New Indiana solar law could cripple small businesses and customer savings
(INDYSTAR.com) - Chris Rohaly is no stranger to the sun. His hands have the faint resemblance of worn leather. And there are the lines converging at the crease of his eyes.
You could call the 56-year-old Kokomo resident a farmer. He harvests the sun.
Specifically, he is the owner of a solar energy company. But it’s not his work installing solar panels that has him up before sunrise. It's the threat of no longer having work that keeps this small business owner from a restful sleep.
"A solid night's sleep has gotten a lot harder to come by in the last few months," Rohaly said. "Are we going to be able to satisfy and keep the promises to all these people we've committed to by the end of the year? Am I going to be able to grow the jobs for my crew and my business into something more meaningful and permanent?"
The source of Rohaly's concern — and that of many other small business owners — is Senate Bill 309. The law, championed by the state's powerful utility industry, phases out net metering, which requires utilities to pay solar users for any excess energy that is created by their solar panels. The program was intended to provide an important incentive for Hoosiers to install expensive solar panels and produce their own energy that is better for the environment.
Rohaly, who is the co-founder of Green Alternatives, Inc., is among thousands of solar providers and their employees, as well as ratepayers, consumer and environmental advocates, schools and municipalities, who are anxiously watching what will happen when the law, passed in May, begins phasing out net metering on Jan. 1, 2018.
The law was pitched as a way to level the playing field between solar customers and the state's investor-owned utilities, who maintain net metering is an unnecessary subsidy paid for by other ratepayers. But an IndyStar investigation that looked at how such laws have played out in other states and how the law already is having an impact here suggests SB 309 could put an entire industry at risk of stagnation at best — and, at worst, collapse.
Among IndyStar's findings:
• The phasing out of the incentive robs those considering solar of hundreds, if not thousands, in potential savings over the years. Already, solar companies told IndyStar that some would-be customers have decided to no longer choose the solar option — a decision that could stall Indiana's move toward cleaner, renewable energy.
• Solar energy is increasing significantly across the U.S., so much so that the federal government says solar installers are the nation's fastest-growing occupation. But in a state where the governor and the general assembly tout the importance of small business and job growth, SB 309 is potentially a job killer. Fewer solar customers means fewer solar jobs.
• An arbitrary deadline tucked into the law has created a short-term flood of customers trying to reap the full benefits of the incentive before it goes away. Problem is, Indiana's fledgling solar industry is not able to handle the crush, sending jobs and money to solar companies in neighboring states.
• The utility companies' concern over a financial impact that net metering will have on other ratepayers has not yet happened and is likely overstated, leading some experts to tell IndyStar that the law was a premature, and perhaps, unnecessary preemptive strike seemingly designed less to protect ratepayers' wallets than the utility industry's bottom line.
Indiana's energy companies see it much differently. They believe the doomsday predictions about the impact of phasing out net metering is exaggerated. And while they acknowledge that net metering is not yet a burden for nonsolar ratepayers, it is prudent to act now before that happens.
"This has been an issue in front of the general assembly for several years now and the perspective in the industry remains the same: Indiana doesn't really have a problem right now with net metering," said Mark Maassel, president of the Indiana Energy Association, a lobbying group that represents the utility industry. "But we are in a position to address the subsidies inherent in net metering now."
While utility officials may disagree with solar companies and environmentalists about the impact of SB 309, all parties agree that solar is an increasingly important source of renewable energy. Solar puts more control back in consumers' hands over where their energy comes from and how much they pay for it. It puts skilled workers in high-paying jobs in the country's fastest growing occupation field. It puts fewer pollutants in the air than traditional fossil fuels that are burned for electricity. And solar puts Indiana on the map as an innovative and technology-focused economy.
The argument is squarely about whether net metering is necessary to push solar forward in Indiana.
Rep. Ron Bacon, R-Chandler, who has 96 solar panels on his property near Evansville, believes it is.
"I come from coal country down here, and still my constituents were heavily against this bill, and I even lobbied the governor after it passed that we didn't want him to sign it," Bacon said. "We need to incentivize individuals and businesses and schools to be more self-sufficient.
"With 309 we are sending the wrong message, one that we are not for technology growth, expanding small business or a clean environment. The industry is growing rapidly, or right now it is. But what will happen after this policy? We don't know."
Riding the solarcoaster
Net metering, in its simplest form, credits customers for excess energy they produce that flows back to the grid — thus helping to offset electricity they consume from the utility at other times.
More than 40 states have some variation of the rule.
Indiana's policy is more than a decade old, but its most recent iteration was passed in 2011 under former Gov. Mitch Daniels. At that time, the Indiana Utility Regulatory Commission established more groups, such as businesses and municipalities, eligible for net metering. The body also increased the size or capacity of solar systems that could be credited at retail rates.
The IURC oversees the state's five investor-owned utilities: Duke Energy, Indianapolis Power and Light, Indiana Michigan Power, Northern Indiana Public Service Company and Vectren Energy.
"At the time we, had a net metering rule that was very restrictive and getting D's and F's in state rankings," said Laura Arnold, current president of the Indiana Distributed Energy Alliance, Inc. and someone who has worked in the utility and renewables field for more than 20 years.
"Then after 2011 we went to a solid B grade," she said, "and people could get the return on their investment."
Coupled with the decreasing cost of panel technology and rising electricity rates, this policy helped foster a small but growing market and the industry to serve them. In each of the last five years, the number of net metering customers across all major utilities grew by nearly 100 or more and by as many as 250 in 2016, according to reports by the commission.
But then came Senate Bill 309.
The bill, which was signed into law by Gov. Eric Holcomb in May and implemented July 1, set a deadline: Install solar panels by Dec. 31 to be locked in to the current incentive for 30 years. Meaning for every bit of energy a homeowner produces but doesn't use and sends back to the grid, the utility would credit them at the same price a customer buys electricity.
But for homeowners who miss that deadline, the incentive is reduced. Any homeowner who installs between next year through 2022 will receive that same rate only until 2032. Put another way, a homeowner who installs panels by Dec. 31 receives the incentive for 30 years; a homeowner who installs it the next day would receive the incentive for just 15 years.
All installations that occur after 2022 will receive the wholesale rate — a lower amount that utilities buy electricity for from the market — plus an additional 25 percent.
"Those changes, at best, cut in half a consumer's available amount of net metering, and throws their return on investment completely out of whack," said Allyson Mitchell, director of sustainability at Prosperity Indiana. "Just when we were getting to a point where a much greater percent of the population was becoming able to pursue solar, then our state cuts that off again."
Some installers have crunched the numbers.
For an average residential rooftop solar installation that is a net zero system — meaning it uses the amount of electricity it produces — the owner would pay about $200 a year in net metering and associated fees if grandfathered in to the current rates, according to Alex Jarvis, owner of Solar Systems of Indiana. With the new policy, the same system would cost its owner roughly $450 each year in billing.
That's a hard sell after Jan. 1, the installer of 10 years said.
That deadline also has had an unintentional effect: It's created an artificial explosion of demand.
Rohaly said his business is seeing more than double the activity it did this same time last year. Phil Teague of Rectify Solar said the third quarter is often his busiest, and this year it was busier than ever. Jarvis' small crew has worked 12-hour days, seven days a week in recent months.
Solar advocates, such as Arnold and Mitchell, as well as the installers, welcome this boom in business. Still, they don't want it to be misconstrued.
"We are riding the solarcoaster," Jarvis said. "It's going up right now, but it will go down."
Lost solar savings
Everyone is along for the ride — including customers.
The utility giants said they were just trying to keep the car from derailing, according to Maassel, to whom the energy companies pointed to speak on their behalf.
There is a fixed fee on every utility bill for infrastructure and maintenance, including solar owners' bills. Still, Maassel said that amount is not enough to cover those costs — thus this amounts to a subsidy or cost-shifting when nonsolar owners must make up the rest to maintain the grid.
When asked for specific numbers or dollar amounts being shifted in Indiana, however, he wasn't able to say.
Maassel acknowledges no study was completed to inform the new law. He also admits the impact on the state’s ratepayers at the moment is negligible, because so few solar customers are connected to the grid.
So few, in fact, that the total customers participating in net metering in Indiana numbered only 1,116 as of last year — out of the more than 1.5 million residential, commercial and industrial customers to which the utilities supply electric services. The roughly 15,500 kilowatts of solar energy they generated in 2016 contributed less than a half percent of the utilities' peak load.
This comes in stark contrast to Arizona, to which Maassel pointed as an example of cost-shifting, where just one utility has more than 50,000 net metering customers and one gigawatt — or one million kilowatts — of solar on their system.
"But that was the advantage Indiana had," he said — to make this change early, before the numbers became noticeable.
That change came too early, according to many experts and advocates.
They acknowledge that a net metering incentive is not meant to be available forever, said Sean Gallagher, vice president of state affairs at Solar Energy Industries Association. But industry practices recommend reviewing and adjusting the policy when solar generation has reached around 4 percent or 5 percent of a state's electricity. Not Indiana's 0.3 percent.
"It's disappointing and really premature," Gallagher told IndyStar. "Trying to chop off the head of solar prematurely doesn't really benefit anyone — not the growing industry, not really even the utilities and certainly not the customers."
That means all customers, whether or not they have or are interested in solar.
Excess electricity from homes with solar goes to their neighbors first, which can be particularly helpful during those hot, air conditioning-heavy peak times.
Janet McCabe, of Indianapolis, had been considering solar for a while. As a former official in the U.S. Environmental Protection Agency's air quality office, she knows the importance of transitioning to cleaner energy sources.
Just 200 kilowatt hours of green energy each month — about 20 percent of an average residential customer's electricity use — helps to avoid 4,800 pounds of carbon dioxide emissions each year, according to Duke Energy's own documents. This equates to taking one passenger car off the road for one year.
Air quality benefits provided by the growth in renewables can amount to more than $30 billion in savings from avoiding premature deaths and other pollution damages, according to the Lawrence Berkeley National Laboratory.
McCabe worries what fossil fuels Indiana, historically a coal heavy state, will rely on if clean energy isn't encouraged. Her and her husband's solar plans were put into overdrive when SB 309 was passed.
"Like most homeowners, we had a list of house projects that are substantial in capital," she said. "But this absolutely moved to the top of the list with the time pressure to get the most significant benefit.
"It's not that there is no benefit or advantage to solar after this year, it just steps down quite dramatically," she continued. "From my experience, there are many states that seem to be much more encouraging of customer-generated and clean energy than Indiana."
At its core, according to Kerwin Olson with the Citizens Action Coalition advocacy group, Indiana's new law removes customers' choice and their ability to be more self-sufficient.
"I don't think 309 will kill solar in Indiana," Olson said. "What it will do is kill customer-owned solar."
'A State that Works'
By killing customer-owned solar, it cripples the industry that serves those customers, as well.
"The economic implications of this bill were just not thought through," said Jesse Kharbanda, director of the Hoosier Environmental Council. "I don't think lawmakers really appreciated the potential of the solar industry to Indiana."
That potential, arguably, is massive.
Solar installers are the fastest growing occupation in the U.S.: The nearly 113,000 solar jobs in 2016 are expected to more than double in the next decade, according to the U.S. Bureau of Labor Statistics. Approximately 2,700 of those jobs are in Indiana, the Solar Jobs Census reports, which is up from roughly 1,500 in 2015.
Yet, many of those new jobs in the state could be gone next year, as businesses are forced to lay off employees or move most of their work to other states.
“It’s given us all ulcers and is a nagging fear for me,” said Rohaly, the solar provider from Kokomo. “This year we won’t buy new equipment that we had planned to phase out so that I can hold back as much as possible to keep the payroll going as long as possible.”
Such was the case in Nevada — a more advanced market at nearly 8 percent saturation — after a decision that removed net metering. Half a dozen solar companies closed up shop, there was a more than 40 percent drop in solar installations and thousands of people lost their jobs, according to Lauren Randall, director of public policy at solar company Sunrun, which packed up its Nevada operations. Such ripple effects and customer backlash led the legislature to reinstate a net metering policy in June, Randall said, and the industry is rebounding — including the return of Sunrun.
Sen. Brandt Hershman, R-Wheatfield, who authored SB 309, does not believe the crickets next year will be as loud as installers and advocates fear. Yet some installers, including Rohaly, said they have received calls where individuals are no longer interested after learning it is too late to meet the Dec. 31 deadline and the panels would have to be installed in 2018.
"Net metering and the availability of it has been a critical driver, if not a necessary condition, of the growth of the solar market," said Galen Barbose, a research scientist on electricity markets and policy at the Lawrence Berkeley Lab.
The dropping prices of solar panels and related technology should help to make the investment more affordable in place of net metering, according to the utilities and Hershman.
That does not take into account, however, an international trade case where officials recommended Tuesday to limit imports on certain solar components and impose tariffs up to 35 percent on some products. Depending on President Donald Trump’s ruling on these recommendations, Indiana stands to lose several hundred solar jobs, according to estimates by the solar industries association.
Hershman said the deadline, which he acknowledges was set arbitrarily, is nonetheless beneficial to provide Hoosiers with a sense of finality and certainty.
The only thing Indiana installers feel certain about is the need to diversify in the future to be able to survive — and that includes expanding their business to other states.
Indiana already is losing jobs to other states. Why? Indiana's solar industry is not large enough to accommodate that sudden crush of customers caused by the net metering deadline.
Wallace McMullen, chair of the state’s Solar Energy Society, said he knows of at least one firm based out of Lexington, Ky., that has been the “big beneficiary of the rush to install solar in Indiana.”
Even worse, the tremendous bump the industry is seeing in Indiana right now isn’t accompanied by the same level of job growth. Not even close.
Rohaly said he has brought on a couple part-time workers, but with the explicit understanding the positions are only temporary. The owner of Indianapolis’ Rectify Solar said he likely will have to bring in a California team to help complete his company’s installations. And Bob McKinney, president at Johnson-Melloh Solutions, said he is looking to hire full-time employees, but it is a “tough landscape” to bring someone to Indiana when they see the changes under bill 309.
“For being ‘A State that Works,’ why do we have to work so hard to provide jobs?” McKinney asked. “Since when did economic choice and opportunity become a bad thing — I just keep coming back to why this is so hard to do here.”
This is the first of two stories examining the solar industry in Indiana and the effects of Senate Bill 309. Check back Monday for the next story, which examines lobbying on the part of the state's utility industry.
Call IndyStar reporter Sarah Bowman at (317) 444-6129. Follow her on Twitter and Facebook: @IndyStarSarah. IndyStar's environmental reporting project is made possible through the generous support of the nonprofit Nina Mason Pulliam Charitable Trust.