% of total expenses for farm businesses, which also represents the farm’s potential savings if a solar array meeting or exceeding this electric demand were installed. Solar development policies should leave room for farms of all sizes to benefit from the electricity cost savings and potential income realized from solar energy.
Customer Class Exclusions
The scale of farms and types agricultural production differ widely across the country. Depending on the distribution utility or electric service provider serving the farm, the available rate schedules, and the farmer’s electricity uses, the farmer might pay farm, residential, commercial, or industrial retail prices.Unless policymakers have considered agricultural customers, they may be excluded from participating in state net metering programs that are limited to a particular rate class or customer type.
For example, when California established its net metering program back in 1996, it only permitted residential customers with solar facilities under 10 kilowatts on their property to offset their electricity needs through net metering. Later, small commercial customers and wind generators were allowed to participate, followed by agricultural, commercial, and industrial customers with solar or wind systems under one megawatt in capacity. Finally, the program opened to any customer meeting project eligibility requirements. See, Mark James et. al., Planning for the Sun to Come Up: How Nevada and California Explain the Future of Net Metering, 8 San Diego J. Climate & Energy L. 1, 2017, at 27.
Electric Service Provider Exemptions
Many states only require large or investor-owned utilities to establish net metering programs and other per-kilowatt-hour compensation rates for solar energy. And many farmers and agricultural landowners are served by Rural Electric Cooperatives, which are likely to be excluded from the obligation to offer net metering to their customers or to establish other standard contracts for purchasing solar energy, even if the cooperative chooses to offer solar incentive programs.
The Rural Electrification Act of 1936 promoted Rural Electric Cooperatives with the goal of bringing affordable electrical power to rural areas across the country. Cooperatives are controlled by a board of directors elected by their customer-members, rather than beholden to shareholders like traditional investor-owned utilities. While the democratic process in these cooperatives may allow interested members to advocate for smart solar incentives, their exemption from state requirements for solar energy compensation can leave farmers excluded from participation.
“Rural Electric Cooperatives control and operate approximately forty-three percent of all electrical distribution lines in the country, serving over 17 million consumers in rural and suburban areas.”
— Zachary Brecheisen, 19 Penn St. Envtl. L. Rev. 333, 338 (2011).
Project Capacity and Siting Limitations
Project capacity size limitations and locational siting restrictions found within state energy compensation rules can exclude agricultural landowners from installing even solar arrays intended to serve an on-site electric load. Lawmakers should be careful not to create barriers to solar arrays that support farm sustainability and viability. For example, a broad prohibition on siting solar arrays on any agricultural land denies farmers access to clean energy.
Group or Virtual Net Metering
Group net metering, also known as community solar, allows multiple customers to benefit from a single, larger solar array and divide the net metering benefits among the group participants. Similarly, virtual net metering allows a customer or customers to benefit from a remote solar array not physically connected to the customer’s electric meter. Such policies are beneficial both for the protection of agricultural land and for increasing farmer access to clean energy. Becoming a group member allows an agricultural landowner to participate in solar energy generation without siting an array on the farm property. Alternatively, it could allow a designated parcel of ideally marginal farmland to host a solar array serving several farms in the area, while preserving productive land.
For example, Connecticut created a category within its virtual net metering program for “agricultural hosts,” allowing farmers with net-metered solar arrays to share the benefits with up to 10 other farms, towns, cities, and even certain electric customers with critical facilities connected to the grid. C.G.S.A. § 16-244u (2019).
Meter Aggregation
Traditional net metering generally applies to a single solar array associated with a single customer meter, while group net metering generally applies to a single solar array serving multiple customers all with separate accounts and meters. While farms may benefit from either policy, they are often limited by a “one customer, one meter” rule. This means a farm often cannot offset electricity consumed from more than one meter, even if all of the electricity is associated with the same farm business.
“Meter aggregation” policies are important for accommodating agricultural businesses that may meter electricity at multiple locations on the same farm. These policies allow a single customer to offset electrical use from multiple meters, without needing additional “group” members. For example, a farmer could use net metering credits generated from a single renewable energy system to offset the load from multiple meters on the farmer’s same property or adjacent farm properties.
Smart Farmland Solar Policy Options
Solar arrays are compensated for the energy they generate through a variety of state-law mechanisms, including net metering programs, feed-in tariffs, value of solar tariffs, and other per-kilowatt-hour payments designed by regulators. Lawmakers can identify preferred categories of solar development and preferred sites for solar arrays within program eligibility requirements and can change the rates paid for energy based on project characteristics that minimize impacts to agriculture.
→ Create solar rate incentives that specifically include agricultural customers.
States should create a special category within energy compensation incentive programs for agricultural customers to ensure they are not precluded from participation.
For example, Virginia defines “eligible agricultural customer-generator” in its net metering law, and designates that the consumption and generation of multiple farm electric meters may be aggregated into a single account:
“a customer that operates a renewable energy generating facility as part of an agricultural business, which generating facility (i) uses as its sole energy source solar power, wind power, or aerobic or anaerobic digester gas, (ii) does not have an aggregate generation capacity of more than 500 kilowatts, (iii) is located on land owned or controlled by the agricultural business, (iv) is connected to the customer’s wiring on the customer’s side of its interconnection with the distributor; (v) is interconnected and operated in parallel with an electric company’s transmission and distribution facilities, and (vi) is used primarily to provide energy to metered accounts of the agricultural business.”
An eligible agricultural customer-generator may be served by multiple meters that are located at separate but contiguous sites, such that the eligible agricultural customer-generator may aggregate in a single account the electricity consumption and generation measured by the meters, provided that the same utility serves all such meters. The aggregated load shall be served under the appropriate tariff.” VA Code Ann. § 56-594(B)(2019)
→ Allow agricultural net metering customers to aggregate meters.
States should designate by law that the consumption and generation of multiple agricultural electric meters associated with the same farm business may be aggregated into a single customer account. This allows farms to offset more electricity consumption with solar energy generation. Further, when eligible project capacity size is determined by the average annual electric load of the customer, this calculation should use an average from aggregated meters associated with the farm business to more accurately represent a farm’s electricity needs, rather than forcing a customer to choose a single meter.
Compare: Meter Aggregation Policies
“Farm” shall be defined in accordance with § 44-27-2, except that all buildings associated with the farm shall be eligible for net-metering credits as long as:
- The buildings are owned by the same entity operating the farm or persons associated with operating the farm; and
- The buildings are on the same farmland as the project on either a tract of land contiguous with, or reasonably proximate to, such farmland or across a public way from such farmland.”
RI Gen. Laws § 39-26.4-2(8) (2017)
“If a customer-generator requests, an electric utility shall provide such a customer-generator meter aggregation.
(a) For a customer-generator participating in meter aggregation, credits for kilowatt-hours earned by the customer-generator’s net metering system during the billing period first shall be used to offset electricity supplied by the electric utility at the location of the customer-generator’s designated meter.
(b) A customer-generator may aggregate a designated meter with one additional aggregated meter located on the same parcel as the designated meter or a parcel that is contiguous with the parcel where the designated meter is located.
(c) For the purposes of (b) of this subsection, a parcel is considered contiguous if they share a common property boundary, but may be separated only by a road or rail corridor.
(d) A retail electric customer who is a customer-generator and receives retail electric service from an electric utility at an aggregated meter must be the same retail electric customer who receives retail electric service from such an electric utility at the designated meter that is located on the premises where such a customer-generator’s net metering system is located.”
RCWA 80.60.030(4) (2019)
“A. When requested in writing by a qualified eligible customer-generator under §B of this regulation, an electric utility shall provide meter aggregation.
B. Customers Qualifying for Aggregation. The following electric utility eligible customer-generators are qualified to request meter aggregation under §A of this regulation:
(1) An eligible customer-generator using electrical service for agriculture;
(2) An eligible customer-generator who is a not-for-profit organization or a not-for-profit business; or
(3) An eligible customer-generator who is a municipal or county government or its affiliated organizations.
C. An electric company shall require that an eligible customer-generator requesting meter aggregation under this regulation provide written allocation instructions detailing how to distribute its excess generation credits to each account prior to the commencement of any meter aggregation.”
COMAR 20.50.10.07 (2016)
→ Provide for group or virtual net metering for agricultural customers.
Lawmakers should ensure that agricultural customers can participate in group or virtual net metering so that farmers can benefit from solar energy sited remotely rather than sited on productive agricultural land.
For example, Connecticut defines an “Agricultural virtual net metering facility” as a Class I renewable energy source that is operated as part of a business for the purpose of agriculture, as defined in subsection (q) of section 1-1 that: (i) Is served by an electric distribution company on land owned or controlled by an agricultural customer host and serves the electricity needs of the agricultural customer host and its beneficial accounts; (ii) is within the same electric distribution company service territory as the agricultural customer host and its beneficial accounts; and (iii) has a nameplate capacity rating of three megawatts or less.”
“The agricultural customer host shall not designate more than ten beneficial accounts each of which shall (1) use electricity for the purpose of agriculture, as defined in subsection (q) of section 1-1, (2) be a municipality, or (3) be a noncommercial critical facility…”
C.G.S.A. § 16-244u(a)(7)(B) and (d) (2019)
→ Establish rate eligibility requirements based on project size and location.
Lawmakers should consider limiting the eligibility for solar compensation programs to smaller-scale projects and those in preferred locations. They can also establish different eligibility requirements for small and large-scale projects. Lawmakers should consider the following policy options:
- Set aside a portion of total program capacity for residential-scale arrays, and arrays sited on structures, or exempt these arrays from program capacity caps.
- Establish energy compensation programs that are available to residential and small-scale solar projects, community or shared solar projects, and specifically available to agricultural customers.
- Increase eligible project capacity limits for agricultural customers to accomodate the farm’s electric load.
- Establish separate tariffs and energy compensation rules for small and large-scale solar arrays.
- Limit program eligibility to projects located on preferred site-types.
- Tie eligible project capacity for net metering enrollment to customers’ associated electric load, instead of or in addition to a flat project capacity limit.
- Where possible, streamline and combine the project permitting and siting approval process with the energy compensation program application and enrollment process.
COMPARE: Rate Eligibility Requirements
Delaware’s net metering law establishes different eligibility requirements based on customer type, project capacity size, and interconnecting utility, including:
“a. For residential customers of DP&L, DEC, and municipal electric companies, has a capacity of not more than 25 kW;
b. For farm customers as described in § 902(3) of Title 3 who are customers of DP&L, DEC, or municipal electric companies that receive distribution service under a residential tariff or service offering, does not exceed more than 100 kW. On a case by case basis the Delaware Energy Office shall review a farm’s application for a system above 100 kW by comparing the output of the system to the energy requirements of the farm and may grant a waiver to increase the size of the system above the 100 kW limit….
c. For nonresidential customers, is not more than 2 megawatts per DP&L meter, and 500 kW per DEC or municipal electric company meter. DEC and municipal electric companies are encouraged to provide for net metering up to a capacity of not more than 2 megawatts for nonresidential customers.” 26 Del. C. § 1014(d) (2019).
Policy Design Strategies:
- Project Size Eligibility Changes by Customer Type
- Established Regulatory Category for Farm Customers
- Increased Eligible Project Capacity Limit for Farm Customers
Net-metering in Vermont is available for projects up to 500 kilowatts in capacity, with project requirements for rate eligibility set out in the rules for obtaining a Certificate of Public Good (CPG) from the Public Utility Commission, which also serves as a siting and environmental approval. Vermont’s CPG process offers a ten-day fast-track registration form, including interconnection, for ground-mounted systems up to 15 kilowatts and roof-mounted systems up to 500 kilowatts. Rule 5.105. An expedited application process is available for ground-mounted systems between 15 and 50 kilowatts. Rule 5.106. Larger projects submit a CPG petition to the PUC and participate in evidentiary hearing process.
The Standard Offer Program is a feed-in tariff offering long-term contracts to projects up to 2.2 megawatts in capacity through a competitive bidding process under a price cap. The 2019 Solar Standard Offer Price Cap was $0.130 per kWh. Standard Offer applicants are required to submit a petition for a CPG to the PUC and participate in an evidentiary hearing process for siting and environmental review in addition to the bidding process for energy compensation.
30 V.S.A §§ 8002 and 8005a (2019).
Policy Design Strategies:
- Separate Tariffs based on Project Size
- Combined Permitting and Energy Compensation Eligibility Approval
- See Rate Adjustments based on Size and Location, below.
Rhode Island’s Renewable Energy Growth Program is a feed-in tariff allowing customers to sell renewable energy to utilities for terms of 15 or 20 years at a fixed rate. It is separate from Rhode Island’s net metering program and defines four different categories for solar projects based on nameplate capacity, as well as “shared solar” and “community remote” projects.
RI ST. § 39-26.6-1:27 (2016)
- A “Small-scale solar project” has a nameplate capacity of 25 kilowatts or less.
- A “Medium-scale solar project” has a nameplate capacity of greater than 25 kilowatts up to and including 250 kilowatts (250 kW).
- A “Commercial-scale solar project” has a nameplate capacity of solar projects greater than 250 kilowatts but less than one megawatt.
- A “Large-scale solar project” has a nameplate capacity of one megawatt to five megawatts in capacity.
- A “Shared Solar Facility” is a single Small-Scale or Medium-Scale Solar Project that allocates Bill Credits to at least two and no more than fifty accounts in the same customer class.
- A “Community Remote Distributed Generation System” is a distributed generation facility with a nameplate capacity greater than 250 kW and which allocates Bill Credits for each kilowatt-hour generated to a minimum of three eligible recipient customer accounts pursuant to the program rules.
Residential and small commercial customers (different from commercial scale solar) developing solar projects with a nameplate capacity of 25 kilowatts or less apply by submitting completing an interconnection application and other required forms in an expedited process. Eligible projects are offered a standard rate, or “performance-based incentive.” Projects 1-10 kilowatts in capacity are compensated 29.65 cents per kilowatt-hour in 2020 under a 15-year tariff. Projects 11-25 kilowatts in capacity are offered 23.45 cents per kilowatt hour under a 20-year tariff. Applications are accepted on a rolling basis until the annual program capacity target of 6.95 megawatts is reached.
Projects larger than 25 kilowatts must apply during a two-week open enrollment period, in which applicants submit bids that are at or below a ceiling price set by the Rhode Island Distributed Generation Board, which also sets annual targets for program capacity for different solar project categories. In 2020, annual enrollment targets are as follows: Medium-scale solar, 3 MW; Commercial-scale solar, 8.244 MW; large-scale solar, 18.294 MW. There is a further carve out for solar carport capacity targets of 2 MW of the commercial-scale target and 4 MW of the large-scale solar target. Projects are selected beginning with the lowest bid price until the enrollment target for the applicable class is met. If selected, the price each project bids into the solicitation will become its energy compensation rate, effective for 20 years.
An adder of six cents per kilowatt-hour is available for qualifying solar capacity installed on permanent carport structures. The Solar Carport Incentive is added to the competitively bid of the specific project upon acceptance.
An adder could be developed for projects to be located in designated areas where there is an identifiable grid system benefit, reliability benefit, or cost savings to the distribution system if the utility proposes to include an incentive-payment adder and the adder is approved.
Further, Rhode Island’s Renewable Energy Fund provides additional per-kilowatt-hour subsidies for solar development, with different programs for small scale, commercial scale, community solar, and brownfield redevelopment solar projects.
Policy Design Strategies:
- Separate Tariffs based on Project Size and Customer Class
- Program Capacity Set Aside for Small Scale Solar
- Includes Program Capacity Carve-outs based on Project Size and Location (carports)
- Rates Change based on Project Size and Location (carports)
→ Adjust rates based on project size, location or design.
Lawmakers should consider varying the compensation offered to different solar generators based on project characteristics. Lawmakers should consider the following policy options:
- Establish different solar compensation rates for small and large-scale projects.
- Establish special rates based on project location or site-type.
- Use rate adders and subtractors based on system size, location, and design within net-metering and other per-kilowatt-hour compensation programs.
- Create a rate incentive specifically for agrivoltaic or dual use solar arrays.
- Create rate incentives for solar project characteristics like solar tracker hardware, energy storage components, or maintenance of pollinator habitat.
For example, Vermont’s “preferred siting” policy applies to net-metered solar arrays up to 500kW in capacity. The state’s net-metering regulation, Public Utilities Commission Rule 5.100, defines the following preferred sites:
- new or existing structures;
- parking lot canopies;
- previously developed tracts, excluding prime agricultural land and certain other resources;
- brownfields;
- suitable sanitary landfills;
- disturbed portions of gravel pits and quarries;
- locations designated in “duly adopted” municipal plans or joint letters of support from a municipality and relevant municipal and regional planning commissions;
- suitable Superfund sites;
- on the same or adjacent parcel as a customer using more than 50% of the system output.
Rate Modifiers
The RATE earned by net metered projects, including solar arrays, changes based both on project size and on project location:
- Category I: a net-metering system that is not a hydroelectric facility and that has a capacity of 15 kW or less. Category I Adder: $0.01 per kilowatt-hour
- Category II: a net-metering system that is not a hydroelectric facility that has a capacity of more than 15 kW and less than or equal to 150 kW, and that is sited on a preferred site. Category II Adder: $0.01 per kilowatt-hour
- Category III: a net-metering system that is not a hydroelectric facility, that has a capacity of greater than 150 kW and less than or equal to 500 kW, and that is sited on a preferred site. Category III Subtractor: negative $0.02 per kilowatt-hour
- Category IV: means a net-metering system that is not a hydroelectric facility, that has a capacity of greater than 15 kW and less than or equal to 150 kW, and that is not located on a preferred site. Category IV Subtractor: negative $0.03 per kilowatt-hour
In addition, net metering rates change based on whether customers choose to retain the Renewable Energy Certificates generated by their solar array or transfer them to the interconnecting utility:
- REC Transfer Adder = $0.01 per kilowatt-hour
- REC Retention Subtractor = negative $0.03 per kilowatt-hour
For both the siting and the REC adjustors, rate adders last for ten years, while rate subtractors stay in effect for the life of the solar project. Adjustors were updated in the Vermont Public Utility Commission’s net metering biennial review. (Case No. 18-0086-INV, Order: In re: biennial update of the net-metering program, Issued May 1, 2018.)
Compare: Massachusetts SMART Tariff
The Solar Massachusetts Renewable Target (SMART) Tariff is a feed-in tariff with a declining rate offered for each “block” of solar generation capacity deployed through the program. Small projects up to 25 kilowatts in capacity receive a 10-year fixed price term and larger projects receive a 20-year fixed price term. The maximum eligible project size is 5 megawatts. It defines eligible projects by creating categories of “Solar Tariff Generation Units” subject to different eligibility requirements and compensation mechanisms. Projects must obtain a Certificate of Qualification for program eligibility approval. The SMART program recently underwent a regulatory review after filling the first 400 MW of program capacity, and modified program requirements based on stakeholder feedback.
The SMART incentive levels decline by prescribed amounts over up to eight blocks per utility territory, with set-aside amounts in each block for projects up to 25 kW in capacity, projects between 25 and 500 kW, and low-income or community shared solar. After establishing a project’s “base compensation rate,” the Massachusetts SMART Tariff uses a variety of rate “adders” and “subtractors” to change the per kilowatt-hour rate paid for solar energy based on the arrays size, location, design, as well as characteristics of the off-takers, or users of the solar electricity. M.G.L. c. 25A, § 6, 225 C.M.R. 20. Emergency Regulations, filed April 14, 2020.
→ Use digital tools to facilitate tariff implementation and consumer understanding.
As state rules for solar energy compensation take into account more and more factors that may affect the ultimate per-kilowatt-hour rate, tariff formulas for rate calculation become increasingly complicated. To support transparency and improve stakeholder understanding of compensation programs, lawmakers should encourage or require the use of digital tools and explanatory resources.
For example, NY-Sun developed a Microsoft Excel “Solar Value Stack Calculator” that estimates compensation for specific solar projects under the state’s Value of Distributed Energy Resources tariff. The calculator “combines the wholesale price of energy with the distinct elements of DER that benefit the grid: the avoided carbon emissions, the cost savings to customers and utilities, and other savings from avoiding expensive capital investments.”
