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The elephant on the roof: Arizona’s biggest utility shakes up solar energy

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There is a new kid on the rooftop solar block, and it’s a century-old company called Arizona Public Service.

The state’s largest utility company is turning an old adage on its head: Join them, and then beat them.

Or at least that’s how foes of APS are viewing its proposal to the Arizona Corporation Commission to let it install solar rooftops on 3,000 homes and produce 20 megawatts of energy.

If approved, the proposition would put APS in a position to compete forcefully with rooftop solar firms and potentially eat into their market share. Roughly 30,000 homes within APS territory have solar panels on their roofs.

APS said the program will be available to its customers at no cost. More significantly, it comes with a guaranteed $30 per month credit on participants’ electric bills — an enticing offer for a ratepayer who can’t afford to purchase a solar system or doesn’t qualify for a lease.

For a participating home, that comes out to $360 a year in savings — or $7,200 over the 20-year course of the program. That’s bigger than the monthly electric bill savings of $5 to $10 per month for a typical solarized home under a leasing arrangement.

The program will cost APS between $57 million and $70 million, a sizable investment at a time when solar installations are declining.

APS is proposing the shift in its renewable energy strategy barely eight months after persuading the commission to levy a surcharge on residential solar, a move that also came as cash incentives for solar installations were all but disappearing.

The trade association representing rooftop solar firms immediately accused APS of trying to establish a lopsided competitive advantage to expand its monopoly. The Arizona Solar Energy Industries Association said the utility’s plan necessitates a spending spree to be financed by ratepayers at a guaranteed profit for the utility — while solar firms operate in a competitive environment where success is never guaranteed.

Opportunity for everyone

APS executives, however, insisted the company is not competing with rooftop solar firms. A spokesman said he is baffled by the charge that the utility is throwing its monopolistic weight around to put solar firms at a disadvantage.

“Apparently, we are now more bullish on solar than AriSEIA, because we believe there is plenty of opportunity for everyone,” said APS spokesman Alan Bunnell, who said his company envisions rooftop solar to triple in size during the next 15 years.

He added that an attorney representing AriSEIA, along with a pro-rooftop solar advocacy group called TUSK, “spent virtually all of last year attacking us for being a dinosaur seeking protection from the ACC because we couldn’t possibly compete with his California clients.”

“Now, when we propose an innovative partnership with Arizona solar installers to bring more rooftop solar to more homes, he attacks us for being too competitive and demands that the ACC protect his clients from any competition. It would be helpful if he could keep his story straight about why he’s attacking us. It’s getting confusing.”

But AriSEIA insisted that what APS proposes is a “frightening” scenario.

“How would you like it if the government just stepped in and started competing with your business?” Corey Garrison, CEO of Southface Solar and treasurer of AriSEIA, said in a news release.

Garrison noted that expenses by APS are eventually recouped, and its profits are guaranteed. He also envisions APS using its size and reach to market its rooftop solar program — “all with employees paid for by ratepayers.”

He said APS is effectively asking the commission to approve a system under which a fraction of its customers will enjoy rooftop solar that’s paid for by all of its ratepayers. This is similar to the APS argument against net metering — that solarized homes were enjoying the benefits of a reliable electric grid that other ratepayers have to pay for.

“APS has proposed subsidizing certain customers that allow it to put solar on their rooftops while the free market gets no more utility subsidy and actually gets charged for going solar,” Garrison lamented. He was referring to the net metering fight, where APS successfully persuaded a divided Corporation Commission to levy a surcharge of 70 cents per kilowatt on residential solar.

Net metering is a system in which solar panels or other renewable energy generators are connected to a public-utility power grid and surplus power is transferred onto the grid, allowing customers to offset the cost of power drawn from the utility.

“The (rooftop solar) industry would be happy to compete with another market player that is playing by the same rules, but asking participants in a free market to slug it out against a government-regulated behemoth with guaranteed profits is not only unfair, its un-American,” Garrison said.

Creating a conversation
APS executives unveiled the plan on July 28 and maintained that the strategy is a way to make solar accessible to consumers who may not have the ability to buy or lease a solar system.

“It opens the opportunity for solar to everybody… in the community,” said Daniel Froetscher, APS’ senior vice president for transmission, distribution and customers.

Marc Romito, manager for APS’ Renewable Energy Program, said it’s not a “competitive scenario.”

“(Consumers) will be able to participate in rooftop solar when they never had access before,” he said.

Under the utility’s proposal, participating homeowners do not have to pay a cent for the installation. APS will even pay for roof inspection, maintenance of the system, and even removal if a customer changes his mind.

APS said it will partner with installers, preferably those based in Arizona.

Sean Seitz, president of the Arizona Solar Deployment Alliance, said the APS proposal will not take away people’s options to enter into a lease or to purchase solar rooftop equipment.

“It’s 3,000 (rooftops). APS already has 30,000 (consumers who either own or lease solar panels),” he said. “It’s a piece of the market.”

What it does, however, is create a conversation about solar energy, he said.

“The reality is customers that purchase (a solar rooftop system) can save significantly more than $30 a month,” he said. The typical solar rooftop system costs about $18,000.

Renting rooftops

Essentially, APS is asking the commission, which regulates utilities and set their profits, to allow it to produce 20 megawatts of solar energy by renting the rooftops of single-family homes.

Under the AZ Sun Program, which the commission approved in 2010, APS is permitted to build up to 200 megawatts of solar plants across Arizona — a program the utility is employing to meet its renewable energy requirements for 2015.

APS said nine plants are either online or under development and are expected to produce a total of 170 megawatts.

The 20 megawatts that APS is proposing to generate through residential solar is an alternative to its earlier plan to build a community-scale solar facility at its Redhawk Power Station about 40 miles west of Phoenix.

APS told the commission it has two options to bring more solar energy online — build a community-scale solar plant or install solar panels on rooftops.

The company expects the commission to hold a hearing on its proposal this fall.

Big vs. small
APS’ plan raises a question: Is the utility company implicitly admitting its business model — under which mega structures, such as its nuclear plant and coal-fired stations, reliably produce energy for millions of customers — will become obsolete as the competing strategy of small-scale, home-based distributed generation prevails?

APS executives said that’s not the case. Instead, the company recognizes that Arizona’s energy mix is diversifying, and the company is responding by taking advantage of what’s feasible.

Froetscher said APS is innovative, entrepreneurial and forward-looking.

What the company has seen is the viability of residential solar, he said.

“You can look back over the last five, six (or) seven years, rooftop solar has proliferated. It’s clearly a viable part of the energy business today,” he said. “There’s a clear recognition that there’s an absolute place for clean, renewable energy in any utility’s portfolio.”

But does that mean the days of central stations delivering electricity to homes in a one-way power flow are over?

“No, it means in all likelihood that we are anticipating a future within which the underlying infrastructure, the wire side of the business, is much more dynamic, much more bi-directional, and there is a great deal more distributed generation, whether it’s 6 KW on a rooftop or 20 MW utility-scale in a portion of the community somewhere — or some combination of both,” Froetscher said.

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