Over the past year and a half, the Tennessee Valley Authority (TVA) worked with stakeholders to study the value of rooftop solar systems. On October 20, TVA published the result, “Distributed Generation – Integrated Value (DG-IV): A Methodology to Value DG on the Grid.” TVA’s study did partly accomplish one objective: determining numerical values to quantify some of the savings solar energy provides to the TVA system. However, TVA has fallen short of its promise to use the process to inform future solar program design. Instead, TVA recently announced plans to roll back incentives for its 2016 distributed solar programs.
The Southern Alliance for Clean Energy was gratified to participate in TVA’s stakeholder process, which had the positive outcome of enabling stakeholders to find some common ground despite their differing perspectives. All of the participants were able to agree on a solar-specific avoided cost for the Valley – the amount TVA would have to spend to supply the same energy from other generation sources such as coal and gas. While this is a good first step, it should not be considered the final value. Solar does much more for the Tennessee Valley: solar reduces emissions of carbon dioxide (CO2) and other air pollutants such as SO2, NOx, and particulates; solar also helps improve the quality of the Tennessee River and its tributaries; and solar provides high quality jobs.
However, instead of taking advantage of all the benefits of solar by creating a robust rooftop solar market in the Valley, TVA’s most recent steps are in the opposite direction. In late October, TVA signaled to stakeholders in the newly-formed Distribution Generation-Information Exchange (DG-IX), the successor to DG-IV, that it will reduce program caps and incentive payments for its solar programs in 2016. Incentives paid to owners of rooftop systems smaller than 50 kilowatts (kW) through the Green Power Providers (GPP) program – already down from the peak in 2010-2012 of 12 cents above retail for each kilowatt-hour (kWh) produced to just 2 cents above retail in 2015 – will further decline in 2016 to just the retail rate. The Solar Solutions Initiative (SSI) for larger systems between 50 kW and 1 megawatt (MW) in size will see the program cap cut from 20 MW to 10 MW, along with other program changes that will significantly impact the Valley’s solar industry.
These decisions are in direct contravention of TVA’s promise that the 2016 programs would be substantially similar to the 2015 programs, and that stakeholders would be included as collaborators on program design for subsequent years. So we have to ask, is it TVA’s intention to squash the distributed solar market?
Solar’s full value is not recognized in the DG-IV methodology results
The growing popularity and affordability of rooftop solar systems, along with a desire to re-examine its solar incentive programs, led TVA to initiate the DG-IV process in 2014. As in other parts of the country, the Local Power Companies (LPCs) that distribute electricity in the TVA region and solar advocates and businesses have been on different sides of the fence when it comes to distributed solar. The NC Clean Energy Technology Center, which issues a quarterly report tracking state distributed solar markets and policies, notes that “Rate design, net metering, and distributed solar ownership are among the most contentious ongoing renewable energy policy issues.”
SACE appreciates TVA’s efforts to engage a wide range of stakeholders in the DG-IV process, which included representatives of the 155 operating LPCs, government agencies from the seven states in the Valley, solar installers, and environmental advocates. The process was an inclusive one, with six in-person meetings, two webinars, and multiple opportunities to review draft versions of the methodology prior to its publication. Representatives with widely divergent viewpoints got to know one another and had the opportunity to engage in substantive dialogue.
And, for the first time, there was unanimous agreement on some of the values solar brings. Specifically, these values include: deferring the need to build and maintain new power plants; fuel savings; environmental compliance cost reductions and revenue from the sale of renewable energy credits (RECs); net changes in transmission and distribution system infrastructure; and avoided transmission and distribution line losses. Participants in the process agreed to a first year value of 5.7 cents/kWh and a 20-year levelized value of 7.2 cents/kWh for what TVA has termed these solar-specific avoided costs.
However, SACE strongly believes that the value attributed to solar in the methodology obscures its true value to the grid. It fails to incorporate the benefits associated with reductions in carbon dioxide emissions, nor does it account for the health and environmental benefits associated with reductions in the emissions of common air pollutants such as SO2, NOx, and particulates beyond simply the costs associated with regulatory compliance. It also does not consider impacts on water systems. SACE, along with its partners TenneSEIA, the state solar industry association, and the Southern Environmental Law Center, provided data to show that these environmental benefits add an additional 6 cents/kWh in value. TVA did agree to include the environmental values in the final report. However, because these values did not gain group consensus they are labeled “Other Environmental Considerations” and provided for information only using a range that begins at zero value.
The danger of this approach is already apparent. As a headline in the Chattanooga Times proclaimed, “Study find [sic] value of solar power less than what TVA pays.” While the article itself presents a more balanced view of all the issues in play and the perspectives of various stakeholders, people who just read the first couple of paragraphs will take away the lesson that TVA is currently paying too much for solar. When the reality is – as the article notes toward the end – the utility lags behind neighboring states like Georgia and North Carolina in developing a strong solar market.
Will TVA violate its promise to involve stakeholders in designing new programs?
Since the inception of the Green Power Providers program in 2000, TVA has gradually reduced the rate premium offered to subscribers and plans to eliminate the premium altogether in 2016. Rather than working to create a viable market to take advantage of the 30,000 MW of potential rooftop solar capacity TVA estimates in its territory, recent moves at TVA indicate instead a desire to move away from distributed solar. As of April, the GPP program included 85.4 MW of solar either operating or in-process, a paltry total in comparison to the potential. Steve Johnson, President of Lightwave Solar and Vice President of TenneSEIA, projects that elimination of the incentive in 2016 will result in even slower growth in the rooftop market than that seen in previous years.
The story is even worse for SSI, the Solar Solutions Initiative previously in place for projects between 50 kW and 1 MW. These are the larger systems that can be installed on commercial and industrial rooftops as well as mounted on the ground. As of April, a mere 7.5 MW of these systems were in operation, with an additional 38 MW in development. The program has traditionally been capped at 20 MW annually, and in 2015 4 MW of that total was allocated to the local power companies, who have been slow to develop projects. At the DG-IX meeting, TVA announced its intention to make significant changes to SSI. The new program, called the Distributed Solar Solutions (DSS) program, will be capped at 10 MW in 2016, and all applications will have to go through the LPCs which often lack the expertise and staff resources to develop projects.
Both the solar industry and environmental advocates believe these changes will effectively kill this market segment before it can even really get started. And these changes were made without consulting stakeholders, and for 2016 not 2017 and beyond. During DG-IV, SACE and the other stakeholders were told that the process was meant to continue beyond development of the methodology to a program design phase that would consider how to effectively incentivize the small-scale solar market in future years. We call on TVA to continue with its 2015 program incentives in 2016 and to convene the DG-IV program design phase for 2017 as they had promised.