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Where are the Renewables? Wind and solar policy in Virginia

By Ivy Main

Guest Blogger Ivy Main has been an advocate for renewable energy with the Sierra Club since 2007. A lawyer by training, she lobbies extensively in the General Assembly for stronger clean energy policies and writes a regular blog, Power for the People VA, about energy policy in Virginia. She was the lead author of the Virginia Chapter’s 2010 report, Power Failure: How Virginia is Losing the Competition for Clean Energy Jobs. Since 2012 she has also served at the national level as a member of the Sierra Club’s Beyond Coal Campaign leadership team.
 

Virginia lags well behind neighboring states on renewable energy. We have no utility scale wind or solar projects and very little in the way of customer-owned projects—a total of 18 megawatts (MW) of distributed solar, at last estimate. This puts the Commonwealth dead last among neighboring states, as shown in the table below. The reason is not a lack of resources, but a lack of will to create strong policies to promote development of wind and solar.

Maryland North Carolina W. Virginia Tennessee Virginia
Solar 142 335 N/A 74 18
Wind 120 0 583 29 0
Installed capacity measured in megawatts (MW). One megawatt is equal to 1,000 kilowatts (kW).
 

Renewable Portfolio Standard (RPS)

Virginia has only a voluntary RPS, which means utilities have the option of participating but don’t have to. If a utility opts to participate in Virginia’s RPS, any costs it incurs in meeting the goals can be charged to ratepayers.

Until last year, utilities could also qualify for a huge bonus for meeting the goals: more than $38 million annually in the case of Dominion Virginia Power. Widely regarded as a consumer rip-off and the subject of protests by environmentalists and a damning report from the Attorney General’s office, the bonuses were stripped out in 2013 as part of a larger package of changes. As a result, the only incentive utilities now have to participate in the RPS is their desire to look “green.”

Unchanged are the extremely weak provisions of the RPS. In the case of Dominion Virginia Power, these have been met largely with out-of-state renewable energy certificates (RECs) from old hydro projects built prior to World War II. The Virginia RPS thus remains entirely irrelevant as a driver of new wind and solar projects.

Two efforts to improve the goals in the 2014 session largely fell flat in the face of utility opposition, achieving only a five-year limit on utilities’ ability to “bank” RECs for use in later years. (Most states have shorter limits.)

Prior to taking office, Governor McAuliffe spoke in support of a mandatory RPS that would achieve real progress on wind and solar. A strong RPS remains high on the wish list of clean energy advocates.

Utility “green power” programs

Section 56-577(A)(6) of the Virginia code allows utilities to offer “green power” programs. Unlike the RPS, participation by consumers is truly voluntary. Participants sign up and agree to be billed extra on their power bills for the service.

Ideally, a utility would use the money to build or buy renewable energy for these customers; however, Virginia utilities have not done this except in very tiny amounts. Instead, utilities pay brokers to buy renewable energy certificates (RECs) on behalf of the participants. In Dominion’s case, these RECs meet a recognized national standard and are much superior to those bought for the RPS, but they primarily represent power produced and consumed out of state, and thus have no effect on the power mix in Virginia. For a fuller discussion of the Dominion Green Power Program, see my previous post, What’s wrong with Dominion’s Green Power Program.

In the case of Appalachian Power, the RECs come from a conventional hydro facility in West Virginia that was built in 1960, so the RECs don’t even meet most environmental groups’ standard for renewable energy.

Customer-owned generation

Given the lack of wind or solar options from utilities, people who want renewable energy generally have to build it themselves. A federal 30% tax credit, available until the end of 2016, makes it increasingly affordable. The Virginia legislature passed a bill in 2014 that would offer an additional incentive through a grant program, but it did not receive funding.

Owners of wind and solar systems in RPS states can sell RECs to their utilities, helping to recoup installation costs and aiding in financing. The lack of a true RPS in Virginia means RECs generally cannot be sold to Virginia utilities. (As noted above, Virginia utilities do not need wind and solar to meet their RPS goals.) While RECs generated here can sometimes be sold to utilities in other states, their value is low and uncertain.

Net metering

Section 56-594 of the Virginia code allows utility customers with wind and solar projects to net energy meter. System owners get credit from their utility for surplus electricity that’s fed into the grid at times of high output. That offsets the grid power they draw on when their systems are producing less than they need. Their monthly bills reflect only the net energy they draw from the grid.

If a system produces more than the customer uses in a month, the credits roll over to the next month. However, at the end of the year, the customer will be paid for any excess credits only by entering a power purchase agreement with the utility. This will likely be for a price that represents the utility’s “avoided cost” of about 4.5 cents, rather than the retail rate, which for homeowners is about 10.5 cents. Given the current cost of installing solar, this effectively stops people from installing larger systems than they can use themselves.

Virginia law also does not allow system owners to share the electricity with other consumers through community net metering or solar gardens. Several bills that would have permitted this were introduced in the 2014 session but defeated due to utility opposition. Community net metering remains one of the solar industry’s highest priorities.

Under a bill introduced by Delegate Randy Minchew (R-Leesburg) and passed in 2013, however, owners of Virginia farms with more than one electric meter are permitted to attribute the electricity produced by a system that serves one meter (say, on a barn) to other meters on the property (the farmhouse and other outbuildings). This is referred to as “agricultural net metering.” The law takes effect July 1, 2014 for investor-owned utilities (Dominion and Appalachian Power) and July 1, 2015 for the cooperatives.

Standby charges and other limits

Dominion Power is at the forefront of a national pushback against policies like net metering that facilitate customer-owned generation.

When net metering was instituted in Virginia, residential systems were limited to 10 kilowatts (kW), and commercial systems to 500 kW. The solar industry succeeded in getting the residential limit raised to 20 kW in 2011, but the change came with a catch: the utility was allowed to apply to the State Corporation Commission to impose a “standby” charge on those customers.

Seizing the opportunity, Dominion won the right to impose a standby charge of up to $60 per month on these larger systems, eviscerating the market for them just as electric cars were increasing interest in larger systems. (SCC case PUE- 2011-00088.) Legislative efforts to roll back the standby charges were unsuccessful.

In the spring of 2014 Appalachian Power filed for rate changes to include even more extreme standby charges for residential systems between 10 and 20 kW. Its rate case, PUE-2014-00026, will be heard by the SCC on September 16.

The standby charges supposedly represent the extra costs to the grid for transmission and distribution. In the summer of 2013, in a filing with the SCC (PUE-2012-00064, Virginia Electric and Power Company’s Net Metering Generation Impacts Report), Dominion claimed it could also justify standby charges for its generation costs, and indicated it expects to seek them after a year of operating its Solar Purchase Program (see discussion below).

Aside from residential systems between 10 and 20 kW and a provision attached to the Agricultural Net Metering bill, there is no express authority in the Virginia code for Dominion to seek new standby charges.

Homeowner Association Bans

Homeowner association (HOA) bans and restrictions on solar systems have been a problem for residential solar. In the 2014 session, the legislature nullified bans as contrary to public policy. (The law contains an exception for bans that are recorded in the land deeds, but this is said to be highly unlikely; most bans are simply written into the HOA covenant.)

Even where HOAs cannot ban solar installations, they can impose “reasonable restrictions concerning the size, place and manner of placement.” This language is undefined. It would seem that an HOA cannot use it to prohibit systems that are visible from the front of the home, if that is the only place that gets sun, but beyond that, residents may need to negotiate with their neighbors to achieve agreement. The Town of Blacksburg has been wrestling with this issue in the context of its Solarize program and seems to be developing guidelines that might be helpful to other communities. If litigation ensues, legislation may be needed to define “reasonable restrictions.”

Barriers to third-party ownership

One of the primary drivers of solar installations in other states has been third-party ownership of the systems, including third-party power purchase agreements (PPAs), under which the customer pays only for the power produced by the system. For customers that pay no taxes, including non-profit entities like churches and colleges, this is especially important because they can’t use the 30% federal tax credit to reduce the cost of the system if they purchase it directly. Under a PPA, the system owner can take the tax credit and pass along the savings in the form of a lower power price.

In 2011, when Washington & Lee University attempted to use a PPA to finance a solar array on its campus, Dominion Power issued cease and desist letters to the university and its Staunton-based solar provider, Secure Futures LLC. Dominion claimed the arrangement violated its monopoly on power sales within its territory, notwithstanding what appeared to be an exception in §56-577(A)(5)(a) of the Virginia code authorizing third party sales of renewable energy.

The threat of prolonged litigation scuttled the PPA contract, although the solar installation was able to proceed using a different financial arrangement.

After a long and very public fight in the legislature and the press, Dominion and the solar industry negotiated a compromise that specifically allows customers in Dominion territory to use third-party PPAs to install solar or wind projects over the next two years under a pilot program capped at 50 MW. Projects must have a minimum size of 50 kW, unless the customer is a tax-exempt entity, in which case there is no minimum. Net-metered projects are subject to the net metering limit of 500 kW. Projects that are not net metered can be as large as 1 MW.

Appalachian Power and the electric cooperatives declined to participate in the PPA dealmaking, so the legal uncertainty about PPAs continues in their territories. Meanwhile, however, Secure Futures has developed a third-party-ownership business model that it says works like a PPA for tax purposes but does not include the sale of electricity, and therefore should not trigger a challenge from Appalachian Power or other utilities. Currently Secure Futures is the only solar provider offering this option, which it calls Customer Self-Generation.

Dominion “Community Solar” Initiative

In 2011, the General Assembly passed a law introduced by Delegate David Toscano (D-Charlottesville) allowing Dominion to build 30 MW of solar energy on leased property, such as roof space on a college or commercial establishment. Dominion confusingly dubbed this pilot program “community solar,” but it has nothing to do with community net metering, discussed below.

In theory, the point is to study the effect on the grid of integrating solar energy. This strikes many people as ludicrous, given that New Jersey now has well over 1000 MW of solar and could probably tell us how it’s going. Still, it was 30 MW more than the utility had planned to build previously.

The SCC wasn’t as thrilled as solar advocates were, so one of the conditions of its approval was that the RECs that are generated must be sold to help reduce the cost. Thus the power will not be used to meet RPS goals.

As of May 2014, Dominion has completed only two small projects, one on a university and the other on a commercial building, for a grand total of 632 kW. The company has hired only out-of-state installers, disappointing Virginia industry members who hoped it would lead to work for local companies.

Dominion Solar Purchase Program

The same legislation that enabled the Community Solar initiative also allowed Dominion to establish “an alternative to net metering” as part of the demonstration program. As developed by the utility, the program turned out to be a sort of feed-in tariff for 3 MW of customer-owned solar. As approved by the SCC this year, the program allows owners of small solar systems on homes and businesses to sell the power and the associated RECs to Dominion at 15 cents/kWh, while buying regular grid power at retail for their own use. Dominion then sells the power to the Green Power Program at an enormous markup, a blatant rip-off that, shockingly, received the SCC’s stamp of approval.

I’ve ripped this program so often and so thoroughly from the perspective of the Green Power Program that I won’t bother to repeat my criticisms here. From the point of view of potential sellers, however, the program isn’t so hot either. Some installers who have looked at it say it’s not worth the hassle given the costs involved and the likelihood that the payments represent taxable income to the homeowner. There is also be a possibility that selling the electricity may make homeowners ineligible for the 30% federal tax credit on the purchase of their system. Sellers beware.

And then there’s the problem that selling the solar power means you aren’t powering your home or business with solar—which for most people is the whole point of installing it.

Nevertheless, the program has generated interest. Unscrupulous installers sometimes use it in advertising to suggest that the program will make money for homeowners, without explaining the details.

A Renewable Generation tariff for large users of energy

Currently renewable energy projects are subject to a size limit of 500 kW for net-metered projects, or 1 MW for PPA projects that are not net-metered. These limitations constrain universities, corporations, data centers, and other large users of energy that might want to run on wind or solar. And of course, the utilities’ interpretation of Virginia law would prohibit a developer from building a wind farm or a solar array and selling the power directly to users under a power purchase agreement.

In response, Dominion Power created a so-called Renewable Generation Tariff (PUE-2012-00142) to allow customers to buy larger amounts of renewable power from providers, with the utility acting as a go-between and collecting a monthly administrative fee.

Putting the utility in the middle of the sale seems cumbersome and bureaucratic, but in a regulated market is probably to be expected. If customers insist on actual power (bundled with RECs) and specify wind and/or solar, this may be useful to the Virginia market. We have not heard whether any customers have stepped forward to use the tariff. Wind developers tell us it is not an inducement for them to build in Virginia.

What happened to utility-scale wind and solar?

A few years ago, Dominion Power had plans to build a 4 MW solar facility in Halifax. The project was dropped when problems plagued the battery storage system that was integral to the project.

Utility-scale wind almost had its moment, too. A few wind farm proposals made it to the permitting stage, including ones in Highland County and on Poor Mountain in Roanoke. For the past few years, Dominion Power’s website has listed 248 MW of land-based wind in Virginia as under development, without any noticeable progress. “Under development” turns out to mean “maybe someday.”

Plummeting prices for shale gas seem to have been the primary culprit for the demise of these proposals. Wind in the Midwest and Great Plains can outcompete any other fuel source, but it’s more expensive in the East. The SCC has also proved unfriendly to renewable energy, dismissing suggestions that it should take into account price stability, environmental benefits and other external costs when evaluating generating sources. If natural gas prices recover, if our RPS gets a serious overhaul, or private buyers step in, Virginia wind projects might move forward. Right now, it looks grim.

As for Virginia’s great offshore wind resource, the perception that offshore wind energy will be costly is also making that a hard sell. Dominion won the federal auction for the right to develop about 2000 MW of offshore wind power, and the lease terms call for the company to file construction plans within five years. The federal government’s timeline leads to wind turbines being built off Virginia Beach around 2020. As I’ve discussed elsewhere, Dominion is something less than committed to seeing the process through. This puts advocates in the legislature and the business and environmental communities in the odd position of being keener on a development than the developer is.

Meanwhile, however, Dominion is part of a Department of Energy-funded team proceeding with two 6-MW offshore wind test turbines scheduled to be installed in 2017.

Once (and future?) legislative options

In past years several bills have sought to address the fundamental misalignment of Virginia’s energy priorities that supports fossil fuels over renewable energy and energy efficiency. Virginia taxpayers currently subsidize fossil fuel use, including through tens of millions of dollars annually in direct payments to coal mining companies, as well as indirectly, such as by imposing on the public the added costs of health care for treating asthma caused by air pollution.

Bills requiring the SCC and utilities to consider factors such as climate change and the environment (Delegate Kaye Kory, D-Falls Church), health care externalities (Senator Don McEachin, D-Richmond) and price stability (Delegate Alfonso Lopez, D-Arlington), unfortunately, never made it out of committee.

About the Author

Corrina Beall is the Legislative Coordinator for the Virginia Chapter of the Sierra Club.