Appalachian Voices Comments re: 2018 Virginia Energy Plan
As the Northam Administration embarks on shaping its 10-year vision of Virginia’s energy system, Appalachian Voices, a 501(c)(3) nonprofit working to ensure a swift, just, and equitable transition to a clean energy economy, supports particular values that should be reflected in policy choices as described below.
Most citizens, scientists, businesses, and policy makers agree that our energy system must shift rapidly away from climate-disrupting fossil fuel sources towards zero-emission resources that can power our economy sustainably for decades to come. This shared priority is already reflected in several Virginia policies.[1] Transitioning to a clean energy economy presents monumental challenges, but it also comes with significant opportunities to develop some of Virginia’s struggling local economies and to ensure that the benefits of the new energy economy are enjoyed by all, serving the public interest above special private interests.
It is already the policy of the Commonwealth to apply a justice lens to energy infrastructure decisions by ensuring “that development of new, or expansion of existing, energy resources or facilities does not have a disproportionate adverse impact on economically disadvantaged or minority communities.”[2] However, environmental justice considerations must be elevated further in Virginia during the clean energy transition, incorporating data and advice from environmental justice communities into the decision-making process.
In addition, citizens want greater choice and control over their fuel source, their energy consumption, and energy infrastructure siting. To transform Virginia’s energy economy into a just and sustainable model, this Administration must prioritize customer-owned distributed energy resources, elimination of perverse utility incentives, a swift drawdown of fossil fuel extraction and use, and environmental justice guidance in agency decision-making.
Accordingly, Appalachian Voices recommends the following policy actions.
Environmental Justice
Codify the Governor’s Advisory Council on Environmental Justice and Include It in Budget
In only its first year since creation under Executive Order 73,[3] it is clear that much needs to be done to strengthen the Governor’s Advisory Council on Environmental Justice. First, the Administration should support legislation establishing the Advisory Council as a permanent body corporate and political subdivision of the Commonwealth of Virginia. Funds sufficient to cover the administrative expenses of the Council should be appropriated by the General Assembly. The Governor should include these funds in his budget.
Order State Agencies to Address Environmental Justice in Decision Making
In order to elevate environmental justice considerations in decisions affecting the siting, development, and regulation of energy infrastructure, Governor Northam should order state agencies to incorporate environmental justice concerns into agency decision-making to the fullest extent allowed by law. This would align state policy with the federal Executive Order 12898.[4] Other states, like New Jersey, have taken this action to prioritize environmental justice.[5]
EJ Representation at the State Corporation Commission
Virginia should follow the lead of other states that are creating opportunities for environmental justice communities to be represented at their utility commissions. In California, the Public Utilities Commission seeks counsel from a disadvantaged communities advisory board.[6] Virginia should consider a similar arrangement through a fully-resourced Advisory Council on Environmental Justice, or with an environmental justice citizen board, or by creating a section for environmental justice within the Office of the Attorney General.
Promoting Distributed Solar Energy
Eliminate barriers to customer-owned and third-party financed solar power
There are several sound recommendations in the 2014 Virginia Energy Plan regarding solar energy policy that have yet to be achieved.[7] Appalachian Voices supports the following recommendations from that plan and urges this Administration to set even more ambitious goals:
The 2014 Virginia Energy Plan recommended increasing the net metering cap from 1% to 3% of each electric distribution company’s adjusted peak load forecast for the previous year.[8] Appalachian Voices supports increasing the cap to at least 10%, if not eliminating it altogether.
While utility companies sometimes claim that net metering constitutes a subsidy for participants in the program (paid for by non-participating customers), ratemaking experts disagree. The Regulatory Assistance Project argues that “[t]his is a misapplication of rate design and cost recovery principles and practice which have never charged generators for use of the distribution system, as well as accepted cost allocation methods, which are themselves dynamic in nature.”[9] In fact, these experts point out that
“[o]nce solar penetration reaches about 10 percent of customers, as it has in Hawaii, there may be specific costs to the grid operator, such as additional voltage regulators, that are attributable to high levels of solar penetration. This does not necessarily mean that solar customers should pay different or additional charges compared with non-solar consumers because in most cases this solar penetration is helping to avoid other offsetting generation, transmission, and distribution costs.”[10]
As long as penetration of distributed solar is relatively low, net metering “is appropriate as a proxy” for time-based, bi-directional rates that do not discriminate against distributed generators and account for the value of solar. “It is unlikely that [net metering] will overcompensate DG customers, and likely that it will still send sufficient price signals to the customer to make economic choices about whether to install DG. Where PV saturation is low, the impact on the utility system and revenues would also be quite low.”[11]
Until rate design changes are implemented that properly value the benefits distributed solar resources confer on the grid (e.g., some combination of value of solar tariffs and time-based rates), the Administration should support raising the net metering cap to at least 10%. The Administration should also support an independent study of rate design alternatives that will optimize distributed energy resources and a modern grid.
While third-party financing of distributed renewable energy projects arguably is available to all customers under VA Code § 56-594 already,[12] the Administration should support legislation or rulemakings that clarify the availability of power purchase agreements (PPAs), leases, and other third-party finance instruments to renewable energy customers throughout Virginia, regardless of service territory.
Third-party finance is a cornerstone of the national solar industry, and it is especially important that tax-exempt entities be able to use PPAs or other instruments to take advantage of the federal solar investment tax credits before those incentives begin to step down in 2020. According to the Solar Energy Industries Association (SEIA), the federal solar investment tax credit (ITC) has helped residential and commercial scale solar installations grow 1,600 percent since its implementation in 2006.[13] Virginia can boost its solar development by ensuring that customers in all classes have access to the federal ITC, which is currently 30% but steps down to 26% in 2020, 22% in 2021, and 10% in 2022 (for commercial and utility scale; the ITC is eliminated for residential customers in 2022).[14]
In addition to opening third-party finance to all customer classes in all utility territories in Virginia, the Administration should work to eliminate aggregate caps on the use of third-party financing. Dominion’s PPA pilot program is currently capped at 50 MW, and Appalachian Power’s PPA pilot is capped at 7 MW.[15] There are no third-party finance pilots in municipal and cooperative territories, nor in Old Dominion Power’s (Kentucky Utilities) territory. As discussed above, caps on net metering are not supported by data or historic ratemaking practice. Similarly, caps or restrictions on third-party finance instruments for distributed energy facilities are arbitrary, and act merely to restrict the growth of distributed solar.
The 2014 Virginia Energy Plan recommended increasing the size limit of solar facilities that may participate in net metering (from 20 kW to 40 kW for residential systems; from 500 kW to 1 MW for non-residential systems) and raising the threshold for standby charges from 10 kW to 20 kW.[16] While raising these limits would represent progress, neither system size limitations nor standby charges are supportable as a general matter. As noted above, it is a misapplication of rate design and cost allocation principles to charge generators for use of the distribution system.[17]
While the system size limit for non-residential customers participating in net metering was raised to 1 MW, Virginia law still interferes with a residential customer’s right to self-generate by limiting participation in net metering to a 20 kW system and capping system size additionally to “the expected annual energy consumption based on the previous 12 months of billing history.”[18] Such limitations are arbitrary and they suppress the growth of distributed solar.
Moreover, as other sectors electrify, such as the transportation sector, it becomes increasingly burdensome to limit a net-metered renewable energy system size to a measure of historic consumption. Doing so provides perverse incentives, such as disincentivizing the deployment of energy efficiency measures until after a net-metered system is built. In addition, if a person is considering purchasing an electric vehicle, the incentive under current law is to buy that vehicle and wait 12 months before installing a net-metered solar facility. This presents difficult choices for a potential solar net metering customer, given that the solar ITC begins to step down in 2020.
The 2014 Virginia Energy Plan recommended the development of utility-administered community solar programs.[19] This was achieved in 2017 with the passage of Senate Bill 1393, which created a pilot program for utility-administered community solar programs.[20] Under the pilot, Dominion Energy and Appalachian Power are required to purchase solar facilities (or the energy produced by them) from third parties and offer a voluntary rate schedule to their customers to purchase that solar energy.
These, programs, if well-designed and approved by the State Corporation Commission, may provide an excellent alternative to customers who cannot install their own on-site solar facility. However, many Virginia customers still want to benefit from the “traditional” community solar model, in which a group of customers collectively owns a solar facility and uses its output.
This Administration should support legislation and regulations that develop guidelines for traditional, customer-owned and sited community solar. Such guidelines should clarify that participants in traditional community solar are not subject to regulation as electric utilities, and they should set out reasonable approaches to billing, such as virtual net metering.
Support Incentives for Distributed Solar
In addition to removing the myriad barriers to distributed solar, the Administration should actively promote incentives to develop of the residential and commercial solar sectors.
A state tax credit could completely transform the economics of going solar in Virginia, especially for the lagging residential solar sector. It is instructive that our neighbor North Carolina has more installed solar capacity than any other state in the South and is ranked second nationally by the Solar Energy Industries Association, with 4.64% of the state’s energy coming from solar in 2017 and 504,119 homes powered by solar.[21] By contrast, Virginia only derives 0.59% of its energy from solar, powering 68,605 homes.[22]
The North Carolina solar sector was boosted by a 35% state tax credit until it expired at the end of 2015.[23] The state still benefits from strong solar policies like a Renewable Energy and Energy Efficiency Portfolio Standard and new authority for solar leasing.[24]
Approximately half of the growth in renewable energy in the U.S. since 2000 can be attributed to state renewable portfolio standards.[25] Twenty-nine states and the District of Columbia have mandatory renewable portfolio standards.[26] An RPS can be especially beneficial to the growth of distributed solar by creating a market for the environmental attributes associated with solar facilities (though the value of SRECs varies widely from state to state). Virginia could further shorten the payback period for a rooftop solar facility with an SREC market. The Administration should support legislation creating a mandatory renewable portfolio standard.
Energy Storage
Encourage customer-owned battery storage
Pairing solar with storage is a commonsense strategy for meeting electricity demand largely through renewable energy. As the energy storage industry begins to mature and costs decline, distributed commercial- and residential-scale battery storage will become increasingly attractive to citizens who want to save money, manage their loads, and consume renewable energy.
The Administration should support a tax credit for distributed energy storage facilities. This could be incorporated into the solar tax credit described above. This can serve as an important incentive, driving down cost barriers and spurring the growth of a modular, dispatchable technology that is a natural complement to rooftop solar.
Energy Conservation & Efficiency
According to the American Council for an Energy Efficient Economy (ACEEE), energy efficiency is now the nation’s third-largest energy resource (behind coal and gas), and it could become the nation’s largest energy resource by 2030.[27] Efficiency is a least-cost resource and it is arguably the most important piece of decarbonizing the energy sector.
Support a Utility Energy Efficiency Resource Standard
An energy efficiency resource standard (EERS) requires that utilities achieve a mandatory percentage reduction in energy sales relative to an established benchmark (typically prior-year sales) via energy efficiency measures. At least twenty-six states are currently implementing a utility EERS, with targets as high as 2.9% of prior-year sales and 30% total energy reduction relative to the benchmark year. Thus far, states that have an EERS in place have achieved an average retail energy savings of 1.2% of sales. By contrast, states without an EERS are saving an average of 0.3% of retail energy sales.[28] Of the top fifteen energy-saving states in 2015, all of them were implementing an EERS.[29] The Administration should support legislation creating a utility EERS that requires each electric utility to make all cost-effective energy efficiency investments that are available to meet or exceed the selected mandatory target.
Support Decoupling of Utility Revenues
Utilities are less likely to oppose energy efficiency requirements if incentives are properly aligned. When utilities do not fully recover revenues from lost sales (including rate of return), they have a disincentive to put forth robust efficiency programs.[30] The preferred solution is to implement decoupling of utility revenues from energy consumption. Virginia decoupled its natural gas utilities in 2008, but did not do the same for its electric utilities.[31] The Administration should advance legislation to decouple electric utility revenues from consumption.
Reducing the Use and Impacts of Fossil Fuels
Place a moratorium on new natural gas transmission lines
As recent experience with the Mountain Valley and Atlantic Coast pipelines has proven, the construction of large interstate natural gas pipelines into and across Virginia has enormous environmental, property, and human costs. Short-term, long-term, and even permanent adverse impacts to Virginia’s waters and forests are expected,[32] in addition to the significant loss of property values along the proposed pipelines’ routes.[33]
Unfortunately, the alleged benefits of these projects are unlikely to come to fruition, meaning that these sacrifices will have been made in vain. First, independent analyses show that Virginia already has sufficient pipeline infrastructure in the ground today to meet gas demand through at least 2030.[34] Given that there is currently excess storage and transportation capacity, it is unlikely that more large pipelines are needed even if new gas-fired combustion turbines are approved in the future. Second, building the Atlantic Coast Pipeline will cost Dominion’s captive ratepayers approximately $2 billion over and above any savings customers might have received via access to cheaper fuel.[35] Third, any climate benefits natural gas was thought to have over coal as a fuel source are likely a nullity over the first 20 years.[36]
Accordingly, this Administration should place a moratorium on the development of large (20 inches and up) natural gas transmission lines, using its fully authority under state and federal laws. The moratorium should persist at least until independent and reliable projections of demand for natural gas beyond 2030 are available and scrutinized by the State Corporation Commission.
Remove Support of Natural Gas Infrastructure Development from the Virginia Energy Policy
As noted above, the risks associated with developing new natural gas infrastructure far outweigh the benefits over at least the next twenty years. It is not in the public interest to subject captive ratepayers to the costs of new transmission infrastructure when electricity demand can be met with cheaper and less harmful alternatives. Nor is it in the public interest to subject Virginia communities to the environmental and property impacts of developing new liquefied natural gas export facilities, especially when the commodity is not intended for domestic consumption.
Accordingly, the Administration should support amending the Commonwealth Energy Policy to remove the promotion of “expanding Virginia's natural gas distribution and transmission pipeline infrastructure” and “siting one or more liquefied natural gas terminals.”[37]
Eliminate the $20 million coal mining pool bond cap
The Administration should support legislation authorizing the Department of Mines, Minerals and Energy to promulgate regulations that set the amount or rate of specific bond pool fees for coal mines. In 2014, changes passed by the General Assembly raised the cap on the tax-portion of the bond pool from $2 million to $20 million, but stopped short of eliminating the cap entirely. Eliminating the bond pool cap would allow for timely adjustments that may be necessary to achieve or maintain solvency of the pool bond fund. Ideally, the Commonwealth would institute full-cost bonding practices based on site-specific factors and actual reclamation costs instead of setting arbitrary bond amounts.
Support legislation to join the Regional Greenhouse Gas Initiative (RGGI)
Appalachian Voices applauds this Administration’s support of the Virginia Alternative Energy and Coastal Protection Act (2018), which would have joined Virginia to the Regional Greenhouse Gas Initiative (RGGI) carbon emission trading market. This legislation is an important measure to reduce carbon dioxide emissions from large electric power stations 30% by 2030. While a similar regulation under existing law is nearly final, legislatively joining RGGI is essential for directing auction revenues in ways that best serve the public interest, like energy efficiency investments and low-income bill assistance programs.