A church in southern Indiana decided against installing solar panels for its childcare facility, concerned about recouping its costs. And an Indiana farmer put in only half the solar power he had intended, knowing that measures imposed by the state to protect power companies would only add to his expenses.
Solar energy has the potential to comprise up to 40% of the nation’s energy supply by 2035, according to the U.S. Department of Energy, but pushback from utilities and lawmakers could limit how much Hoosiers can contribute to the solarization effort.
In 2005, Indiana legislators approved a billing mechanism that allows residents and businesses to sell some of their solar power back to the grid. That led to a boom in solar installations and clean energy jobs around the state.
But utility companies, stung by the drop in revenue from solar customers, pressured the Indiana Legislature to drop the mechanism, known as net metering, by 2022. Since that legislation was implemented in 2017, the result has been an ongoing tussle involving consumers, independent solar power companies, legislators and Indiana’s powerful energy utilities.
And it has led to what one clean energy company president calls a “chilling effect” on solar sales in Indiana.
The U.S. Department of Energy recently released the Solar Futures Study, a report detailing the role of solar power in decarbonizing the electrical grid to meet the Biden administration’s goal to achieve a 50% reduction in greenhouse gases by 2030.
According to the report, solar energy could produce enough energy to power all the homes in the U.S. in as little as 15 years, as long as technological advances continue and the solar effort receives long-term policy and market support.
Energy Department researchers said acceleration of clean energy deployment requires incentivization through mechanisms like tax breaks and net metering to move away from fossil fuels and increase adoption of both utility-scale and residential solar energy systems.
Net metering, also known as a net metering tariff, is the process through which people who generate power with small-scale renewable energy systems can sell the energy they do not use to the utility companies to which they are connected.
The net metering billing mechanism can result in vastly reduced monthly energy costs for renewable energy customers, an incentive that has helped residential solar energy system adoption grow thirtyfold in the U.S. over the last decade.
Net metering for residential power customers and schools in Indiana began in 2005, when the Indiana Utility Regulatory Commission approved programs for the five investor-owned electric utilities in the state.
Since then, net metering capacity among the five major electric monopolies in Indiana has increased dramatically. Over the past decade, total solar net metering capacity has increased from 529 kilowatts in a year to 124,741 kilowatts.
The growth of solar installation aided by net metering has helped create a boom in the clean energy industry in Indiana, leading to thousands of jobs in various sectors, including solar system installation.
One of the companies that has benefited from the boom is Ag Technologies Inc., a company based in Rochester, Indiana, that launched its solar business in 2013 as part of a farm equipment business.
The company’s president, James Straeter, spoke during a meeting of the Legislature’s 21st Century Energy Policy Development Task Force.
“Ninety-plus companies and 3,500 jobs and growing is no small matter in our great state. Besides the direct installation work, they're shipping, selling, engineering and so forth. That happened because of solar,” Straeter said. “[Ag Technologies] paid over a million dollars last year in wages. Benefits added another $300,000. In 2021, we're going to beat those numbers.”
Straeter said the industry offers a broad spectrum of employment opportunities, even for Hoosiers without higher education levels. He said none of the employees he hired to perform solar system installations have a post-secondary education.
The clean energy boom has also inspired innovation, with Straeter himself possessing a patent for a ground mounted solar power assembly called SolarCAM that allows owners to move the system assembly to maximize the amount of sunlight that hits solar panels.
Hoosiers clearly benefitted from net metering, but its threat to speed up the transition away from fossil fuels and reduce the bottom line of electricity suppliers in the state led to a campaign that threatens to permanently derail the successful incentive.
HURTING THE BOTTOM LINE
Companies in Indiana have worked to eliminate net metering due to the incentive’s resulting cut into utility companies’ monthly revenue.
The credits earned by using the power generated by residential solar systems reduce the money that comes in to utility companies every month. That reduction in revenue, the industry has said, has affected how much money utility companies can put into maintaining infrastructure like power lines without raising prices.
“Fixed costs account for about 70% of a residential customer’s bill and cover basic infrastructure costs, such as operation and maintenance of utility-owned generation plants, transmission lines, substations, distribution, infrastructure, and customer-related programs and services,” said Danielle McGrath, president of the Indiana Energy Association, a trade organization representing Indiana’s electric and natural gas utilities.
Utility companies, backed by organizations linked to the fossil fuel industry, also have argued for years that net metering unfairly transfers the costs of transmitting energy to non-solar customers, in effect “discriminating” against them.
McGrath said net metering unfairly allows net metering customers to bypass fixed costs, forcing companies to increase rates to other customers to make up the difference.
“When a customer generates their own power, they may actually produce enough to not pay for any of this expense, even though they are still hooked up to the grid and draw power in the evenings or when the weather isn't optimal. In fact, net metering customers rely on the grid roughly 70% of the time, but pay little to nothing in the way of an average monthly bill despite having access to the grid and utility backup generation 100% of the time. They are able to do this because the credit received by customers for their self-generation is dollar for dollar at the full retail rate,” McGrath said.
But renewable energy advocates said the claims are a cash grab tantamount to a grocery store blaming its rising costs on a person growing their own tomatoes in a home garden.
Utility companies base customer costs on estimated energy use and revenue requirements to cover costs for a given period. With solar power contributing more to the grid, those estimates should be adjusted, solar advocates say. What utilities consider a cost shift, they argue, is simply the utilities’ attempt to find something to blame for an overestimation of energy use and resulting income.
A 2017 study of utilities engaged in net metering from the Lawrence Berkeley National Laboratory concluded that “For the overwhelming majority of utilities, current PV penetration levels are far too low to result in any discernible effect on retail electricity prices, even under the most pessimistic assumptions about the value of solar and generous assumptions about compensation provided to solar customers.”
As the number of net metering customers in Indiana approached 40,000 in 2016, the Indiana Legislature suddenly introduced legislation that would attempt to kill net metering, despite its apparent success.
Senate Bill 309, introduced by Indiana State Sens. Brandt Hershman and Jim Merritt and later signed into law, reduced the economic benefit for Hoosiers who installed solar systems after Dec. 2017 and set a July 1, 2022 end date for customers to take part in net metering.
Utility companies in Indiana invested tens of thousands of dollars to get the bill made into law. Hershman and Merritt’s campaigns alone received thousands of dollars in contributions from Duke Energy Corp., NiSource, Vectren Corp., now CenterPoint Energy, and American Electric Power, parent company of Indiana Michigan Power. AEP made $15,000 in contributions during Hershman’s 2016 election cycle, just before the introduction of SB 309.
Hershman resigned from the Senate in 2018 andbecame a partner at Barnes & Thornburg LLP, a lobbying firm currently representing dozens of clients in Indiana, including Duke Energy, one of the utilities that stood to gain from the elimination of net metering.
Merritt ran an unsuccessful campaign for the Indianapolis mayorship in 2019 and resigned his senate seat in November 2020.
THE “SOLAR COASTER”
Straeter said the end of net metering and lowered net metering rates for the foreseeable future means that farmers, churches, businesses, schools, local governments and homeowners will no longer have a financially viable reason to install solar electricity systems.
“SB 309 has already had a chilling impact on privately owned solar sales in our state as the [distributed electricity generation] rate, and in particular, instantaneous netting is hugely undervaluing the excess daytime solar energy put out on the grid,” Straeter said. “We are the frontline when it comes to renewables and customers. We talk to these people every day, mostly face to face. Reducing energy costs is by far the most singular reason that people are interested in distributed solar energy. We need an adjustment to SB 309 and its impact.”
The law has spurred some Hoosiers to install solar systems before net metering disappears in the state, but the adoption could hasten the incentive’s end.
After a long period of slow but steady growth in the number of customers participating in net metering in Indiana, the number jumped 76% between 2016 and 2017. After the law was passed, growth slowed, but more customers continued participating in net metering.
At the same time, the utilities expanded capacity, triggering a part of the 2017 law that could speed up the demise of net metering, even under much lower rates.
The law allows utilities to end established net metering program rates sooner than the July 1, 2022 end date if the total amount of net-metered capacity reaches 1.5% of the utility’s peak load, and to replace it with a much lower rate called an excess distributed generation tariff, or EDG.
CenterPoint Energy provides electricity for parts of southwestern Indiana, and was formerly known as Vectren and the Southern Indiana Gas and Electric Co. The company told the IURC it reached the peak load threshold in early 2020 and petitioned the commission to approve its ending of net metering rates Jan. 1, 2021.
Hoosiers wrote to the Indiana Office of the Utility Consumer Counselor’s Office, the state agency representing ratepayer interests in cases before the IURC, telling the agency the change would reduce the credit received from 15 cents per kilowatt hour to 3.183 cents.
The agency opposed CenterPoint Energy’s petition, saying the petition relied on metering and billing methodology issues and deficiencies.
“[CenterPoint Energy’s] proposal unfairly and negatively affects customers by pricing all electricity supplied to an electric supplier at the EDG rate, instead of taking the difference, which would offset an amount of electricity supplied to the customer Vectren priced at the retail rate. Therefore, [CenterPoint Energy’s proposal should be rejected because it does not follow the statutory requirements,” testified Anthony Alvarez, a utility analyst at the Utility Consumer Counselor’s Office Electric Division.
Despite the opposition from OUCC and the testimony of many consumer advocate organizations, the IURC found that CenterPoint Energy’s proposed rate and the methodology it used to calculate it were “reasonable” and complied with the law. It approved the petition April 7, 2021. The decision is being appealed.
Straeter said the IURC’s decision has already changed how Hoosiers approach the adoption of solar energy systems.
“We just got our first Vectren/CenterPoint area customer approved last week for a solar install. And that's under this new EDG rate that was approved by the IURC. This farmer is going to put in half as much solar as he would have put in otherwise. He's going to put in large enough wire however, hoping that policies change and he can easily add to his solar system. For now, he's going to overcome the tariff that's in place there by sending a little energy to the grid,” Straeter said.
“A church in Holland, Indiana, which is also a Vectren/CenterPoint customer simply isn't going to do solar for their childcare facility, even though some members of that church were willing to make substantial contributions to help pay for it. After analysis, they understood that it simply wasn't a good financial investment and they dropped the whole project. [SB 309] blocks folks like these from the market.”
As the case was being decided, the four other major electric utilities submitted their own petitions to end net metering early and adopt new excess distributed generation rates.
The filings happened nearly concurrently, with Duke Energy filing its petition Feb. 28 and AES Indiana, Indiana Michigan Power and NIPSCO filing theirs the following day.
The OUCC and consumer advocates have challenged the petitions.
While utilities and their trade organizations have worked to discourage residential solar systems, they have pushed for utility scale renewable energy systems, a large-scale form of renewable energy that can directly benefit the utilities financially.
“While net metering has its benefits, utility scale generation is much more impactful and economic when it comes to the energy transition and our customers. Plus, utility scale solar and wind can be controlled by the energy providers, whereas [direct generation] systems cannot. They provide renewable energy credits, and their location can be selected to maximize benefit to all customers, which is directly tied to grid reliability and stability,” said McGrath.
With market forces and federal support moving away from fossil fuels, utilities in Indiana have begun their renewable energy transition.
While taking part in the effort to stop net metering, NIPSCO, AES Indiana and CenterPoint Energy have begun to embrace wide-scale renewable energy by building projects of their own or entering into agreements to purchase electricity with the owners of wind and solar operations.
Duke Energy and Indiana Michigan Power, through AEP, own renewable energy installations outside of Indiana.
The reason for the switch, as well as the utilities’ opposition to net metering, is clear – economics.
When NIPSCO announced it was closing down its remaining coal-fired power plants by 2028, the company said transitioning away from fossil fuels made financial sense.
“Certainly, there are environmental benefits associated with those plans, but the cost savings were really the driver, which leads to about $4 billion in long-term savings for our customers,” Nick Meyer, NIPSCO’s director of external communications said in April 2020.
A major $3.5 trillion budget reconciliation bill being negotiated by the U.S. House of Representatives could allow Hoosiers to overcome the financial obstacles created by the elimination of net metering and reward utilities for transitioning to clean energy.
The bill contains a provision that would reward utilities that increase their share of clean energy by 4% per year until 2030 and punish utilities that don’t reach that share with fees.
The bill would also extend and expand various tax benefits for renewable energy users that could help some residential solar system owners offset initial investment costs.
Indiana is not the only battleground for utility interests and clean energy needs, but it is an example of one of the more regressive net metering policies in the Midwest.
The Energy Department believes solar energy can play a major role in the decarbonization of the nation’s electrical grid, but the effort will require looking beyond the short-term gains for utilities.
“Achieving this bright future requires a massive and equitable deployment of renewable energy and strong decarbonization polices – exactly what is laid out in the bipartisan Infrastructure Investment and Jobs Act and President Biden’s Build Back Better agenda,” said Secretary of Energy Jennifer M. Granholm.
It is unclear whether lawmakers at the federal and state level will have the political will to back the transition to renewable energy, but, by some estimates, the Earth could soon be an inhospitable place for humans if they do not.