You recite a popular -- but I think short-sighted -- retort to how rooftop solar users should be treated. Having performed a LOT of research for this column, hang with me here as I walk you and our readers through what I think is the best path forward. I'm drawing from a relatively new commentary by Karl Rabago, formerly of Austin Energy, who wrote this piece in December 2013 for the International Conferderation of Energy Regulators and who's given a lot of thought to this.
First, to be fair to the utility and non-solar customers, a tariff should ensure that the utility has the opportunity to collect its cost of service to the solar customer, including a reasonable opportunity to earn a rate of return. And other customers should not be unfairly required to pay costs created by the solar customer, nor be unfairly subsidized by solar customers.
Second, the ideal solar tariff should fairly compensate the solar customer, through a credit, for the value that their solar generation brings to the utility system. Value-based analysis should be used to reveal the benefits that distributed solar systems bring to the utility system.
Third, the tariff should recover costs and give compensation credit for value independently from an incentive designed to overcome market failures. Incentives are a legitimate public policy tool, widely used in the electricity and other industries, to encourage certain kinds of market behavior.
One justification for solar incentives is that they help overcome certain market failures such as lack of information and practical experience with the relatively new technology among homeowners, lenders, and others. Another justification for solar incentives is that existing tariffs under-compensate for the value of distributed solar. So adequate compensation for distributed solar energy should relieve pressure on incentive systems. And these incentives will be less necessary as the distributed solar market matures. For efficiency of administration and to communicate clear signals to the market, incentive levels and compensation levels should not be conflated.
Fourth, an ideal distributed solar tariff would operate as a complement to other electricity policy goals, including, especially, a goal of more efficient use of energy. Other goals that a solar tariff should complement include payment or credit for performance, rather than just investment; encouragement of long-term performance of solar systems; reduction of long-term risks or generational cost shifting; and strong alignment with market signals.
Finally, an ideal distributed solar tariff should be intuitively sound and administratively simple to implement and manage. Analytical inputs should be rationally related to the character of solar systems and the quantity and character of energy output associated with the technology. Inputs should also be simply calculated from information the utility already routinely produces.