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Austin Energy reduces incentives, credits for solar users on grid

Monday, December 9, 2013 by Bill McCann

Austin Energy customers who have installed solar electric systems or are planning to install them are facing a reduction in the incentives offered by the utility.


Utility officials defend their actions, saying the reductions are based on budget limits and changing conditions. They insist they remain fully committed to the utility’s solar energy goals. But at least one consumer advocacy group fears the cuts could dampen customer interest in installing new solar units, therefore making it more difficult for the utility to achieve its solar goals.


“We think it’s a bad precedent,” said Tom “Smitty” Smith, director of the Texas Office of Public Citizen. “It will make it (solar) less attractive and have a predictable effect on people who think it is worth doing.”


Last week Austin Energy announced that it reduced its rebates for new residential solar photovoltaic installations and reduced its performance-based incentive for commercial solar installations, both for budgetary reasons.


Effective Dec. 4, the utility cut its solar rebate from $1.50 per watt of installed generating capacity to $1.25 per watt. The average rooftop solar unit installed in Austin is about 6 kilowatts, according to Austin Energy, meaning the rebate for an average new installation drops to $7,500 from $9,000.


Also effective Dec. 4, the utility reduced its performance-based credit for commercial solar projects from 12 cents per kilowatt-hour generated to 10 cents per kilowatt-hour for new systems.


In addition, starting in January the Value of Solar rate used to calculate credits that residential customers get for generating solar electricity will drop from 12.8 cents per kilowatt-hour generated to 10.7 cents. The lower rate will mean a reduced benefit to customers with solar installations. The new rate will affect about 2,600 residential customers with solar electric installations and hundreds more in the pipeline.


The value of solar rate concept, the first of its kind in the nation, was adopted by the City Council in 2012 as an alternative to net metering, which paid customers wholesale electric prices for solar-generated power. The value of solar rate pays much more than net metering because it incorporates avoided costs, including environmental benefits of having local solar-generated installations. Austin Energy is responsible for reviewing and updating the value of solar rate annually.


Austin Energy adjusted the rate for 2014 following an analysis by a consultant, California-based Clean Power Research, which previously developed the value of solar methodology for the utility. The analysis recommended lowering the rate primarily because of a significant decline in natural gas prices.


“The value of solar rate is based, in large part, on the market value of energy, so if the value of energy goes down, so does the value of solar rate; conversely, if the value of energy goes up, so does the value of solar rate,” said Debbie Kimberly, Austin Energy vice president of Customer Energy Solutions in an email to In Fact Daily.


“We announced the value of solar reduction to contractors in October and then again in November. The pace of activity has not slowed,” Kimberly added.


However, the change in the solar rate prompted Public Citizen to prepare a detailed written response urging the City Council to delay the new rate until it can be further reviewed. In its response, Public Citizen said the analysis relied on by Austin Energy is flawed and the rate should actually be increased for several reasons, including additional avoided environmental costs and a higher expected lifetime for solar installations than the 25 years used in the consultant’s analysis.


Critics of the solar rate reduction intended to bring up their concerns at the Council’s Austin Energy Committee meeting Dec. 5. The issue was on the agenda, but the Council cut off discussion after Austin Energy officials said it was too late:  the utility’s billing system had already been changed to reflect the new rate. However, Public Citizen’s Smith said he was trying to get the Council to put the issue back on the agenda at its Dec. 12 meeting.


Meanwhile, Austin Energy officials say the reduction for solar rebates is needed to help ensure that the program does not run out of money this fiscal year due to current demand and a finite budget. By reducing individual rebates, available funds will reach more customers, they say. The rebate program, which is designed to make the cost of installing solar electric units more affordable for homeowners, is funded through the Community Benefit Charge on the bills of all Austin Energy customers.


Of the utility’s $6 million residential rebate budget for the current fiscal year, $4.2 million, or 70 percent, already is earmarked due to ongoing demand, Austin Energy General Manager Larry Weis reported in a Dec. 4 memo to the City Council.


The rebate program has stimulated creation of a strong local solar installation industry and has resulted in more than 2,835 residential and commercial solar installations and 12.3 megawatts of solar electric systems in Austin as of Oct. 31, Weis stated.


“By all accounts, the AE Solar Rebate Program has been a success,” Weis stated. “However, from time to time modifications to the Solar Rebate Program are needed to ensure its continued success.”


Similarly, the utility needed to lower the commercial performance-based incentive to avoid exceeding budget projections, according to Weis. Unlike the upfront residential rebates, the solar incentive program for commercial and multifamily customers provides monthly electric bill credits over a 10-year period for the electricity produced by eligible solar units. These credits affect current and future budgets.


The utility’s analysis shows that lowering the incentive from 12 cents to 10 cents per kilowatt-hour will provide a reasonable return on investment for customers and will also help align the solar program with the current fiscal year 2014 budget and proposed 2015 budget, Weis stated.

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