Solar energy in Maine has grown seven-fold in the last few years.
This tremendous growth has saved towns and school districts money on their electric bills. It has supplied Maine businesses with more affordable electricity. It is responsible for millions of dollars in benefits to ratepayers, putting downward pressure on rates across the board.¹
The solar industry has also shouldered millions of dollars in upgrades to the grid, and these projects have added hundreds of jobs to Maine’s economy. But this enormous success hasn’t happened without some growing pains.
Several recent news stories have highlighted these growing pains, including concerns raised by the Office of the Public Advocate (OPA). The OPA has gone so far as to propose dismantling net energy billing (NEB), the program which compensates small- and medium-sized solar projects for the power they send to the grid and offers customers choices to take advantage of the benefits of solar energy. The OPA proposes changes that would require contracts to be renegotiated, returning to a LePage-era policy that stifled investment in solar energy and restricted customer choice for decades.
The OPA’s public campaign has had the unfortunate result of vilifying solar as a whole, when in fact it is our region’s continued dependence on expensive and polluting natural gas that has driven up electricity rates. The typical Central Maine Power (CMP) residential bill has increased more than $60/month on average over the past two years alone because of Maine’s over-reliance on gas generation.
Everyone agrees that changes to the NEB program are necessary, but going backwards on clean energy is not a solution to high electricity costs.
What are Maine’s solar energy policies?
Success in jumpstarting Maine’s solar industry is due to two main energy policy initiatives. Through one approach, the Public Utilities Commission (PUC) invites project proposals in a competitive bidding process. The PUC selects the least expensive projects that bring the most benefit to ratepayers, and these winning bids enter into long-term contracts with the transmission & distribution (T&D) utilities— CMP or Versant Power (Versant)—to sell their energy to the grid. This policy of competitive procurement is relatively straightforward and has supported affordable solar development for Maine ratepayers.²
Maine’s other solar policy is net energy billing. Whether a residential customer is participating by putting solar panels on their own roof or signing up for a monthly subscription from a shared “community solar” project, or whether the participant is a municipality, school, or large business investing in a project offsite, whatever the model, a consumer is offsetting its utility bills and saving money while supporting clean energy and reducing pollution. There are more than 20,000 customers currently benefiting from lower electricity costs through this program.
How exactly we value the solar energy produced by these projects and how exactly we compensate them is the question we need to consider now.
In Maine, the discussion around the cost of solar energy should focus almost exclusively on a provision of the NEB program that offers savings to large commercial and industrial businesses, also known as the tariff-rate program. Through this program, prices paid to generators are pegged to the rates of retail electricity that this solar power is substituting. This has led to volatility and higher-than-expected NEB costs following high natural gas prices caused by the pandemic and the war in Ukraine.
How is solar impacting my electricity bills?
Rates paid by electricity customers are poised to increase in July, as part of an annual reconciliation between the utilities and regulators. NEB costs need to be reconciled every year based on how much solar power is actually generated. A bigger than usual increase this July is due to 2019 legislation that ramped up incentives to encourage solar development through the NEB program. Those community solar projects are increasingly coming online, generating clean energy, reducing subscribers’ electric bills, offsetting conventional fossil power supplies—and reducing utility revenue. That lost revenue is what utilities are looking to recover.
The exact amount that bills will increase has yet to be determined. The PUC needs to scrutinize the data put forth by utilities, which include their year-ahead projections of market prices, solar energy output, and new projects coming online. But the increase could be in a range of $7-9/month for residential customers. To put this in perspective, the typical CMP residential bill has increased more than $60/month over the past two years as natural gas-fired electricity has driven up costs on the regional market.
The bulk of these NEB costs trace back to a subset of the program available exclusively to large commercial and institutional customers. Roughly 84% of the upcoming NEB costs are attributable to the tariff-rate program, which serves only a few thousand customers and their projects.
What changes can be made now?
First, the PUC needs to scrutinize the numbers that the utilities have put forth to justify the rate increase scheduled for July. CMP’s math is based on assumptions that have not been vetted. These assumptions can dramatically inflate or deflate the rate impacts we should expect. Utility companies must not be allowed to recover more ratepayer money than they are rightfully owed.
It’s worth noting that many of these solar projects have faced long and unpredictable delays in getting connected to the grid, in part due to foot-dragging from CMP. Many have been confronted with prohibitively high upgrade costs late in the process—these are investments in the grid, like upgrades to substations and transformers for example, that the utilities require solar project developers to make to ensure a particular section of the grid has capacity to absorb the new energy.
So, while there are more than 1,700 megawatts in the pipeline, these interconnection challenges are causing many projects to drop out. We are still learning what this attrition will look like, but credible estimates range from 50% to as high as 70-80% of projects may be forced to drop out. One thing is clear, not all the projects in the queue will get built, and we need to make sure the utilities aren’t using this uncertainty to their advantage by recouping more than their fair share.
Second, we need more low-cost, home-grown, large-scale solar to put us on track to meet our climate goals and protect ratepayers from fossil fuel price spikes. We can do this by authorizing the PUC to do additional competitive procurements for renewable energy, like what’s called for in a bill sponsored by Senator Eloise Vitelli (LD 1830).³
These procurements would be run by the PUC and would stimulate private sector investment in Maine that would improve electric grid reliability and deliver lower electricity prices through cost-effective renewable energy. No one contests the benefits to Maine ratepayers of these kinds of projects. Large-scale solar would be even more favorable today than in previous procurements, likely offering prices two-thirds lower than our current natural gas-dominated electricity supply.4
Third, we need to start implementing the recommendations of the distributed generation stakeholder group, developed over the course of more than a year of research and deliberation, to build a better, smarter successor program for small- and medium-sized solar projects.5 That work found that a carefully designed program that combines solar with energy storage can pay back $2.77 to ratepayers for every dollar spent.
The recommendations also highlighted the importance of leveraging federal funds available for solar through the Inflation Reduction Act of 2022. For one program, the Environmental Protection Agency’s $7 billion Greenhouse Gas Reduction Fund, application details will be made available in early summer. The solar industry has estimated that a $300 million grant from the federal government could support an estimated 20% bill discount for up to 115,000 low- to moderate-income customers in Maine, which would create $857 million in energy savings at no additional cost to Maine ratepayers.
As an immediate first step, the Legislature should authorize the Governor’s Energy Office to seek federal funds and design a program that can target the benefits of solar to low- and moderate-income Mainers and other vulnerable populations. Senator Mark Lawrence has sponsored a bill that will do just that and require the PUC to do a more honest accounting of actual program costs (LD 1986). 6 By passing LD 1986 and taking these steps to put in place a successor program, we can transition the existing NEB program while sustaining support for Maine’s clean energy economy.
Finally, the current NEB program, particularly the tariff-rate program for commercial and institutional customers, can be further improved upon without painfully cancelling contracts or subjecting projects to the uncertainty of having their compensation adjusted by the PUC whenever it chooses to do so, a provision included in the latest proposal from OPA.
The Legislature has stepped in twice already to make adjustments to the program,7 including reforms last year that reduced compensation by more than 40% for 77% of those projects.8 But we need to take a hard look at the tariff-rate program to see what further adjustments can be made to redirect project benefits toward Maine ratepayers.
After decades of stagnation, the current NEB program has successfully jumpstarted Maine’s solar industry. We need to continue this momentum toward a clean energy transition for Maine. By taking the constructive steps outlined above, we can build on lessons learned, leverage new federal funds, and make improvements in our solar policies that will have lasting benefits for Maine ratepayers.
-Rebecca Schultz, Climate & Clean Energy Senior Advocate
1 According to Maine’s Public Utilities Commission (PUC), existing projects currently in operation have resulted in net ratepayer benefits of $2.1 million in 2021 and $12.5 million in 2022. These projects are forecasted to have net ratepayer benefits of approximately $30 million during the next three years. See https://www.maine.gov/mpuc/sites/maine.gov.mpuc/files/inline-files/3210-G%20Report-Final.pdf
2 For instance, in 2020 the winning bids offered a weighted average price that was less than half the price of the default standard offer supply in CMP’s territory at the time (3.5 cents/kwh vs 7.3 cents/kwh); ibid. This solar cost advantage continues to grow despite the headwinds of high inflation and labor and material costs facing the solar industry.
3 LD 1830, An Act to Advance Maine’s Clean Energy Goals, available at https://www.mainelegislature.org/LawMakerWeb/summary.asp?ID=280089051
4 In 2023, a solar project bid would register at 5 cents/kwh as compared to the current standard offer supply for CMP of 17.6 cents/kwh. Dirigo Solar LLC, Testimony in Favor of LD 1830, May 9, 2023, testimony before the Joint Committee on Energy Utilities and Technology, available at https://legislature.maine.gov/backend/app/services/getDocument.aspx?doctype=test&documentId=10022526.
5 Distributed Generation Stakeholder Group, information available at https://www.maine.gov/energy/studies-reports-working-groups/current-studies-working-groups/dg-stakeholder-group.
6 An Act Relating to Net Energy Billing and Distributed Solar and Energy Storage Systems, LD 1986 available at: https://legislature.maine.gov/bills/getPDF.asp?paper=SP0815&item=1&snum=131.
7 In 2021, LD 936 (P.L. 2021 ch. 390) placed a limit on projects eligible to participate (must be operational by 2024) and established a goal of 750 MW of distributed generation developed under the NEB programs. In 2022, in response to volatility in natural gas prices which largely sets retail electricity rates and in turn the C&I tariff rates, the legislature passed LD 634 (P.L. 2021 ch. 659), which reformed compensation for all C&I tariff projects that did not commence continuous construction efforts by September 1, 2022.
8 Final Report of the Distributed Generation Stakeholder Group, Presentation to the Joint Standing Committee on Energy, Utilities and Technology, Feb 14, 2023, available at https://www.maine.gov/energy/sites/maine.gov.energy/files/inline-files/GEO%20DG%20report%20briefing%20for%20EUT_20230214.pdf.