As Electricity Prices Increase in Ohio, Solar Energy is a Solution, Not a Problem
Electricity prices are going to rise, but not just due to inflation or to fossil fuel price increases. Prices are going to rise because the nature of the electrical grid is changing. More coal-fired power plants are being decommissioned and natural gas fired plants are coming online. These plants cost $1 Billion to construct and connect, costing Ohio consumers upwards of $6 Billion in additional fees. So why do utility companies insist on blaming the rate increases on solar?
Fundamental to their argument against solar are three main points the utilities and solar critics argue that is causing the increase in electricity prices. Let's examine them to see if they hold water.
Subsidies for the solar industry: Do they cost taxpayers money?
The government just extended the 30% Federal ITC credit to stimulate the solar industry. What has been the effect of the ITC up to now? Well, the cost of solar has dropped 70% over the last six years while 85% of all installed solar, over 20 MW, has occurred in the last five years. The country just passed the million installation mark and is now the 4th largest country in the world by cumulative solar capacity with over 25.6 MW. This year's growth rate is expected to be at 119%. The 30% Federal ITC credit? So far it's working.
The question is, should it have been instituted in the first place? Governments have always subsidized industries they wanted to succeed while the industry was in its infancy. To name just one, the Internet was largely created in Boston at MIT in the 1960s and subsidized by the United States government department of defense. The Internet was initially federally subsidized and later became privatized, helping to usher in a period of economic expansion never before seen in human civilization. Want to name a few more? How about: Aerospace, telecommunications, and medical technology. You name the technological industry and chances are it was federally subsidized from the start.
Why would electric utilities be worried about solar subsidies? They really have no reason to complain since they are the second most subsidized industry in America, receiving billions of dollars in tax breaks per year, mainly due to paying a miniscule 3.7% effective tax rate. The US electric utility industry is estimated to be worth $370 billion. The US solar industry is estimated to be around $10 Billion. Why is Goliath worried about David?
For over 100 years there have been economic incentives earmarked for utilities including construction, maintenance, and guaranteed profit. In fact, to put it best, "Since the 1970s, energy tax policy in the United States has attempted to achieve two broad objectives...policymakers have sought to reduce oil import dependence and enhance national security through a variety of domestic energy investment and production tax subsidies." In short, fossil fuel energy producers have enjoyed a long history of tax breaks and subsidies.
So it's not an uncommon practice for the government to subsidize an industry for a period of time until that industry gets its sea legs. Solar receives government support because it has the potential to add value to society. Eventually solar will stand on its own merits once the industry matures. It's happening sooner than you think. Solar installation has already achieved cost parity with carbon fuels. Solar has proven environmental benefits, i.e., there are no emissions, nothing is burned, nothing is dug out of the ground. The sun is the single greatest natural energy source known to exist in the galaxy. So yes, the ITC was extended for five years, but the 4th and 5th years see the tax credit decrease from 30% to 26%, and 22%, respectively, before settling back in at a rate of 10% for 2022 and beyond.
Net metering is unfair to electric utilities
The next question to ask is whether net metering is fair for the utilities. Solar energy systems produce more power than they normally need during the day when most people are not at home and push that electricity out onto the grid. The home owner effectively gets to use this mid-day electricity they generate as a credit for their future use. Some utilities charge a tiered structure where power is more expensive during the peak hours of the early evening and less expensive during "off hours."
The problem with thinking this is somehow unfair to utilities is that people have the right to decide to produce their own power. Technologically, utilities can respond almost instantaneously to generate more power to meet customer demand. They can turn the knob to burn more coal or throttle back on the natural gas in order to meet energy needs at a moment's notice. Burning less coal or natural gas during the middle of the day is hardly a problem for a utility except for the fact they are making less money. And that is what this is all about.
The broader question about net-metering is the cost of grid connection. How much should it cost for a normal customer's solar panels to be connected to the grid? This question is not asked as frequently. The fees to maintain the nation's electrical grid are already built-in to the price per kWh of electricity so consumers are mostly unaware what they are being charged for. Few would argue it should be nothing. Nearly 99% of all solar energy systems are grid-tied.
What types of grid-fees are there? Mostly we are talking about transmission systems, distribution services, and generation capacity charges. By some measures, these services could be as high as 55% of the average electricity bill. There has never been a determination what constitutes a fair amount to pay for grid connection.
Does solar make the grid more expensive for everyone else?
Some consumers with solar power systems are opening their monthly statements and seeing a zero balance and utility companies are up in arms over it. Who is responsible for maintaining the grid? Before we can answer that, it should be stated here: the problem is with the grid itself and the lack of maintenance to it, not that solar customers are getting zero balance statements on solar panels for their homes.
What do we know about the state of the current grid? To explain what's going on, you have to understand the electricity grid in the most basic terms. There are thousands of power generating plants spread across the country transferring power across nearly 6.2 million miles of electric transmission lines. As the country continues to expand with new building construction, there is a greater need to add even more transmission lines. The United States electricity grid was recently given a D+ rating by the American Society of Civil Engineers. The existing grid equipment is aging and subject to an increasing number of power outages, although to be fair, weather-related events have caused the greatest disruption in recent years. The grid is not nearly as reliable as it should be and needs a massive overhaul. Who's responsible for that? The solar industry? The solar panel costs? No. The solar industry has only been around for about ten years. If utility companies have received over 100 years' worth of tax breaks, incentives, and massive subsidies and all they have to show for it is a poorly maintained, crumbling product, they have no right to blame a new technology. They haven't done their jobs. Who's going to wind up paying for grid upgrades? The consumer.
There is a massive infrastructure upgrade coming which means higher prices here in Ohio. The nature of the electrical grid is also changing. In the future, the Department of Energy predicts we are looking at:
- A significant scale up of clean energy with renewables being the major focus.
- Universal access to consumer participation and choice (who you want to buy your energy from will entail a lot more choices which means more competition and lower prices).
- Microgrids, energy storage, and decentralized control.
- Two-way flows of energy (consumers will produce their own energy through solar and sell it back to the grid at the optimum time).
- Technological communication (think of a Google-based electricity grid where your washing machine, electric vehicle, even your microwave will all be in communication with one another and the grid to perform your daily chores at optimal time electricity is least expensive).
- And finally, it will mean a massive tech overhaul in terms of cyber security and reliability.
The electrical grid will be more expensive but it won't be because more people are going solar. If anything, residential and commercial solar energy systems lessen the strain on grid transmission lines while making future energy demand easier to predict and plan for. Utilities make a net profit margin between 8-10% per year. Instead of upgrading their grids, they are too busy looking into building solar installations themselves to diversify their holdings. They know where the future is headed.
So what does the future of the grid look like? The future of the electrical grid, thirty years in the future is not in burning fossil fuels. The utilities will be responsible for maintaining the grid and burning natural gas to supplement a wide array of renewable energy. Consumers will generate their own electricity through solar and have a smart grid that will operate via telecommunications and Internet connectivity for power and price exchange with each other.
What does it mean for solar in Ohio? We already know a price hike is looming. Our electricity bills are only going to increase. Installing solar panels Ohio is the best way to lock in a long-term low rate and guaranteed payback period on your investment. Buying the best solar panels gets you out in front of the coming electricity rate hikes and better positions you for the future when we transition to a new electricity grid structure. At some point in the future you will not only be the power producer from your residential solar panels, you may also be the power supplier to your neighbor.