A bevy of state policy and regulatory battles continue to shape the trajectory of distributed generation. Key states are currently debating changes that could threaten deployments, particularly for rooftop residential and commercial installations. Other states are moving ahead with legislation to open up markets. Our friend Robert Rains, an Energy Analyst at Washington Analysis LLC, contributed to the following report: On April 11, Governor Baker signed a new comprehensive solar bill which represented five months of compromise between the House and Senate. The new law lifts the net metering cap for public and private projects by 3 percent. Observers have noted that the raise should help reduce the existing logjam in the market. However, it is believed that this solve will only remain effective until 2017, when the cap is expected to be hit again. While the cap has been increased, the new law also lowers the reimbursement rate by 40 percent from the retail rate for most new projects. This measure was introduced to address utility concerns regarding cost sharing in the rate base. The legislation also directs the Department of Energy Resources to develop the long-anticipated SREC III program. While solar advocates have long expressed concerns over the project congestion which has built up in the absence of clarity on post-SREC II and net metering plans in the state, many are nonetheless dissatisfied with the deal. In particular, many concerns have arisen over the reduction in the value of net metering credits for new projects. In addition, proponents have voiced concerns over the concept of a minimum charge which would imposed by utilities on net metering customers, a concept that has been seen in other states recently. Most concede that the bill is more likely to be a stop-gap than a final solution. The Granite State’s cap on net metering is likely to increase from 50 MW to 75 MW as the Senate approved an increase earlier this year and the House recently passed HB 1116 on a voice vote. The bill is ultimately expected to pass with amendment, though it is possible that some reduction in incentives could ultimately be paired with the rising cap. Northeast Massachusetts New Hampshire December’s multi-year extension of the 30% Investment Tax Credit (ITC) removed a key uncertainty for the entire U.S. solar sector; however various state level battles will ensure that growth prospects more locally could be mixed throughout this year and 2017. While certain states will retain generous incentive regimes, including California, others like Nevada are likely headed in the opposite direction, with negative implications for rooftop installers and inverter providers. Numerous proceedings over net metering are ongoing, and could limit the growth of rooftop firms seeking to establish themselves in new state markets. Despite the ongoing risks to net metering, we expect more states to join California, New York, and Hawaii and raise their renewable generation mandates, serving as the tide that lifts all utility and commercial scale solar boats. Furthermore, we expect 2016 will show greater deployments of solar in previously lackluster state markets like Georgia, Mississippi, South Carolina, Texas and Virginia, due to favorable policy changes and the continuing decline in costs that should make this technology attractive to regulated utility firms like Dominion, Duke, and Southern Company. Conversely, markets which were strong in 2015 such as Nevada and North Carolina could see fortunes change due to negative policy changes. 38 EDGE Finance Advisory / May 2016 Southeast Florida Solar policy in New York will be dominated over the next year by the ongoing Reforming the Energy Vision proceeding. A Public Service Commission comment period on the state’s net metering policy closed last December. It is likely that changes will be coming to net metering policy in the Empire State over the next two years as the state seeks to replace net metering with an increased ability to sell to the broader grid at set values. These changes are intended to facilitate greater opportunities for interaction with the grid. Solar advocates see these changes as potentially difficult to implement but nonetheless preferable to initiatives in other states to roll back net metering policies without replacement plans. In recent months, Vermont has implemented several policies to help stimulate solar growth, including broadening the types of systems eligible for sales tax exemptions and an expedited permitting process for small systems. These changes follow the implementation last year of the state’s renewable portfolio standard which requires utilities to procure 55% of their electricity from renewables by 2017 and 75% by 2032 and continues Vermont’s positive stance toward solar energy. A measure to support a right to solar, but not to expressly allow third-party ownership in the state was argued before the Florida Supreme Court on March 7, with our base case that this provision will be permitted to be on the ballot for voters November 8. Solar advocates argue that the measure, which is generally supported by utility companies, does nothing more than what is already allowed under Florida law and is intended to both confuse voters and deter change. If they lose before the state courts, supporters of third-party models will likely try again in 2017 to get a competing measure, dubbed “shady solar” by Florida Power & Light, onto the ballot. Despite seemingly favorable conditions for solar deployment, the “Sunshine State” nonetheless remains one of the most difficult for rooftop solar. A 35% state solar tax credit expired for most projects at the end of 2015, and revival remains unlikely. State law forbids third-party ownership, which has largely kept rooftop firms out of the state, even as solar deployment linked to utility-signed power purchase agreements grew significantly. While a Greensboro church is currently seeking a reinterpretation of state law to allow third party arrangements from the North Carolina Utility Commission, Duke Energy has strenuously objected to the church’s “test case” – going so far as to suggest fines against the non-profit group selling panels to the church. New York North Carolina Vermont 39 The state legislature is likely to pass a bill to raise the state renewable electricity mandate to 25% by 2020 before adjourning in April. Democrats have a vetoproof majority and can move legislation even without support of Republican Governor Larry Hogan. The bill includes other provisions favorable to solar, including the creation of a renewable energy workforce development fund and increasing the solar carve-out requirement. The Mississippi Public Utilities Commission finalized its latest extensive rulemaking process last December and declined to implement a traditional net metering policy in the state. It did establish a method to compensate and incentivize behind the meter electricity generation, but the program only allows the netting of electricity use to occur on an instantaneous basis. Any electricity exported to the grid will not be used to ‘net’ the customer’s monthly electricity use. Instead it will be credited at the utility’s wholesale avoided cost rate plus an additional premium, which combined is still substantially lower than the full retail rate. While Virginia has not historically offered robust clean energy incentives and programs, and while many hurdles to residential and commercial and industrial development remain, Governor Terry McAuliffe has been more receptive to solar in recent months. In addition to the recent release of an RFI on potential publicprivate partnerships, the Governor has mandated the use of solar energy at state office buildings. He has also stated a goal to entice solar manufacturers to the state. However, solar developers have yet to gain traction in the state given the lack of availability of third-party ownership models, which likely means that solar ownership will continue to be dominated by Dominion Power in the years to come. Iowa’s Wind Energy Coalition, chaired by Governor Terry Branstad, announced in January that it was adding solar energy issues to the Coalition’s portfolio, following a unanimous vote from member governors. The Coalition also announced its new name: Governors’ Wind and Solar Energy Coalition. “We are proud of Iowa’s leadership in wind energy and we are also encouraged by the recent growth in solar energy. The addition of solar to the Coalition’s portfolio represents a commitment to future economic and renewable energy growth, and further diversification of our nation’s energy portfolio,” said Branstad. Maryland Mississippi Virginia Midwest Iowa 40 EDGE Finance Advisory / May 2016 In 2015, the Illinois legislature introduced H.B. 2607 and companion bill S.B. 1485, which would strengthen the state’s current renewable portfolio standard and remove caps on energy efficiency investments. The bills would increase energy efficiency standards from 13% to 20% by 2025 and renewable energy standards from 25% to 35% by 2030. The bills also authorize the Illinois Environmental Protection Agency to establish a program where the agency could sell carbon allowances at an auction and invest the proceeds, primarily in energy efficiency and renewables. Despite a number of legislators signing up as co-sponsors in both chambers, this measure has yet to gain traction and no votes are currently scheduled. Efforts to pare back net metering benefits, contained in S.B. 438, will likely be watered down by House lawmakers in compromise energy legislation that is increasingly unlikely to pass this session as ongoing controversy over Flint’s water consumes oxygen in the legislature. Net metering modifications by the Public Utilities Commission (PUC) remain a possibility following an ongoing lawsuit over recognition of these systems by American Electric Power and FirstEnergy. Governor John Kasich (R) has publicly indicated his support for the state’s renewable electricity standards, which go back into effect in 2017 unless further modified by the GOP-led legislature, something that looks increasingly likely this year. Still, as part of a recent settlement in exchange for an eight-year power purchasing agreement, AEP is poised to quadruple solar deployments in the Buckeye state by 2021 to 400 MW. Commission approval is favored for AEP this spring. In early 2015, the Public Utilities Commission approved new charges imposed by utilities on customers who installed solar. The fee was meant to ensure an allocation of grid maintenance costs was attributed to solar owners, according to utility representatives. Litigation, which was resolved in November, led to the removal of the fee, though proponents were unable to get lower net-metering rates and certain other fees removed. The effort by the utilities in Wisconsin to allocate grid maintenance costs to solar owners is representative of other similar approaches being deployed by utilities across the country. Illinois Michigan Ohio Wisconsin 41 The sudden departure of former Arizona Corporation Commission Chairman Susan Bitter Smith complicates Arizona Public Service’s efforts to raise monthly fixed fees as part of its next rate case, which we expect to be filed June 1. Last August, the Commission approved on a 3-2 vote the preparation of a cost-benefit study of rooftop solar that was likely to lead to an approval for higher monthly fixed fees. Newly appointed Commissioner Andy Tobin has indicated he will not vote in cases pertaining to SolarCity due to a relative’s employment with the firm. His recusal means that the Commission could deadlock at 2-2, denying Arizona Public Service higher fixed fees as part of its rate case. To this point, a $21/mo. fee for new solar ratepayers is likely to be on the table, but the vote may not occur until June 2017. The state utility commission’s decision to largely preserve its current net metering tariff, but add interconnection fees to new solar ratepayers represents a clear positive for the industry with limited implications for other states that are currently reviewing net metering policies. California will likely shift towards default time-of-use retail rates in 2018 and a forthcoming general rate case for Pacific Gas and Electric will dive deeper into demand charges, which may not be adopted by California’s utilities until 2019. The Public Utilities Commission recently rejected an agreement reached between Xcel Energy and several solar developers under which Xcel would have obtained energy from solar garden projects owned by the developers to help it meet its obligations under Colorado’s renewable portfolio standard. The Commission focused on Xcel’s failure to utilize a Commission-approved competitive process when determining the value of renewable energy credits which would have been paid to the developers. This was particularly sensitive given the fact that renewable energy credit values had turned negative last year, leading some to argue that the deal struck by Xcel was not in the interest of ratepayers. Earlier this year, Hawaiian courts upheld the state utility commission’s decision to end its current net metering structure in an October order. Hawaii Electric was authorized to slash net metering incentives from $0.34 per kilowatt-hour to about $0.15. While the state now has a 100% renewable electricity standard by 2045, we expect Hawaii Electric, assuming it is successfully acquired by NextEra by mid-2016 or later, to be able to rate base significant amounts of renewables. West Arizona California Colorado Hawaii 42 EDGE Finance Advisory / May 2016 On December 22, the Nevada Public Utilities Commission approved a series of devastating changes for existing and new net metering customers that were recently reopened to be phased in over 12 years. In addition to roughly tripling Basic Service Charges for solar customers, rooftop generated solar would be purchased by NV Energy at a significant discount. Efforts to roll back the Commission’s decision via referendum appear to be gathering momentum and likely to be on the ballot this fall, potentially providing an opportunity for scorned solar firms to return to the state in 2017. Oregon is likely to raise its renewable portfolio standard to 50% by 2040, joining California, Hawaii and New York in having one of the most aggressive renewable mandates in the country. The increase has been publicly supported by two of the major investor-owned utilities in the state (a third utility and consumerowned power companies will not be impacted by the change) after long-term negotiations. Observers believe that the rate case Rocky Mountain Power is likely to file this year will again seek a facilities charge for net metering customers and a reduction in benefits. A cost-benefit study of the net metering program was completed late last year that likely sets the stage for negative changes to the tariff, despite public outrage over the issue.