Citing High Costs, Utility Regulators Reduce Solar Incentives | Environment | Seven Days | Vermont's Independent Voice

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Citing High Costs, Utility Regulators Reduce Solar Incentives


Published June 17, 2022 at 2:54 p.m.

Developer Joe Larkin at a South Burlington solar farm - FILE: ROBERT NICKELSBERG
  • File: Robert Nickelsberg
  • Developer Joe Larkin at a South Burlington solar farm
Vermont energy regulators have again reduced a key financial incentive for new solar electricity projects, hoping to slow the growth rate of the most expensive form of renewable energy on the state's grid.

Friday's decision is the sixth time in six years the state has reduced the rate paid to owners of roof-top solar systems as it tries to maintain a delicate balance: keeping electricity costs in check while also expanding renewable energy in the state.

The decision by the Public Utility Commission lowers slightly — by a third of a penny — the rate per kilowatt hour that owners of new solar systems will receive when their panels produce more electricity than their homes or businesses consume. The arrangement, called net-metering, allows owners of solar systems to sell excess power to the grid on sunny days for credits to offset their electricity bills other times.

Regulators set new rates every two years in a process closely watched by utilities and renewable energy advocates. The PUC said it reduced the compensation rate for new net-metered systems because demand remained strong compared to larger solar installations, which can produce cheaper power because of their scale.

The rate utilities pay for net-metered solar, 16.4 centers per kilowatt hour, is the highest among all renewable energy sources in the state. Some larger solar installations that tie directly into the grid receive about half that amount, the commission found. 

If the commission hadn’t reduced the new-system incentives, electricity rates would continue to rise statewide by increasing the cost utilities pay for renewable power, the commission said.

“The Commission is committed to aggressively pursuing and enforcing Vermont’s renewable energy requirements, but it is imperative that we remain focused on and routinely re-examine the cost of our renewable energy policies and programs and how they affect Vermonters,” PUC chair Anthony Roisman said in a press release. “Net-metering will continue to be an important component of Vermont’s portfolio approach to addressing climate change, but it should not displace other lower-cost sources of renewable generation.”

The new net-metered compensation rate, which will take effect September  1, only applies to new residential systems under 500 kilowatts. Because of changes to other factors affecting rates, the compensation paid to existing system owners will actually increase slightly, by three-quarters of a cent.

Though the changes seem small, even slight tweaks to electricity rates can have big impacts on customers’ power bills, solar installers and developers' business models, as well as the state’s overall renewable energy usage.

Despite previous reductions in solar rates, the PUC approved nearly 3,000 new net-metered solar projects and one wind system totaling 45 megawatts in 2021, a 25 percent increase over the previous year.

By comparison, larger, cheaper solar projects tied directly into the grid or developed by utilities themselves added just 6.5 megawatts and 3.7 megawatts, respectively, in 2021.

Higher electricity prices could hurt the state’s ability to meet its climate goals, the commission found, by slowing the adoption of electric alternatives to fossil fuels, such as electric vehicles and cold-climate heat pumps.

Peter Sterling, executive director of Renewable Energy Vermont, said the rate reduction will make it harder for people to afford new solar systems because it will lengthen the payback period for the upfront cost, which averages 8 to 10 years.

While this may not affect the decisions of wealthy people to go solar, it likely will make systems less affordable for low and middle-income Vermonters, he said.

Sterling acknowledged that keeping electricity rates affordable is important to encourage more people to shift away from fossil fuels. But, he said, it’s equally important to expand the supply of locally generated renewable energy, which he called “meager.”

“At the very moment the climate crisis is upon us, the PUC should be making it more affordable for people to go solar, not less,” Sterling said.