January 13, 2012 | By | Posted in Legislature

PA ratepayers could pay more to salvage solar industry

Opposed by Corbett, but plan has enough signatures to pass House
By Eric Boehm | PA Independent
HARRISBURG — A proposal requiring electric companies in Pennsylvania to buy more solar energy could cost ratepayers in Pennsylvania as much as $3 billion over the next decade.

Legislation, drafted by state Rep. Chris Ross, R-Chester, aims to address the collapsing value of the state’s solar energy credit market after the state injected more than $180 million in grants and loans to stimulate the industry in recent years. 
Thanks to abundant government subsidies for solar energy, the market expanded too quickly and caused the value of solar energy credits — rebates paid by electric companies to consumers who use solar power — to fall so low that installations of new solar equipment may cease for the next three years.
“We now have a lot of extra solar installations chasing after very few renewable energy credits. The market has crashed,” Ross said.
Solar advocates say the only way to prevent a collapse of the solar energy market in Pennsylvania is to provide further subsidies by requiring electric companies to buy a higher amount of solar energy for the next three years.
Ross’ bill would require electric companies to buy 0.15 percent of their total energy portfolio from solar sources next year, up from the current mandate of 0.05 percent, with further increases in the next two years. 
Since solar energy is more expensive to produce than other forms of energy, purchasing more solar will drive up costs for the companies and will be passed on to consumers.
The Energy Association of Pennsylvania, a trade group of electric generators and distributors, estimates that the additional purchases would cost ratepayers more than $2.3 billion, and possibly as much as $3.4 billion, by 2021. At least $1.3 billion of that cost would result directly from the passage of Ross' bill, the group estimates.
Ross' bill is opposed by Gov. Tom Corbett and the state Public Utility Commission, an independent agency which balances the interests of consumers and energy companies.
In a letter to lawmakers, Corbett said ratepayers and taxpayers in Pennsylvania have been “extraordinarily generous in their support for the solar industry.”
“Periodic legislative fixes to align demand with a government-mandated supply discourages innovation and improved efficiencies within the energy market, shifts risk away from capital investors and onto consumers, and stifles competition within the solar industry itself,” Corbett wrote.
In a separate letter to lawmakers, Commission Chairman Robert Powelson said the increased mandate “will needlessly increase ratepayers’ electricity bills at a time when consumers can least afford to pay for them.”
Despite the criticism, Ross’ bill has collected 113 co-sponsors — more than enough to pass the state House, where 102 votes is a majority — and received a hearing from the House Consumer Affairs Committee this week. No vote was taken on the bill.
State Rep. Joseph Preston, D-Allegheny, minority chairman of the committee, said concerns for ratepayers should come before those of private investors, who were losing money due to the low price of the solar energy credits.
“When you invest in this, it’s like investing in the stock market. If you can’t make money, why should the state pick up the difference?” he asked.
The problem, which the bill attempts to address, dates back to 2004, when the state passed the Alternative Energy Portfolio Standards Act, requiring energy companies to buy increasing amounts of alternative energy as part of their overall portfolios. The law requires that 18 percent of all energy sales come from alternative sources by 2021.
Within the alternative energy mandate, solar power enjoys a special place thanks to an additional requirement that at least 0.5 percent of all energy sales come from solar by 2021.
As part of the law, the state set up the solar energy credits which are at the root of the ongoing market collapse.
Consumers who install solar energy equipment receive credits from the state for the amount of energy they produce. Those credits can be sold to electric companies to allow the companies to achieve the mandated level of solar energy in their portfolios without having to invest in large-scale solar outlays, which are impractical in the northeast.
The state has provided more than $180 million in taxpayer-funded solar energy grants to spur construction and install solar equipment.
Ross said those grants were given to stimulate more solar development than would have happened otherwise, but they came in a rush and then quickly expired, leaving the market off balance.
With supply far outpacing demand, the value of the solar energy credits has collapsed. Ross estimated that no new solar installations will have to be built in the state until 2016.
Solar energy companies say they will not operate in Pennsylvania, unless the mandates are increased to stimulate demand for new installations.
“An industry that grew rapidly over the past four years is now facing an extraordinarily rapid contraction,” Andrew Kleeman, senior vice president of Mercury Solar Systems, a New York-based energy company that has seen its Pennsylvania operations decline from 42 employees to just two in the past six months.
Kleeman said the increased mandates would cost the average ratepayer about a penny per day, and Ross agreed.
“It shouldn’t be a major difference to the consumer, but it will make a huge difference in terms of the continuation of the installers’ market,” Ross said.
According to the Pennsylvania Solar Energy Industries Association, a trade group, more than 3,700 registered solar systems exist in Pennsylvania, producing 71 megawatts of electric capacity.
Advocates point out that that final level of solar energy that the state must have by 2021 has not changed. Instead, Ross’ bill would shift the increasing mandates forward to close the gap between supply and demand that exists today.
But state Rep. Robert Godshall, R-Montgomery, chairman of the Consumer Affairs Committee, said increasing the mandates and subsides would only spur the need for more mandates and subsidies in the future.
“Trying to interfere and create an artificial market is not the way to do it,” Godshall said. “Further subsidization is not going to solve the problem.”
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