By: Frederick Eisenbud, Esq.
Law Office of Frederick Eisenbud
THE Environmental Law FirmSM
6165 Jericho Turnpike Commack, New York 11725
(631) 493-9800
fe@li-envirolaw.com
I am a firm advocate for more solar power. The benefits are indisputable and can be read about elsewhere. New York has the potential to produce 11 times as much electricity from solar power as the state consumes each year. (“Star Power: The Growing Role of Solar Energy in New York”, Environment New York Research & Policy Center at 4 [November, 2014]). In little more than five years, improvements in battery storage may well enable the excess electricity from solar to be stored for use when electricity is not being generated by solar systems, at night and during cloudy or inclement weather. (Stephen Lacy, “Storage Is the New Solar: Will Batteries and PV Create an Unstoppable Hybrid Force?” [GreenTech Media 2014]). Even before the battery storage problem is resolved, it is likely that the cost of generating power from photovoltaic (“PV”) systems will be equal to or less than the cost of power from traditional power plants that run on carbon based fuels. It has been projected that over half the states could have electricity that is from rooftop solar that is as cheap as local electricity prices by 2017, and New York is projected to achieve this so-called “grid-parity” not long after that. (Mike Jacobs, “How Much Does Rooftop Solar Power Cost? Grid Parity Here or Coming in More Than Half of U.S. States”, Union of Concerned Scientists 2014).
The question which must be discussed and answered by LIPA and PSEG-LI is whether the goal of increasing renewables should cause the utility to focus on commercial large scale solar energy systems that will provide energy pursuant to 20-year, fixed cost inflated contracts, or whether more attention should be given to encouraging building owners to place solar systems on their roofs for their own use? Because I am most familiar with residential solar systems, I will leave it to others to discuss the enormous benefits of having large, well-positioned solar systems on flat commercial building roofs.
Here is the immediate problem. In August of last year, PSEG-LI revealed that LIPA has for decades used a reliability standard that assures that power will be out no more than one day every thousand years. The rest of the State uses a different test – no more than one day of outage every ten years. As a result, LIPA has made long term contractual agreements which have resulted in LIPA paying for 400 MW to 1,000 MW a year of power more than it would need if it followed the same test used by every other utility in the State. This resulted in approximately $641 million dollars in unnecessary costs over 9 years. (Newsday, August 18, 2014). LIPA promptly terminated discussions for the 750 MW Caithness II project, and five peaker plants that would provide power only when power is needed most. The savings to ratepayers from these wise decisions is enormous.
PSEG-LI concluded that a “delay of 12-18 months of LIPA’s current resource plan presents no demonstrable risk to Long Island reliability.” This was in part based on PSEG-LI’s finding that LIPA would not have any resource needs until 2020 based on the NYISO standard used by the rest of the State. Pending its completion of a full Integrated Resource Plan at the end of 2015, PSEG-LI recommended delaying commitments on “all current RFPs excepting those with … immediate needs.” (PSEG Long Island, “Resource Planning Criteria Review”, August 2014 at pp. 26, 27, 28).
However, on December 17, 2014, without any demonstration of “immediate need”, LIPA’s trustees authorized staff to negotiate eleven 20-year fixed cost power purchase agreements (“PPAs”) for a total of 122.1 MW of installed solar power. Shortly thereafter, on January 1, 2015, PSEG-LI assumed virtually all of LIPA’s planning functions. Did PSEG-LI promptly announce that no PPAs for 20 year fixed cost commercial solar facilities would be signed until it completed its needs study? No – its president, David Daily, told Newsday that “Some recent decisions are ‘hard-wired’ into the plan, … including LIPA's approval of 122.1 megawatts of power from large solar energy facilities in Suffolk County.” (Newsday, January 1, 2015). Then,
Then, on January 6, 2015, Daly said that updated forecasts have led PSEG-LI to conclude that no new power source will be required until 2024. (Newsday, January 7, 2014). Again, according to Newsday, and without explanation, Daly told those at a session of the Long Island Regional Planning Council that, “Despite the excess, PSEG is pushing ahead with LIPA plans to add scores of renewable and other power sources well before 2020. This year, it will follow through on LIPA’s plan to add 120 megawatts for solar arrays on large tracts in Suffolk County,…” In addition, later this year, PSEG will put out a new bid request for 160 MW of renewable energy. (Newsday, January 7, 2015).
If no new energy resources will be needed until 2024, it is fair to ask why LIPA and PSEG-LI are plowing ahead with long term fixed cost inflated contracts before PSEG-LI’s needs study is completed. On January 1, 2015 when PSEG-LI took over LIPA’s planning functions, Mr. Daly told Newsday that “decision making under PSEG will have a ‘very strong focus on transparency’”. If that is true, no PPAs should be signed until all the issues are thoroughly aired.
The average cost per kWh of power from the proposed commercial solar facilities is approximately $0.17, compared to approximately $0.075 per kWh on the open market as of October, 2013. If LIPA and PSEG-LI go ahead with the 11 proposed contracts, the rate payers within LIPA’s territory will be legally obligated to pay this inflated rate for the next 20 years.
Incentives provided to individual owners of residential and commercial buildings by LIPA to place PV systems on their roofs have been reduced by more than 50% since June 2013, and will end altogether by the end of 2016. The rationale for this reduction is that the cost of solar systems is going down so that soon incentives will not be needed at all to persuade building owners to contract for PV systems on their roofs. Indeed, solar PV capacity in New York increased at a rate of 63% per year from 2010 to 2013. If solar PV installations continue to increase at a rate of 47% annually until 2025, New York will have enough solar energy to generate 20 percent of its electricity. (“Star Power: The Growing Role of Solar Energy in New York”, Environment New York Research & Policy Center at 2 [November, 2014]).
In June, 2013, I contracted to put a 20.88 kW PV system on the roof of my house. LIPA’s incentive rebate then was $0.76 per watt. Today, the incentives are down to $0.30 per watt, and all or most of that money is provided by NYSERDA. In June, 2013, LIPA paid for a little less than 23% of the overall cost of my rooftop PV system. When incentives end, all of the PV power generated by rooftop systems will come to LIPA at no cost. Why then would LIPA and PSEG-LI want to enter into long term fixed cost Power Purchase Agreements with commercial developers of solar power at inflated prices well above what it would cost for the same amount of electricity on the open market, especially when it can get this power virtually for free by encouraging building owners to construct their own systems on their roofs?
LIPA has given three reasons for promoting solar power obtained by means of a “Feed-in Tariff” (i.e., purchasing 100% of the electricity generated by commercial solar facilities and then selling the power back to its customers): (1) the costs are spread out over 20 years, as the benefits are received, whereas incentive rebates for rooftop solar systems are all paid upfront; (2) LIPA only pays for what is actually produced, whereas there is a risk that rooftop systems will underperform or fail altogether after the incentive rebate is paid; and (3) there is no loss of revenue under the Feed-in Tariff proposal, whereas retail customers with solar generation avoid LIPA’s full retail rates for every kWh of generation they produce. None of these arguments seem to justify the enormous expense of commercial solar power purchased at inflated costs for twenty years.
LIPA’s concern that it must absorb all the incentive rebates upfront rings hollow because it intends to eliminate these incentives altogether in a few short years. Assuming, however, that LIPA can be persuaded to actually increase incentives for rooftop systems rather than eliminate them, it can spread the cost of those incentives out by bonding the upfront cost over 20 years. Recently, LIPA was able to obtain bonding at an interest rate of approximately a 3 ½ %. The June 2013 incentive of $0.76 per watt represented only 23% of the cost of the solar systems installed on residential roofs (the rest was paid for by federal and state tax credits [about 31% of the cost], and by the homeowner, about 47%). LIPA pays for 100% of the cost of electricity at inflated rates when purchasing solar power from commercial developers, but only a fraction of the actual cost of producing power from rooftop systems when it offers incentive rebates.
The reliability argument also is weak. Solar systems on roofs typically come with 25 year warranties and there is no basis for assuming that building owners who have paid for half or more of the cost of installing the system will not enforce his or her contractual rights if there is a problem.
The third argument, that there is “no loss of revenue under the Feed-in Tariff proposal”, is not strictly accurate. It is true that net meters used by individual solar systems on roofs run backwards if more power is generated than is being used. Because many components of residential LIPA (PSEG-LI) bills are based on kWhs used during the billing period, many of the charges are avoided altogether by the ratepayer with solar on the roof. However, LIPA does not actually “lose” revenue as a result because it recoups any losses through its “Efficiency & Renewable Charge” on its bills. This charge generally is about $0.006 per kWh. Thus a typical LIPA customer who uses 10,000 kWhs a year is already paying about $60 a year to cover revenues lost due to renewable energy.
Nevertheless, it is fair to examine how those who generate electrical power by means of their own rooftop solar PV systems on their roofs impact other ratepayers, and to compare that impact to the impact of buying power from commercial solar systems at a fixed price over 20 years.
A rate of inflation of 2% a year for the cost of electricity on the open market is assumed. It can be argued that this assumption is too conservative because 1/2 of 1% is a figure frequently used when projecting electrical price increases. Further, with the plunge in oil costs, we may see a period where the cost of generating electricity goes down for a period of time. For purposes of discussion, however, we will assume the cost of electricity goes up 2% a year. Here is what my calculations show.
At least as of October, 2013, LIPA could purchase electricity on the open market at an approximate price of $0.075 per kWh. Based on this figure, and the assumed rate of inflation, LIPA ratepayers will pay approximately $360,000,000 more over 20 years for the commercial solar power than they would pay if LIPA purchased the same amount of electricity on the open market.
By comparison, if incentives at the same level as June 2013 are paid to induce sufficient building owners to buy rooftop solar systems that will generate the same amount of kWhs as can be expected from 122.1 MW of commercial rated solar systems, and the incentives are bonded at 5% over twenty years, ratepayers will save approximately $147,000,000 over 20 years for the same amount of power purchased on the open market. If the incentive is assumed to be what it is today ($0.30 per watt rather than $0.76 per watt) and the upfront cost of sufficient incentives needed to get distributed solar systems built that will generate the same power as the commercial solar facilities that are contemplated, and the one-time incentive rebate is bonded, the savings over the cost of open market electricity jumps to $235,000,000 over 20 years. And if LIPA is correct, and no incentive at all will be needed in a couple of years in order for residential homeowners to have solar systems installed on their roofs, then LIPA will obtain electricity from these rooftop systems at no cost to it or its ratepayers. When compared to the cost of purchasing the same amount of power on the open market, over 20 years, LIPA ratepayers would then save more than $350,000,000.
However, when revenues lost are factored in, the cost of purchasing power from the commercial solar generators when compared to the cost on the open market is less than the loss of revenues to LIPA from the same power on rooftops. Depending on the amount of the incentive rebate paid for rooftop systems, the average ratepayer who uses 10,000 kWhs per year may have to pay somewhere between $0.75 and $1.38 per month to cover LIPA’s shortfall if the desired amount of solar power is obtained from rooftop systems rather than from commercial solar providers who have long term contracts.
There are many reasons why this nominal difference between the cost of purchasing commercial solar power and the loss of revenues when power is obtained from individual rooftop systems should not cause LIPA to favor the commercial systems.
First, LIPA can’t stop the loss of revenues. As the cost of solar systems for rooftops comes down, more and more building owners will realize the financial benefit of generating their own power, in whole or part. This will occur even if LIPA contracts with the eleven selected companies to obtain power from systems with a total rating of 122.1 MW. If, as PSEG-LI has found, LIPA today has enough power to maintain reliability into 2020, then why lock into higher prices for twenty years now?
Second, the loss of revenues will continue due to improvements in efficiency. PSEG-LI recognizes the benefit of incentivizing residences and businesses to install more efficient machinery, lighting and appliances. It’s October 6, 2014 “Utility 2.0 Long Range Plan Update Document” describes its decision to expand overall Plan investment from $215 million over four years with the goal of reducing demand by 185 MW to investing $345 million over four years with the goal of reducing demand by 250 MW. Reduced electrical demand necessarily will result in lost revenues. PSEG-LI intends to discuss how it will recover the costs of its program expenditures in the upcoming rate case to be filed in February, 2015. Care must be taken to assure that cost recovery plans do not diminish the individual economic benefits of placing solar power on roof tops.
Third, ratepayers are already paying for revenues lost to LIPA from renewable energy and reductions in demand caused by increased efficiency, so LIPA is not really losing revenues when solar systems are installed on roofs. Residential bills contain a charge each month for “Efficiency & Renewable Charge” which is generally about $0.006 per kWh. Thus a typical LIPA customer who uses 10,000 kWhs a year already is paying about $60 a year to cover these lost revenues.
Fourth, commercial large scale solar projects place increased demand on the transmission system, and upgrades to transmission lines and substations may be required, whereas rooftop solar systems, distributed throughout the system, generally do not require upgrades. While it is true that the Power Purchase Agreements place the burden of having to upgrade the transmission system on the commercial solar energy provider, it is also true that these costs come back to the ratepayer indirectly because the price per kWh bid by these commercial providers is increased to cover such costs.
Fifth, using more distributed (rooftop) solar systems will result in a more efficient electric grid. It has been estimated that five to eight percent of the electricity transmitted over long-distance transmission lines is lost between its production and final consumption. Distributed solar energy avoids these losses by generating electricity at or near the location where it is used. (“Star Power: The Growing Role of Solar Energy in New York”, Environment New York Research & Policy Center at 18 [November, 2014]).
Sixth, commercial solar projects require large areas of open space which are lost as a result. For example, one of the projects among the eleven LIPA accepted for negotiation of PPAs on December 17, 2014 is a 24.99 MW project to be built where the Tall Grass Golf Course in Shoreham now stands. This public recreational facility will be lost in order to allow an out-of-state commercial company to generate solar power which will not be needed until at least 2020. Rooftop solar systems create no loss of open space. In addition, the high cost of land on Long Island contributes to the high cost of power obtained from commercial solar generators. By comparison, in other parts of the country, these projects seem to make sense. “The price of electricity sold to utilities under long term contracts from large-scale solar power projects has fallen by more than 70% since 2008, to just $50/MWh [i.e., $0.05/kWh] on average within a sample of contracts signed in 2013 and 2014 and concentrated among projects located in the southwestern United States.” (Allan Chen, “New Studies Find Significant declines in Price of Rooftop and Utility-Scale Solar” (News Center September 17, 2014).
Seventh, most of the commercial scale solar providers are out-of-state companies. Of the 11 accepted for approval by LIPA on December 17th, 9 are out of state companies. The one New York Company accepted to provide two solar facilities in Kings Park will provide only 4 MW of the anticipated 122.1 MW of solar power. As a result, approximately $31,000,000 each year for 20 years will be taken out of the Long Island economy to pay for the solar power generated by these out of state companies. By contrast, if the same power that can be generated from commercial solar systems with a combined capacity of 122.1 MW is obtained from distributed rooftop solar systems, approximately $41,000,000 each year will be saved by LIPA customers with solar systems on their roofs. This money can be expected to be spent on Long Island, or saved in banks and made available for loans. Applying a conservative multiplier effect of 3, the electric fees saved by those with solar systems on their roofs will add over $120,000,000 to the Long Island economy each year.
Eighth, most of the distributed rooftop solar systems are installed by small businesses. New York State’s solar energy industry employed 5,000 people in 2013, and 41% of all solar systems in the State are on Long Island. On December 14, 2014, NYSERDA announced the installation of the 10,000th solar photovoltaic system on Long Island, and it projects that the 15,000th system could be installed during 2015. Encouraging distributed rooftop solar systems to be installed will increase employment.
CONCLUSION
It is increasingly apparent that LIPA and PSEG-LI are making major decisions without taking into consideration the impact those decisions will have. Two large commercial solar projects have been tentatively approved for residentially zoned areas in Shoreham, one on a 60 acre sod farm (9.5 MW),[1] and another, adjacent to that project, on a 200 acre public golf course (24.99 MW). Another project approved for negotiation of a PPA is in the core area of the Pine Barrens. LIPA’s and PSEG-LI’s attitude appears to be, let the Towns figure out if the locations selected or proposed are appropriate, and we will just consider if we want the power.
This head-in-the-sand approach to planning must change. LIPA and PSEG-LI are subject to the strict procedural requirements of the State Environmental Quality Review Act (“SEQRA”), which requires that a draft Environmental Impact Statement be prepared whenever a discretionary action (such as approving a contract for construction of a power plant) “may” have a significant impact on the environment. Unquestionably, many impacts caused by traditional base load power plants (such as those from air emissions, noise, and water usage) are absent when power will be generated from solar panels. But a non-residential project or action that involves “the physical alteration of 10 acres” is a Type I Action under SEQRA which is “more likely to require the preparation of an EIS than Unlisted actions.” Among the factors LIPA and PSEG-LI are required to consider are “the removal or destruction of large quantities of vegetation or fauna”; “the creation of a material conflict with a community's current plans or goals as officially approved or adopted”; “the impairment of the character or quality of important historical, archeological, architectural, or aesthetic resources or of existing community or neighborhood character”; “a substantial change in the use, or intensity of use, of land including agricultural, open space or recreational resources, or in its capacity to support existing uses.” In addition, the lead agency must “consider reasonably related long-term, short-term, direct, indirect and cumulative impacts”, and “The significance of a likely consequence (i.e., whether it is material, substantial, large or important) should be assessed in connection with: (i) its setting (e.g., urban or rural); (ii) its probability of occurrence; (iii) its duration; (iv) its irreversibility; (v) its geographic scope; (vi) its magnitude; and (vii) the number of people affected.”
Newsday reported on January 6, 2015 (p. A20) that the Town of Brookhaven is going to put off its review of its zoning code as it relates to solar installations. This is because Suffolk County officials are “crafting their own guidelines for the controversial power facilities” and “it makes more sense for the county, rather than the town, to develop guidelines.” The County apparently will attempt to craft a model zoning code that Towns can adopt who wish to regulate solar projects. The County should be applauded for this effort, but any effort to establish uniform guidelines should include input from PSEG-LI.
The statements coming from PSEG-LI appear contradictory. LIPA is criticized repeatedly for all of its long term contracts because new sources of power are not needed for another ten years. On the other hand, PSEG wants to see PPAs signed for the 122.1 MW of solar power authorized on December 17, 2014, and will release a request for proposals for another 160 MW of renewable power later this year. At least until PSEG-LI completes its needs study, the fact that the power will come from solar panels does not make the power necessary. Distributed power on rooftops can continue to be installed, and it appears that the State’s goal of obtaining 20% of our energy from renewable sources by 2025 can be met without the long term commercial contracts.
While the County and Towns are working on uniform guidelines, LIPA and PSEG-LI should put any further Power Purchase Agreements for electrical power plants on hold, at least until PSEG-LI has finished its needs study. Rather than reduce incentive rebates for distributed solar power on rooftops, they should be increased so the momentum and growth now seen in the solar industry will not be lost.
PSEG-LI has made it clear from its “Utility 2.0 Long Range Plan” that it is actively considering a broad range of proposals, many of which are cutting edge and imaginative, to help assure that it will “invest in more customer-oriented solutions that reduce peak demand for electricity, and improve the efficiency and resiliency of the grid at an affordable cost.” Whether commercial solar projects make sense in Suffolk County in light of the availability of distributed rooftop solar systems should be discussed openly. Having determined that no new power sources are needed until 2024, LIPA and PSEG-LI have the luxury of time. The commercial solar projects and their long term inflated costs can wait; proper planning must come first. Slow down – and get it right.
[1] By way of full disclosure, this firm represents a community group whose members reside around the 60 acre sod farm who have filed a lawsuit challenging the Town of Brookhaven Planning Board and Zoning Board of Appeals approvals of the 9.5 MW project. The opinions in this Blog are strictly those of the author.
