Business Ethos Blog

Who Pays for the Solar Push?

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

It has been really cold, certainly an understatement.  Have you noticed any of the solar panels around town that are snow covered and obviously not generating any power?  The state legislature recently passed 2 pieces of legislation to update energy laws, including a requirement of public utilities to generate 15% of their power from renewables.  Crain’s did a study of the progress of installing solar power in the state.  The Ann Arbor City Council passed a resolution that 100% of municipal operations would be powered by renewables by 2035.  This all sounds like progress, but is there a group of energy poor people and other consumers who are paying for this progress?  Should the federal government and others continue to subsidize solar power?  Are policies aimed at addressing climate change punishing the poor?  Should any discussion about increasing the use of solar power include consideration for the ratepayers and the impact on their budgets?  What is the “Right Thing to do?”  Let’s look at some issues:

  1. Private, non-utility owned renewable energy production led by residential and business solar electricity generation grew by 28% in 2016 and was expected to continue at that pace in 2017, according to a Michigan Public Service report.
  2. In 2016, 2,582 residential, commercial and industrial customers participated in Michigan’s net metering program, up from 427 in 2015.  Total capacity of net metering installations was approximately 22,000 kilowatts, an increase of 28% from 2015.  Southeast Michigan, including Wayne, Oakland and Washtenaw counties has the most net metering customers.  Overall, solar accounts for less than 2% of total electricity production in the state.
  3. By the end of 2017, the MPSC estimates the total amount of solar installed in Michigan will increase to over 120,000 kilowatts, more than double the amount of 58,000 in 2016.  The vast majority of solar power in Michigan is owned by utilities that are complying with state mandates that require they generate 15% of sales from renewable energy by 2021.
  4. The Solar Energy Industries Association said Michigan has installed the 11th highest amount of solar megawatts in the nation during the second quarter of 2017, mostly from utility scale projects.  Total solar megawatt growth in Michigan is estimated to grow from 15.9 megawatts in 2016 to over 144 megawatts in 2022.  Residential solar installations are expected to grow from 3.2 megawatts in 2017 to 25 megawatts in 2021.  Commercial and community will grow from 10 to 35 in the same period.
  5. More than 92,000 people now work in the clean energy industry in Michigan, which ranks third among Midwest states in clean energy employment.
  6. The Ann Arbor City Council unanimously passed a resolution  that 100% of municipal operation electricity would be provided by renewables by 2035.  There was no mention of funding for this initiative.  And this is the City Council that can’t find the money to provide lighting at the pedestrian crosswalks.  A private group also advocated that Ann Arbor subsidize residential solar installations.
  7. These growth projections may be optimistic, given the Michigan energy legislation approved in 2016 that has eliminated the net metering program for future customers.  Net metering allows customers with solar panels to receive a credit for excess electricity they produce.  Existing customers are grandfathered in for 10 years.
  8. Under the new legislation the MPSC will be looking at the true cost of service, that is what is the cost to utilities to provide backup power for those solar installations.  One consideration is whether or not solar customers are being subsidized by other ratepayers for using the grid.  Other states are also grappling with how to charge ratepayers who generate their own power in lieu of net metering.
  9. Congress and the Trump administration have also introduced uncertainties for solar in 2018 because of the phase out of the solar tax credit and the ongoing trade case concerning allegations of dumping by foreign manufacturers.  Will the administration impose tariffs that may significantly raise the costs of solar panels?
  10. Economists consider households energy poor if they spend 10% of their income to cover energy costs.  A recent report from the International Energy Agency shows that more than 30 million Americans, 1 in 10, live in households that are energy poor–a number that is significantly increased by climate policies that require Americans to consume expensive green energy from subsidized solar panels and wind turbines.  The IEA notes that the estimate could be as high as 1 in 4.
  11. Among people with incomes below 50% of the federal poverty line, energy costs regularly consumed more than one-third of their budgets.
  12. Around the world, subsidies that go to homeowners for erecting solar panels overwhelmingly go to the better off.  When the costs jump for electricity, due to costs passed on from solar installations and subsidies, the people most affected are those already struggling.

 

Do subsidies to promote solar electricity installations make economic sense?  Who is most likely to bear the costs of these subsidies and the resulting increase in rates?  Will the MPSC require a cost of service charged to solar producers that reflect an equitable cost of service to provide backup power?  Given the majority of the solar megawatts installed are by utilities that have lower costs per installation, should residential customers be subsidized?  Will the Ann Arbor City Council do a cost-benefit analysis for the implementation of their resolution and actually budget the required cost?  Have you seen any data regarding the efficiency of solar in Michigan, given the weather conditions and the cost per kilowatt versus the cost for natural gas produced electricity?  Should any proposals to increase and/or subsidize solar power include an impact statement on the effects on the energy poor?  What is the “Right Thing to do?”

 

I have rarely if ever, seen a cost analysis for a solar installation and never seen one showing how the subsidies impact the energy poor.  When environmental campaigners claim we need more solar power generation, they aren’t thinking of the people who are most affected by increasing energy bills.  It is time that any solar proposal includes that information as well as the funding source.  And those costs should take into effect the difference in efficiency given Michigan’s weather.  I understand that utility companies have a mandate to construct solar installations, and also understand that their costs are lower per megawatt than for residential or even commercial or governmental.  It makes sense to continue having utilities take the lead, but no sense to subsidize residential or governmental.  I am looking forward to the MPSC’s study and recommendations to charge a cost of service which is now being passed on to other ratepayers.  It is time that the real costs, without subsidies are realized so we all will know “Who Pays for the Solar Push.”