I have previously written blogs that have questioned LIPA’s focus on industrial scale solar projects in Suffolk County.[1] Dyed-in-the-wool environmentalists find this blasphemous, and feel particularly betrayed by the author, who has focused his practice on environmental law and litigation for more than thirty years. The rationale for their unquestioned fealty to solar regardless of how it is obtained appears to be the need to immediately address the impacts from global warming, particularly rising tides, regardless of cost or other impacts, because there is an urgent need to reduce our carbon footprint.
Let me be absolutely clear from the outset: I think solar energy is a critical segment of the battle against global warming. The reason I believe industrial scale solar facilities in Suffolk County make no sense is that the cost and adverse impact on precious open space and agricultural lands, scenic vistas, and community character caused by these projects can be avoided altogether by focusing on distributed, rooftop solar units. Rooftop solar avoids the adverse impacts of industrial scale solar, provides peak energy to LIPA at virtually no or little cost, and has all the benefits of renewable energy.[2] In addition, profits generated by these commercial scale solar facilities largely go to out-of-state companies, while the money saved by owners of rooftop systems whose energy bills are slashed spend that savings locally. Because PSEG-LI has acknowledged that LIPA has sufficient energy today to maintain the efficiency of its distribution system for the next ten years,[3] there is simply no good reason for LIPA to lock itself into 20-year fixed cost contracts at rates for power that are more than double the cost of purchasing power on the open market.[4] Thus, LIPA has ample time to adopt policies that will encourage the development of distributed rooftop systems, and it should stop its ill-conceived efforts to lock itself into purchasing commercial solar power.[5]
Real estate developers love the expression “location, location, location” when describing the most important factors to consider for a project. The same should be true when considering the best location for industrial scale solar projects. A recent study by Lawrence Berkeley National Laboratory of the cost of solar power in the United States[6] found the average cost of commercial solar energy from facilities in the southwestern United States in 2013 – 2014 to be $50/MWh, or just $0.05/kWh. By contrast, eleven commercial power projects LIPA approved for negotiation of 20-year Power Purchase Agreements on December 17, 2014, based on competitive bidding, will require LIPA to pay approximately $0.17/kWh for every kWh of solar energy generated for 20 years, more than three times the cost for the same power in the southwest.
Unquestionably, the major difference in cost between the southwest United States and Suffolk County is the cost of open space, and that differential is about to get much larger. Developers of commercial solar projects in Suffolk County have taken the position that it is okay to cover virtually all the property they buy or lease with solar panels, despite limitations on maximum lot coverage, because the rows between the mounted solar panels should not be included in the calculation of lot coverage. On May 6, 2015, the Suffolk County Planning Commission approved a Model Commercial Solar Code (“Model Code”) which will go into effect in those Towns that adopt the Model Code. The Model Code defines lot coverage as “the area measured from the outer edge(s) of the arrays, inverters, batteries, storage cells and all other mechanical equipment used to create solar energy, exclusive of fencing and roadways.” In addition, the Model Code declares that “A minimum thirty-five (35%) percent shall be preserved as natural and undisturbed open space. Site plans shall be developed that provide for the preservation of natural vegetation in large unbroken blocks that also allow contiguous open spaces to be established when adjacent parcels are developed.”[7]
If adopted by the Towns of Brookhaven and Riverhead, the impact on the cost of commercial solar projects will be immediate. Without the Model Code, developers of commercial solar projects required between five and six acres per MW of solar power. In order to meet the requirements of the Model Code, developers will have to significantly reduce the size of their projects, or purchase significantly more open space. Both Towns had representatives on the Utility Solar Model Code Working Group of the Planning Commission that crafted the Model Code, so presumably, these Towns will look favorably upon the Model Code. They should adopt the Model Code as quickly as possible so LIPA and developers of commercial solar projects will know what will be required. More importantly, they should adopt the Model Code so the wholesale destruction of open space, scenic vistas, and community character caused by these projects will end.
Even without the Model Code, it appears that the cost per kWh contemplated by LIPA on December 17, 2014 when it authorized the negotiation of eleven 20-year Power Purchase Agreements (“PPAs”) for a total of 122.1 MW of commercial solar power in Suffolk, approximately $0.17, will not be sufficient to persuade many of the developers selected to sign the PPAs. As recently reported by Newsday, the cost of upgrading transmission lines and substations required for many of the anticipated commercial solar projects in Suffolk County is causing a significant number of developers to withdraw their proposals.[8] A number of these are projects previously approved by LIPA pursuant to a Request for Proposal for a Feed-In Tariff which guaranteed developers of commercial solar power a fixed price of $0.22 per kWh for 20 years.[9]
This brings me to the title of this blog. Tiger salamanders are not an endangered or threatened species under federal law or regulation, but New York State lists them as a threatened species. This can wreak havoc for builders who encounter a tiger salamander on the site of their project. A friend with a PhD in zoology assures me that from Virginia on south, tiger salamanders not only are not threatened, they are a common source of bait for fishermen. The only reason their existence is threatened in New York is that they somehow migrated beyond their natural habitat. Does it really make sense to protect tiger salamanders in New York? And does it really make sense to encourage commercial solar facilities in Suffolk County, where open space is scarce, expensive, and important to preserve? Open space in the southwestern United States is not a threatened species, and that is where commercial solar projects belong.
PSEG-LI, LIPA’s agent, responded to the withdrawals of commercial solar projects in Newsday’s April 29, 2015 article by stating that “PSEG…will contact competing developers whose projects were initially rejected to see if they want to re-apply.”[10] It is time that LIPA and PSEG-LI stop such knee-jerk statements, and explain why it makes sense to guarantee developers of commercial solar projects in Suffolk County a fixed, very high price for the energy they generate for the next twenty years.
In 2012, LIPA made it very clear why it prefers to pay commercial solar generators for the power they generate at rates more than twice as high as power available on the open market rather than receive power from rooftop solar systems at little or no cost. Owners of rooftop systems who have net meters do not pay for the kWhs they use to the extent they are offset by power generated by their rooftop solar systems. LIPA views this as a loss of revenue. By contrast, because it can sell all of the commercially generated solar power it purchases back to its rate payers at full price (somewhere between $0.21 and $0.22 per kWh), it views its 20-year fixed cost Power Purchase Agreements with commercial solar generators to be a means of maintaining its revenues.[11]
LIPA’s rationale made little sense in 2012, and makes less sense today. Presumably, the average charge to LIPA rate payers, approximately $0.215 per kWh, is intended to cover not only the cost of purchasing electricity on the open market (approximately $0.075 per kWh), but all of LIPA’s other costs, including maintenance of the transmission system, interest and principal due for the Shoreham Nuclear Plant, and the inflated cost of all the Power Purchase Agreements LIPA has entered into with electrical generators to maintain the reliability of its system when the power was not needed. If LIPA buys power on the open market for $0.075 per kWh, it requires $0.14 per KWh to cover all of its expenses other than the cost of acquiring power. If LIPA pays $0.17 per kWh for commercial solar power, and then sells the electricity it obtains at $0.215 per kWh, it will only have $0.045 per kWh to pay expenses totaling $0.14 per kWh. The difference, $0.095 per kWh, represents a loss of revenue which LIPA must make up from its rate payers to cover its costs.
Is there a loss of revenue to LIPA when its rate payers put solar systems on the roof of their house and business? Of course. LIPA does not receive the $0.215 per kWh it normally would receive from customers who have installed solar systems on their rooftops. With the exception of a fixed daily charge of $0.36, which every residential rate payer must pay even if they generate more solar power than they use in a given month, all other charges on LIPA’s residential bills are based on net kWhs used each billing period. Because LIPA does not pay for the electricity generated by owners of rooftop solar systems (because it stopped providing incentive payments and any incentives are now paid by NYSERDA[12]), the avoided cost of purchasing an equivalent amount of power on the open market, $0.075 per kWh, must be subtracted when calculating lost revenue, as must the $0.36 per day collected from everyone, including owners of rooftop solar systems. On its face, then, it could be argued that distributed rooftop solar has a greater adverse impact on LIPA revenues than do commercial solar facilities (a shortfall to cover LIPA’s overall expenses of roughly $0.13 per kWh for the former, and $0.095 per kWh for the latter).
That is not the complete story, however. Both commercial solar facilities and distributed rooftop solar systems have the benefit of providing energy to the LIPA distribution system precisely when it is needed most – during peak usage summer hours. Because utilities are required to maintain sufficient power in excess of their anticipated highest peak usage during the year to maintain the reliability of the system, both commercial power and distributed rooftop solar reduce the amount of power LIPA must have available, or must purchase on the open market at a time when the cost is at its highest. Because commercial solar power is concentrated, however, and often must be transported a great distance to substations, there can be a substantial loss of energy from the point of generation to the point of connection with the substation. Distributed rooftop solar power can, by contrast, be absorbed into the distribution network at or near the point of generation, with little loss of power.
The withdrawal of bids by commercial solar providers due to the high cost of transporting the solar power to substations, and to upgrade the substations in order to be able to receive the solar power, provides an additional basis for questioning whether LIPA will really experience less revenue loss by contracting with commercial solar generators than it will if power is received from distributed rooftop solar systems. LIPA’s Requests for Proposals for renewable energy projects have a proviso that the bidder must pay for all costs of upgrading transmission lines and substations required to receive the solar power. Rest assured that all rate payers must pay for these additional costs. The average cost of the responses to the renewable energy RFP, $0.17 per kWh, was the result of estimates by bidders that this price would allow them to make a profit even if they must upgrade transmission lines and substations. The December 17, 2014 LIPA resolution that selected eleven commercial solar bidders for negotiation of Power Purchase Agreements totaling 122 MW also authorized LIPA staff to prepare another Request for Proposal for an additional 160 MW of renewable energy. In light of the withdrawal of so many bidders from contract negotiations due to unanticipated costs associated with transmission line and substation upgrades, future bids necessarily will be higher than $0.17 per kWh. As a result, even less money received by LIPA when it sells the power generated to its customers at approximately $0.215 per kWh (for residential) will be available to cover LIPA’s expenses. Will the impact on LIPA’s revenues from distributed rooftop solar systems then be less than the impact of 20-year fixed price Power Purchase Agreements at prices way above market?
The cost-benefit analysis between commercial solar projects and distributed rooftop solar must also take into account other economic factors. One is that the acquisition of large tracts of open space by out-of-state commercial solar projects not only reduces the amount of open space available for such things as affordable housing, but also creates upward pressure on the cost of remaining open space. Distributed rooftop solar has no impact on the availability of open space, or the cost of acquiring such land. Likewise, because most of the developers of commercial solar power are out-of-state companies, profits will go out-of-state, and will not benefit our local community. Contrast that with the fact that owners of distributed rooftop solar systems who benefit from dramatically reduced bills for electricity will spend the money saved in their local communities.
Another potentially huge benefit of distributed rooftop solar systems over large commercial solar projects is that distributed systems have the potential in the long term to actually help reduce the cost of electricity for rate payers, while the Power Purchase Agreements for large scale commercial solar electrical generating stations do not. The more power that is obtained from renewable sources like solar, be it from commercial electrical generating facilities or distributed rooftop systems, the greater the likelihood that the old, inefficient, highly polluting power plants such as those in Port Jefferson and Northport can be closed. The power from these plants no longer will be needed. Whether LIPA will still have to pay for the potential power from these closed plants will turn on the terms of the Power Purchase Agreements that currently are in place. Even if the plants can be closed without payments having to be made to the owners, however, LIPA will still be locked into 20-year fixed high cost Power Purchase Agreements with the owners of commercial solar electrical generating facilities, who will receive higher than market payments for the power they generate for the duration of their contracts – even if the power no longer is needed. By contrast, LIPA does not have to pay anything to the owners of distributed rooftop solar systems to receive the power they generate.[13]
Even if LIPA could somehow show that there is an economic benefit to its contracting with commercial solar electrical generating facilities for all their power at a fixed higher than market cost for twenty years, there is another economic reality that LIPA must deal with. As the cost of rooftop solar keeps coming down, people will continue in ever greater numbers to understand the benefit of installing solar, and will add solar systems to their houses or places of business. In addition, as more people invest in appliances and lighting that are more energy efficient than what they already have, and as smart meters are installed that allow consumers to educate themselves as to their usage in real time and thus act to minimize their electrical usage to the extent practicable, LIPA’s revenues will continue to drop. At the same time LIPA will have to continue to pay for its fixed costs, such as those associated with its transmission system, Shoreham debt, and all the long term fixed cost Power Purchase Agreements it has entered into with providers.
On March 26, 2015, the LIPA Trustees addressed this problem head-on by approving a so-called “Revenue Decoupling Mechanism.”[14] Commencing April 1, 2015, actual revenues for Delivery Services will be compared to revenues approved for the annual budget for Delivery Services for the remainder of 2015. The refund or surcharge percentage that is due to each participating service classification thereafter will be calculated and applied to the Delivery Service charges for a six-month period. Theoretically, this will result in either a credit or surcharge to ratepayers. As explained in the resolution approved by the Trustees, “the revenue decoupling mechanism is a PSC-approved policy tool for the regulated investor-owned electric utilities in New York that will help to achieve financial stability without the conflicting pressures that are created by the pursuit of aggressive and societally justified programs for energy efficiency and renewable resources.” In plain speak, this means that LIPA will recover any revenue shortfall caused by energy efficiency or from renewable energy from sources such as distributed rooftop solar systems.
One benefit of this revenue decoupling mechanism for purposes of discussing whether commercial solar electrical energy facilities make any sense is that it eliminates the rationale provided by LIPA in 2012 for entering into 20-year fixed cost Power Purchase Agreements with such energy providers. Any lost revenues from renewable energy will be recovered by LIPA. Thus, because of all the adverse impacts on the environment and economy arising from commercial solar electrical generating facilities, there is no reason not to forego such contracts, and to focus instead on finding ways to encourage more distributed rooftop solar systems.
The scope of the current Public Service Commission hearings on LIPA’s proposed rate increase was amended on March 30, 2015 by two administrative law judges to “include effects of three programs: Utility 2.0, revenue decoupling and a cost-recovery mechanism for energy efficiency programs.”[15] This is a very good thing indeed. Keep in mind that the revenue decoupling mechanism compares actual revenues for Delivery Services to the amount budgeted by LIPA for the year. One important question LIPA should have to answer is whether the budgeted amount for Delivery Services includes revenue needed to pay all of the many 20-year Power Purchase Agreements LIPA has entered into at inflated rates. If it does, then there is yet another reason to oppose such agreements with commercial solar electrical generating facilities. Rather than lock in inflated rates for twenty years which rate payers will have to pay regardless of whether the power is needed or can be obtained by means of distributed rooftop solar systems for far less, LIPA’s focus should be on expanding the availability of distributed solar power. As noted in earlier blogs, because PSEG-LI has confirmed that no new power sources are needed by LIPA for ten years to maintain the reliability of the system, it should stop rushing into Power Purchase Agreements at inflated prices with commercial solar electrical generators, study the alternatives, and make a rationale decision supported by real facts and data.
Tiger salamanders should not be protected in areas where they have wandered beyond their natural habitat, and industrial scale solar facilities should not be subsidized to go where they do not belong.
[1]“All Solar Power Is Not Created Equal (So Slow Down PSEG-LI And LIPA And Get It Right)” (Frederick Eisenbud, January 7, 2015); “The Emperor Has No Clothes (Why The Push For Commercial Solar Makes No Sense)” (Frederick Eisenbud, February 26, 2015).
[2] I contracted to have a solar system installed on my house in August 2013, which has been generating more electricity on an annual basis than my family consumes. My return on investment is more than 15%. I rave about the benefits of distributed rooftop solar to anyone who will listen.
[3] August 6, 2014 Memo to LIPA Trustees from John McMahon, LIPA CEO, re “Approval of Revised Governing Policy for Power Supply Hedging Program”, found at http://www.lipower.org/pdfs/company/papers/board/080614-Consideration-GoverningPolicyPowerSupplyHedgingProgram.pdf
[4] Proposal submitted to and approved by the LIPA Trustees by LIPA COO John McMahon on June 28, 2012, found at http://www.lipower.org/pdfs/company/tariff/proposal_feedin.pdf. On page 3 of 4, the proposal acknowledges that the cost of power on the open market was approximately $0.075 per kWh.
[5] Frederick Eisenbud Blog, January 7, 2015, “All Solar Power Is Not Created Equal (So Slow Down PSEG-LI And LIPA And Get It Right).”
[6] “New Studies Find Significant Declines in Price of Rooftop and Utility-Scale Solar Onerous Local Regulatory Processes Can Impact System Prices,” Allan Chen (September 17, 2014 Press Release) (http://newscenter.lbl.gov/2014/09/17/new-studies-find-significant-declines-in-price-of-rooftop-and-utility-scale-solar/ ).
[7]The complete text of the Model Code is available on the website of the Suffolk County Planning Commission: http://www.suffolkcountyny.gov/Departments/Planning/Boards/SuffolkCountyPlanningCommission.aspx.
[8] Mark Harrington, “Developers withdrawing a number of proposed solar projects”, Newsday (Aprtil 29, 2015).
[9] See proposal submitted to and approved by the LIPA Trustees on June 28, 2012, found at http://www.lipower.org/pdfs/company/tariff/proposal_feedin.pdf .
[10] Newsday, April 29, 2015, fn 6, above.
[11] See proposal submitted to and approved by the LIPA Trustees on June 28, 2012, found at http://www.lipower.org/pdfs/company/tariff/proposal_feedin.pdf (page 2 of 4).
[12] NYSERDA stands for the New York State Energy Research and Development Agency. For information on the incentives available for residential solar, go to http://ny-sun.ny.gov/For-Installers/Megawatt-Block-Incentive-Structure.
[13] LIPA no longer pays incentives to those who install rooftop solar systems. All the electrical power generated by these rooftop solar systems runs into LIPA’s transmission system, first passing through net meters that run backwards when the solar electricity generated is greater than the electricity used by the building occupant.
[14] See Minutes of the LIPA Trustees meeting of March 26, 2015 at pp. 8-12, available at http://www.lipower.org/pdfs/company/papers/board/032615-minutes.pdf .
[15] Newsday, March 31, 2015, “PSEG Long Island power supply charge drops again.”