LET THE VIRGINIA ADVANCE ENERGY INDUSTRIES BUILD IT (not Dominion), AND THEY WILL COME

It is a basic desire of all Americans (and Virginians) to live our lives as we wish; working, employing, purchasing goods, real estate, services, and recreating, each in our personal search for fulfillment.  For some, this may take the form of owning a small business and relaxing at a mountain cabin.  For others, it may be teaching 8th graders how to solve simultaneous equations and scrapbooking in their spare time.  Some Virginians may be happy with the low energy rates utilities provide.  Others may understand that these rates, nor the current fuel sources providing the energy for these rates, are sustainable.  I apologize for the apparent non sequitur, bear with me…

Energy choices are just one of many that we have (or should have) as citizens.  Thirty-five years ago there was one choice for local and long distance telephone service.  Today you may use a land line, cell phone, or the Internet (VoIP) to make local or long distance calls.  In home entertainment thirty-five years ago there was over the air TV with maybe four or five channels, and Atari Pong.  Today there is cable, satellite, fiber optics, DVD, Blu-ray, game consoles, Internet, etc.  Competition in these industries has spurred innovation, reduced costs to consumers, and increased quality of services.  Some may think this is not for the better and stick with their land lines and antennae.  But that is their choice.

With regards to energy consumption thirty-five years ago in Virginia there was coal, natural gas, nuclear, and hydroelectric.  Today in Virginia there is much of the same and almost no renewable energy.  Although Dominion states that 2.8% of their generation capacity is renewable, almost all of this is aging hydroelectric (over 50 years old) and located out of state, benefiting those economies.  Where are the low cost, renewable, distributed generation facilities in Virginia?  Where are the renewable energy choices for all, including the estimated 75% that own condominiums or rent, have aging roofs, structural issues, excessive shade, or no southern roof exposure?

There are none, and there will be none until the system is changed to allow free enterprise and the advanced renewable energy industry in Virginia to create a market and compete on a level playing field with the utilities (I don’t intend to address the issue of tax credits or other incentives for solar in this article, I will address that another time.  Suffice it to say that the fossil fuel industry has had, and still has theirs).  One of the installation options required to create this market for low cost, renewable, distributed generation solar option is community net-metering or Community Solar.  In Virginia we have a state-regulated, investor-owned, utility monopoly that does what it must to protect its current market share, future potential markets, and investors and will not allow these types of installations in Virginia.  Since that is not likely to change, the only option is to force change through legislation.

There were four bills before the General Assembly during the 2014 session that would have changed the net-metering code, allowing certain types of Community Solar installations in the Virginia.  Predictably, and in accordance with Dominion’s recommendations, all four never made it out of committee.  To make matters worse Dominion attempted to amend the multi-family net metering bills to create Dominion owned community solar arrays, an attempt that was stopped by the advance renewable energy industry in Virginia.  The ownership by a public utility of community solar facilities that are installed with funds generated by rate payer increases, and with power produced by those facilities sold back to the rate payer, is in contradiction with the some of the benefits that such installations are intended to provide – energy independence, cost savings, and rate stability.

Since Dominion has not made the details of their proposed program public we would like to address another distributed generation program that was created through a petition by Dominion to the SCC, approved on November 28, 2012, their Solar Partnership Program.  In order to ensure competitive pricing for consumers these distributed generation programs should be implemented by private industry in cooperation with utilities.

Facts

  • SCC approved Solar Partnership Program summary – Dominion to construct and operate up to 30 MW of Company-owned solar distributed generation facilities on leased private rooftop space for a total cost cap of $80 million, including, but not limited to, capital, financing, and operation and maintenance costs.  Dominion shall use the proceeds it receives from selling the renewable energy certificates (“RECs”) obtained from the Solar DG Program to offset the costs (including financing costs) of this program.
  • Dominion initially requested $111 million which excluded financing costs, for a total program cost of $3.70 per watt.
  • Dominion had initially provided program goals of 10MW in 2013, 10MW in 2014, and 10MW in 2015 for a total installed capacity of 30 MW at a cost of $2.67 per watt.
  • Since Dominion stated “We are not doing this project to meet the requirements of RPS” the SCC ruled that any incremental costs thereof are not costs “of the RPS program” – and the RPS incremental cost allocation provisions of § 56-585.2 E of the Code are not applicable.
  • The program requires the property owner or landlord to sign a long-term lease. The solar systems are expected to remain in place for approximately 20 years.
  • Dominion plans to retire and remove the solar generator, or upon acceptable terms with the property owner and Dominion, the property owner may purchase the system from Dominion for a negotiated price at the end of the long-term lease.
  • To date Dominion has provided two press releases regarding participation in their Solar Partnership Program.  One announcing an installation at Old Dominion University with a capacity of 132 kW and another announcing an installation at Canon’s Gloucester facility with a capacity of 500 kW.  The 132 kW project was completed in 2013 and the 500 kW projected is scheduled to be complete in early 2014 bringing the total installed in 2013 to 132 kW or 1.32% of their goal for that year.
  • The cost of the 500 kW Gloucester facility as per Dominion’s press release is $2 million or $4 per watt.  No cost data was provided for ODU facility.
  • As per GTM U.S. SOLAR MARKET INSIGHT REPORT, Q3 2013, the average installed price for all market segments was $3 per watt during that quarter.
  • While an EPC contractor for ODU facility is not provided, EPC contractor for Gloucester facility was North Carolina based PowerSource.

Questions

  • Since the program cap is $80 million and the SCC approval states up to 30 MW, can Dominion be held to the original estimate of $2.67 per watt if they meet their goal of 500 kW minimum system size?
  • What are their EPC subcontractor costs?
  • What are their financing costs?
  • What are their O&M costs?
  • What are their lease costs?
  • Are they including any costs that would be associated with roof remediation?
  • Is the sale or salvage value of the asset at the end of the lease term included in their calculations?

 

Analysis

  • Dominion’s installation price at Gloucester facility is 33% higher that GTM average market price of $3 per watt.
  • Dominion has currently installed 5.8% of their stated project goals through January 2014 at a cost 50% higher than allowed by SCC ruling.
  • It is not clear if any Virginia jobs have been created.
  • No Virginia based contractors have been announced as EPC partners.
  • If Dominion is including roof remediation costs in their project costs in order to increase marketability that seems to be against the spirit of the program, and their FAQ responses.  It is not clear if this is the case.
  • If Dominion is to generate revenue from the sale or salvage of the assets after 20 years then that should be included in their cost calculations or that revenue should be used to offset future capital costs they may incur.  Based on the exceedingly high $4 per watt cost we can only conclude that this revenue is not included in their cost calculations.

Conclusions

Since we are not privy to Dominion’s actual project costs, lease agreements signed, lease agreements in negotiations, or whether the sale of the asset at the end of the lease is included in their calculations, we will draw our conclusions based on the data that is available to us.  If we are provided access to Dominion’s information regarding these items we can provide a more accurate analysis.  It is our conclusion that at Dominion’s current rate of installation, perhaps five 500 kW installations per year, and the installations already completed, they will have installed 5.62 MW at a cost of 22.5 million to the rate payers of Virginia during the three years of this program.  Using the $3 per watt rate per GTM data, it is our estimate that a similar program left to the private industry would have yielded 26.7 MW for the price of $80 million within the same three year period with the creation of 400-600 job years in the solar industry and would have provided Virginia based contractors with an opportunity to have grown their businesses so they could compete with contractors from neighboring states.

Statement

All Virginians should oppose any proposal by Virginia’s regulated utilities to own or solely control in any way renewable energy generating equipment used in a distributed community energy or virtual net metering program.  We do welcome any opportunity to open a meaningful dialogue between advanced energy industry members, our trade association, and the regulated utilities to address their concerns with such privately-owned, neighborhood-owned, community-owned or third-party-owned distributed generation systems and/or virtual net energy metering so that the industry and free enterprise can provide these services.