Rooftop solar panels. (VCU Capital News Service)
The state’s second largest utility serving a majority of Southwest Virginia is asking state regulators for a 70% reduction in the pay rate for customers who generate their own electricity and sell excess amounts back to the company. The request could stifle residential customers’ adoption of solar in the region, proponents of the zero-carbon energy source say.
Appalachian Power Company submitted the request to the State Corporation Commission Aug. 30 as part of a new rulemaking process required by the Virginia Clean Economy Act, a law seeking to decarbonize the utility’s grid by 2045. The process governs the program known as net-metering, which took off in 2017.
Net-metering allows residents and companies to install generation sources on their roof or property to provide the electricity they would otherwise need to pull from the utility’s grid. In APCo’s territory, those generation sources have mostly been solar panels.
The homes and businesses sell back to the company whatever amount of electricity they generate beyond what they need, and net that revenue against their costs for energy they may pull from the utility when their source isn’t producing, resulting in savings or credits that can be applied to a future month’s bill.
Appalachian Power is currently paying those participants $0.16 per kilowatt hour for the excess power they generate, and wants to grandfather them for 25 years, while offering new participants $0.04 per kilowatt hour.
For a customer who needs about 1,000 kilowatts of electricity, and generates 1,057 kilowatts through their panels, the change would result in a monthly bill increase from $7.96 to $66.95. An APCo customer who doesn’t participate in net metering faces a monthly bill of $174 under current rates, which may go up again, despite resident and legislator opposition.
The rate change also reflects a change in netting methodology for new participants.
Under the old system, the customer would generate a total amount of electricity for a given month and net that against the power they pulled from the utility when their source was not generating enough, which happened 80% of the time in a year and resulted in the savings, according to the utility.
The new methodology would compensate a customer for the excess energy they send back to the grid, at the new rate, and then charge them, at standard rates, for the energy they pull from the utility when their generation source wasn’t meeting their needs.
“The proposed netting methodology will still allow the customer-generator to offset their usage with their solar generation that is equal to or less than their usage in a given hour at full retail rate,” said company spokeswoman Teresa Hall. “But any excess generation that is exported to the company’s system will not be carried over to a different hour when they are using energy from the company,” Hall said. Instead, “it will instead be given a bill credit at the avoided cost rate proposed in the petition.”
The company asked for the reduction and change largely because participants rely on the overall grid’s transmission and distribution system to sell their power back to the utility, or draw in power when their solar doesn’t produce enough of it.
But the 3,860 program’s participants — who represented about .07% of APCo’s 542,000 customers in 2023 — don’t pay for the costs to maintain that grid, the utility said, which resulted in a $3.8 million savings that year coming from non-participants, who do pay the fees for maintaining transmission and distribution lines. The company said this is an inequitable arrangement.
“Due to the inherent cross-subsidization in the current net metering program, non-participating customers, including low-income customers and/or customers that are members of environmental justice communities bear a disproportionate share of the costs necessary to facilitate net metering as it exists today,” attorneys for Appalachian Power wrote in their petition.
Solar developers, though, counter that having more net metering solar projects on the grid creates more distributed generation resources and reduces the wear and tear on those transmission and distribution lines by not relying on them as much.
As data centers proliferate in Virginia, demand for electricity is expected to increase, which will increase the need for costly improvements to transmission and distribution lines to deliver more power, said Russ Edwards, president of Tiger Solar, a solar developer that has done business in APCo territory. APCo can recover those costs from customers, plus a roughly 10% return on equity, or profit margin.
“(Demand) has been flat for a while. It’s not any longer,” said Edwards. “That’s a big deal and should be in the public’s best interest for all utilities to promote distributed generation.”
APCo stated that participation in net metering has increased by 31.6% from the 1,310 participants it had in 2018, and has generated a total of 36.9 megawatts, about 1% of the 3,225 MW peak amount of electricity the utility produced in 2023. The generation that net metering customers relieve the grid of “definitely won’t go up,” Edwards said under the new program.
The difference in the final bill costs between the old rate and the new rate may only be about $59, but when residents are considering whether to participate to save about $108 on a bill, compared to non-participants, Edwards said, the change could increase the amount of financing needed and the time period from when the savings will pay off the cost of the solar panels.
“It makes the economics way more challenging,” Edwards said.
Unless the nascent technology of an energy storage device can be paired with a project to provide power when a generation source isn’t producing, Southern Environmental Law Center staff attorney Josephus Allmond said, the detrimental effects of reducing the net-metering payment rate has been experienced in California, which one report said lead to a loss of 77% to 85% in sales and 17,000 jobs.
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The risk of reduced net metering participation also comes after the federal government announced it’s giving Virginia $156 million to deploy more solar alongside other funding opportunities. And solar projects on rooftops can help avoid conflicts with localities that are concerned with losing agricultural and forested land to panels needed to reverse climate change, Allmond said.
“We need utilities to show us some solutions. Customers deserve that,” Allmond said. “Given (the) funding on the way to Virginia for low income solar, ApCo’s petition to slash the net metering compensation rate by roughly 70% will hamper residential solar, a crucial part of the energy transition.”
The State Corporation Commission is expected to review the request over the next 12 months, with several other parties interested in being involved, including Solar United Neighbors, Clean Virginia and more, since the result could set a precedent ahead of Dominion submitting its petition next year.