In planning to construct our home, I’ve recently had to do a great deal of math on the fiscal merits of solar energy and, in doing so, I think I’ve come up with a simple, (relatively) free-market incentive to get more families and businesses to build active solar components into their buildings. Anybody familiar with the mechanics and laws behind net metering can skip the next half-dozen paragraphs, all of which exist to set up the idea.
Unlike petrochemicals, solar enjoys the benefits of no state or federal subsidies. This most local (and yet interstellar) source of energy must stand on its own, despite being in earliest days of development, when it could benefit most from a boost from the public sector. The excellent Findsolar.com tells me that, in order to satisfy 50% of my planned home’s electrical needs, I will require 3kW of peak power, for which I will have to cough up $25,000 for the hardware and installation costs. Over the course of the life of this system I will recoup 62% of that cost through reduced need to buy electricity from Dominion Power, assuming a 3.78% annual utility inflation rate.
So, basically, I’d be paying $9,500 to be a mensch. That’s a lot of money. That’s enough to add a nice wrap-around covered porch to the front of the house. Or increase the size of the house by fifty square feet. Or bury our half-mile power line. Or cover seven months of mortgage payments. Or, better yet, money that we simply wouldn’t spend on the house.
Some states recognize the enormous benefit of having a distributed source of clean, domestically-produced energy, and so offer tax credits to individuals who take the plunge. When the tax credit is enough to make up the gap between capital outlay and savings ($9,500, in my case), that’s enough incentive for some people to make the jump to making their own energy. Virginia doesn’t have that much sense. We offer no incentives. The best we can muster is allowing localities to offer property tax exemptions for solar, something that I’m glad to see that my home of Albemarle County offers.
Virginia also requires many power companies to allow net metering, which is certainly nothing special, but it’s a start. Net metering means that your electrical meter can spin either forwards or backwards. In the middle of a summer day, when nobody’s home (so very little power is being used) but a lot of energy is being collected, that power flows back out to the grid, and customers are credited for that energy. But at night, when no power is being generated by the home, the energy flows back in from the power company. In essence, the power company is used like a bank — they can keep my excess electricity for me, earn interest on it, and give it back to me when I need it.
The trouble is that Dominion Power, my power company, handles net metering in the way that is most favorable to them and least favorable to me. (Their terms are available on their website.) If I buy 100 kWh in a month and sell them back 400 kWh, they pay me…nothing. I simply have a tiny little power bill, in which I pay only for the privilege of being connected to their grid. So I have just donated 300 kWh to Dominion Power. (That’s the only thing I could do that would be less likely than spending $9,500 on a solar setup that I’ll never recoup the investment in.) They’ve recently changed the rules to let me apply that 300 kWh to future billing cycles, but at the end of a year, they just keep it. This is like my bank requiring that I spend all of my money each year; any money I just can’t blow by January 1, they’ll just keep.
It’s for this reason that many people who generate electricity at home invest in enormous banks of batteries, which they use to store their excess power. The electrical equivalent of keeping one’s savings in one’s mattress, this prevents anybody else from benefiting from that excess electricity in the interim, and turns the whole thing from an ongoing business opportunity into something more like electrical isolationism.
Now, I’m a guy who would really like to buy clean energy. Our current house is staggeringly energy-hungry, requiring 9.2 BTU/ft2/kWh, which is only moderately more efficient than stringing up tarps under a bridge. So long as we continue to occupy this house, I’d love to buy some of our juice from renewable resources. If just 10% of our 1,200 kWh of monthly energy came from wind, water, or solar, that would be something I’d pay a premium for. Right now I pay an annual average of $0.0601/kWh for my juice, and I bet I’d be willing to pay at least twice as much for clean power. That would raise my average monthly power bill from $75 to $82.50. I’ll warrant that there are many thousands of households in the state who would also happily pay more for clean power.
Likewise, I’ll bet that there are thousands of households in Virginia who would be very happy to sell that power to me. And there’s the rub.
Clean power generated by home and business owners is more valuable than coal-generated power, to the estimation of a great many consumers. So it stands to reason that it should demand a higher dollar. Yet Dominion credits net metering customers at the same rate that they charge for power from coal plants. This doesn’t make any sense. If the going rate for coal-generated power is $0.0601/kWh, perhaps Dominion should buy back clean power for $0.10/kWh, a two-thirds markup. Then they can sell that clean power to other customers for a higher rate (such as $0.1202, as I suggested). This makes clean power a profitable business both for Joe Solar Power and for Dominion. If I can generate a surplus of 263 kWh each month, that’ll leave me with $9,500 at the end of my system’s life, enough to make the whole thing a break-even proposition. And that’s assuming that the price of energy won’t increase in the next few decades.
Dominion made so clear during this last General Assembly session that they are desperate — desperate — to be regulated, and since the state obliged, so having the state dictate the amount that they’ll buy and sell power for is something that they’re down with. But I don’t doubt that Dominion will surely oppose this anyway. It creates the potential for thousands of competitors, and reduces demand for their own services. But what Dominion doesn’t understand is that, in fact, it puts them in an excellent position. Clean, distributed power generation is our future. But we cannot actually share that power without an intermediary, and the intermediary is whoever owns the power grid. That leaves Dominion in an enormously powerful position, and an enormously profitable position. As Google is to the internet (they don’t have information, they just index it), Dominion could be to power in Virginia (they don’t make power, they just provide access to it), and that’s a business model that is working out very nicely for Google. More important, Dominion has successfully argued that their business, right down to the rates that they charge, should be subject to standards established by the state, so even if they don’t see the wisdom of this, that’s OK, they don’t need to.
I suspect that this proposal would be considered mundane in some portions of the U.S. It’s pretty obvious. But I don’t live in other portions of the U.S., I live in Virginia, where I’ve never heard it suggested. Our General Assembly would do well to guide Dominion power to do the right thing and enact legislation that would help to create a new form of income for thousands of Virginians, make the United States more energy independent, and reduce pollution from power plants.