Discover our upstream and downstream technical journals

Value of solar tariffs (VOST) of the type recently adopted in the US state of Minnesota create “serious instability for the solar industry”, according to US advocacy group The Alliance for Solar Choice (TASC).

The group has spoken out on the VOST, which could replace net metering. The policy is designed to account for the value of energy and its delivery, the available generation capacity, transmission capacity, losses on transmission and distribution lines and environmental value. At present it is up to the discretion of Minnesota utilities to decide whether or not to apply the VOST.

PV Tech spoke to Susan Glick and Kim Sanders of TASC about the issue. According to Glick, TASC has three major criticisms of VOSTs. Firstly, TASC believes that, as highlighted in a note by law firm Skadden, Arps, Slate, Meagher and Florm, customers could be taxed for income generated from solar systems. Wise said this could also remove customers’ eligibility for investment tax credits (ITCs).

Secondly, according to TASC, the ‘buy-all, sell-all’ approach of the VOST removes customers’ ability to consume the energy that their systems produce.

Finally, the fact that it has been left to utilities to decide whether to adopt the VOST leaves utilities effectively in control of the rooftop solar market, TASC argues.

Earlier this month PV Tech received a report from John Farrell, senior researcher at the Institute for Local Self-Reliance (ILSR). Farrell said that while the fact that environmental impacts were factored into the VOST was positive and that the debate might further discussions between solar companies and utilities, thus opening the way for dialogue, he shared concerns that it was left to utilities to decide on adoption.

Kim Sanders told PV Tech that factoring in the environmental benefits of solar is critical. That said, the VOST is calculated using utility inputs, which is inherently favourable to the utility.

Susan Glick said: "A lot of the focus on the impact of distributed generation (DG) solar comes from utilities. So when you go and you recalculate that tariff, the utilities are providing data for the valuation process that may seek to find a lower value of solar.”

Glick argued that net metering was “not broken” and therefore did not need replacing.

“Current net metering policies work. Utilities don’t like them, but that’s because they see them as feeding off their profits and their monopolies and the VOST, for specific reasons like the buy-all sell-all element, is to give control back to the utilities. They take that freedom away from the consumer.”

PV Tech asked if it was at least positive that the topic of correctly evaluating the cost of solar was being debated, to which Sanders replied that TASC welcomed a transparent conversation about the benefits and costs of solar, “that doesn’t necessarily translate to changing from the net metering policy”. According to TASC, the policy adds an unnecessary layer of complication to the debate between utilities and solar companies.

"I would also add to that that the VOST didn’t begin in these discussions [over the cost and benefit evaluation of solar]," added Sanders. "The discussions began when utilities recognised a 13 January report from Edison Electric Institute (EEI) that distributed generation in all forms was going to reduce sales for them and that would cause long-term implications for their business model."

PV Tech asked John Farrell for comment on the TASC criticisms of the policy. Farrell said that he broadly agreed with several of the points raised. He reiterated concerns that the utilities “get to choose” between VOST and net metering, pointing out that the “original legislation in Minnesota (not what was adopted) gave customers the choice.”

He did, however say that it was still “not a done deal that using VOST will make issues for individuals with taxable income and tax credits” and did point out that as far as tax credits were concerned, “even if VOST makes a person ineligible for the personal ITC, they become eligible for the business ITC and depreciation,” which stands at between 15% and 20%.

Despite sharing the main concern of TASC, that power to adopt VOST remained in the hands of utilities, Farrell said that he didn’t think VOST was necessarily a worse deal than net metering, even if it added tax liability for customers.

“In Minnesota, for example, the value of solar may be higher than the net metering rate, even with potential tax liability. Or, as implemented in Minnesota, the long-term, fixed-price contract might mean lower financing costs (interest rates) that offset a price difference. In other words, it's just one part of the total picture of solar producer compensation,” Farrell said.

Finally, in defence of the new policy – at least in theory – Farrell said that while TASC may be right about some of the implications of VOST, in some regions, it could be easier for VOST to enjoy greater popular support than net metering.

“TASC may be right about the relative merits of net metering versus value of solar now, but in the near future sticking with net metering may threaten popular support for solar power because it will offer excessive profits for solar producers relative to its grid value,” said Farrell.