Solar Today — May June 2015
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A Net Metered Solar Project Benefits ALL Ratepayers
Anthony E. Smith

A solar photovoltaic installation at a Christian university benefits the local utility as well as the larger community.

This case study offers one example of a commercial scale photovoltaic installation that benefits a municipal electric company and its customers.

Eastern Mennonite University (EMU) in Harrisonburg, Virginia, hosts one of Virginia’s largest solar photovoltaic (PV) arrays. Although the electric utility industry in a number of regions has attempted to eliminate net metering on the grounds that solar PV projects hurt non-solar customers through stranded costs, a detailed case study of the EMU installation finds the opposite.

Drawing on three years of hourly output and cost data from a 104-kilowatt (kW) rooftop solar array installed in 2010, we found that commercial scale solar actually provides a net benefit to the host electric utility and, indirectly, to all citizens of (in this case) the city of Harrisonburg, Virginia. Secure Futures, the Staunton, Virginia, solar developer and owner of the 104-kW solar array, developed the research methodology in consultation with the senior management of the Harrisonburg Electric Commission (HEC), a Virginia municipal utility, to focus on energy (kilowatt-hour [kWh]) and power (kW) costs and benefits. This project gained significance as the first solar power purchase agreement (PPA) in Virginia in 2010, and—at the time—the largest solar installation in the state.

Context
The commercial scale EMU PV installation demonstrates that—in this case—a net metered distributed solar generation system does not create stranded costs for non-solar electric utility customers. Stranded costs are infrastructure investments that may become obsolete or “stranded” as new, less expensive distributed energy resource (DER) strategies enter the market.

The electric utility industry is currently on the offensive against net metered DERs. In their seminal white paper, the Edison Electric Institute refers to the “stranded cost risks” created, in their view, by DER and net metering as the greatest of the “game changers” in the form of a financial “disruptive challenge” to the retail electric business.

Berkshire Hathaway Energy, the holding company owned by famed investor Warren Buffett, is calling for the elimination of net metering of distributed solar systems. They argue that net metering shifts costs from solar customers to non-solar customers, giving solar customers a “free ride” in using the grid as backup.

Many utility companies and their consultants assert that grid-tied distributed solar systems increase stranded generation costs and result in a transfer of wealth from solar customers to non-solar customers. Similarly, American Electric Power has filed with the Ohio State Supreme Court to fight the Public Utilities Commission of Ohio net metering rules.

Rapid adoption of distributed solar generation continues to drive a heated debate about whether distributed solar systems impose costs or create benefits for the various electric grid stakeholders. Views range from seeing distributed solar as a disruptive challenge to seeing it as an opportunity for utility companies to position themselves as first movers in facing the challenges of climate change and sustainability.

Solar advocates are fighting back, arguing that electric utility companies cannot compete effectively in providing distributed solar, and their efforts end up costing ratepayers more. Empirical evidence that distributed solar represents a net benefit to electric utility companies and their customers helps bolster advocates’ arguments. This case study offers one example of a commercial scale PV installation that benefits a municipal electric company and its customers.

Secure Futures examined the costs and benefits of commercial scale distributed solar to HEC, a non-generating municipal utility company in Harrisonburg, Virginia. This case study includes two components. First is a net benefit analysis drawing on three years of five-minute interval solar output data from a Locus Energy monitoring system at EMU’s solar array, data from the National Renewable Energy Laboratory’s (NREL’s) solar PVWatts calculator, and coincident demand cost data as well as posted tariff rates supplied by HEC. Second, we performed a comparative analysis that examines the correlation between the calculated net benefit using actual data and the calculated net benefit using NREL data.

Walking Their Talk
In November 2010, Secure Futures installed a 104-kW solar array on the roof of the EMU’s Hartzler Library, connected on EMU’s side of the electric meter. Not only was this project the first third-party-owned solar installation with a PPA in Virginia, but EMU and Secure Futures also worked with the Harrisonburg City Council to pass an ordinance to waive local machinery and tools taxes on solar equipment for 20 years, the term of the PPA. As it turned out, these policy measures were repaid, in part, to citizens in the form of net benefits to ratepayers generated by the solar array and the creation of local jobs.

According to Dr. Loren Swartzendruber, president of EMU, “This solar project represents good stewardship of the university’s financial resources and the Earth’s natural resources.”

Indeed, EMU has been practicing stewardship of the Earth’s natural resources through its creation care commitment (see “Creation Care,” page 25) for more than 40 years. For example, EMU is one of the three national leaders in efficient energy use out of 90 colleges and universities surveyed by the Association of Higher Education Facilities Officers. In addition, in 2012 EMU was named the only “Bicycle Friendly University” in its region.

Value of Solar
In addition to aligning with EMU’s values, the PV installation benefits the larger community. The EMU solar project became a catalyst for a new municipal net metering policy adopted by HEC in 2010 that has helped stimulate numerous residential solar installations, and most recently, a successful community-based Solarize Harrisonburg (vasun.org/solarize-virginia/solarize-harrisonburg) residential solar bulk purchasing initiative.

In this analysis, the value that HEC receives from EMU’s solar array derives from avoided energy and demand charges that HEC would otherwise pay to its wholesaler, Dominion Virginia Power. One can easily calculate these value streams because HEC operates as a nongenerating utility, but they exist for generating utilities as well.

Existing value of solar studies generally refer to them as “avoided energy” in the case of nongenerating utilities and “avoided generation capacity” in the case of generating utilities. They are the most straightforward sources of value that DERs provide to utilities, but do not fully capture the range of benefits that utilities receive. The Rocky Mountain Institute’s (RMI’s) A Review of Solar PV Benefit and Cost Studies (bit.ly/1eIaOyF) compiles the results of 15 distributed solar costbenefit studies from across the country and arrives at a total of 18 distinct value streams through which utilities or their ratepayers benefit from distributed solar. These value streams are categorized as energy, capacity, grid support services, financial risk, security risk, environmental, or social.

This case study evaluates only the energy- and capacity-related benefits of distributed solar, and thus represents a limited approach to determining the net benefit of this solar installation to HEC. A broader approach would analyze more of the value streams identified in the RMI report, such as distributed solar’s ability to improve grid resiliency or hedge against volatile fuel prices, both of which provide direct financial benefits to utilities. An even broader approach would analyze value streams that indirectly benefit utilities by providing value to their ratepayers through reduced carbon and particulate emissions or increased local economic activity. The senior management of HEC, however, felt that the limited approach proved sufficiently robust to support the conclusions we reached.

The results show that the net benefits per kW of installed solar capacity for 2011, 2012, and 2013 were $29.20, $17.42, and $21.73 respectively. The average net benefit per kW installed over these three years was $22.78. Using NREL PVWatts data, the calculated annual net benefit per kW installed was $17.53. Using NREL PVWatts data thus underestimates the contribution to net benefits by 23%. While relatively modest in scale, the significance of these results is that the EMU solar PV array generates a net benefit for all HEC ratepayers.

Bottom Line
The case study examines the financial impact of EMU’s solar array on HEC, drawing on empirical data. The analysis consists of a net benefit analysis, drawing on three years of solar output data from EMU’s solar installation and data from the NREL PVWatts calculator. It also includes a comparative analysis examining the correlation between the calculated net benefit using actual data and the calculated net benefit using NREL data. While this study differs from many other value of solar studies in that it focuses on a narrow set of parameters, it also offers a more granular analysis drawing from three years of empirical data.

In this analysis, the value that HEC receives from EMU’s solar array derives only from avoided energy and demand charges that HEC would otherwise pay to Dominion Virginia Power. The respective costs to HEC are their lost revenue from EMU’s solar generation.

Using a net benefit model developed in consultation with HEC management, we find that in the case of the EMU solar installation, the benefits to HEC outweigh the costs. We also find that within HEC territory, the NREL PVWatts calculator represents a conservative tool that can be used to estimate the net impact of future solar projects on HEC. Our net benefit results suggest that within HEC territory, solar installed for a commercial customer with demand exceeding 1,000 kW benefits all municipal utility stakeholders, including non-participants.

HEC donates about $5 million per year from its net profits to the city of Harrisonburg. To the extent that commercial scale solar PV benefits HEC and its ratepayers, it thus also, indirectly and modestly, benefits all citizens of the city of Harrisonburg. EMU has once again demonstrated the value of creation care values to the broader community.

Anthony E. Smith, Ph.D. (tony@securefutures.us) is the chief executive officer of Secure Futures, LLC, a solar development company headquartered in Staunton, Virginia. The author would like to thank Jordan Hollinger and Joseph Gruss for their assistance with this project. For details about the analysis and findings summarized in this article as well as a bibliography, go to solartoday.org/EMU.
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