Utilities and Solar Companies Fight Over Arizona’s Rooftops

Residential solar installers innovate to get around utility grid fees

The explosive expansion of U.S. residential rooftop solar installations—which increased by 51 percent last year—threatens utilities’ traditional role as electricity suppliers. The resulting backlash has been most intense in sun-bleached Arizona, which is second only to California in installed solar capacity. The battle has the potential to blunt the state’s solar growth, but there are signs that it could also inspire grid-friendly technologies that expand solar’s role.

The utility backlash got real in recent months as Arizona utilities levied or proposed new fees for customers installing rooftop solar systems. Tempe-based Salt River Project (SRP), which serves much of greater Phoenix, has seen applications to connect solar systems drop 96 percent since it announced a new rate structure in December 2014.

SRP now exacts a monthly “demand charge” based on the maximum level of grid power that solar customers consume during its 1 to 8 p.m. peak demand period. Altogether, SRP’s fee changes add about US $50 per month to solar users’ bills, wiping out the economic gains of producing rooftop solar power.

Southern Arizona will see the slowdown next if state regulators approve a request by investor-owned Tucson Electric Power to pay wholesale rates for surplus rooftop generation rather than retail rates, which will add an estimated $22 to bills. Meanwhile, investor-owned Arizona Public Service Co. (APS), the state’s largest utility, is seeking permission for a solar user fee of about $21 per month.

The rooftop solar boom began in Arizona six years ago and is still growing in many states, thanks to “net metering,” whereby surplus power exported by solar panels earns their owners’ retail credit against the grid power they consume at night and in the winter. Arizona’s utilities, however, say net metering is not a sustainable plan because it means solar customers rely heavily on the grid but pay little or nothing to maintain it.

The utilities’ new fees have spurred high-profile negative media campaigns by solar advocates, backed by research showing that rooftop solar is a net plus for the grid. The solar leasing firm SolarCity­, based in San Mateo, Calif., is suing SRP, alleging that its solar fees are discriminatory and anticompetitive.

Behind the scenes, however, the battle is also advancing technological solutions that seek to align rooftop solar with new rate structures and the grid’s needs. “It’s making innovation happen a lot faster,” says Russ Patzer, CEO for Chandler, Ariz.–based solar provider Sun Valley Solar Solutions.

Many solar providers are designing energy storage into rooftop systems. Joy Seitz, president and CEO for Scottsdale-based solar supplier American Solar and Roofing, says batteries make solar viable again under SRP’s demand charges by minimizing the use of grid power during peak hours. Battery power spans a 6 to 8 p.m. gap, when solar output tends to wane but many Arizonans’ air conditioners are still running hard.

Solar output will, however, decline as customers forego some panels to pay for pricey batteries. With one-third fewer panels, Seitz estimates, such systems will cost one-third more at $30,000 and take 14 years instead of 9 to pay for themselves.

Patzer plans to offer solar-plus-storage systems but is also preparing off-grid options that evade the utilities’ solar fees altogether. For example, Patzer predicts growing demand for stand-alone air conditioners running on direct current from their own dedicated solar panels. Isolating the solar panels from the grid should protect buyers from the utilities’ solar fees.

For their part, Arizona’s investor-owned utilities are innovating by jumping into the residential solar market. By early this month, APS expects to install the first of 1,500 planned systems on customer rooftops to serve as a unique test bed for remote control of distributed solar. “This is state of the industry. There isn’t another utility doing this at this scale,” according to Marc Romito, APS’s manager for renewable energy.

The arrays will connect to six distribution feeders in central Phoenix via advanced inverters akin to those recently specified for use in California.

Romito foresees operators using a secure communications link to connect the inverters to APS’s grid management system and using them for a wide range of actions, including suppressing solar output on lines that are oversupplied and releasing extra power from associated batteries where the grid is straining to meet demand. Ultimately, he anticipates that remote control of distributed resources will enable APS to defer upgrades to congested power lines and substations.

Kris Mayes, acting director of Arizona State University’s Utilities of the Future project, says Arizona’s utilities and regulators need more information to strike the right balance. What is missing, she says, is an independent study documenting what distributed solar is costing the utilities, and what benefits it offers their grids. As Mayes said on a state radio talk show: “Utilities haven’t proven the costs, and we haven’t analyzed the benefits. It’s like doing a pros and cons list where you only do the cons.”

This article originally appeared in print as “Innovation Amid a Raucous Rooftop Solar Squabble.”