Independent producers foreshadow big changes in electricity production. Who will pay?

Arnold Abatecola has always been drawn to what he called “futuristic stuff.”

The 79-year-old retired stonemason, who moved from Italy to Providence 60 years ago, says he was the first person in the Silver Lake neighborhood to install a satellite TV in the 1970s, which at the time was 12 feet in diameter and couldn’t produce a clean picture unless its antenna was positioned just right toward the sky.

Nowadays, Abatecola’s passion for new technologies has shifted toward the ever-evolving world of renewable energy. “You learn to like the look of them,” Abatecola said, staring up at his 24-panel, dual-axis solar array, which stands nearly two stories high in the backyard of his Johnston home.

“I had a few extra bucks that I didn’t want to invest in the stock market. I wanted something more tangible,” he added.

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Abatecola is a net-metering energy producer, meaning he’s credited for whatever excess energy he adds to the energy grid. And there are more and more like him popping up across the state on both the commercial and residential sides.

But as net metering grows, a number of questions remain unanswered in Rhode Island. They include: how the state’s electricity system might be impacted; whether it’s really worth the upfront installation costs and what type of customers should pay for the shifting costs.

Abatecola’s 7.4-kilowatt system, with an annual output of 12,052-kilowatt hours, three years ago cost him $35,000 – including savings of about $5,000 because he did much of the construction work himself.

During nights and on cloudy days, when power can’t be drawn from the sun, Abatecola uses electricity from the power grid, similar to any other consumer. On exceptionally clear and sunny days, if his system generates more power than his household consumes, the grid pulls energy from his system. National Grid PLC, the state’s largest utility company, credits him for the excess power, which goes toward offsetting his overall energy costs.

His monthly electric bill on average has fallen 75 percent, to about $100 per month. He expects to fully recoup his investment within the next five to six years.

“You should think of this [net metering] model as the future of the utility industry,” said Fred Unger, president of Heartwood Group Inc., a Providence-based clean-energy development company.

“Fundamentally, the future of utilities is going to be to provide a platform where independent energy-service providers can transact with all sorts of customers across the state. By enabling this kind of model, you’re creating the future,” he said.

UNDERSTANDING THE GRID

At most businesses, the first task of the day is to turn on the lights.

Not much thought is given to the mundane routine, but even less is given to why the lights turn on at all.

For decades, power plants and utilities were the basic answers to this question. Power plants, typically run by nuclear reactors, coal or oil and gas, would generate electricity that would be subsequently sold to consumers through utility companies such as National Grid. The electricity runs through an intricate system of local transmission lines, nicknamed “the grid,” and is consumed wherever people are turning on the lights.

Distributed generation, however, is changing this narrative.

“Our energy system is at the cusp of a long-term, fundamental transformation,” said Marion Gold, commissioner of the R.I. Office of Energy Resources. “It’s going to become more complex.”

Distributed generation – meaning power produced at the same place of consumption – is growing quickly in Rhode Island. And it’s becoming easier to join the trend because of programs such as net metering.

Simultaneously, the demand for renewable-energy generation is growing, while the costs associated with building renewable-energy projects is falling – especially in the solar industry. And Rhode Island businesses and residents are catching on.

From 2014-15, the number of commercial-net-metering customers grew 63 percent to 75 customers, marking the largest increase since the program started. During the same period, the number of residential net-metering customers grew 184.5 percent to 494 customers, according to National Grid.

Those numbers pale in comparison to neighboring states, including Massachusetts, where the number of net-metering customers totaled 20,965 in 2015. But the Bay State, New Hampshire and Vermont have all met regulatory caps, meaning no more net-metering projects are allowed. This makes the relatively untapped Rhode Island market a sweet spot for future renewable-energy generation, though lawmakers in those other states are debating whether to raise the caps.

“Competition has grown significantly recently because the market in Massachusetts has really come to a halt,” said Anthony Baro, managing principal of E2SOL LLC in Providence.

A BOOMING INDUSTRY

The solar industry is booming right now in Rhode Island.

While Deepwater Wind LLC, a 30-megawatt offshore wind project off the coast of Block Island, builds the first operational offshore wind farm in the country later this year, the industry in this country is far from maturing. And onshore wind projects in Rhode Island are relatively few and far apart.

Solar energy, on the other hand, is growing fast.

Take a look at the industry. The number of solar-related jobs more than tripled to 941 in 2015, according to the nonprofit The Solar Foundation, marking the largest year-over-year percentage growth of any state in the nation. The state’s third annual “Solarize Rhode Island” campaign, an initiative aimed at growing the number of small-scale electricity projects, yielded 250 solar contracts signed by local residents and business last year totaling more than 1,700 kilowatts of new energy capacity. The first two years combined resulted in about 140 contracts.

“Increased adoption of clean-energy solutions offers homes, businesses and the public sector the opportunity to support local job growth, reduce energy costs and protect the environment,” said Gov. Gina M. Raimondo.

And it doesn’t hurt that the cost of solar becomes cheaper each year.

Indeed, a group of Oxford University researchers this year determined solar panels globally have become 10 percent cheaper each year since the 1980s and project the trend to continue. In Rhode Island, financial incentives, along with programs such as net metering, are making solar projects even more accessible.

“When you’re a small business, the cost of everything is so high,” said Joe F. Iaciofano, owner of Knight Farms in Gloucester. “I would tell any business owner to consider a solar project if they have the land in the right spot. We’re always going to need electricity and this can alleviate the costs.”

Iaciofano, who bought Knight Farms in 2003, completed his 67-kilowatt solar facility two months ago and expects his monthly electric bill to net zero because of net metering. The system cost about $200,000, which would have been beyond the financial reach of Iaciofano had he not received a $50,000 grant from the U.S. Department of Agriculture and a $71,000 grant from the state.

Iaciofano, whose system will go live after a National Grid inspection, projects it will save him about $15,000 a year on electricity. He expects to recoup his investment within six years.

“National Grid might complain that people produce their own energy, but what are we supposed to do when energy prices keep going up?” Iaciofano said.

Besides net metering, the state also offers grants and loans through the Renewable Energy Fund, established in the late 1990s, which is paid for by ratepayers via a surcharge on electric bills. More recently, the state launched the Renewable Energy Growth Program, which allows owners of renewable-energy systems to obtain 20-year contracts, known as a “feed-in tariff,” for energy with National Grid at a fixed rate.

The contracts are becoming popular among commercial customers because National Grid pays a higher rate for the electricity compared with net metering. But Baro expects net metering will grow more quickly, especially as the cost of renewable-energy storage falls.

“The technology has already been figured out,” Baro said. “It’s a matter of cost at this time and that cost will come down dramatically in the next two years.”

Net metering could also grow more quickly should lawmakers succeed in trying to make it more practical and easier to obtain, as has happened in Massachusetts and other states, according to industry advocates.

Raimondo and a handful of state representatives and senators are trying to pass legislation to expand net metering in Rhode Island.

Rep. Aaron Regunberg, D-Providence, is co-sponsoring a bill in the House that would permit third-party financing and offsite distributed generation – or “virtual net metering” – meaning a Providence business could produce energy on property in Cranston and benefit from the produced energy.

“Expanding virtual net metering is an important piece of the puzzle. It will allow for a lot more renewable energy for developers and consumers, as well as opening up the access of renewables to a whole new group of Rhode Islanders,” he said. “We’re vastly opening up the market and creating a lot more opportunity.”

CREATING OPPORTUNITY

Unger’s business develops solar projects in Massachusetts, almost all of which are virtual net metering.

He sees the virtual net metering and third-party financing as economic tools that help poorer communities, as they allow businesses and individuals to participate in and benefit from off-site projects.

“You enable a certain fairness to the whole program. Without off-site net metering, people in urban environments are restricted,” he said.

Currently, only municipalities can benefit from off-site net metering, and the savings have already been realized in West Warwick. The town will be net metering 100 percent of its electricity through a 1.5 megawatt, three-turbine onshore wind project it purchased in Coventry.

The project could save the town up to $40 million through the 25-year lifespan of the turbines, according to Julian Dash, managing partner of Clean Economy Development LLC, a development consultant which helped with the project.

The possibility of net-metering expansion in Rhode Island has also caught the eye of outside installation companies. A recent “solar stakeholder meeting,” held periodically by OER, was so well attended it was standing-room only, which isn’t typical, according to Gold.

Baro expects competition to grow, especially if other New England states don’t lift regulatory caps.

“Companies have started coming to Rhode Island for the incentives,” he said.

WHO PAYS?

The big question mark hanging over net metering in Rhode Island, however, is who should pay for what in the future.

Utility companies throughout the country argue that net-metering unfairly shifts grid-related costs to customers who don’t use net metering.

Because distribution and transmission fees are calculated based on the amount of energy a customer uses in any given month, ratepayers netting zero wouldn’t pay toward infrastructure upkeep. But if utilities must continue to pay for upgrades to the grid, and those costs are passed on to the ratepayers, distribution and transmission costs would rise for nonnet-metering customers.

National Grid believes Rhode Island should steer clear of net-metering expansion and stick with energy-efficiency initiatives and the renewable-energy contracts available through the Renewable Energy Growth program.

“The [REG] program was designed in an affordable manner,” said Timothy R. Roughan, director of energy and environmental policy at National Grid. “If you open up the net metering to allow more things, you go against that. … The cost to all customers goes up dramatically if you expand net metering.”

The utility last year proposed a new set of cost-of-service fees on certain renewable-energy projects, including net-metering customers, which Roughan said were required by current regulations.

But the proposal immediately received pushback from renewable-energy advocates, who argue the new fees would likely dissuade future investment in renewable-energy projects.

National Grid in January agreed to rescind its proposal and work with renewable-energy and ratepayer advocates, along with state regulators, to develop a new plan on how to deal with shifting costs.

“It’s really about equitable allocation and appropriate price signals for how the system is paid for, which I think is the foundation of how we move forward,” said Paul J. Roberti, commissioner of the R.I. Public Utilities Commission.

Baro says National Grid’s argument against net metering is really about protecting its dominance in the local energy market.

“We’re taking revenue from National Grid because we’re becoming the grid,” Baro said. “Ultimately, when customers have an electric vehicle that is [able] to store energy, they will be able to provide energy in combination with the solar system, so there will be no need to be connected to the grid.”

Others, however, including Vito Buonomano, owner of Northeast Solar & Wind Power LLC, believe utility companies are correct in their concerns about costs. He uses net metering for his home and his most recent electric bill was $23. But he says it makes sense that he – like those who don’t use net metering – should pay more for grid upkeep.

“I stand by [utilities’] opposition to net metering 100 percent,” he said. “It’s incredibly costly to keep that copper in the sky and someone has to pay for [it]. There are no freebies in life.”

Roughan says the argument against net metering is based purely on the wish to protect all ratepayers, many of whom will have to pay more should net metering continue to expand.

“We’ll implement whatever rules and policies are decided upon, but we won’t stop voicing our opinions about the costs of [net metering], because it’s going to end up costing the customers,” he said.

The PUC is looking for outside guidance and in February put out a request for proposals for consultants. The commission expects a facilitator to join the process in late April.

“We’re looking to other states to find examples of best practices to bring them back to Rhode Island,” said Gold, who will be working closely with the various stakeholders through this process.

For now, energy customers like Abatecola and Iaciofano are content to enjoy their savings.

“You can’t compete growing vegetables [anymore],”said Iaciofano. He wants to keep Knight Farm as open space, but must find new ways to make it economical. He says the savings he projects on electricity can help keep the land undeveloped. And he thinks there’s a chance those savings could turn into a profit as technology improves, which might just save his bottom line.

“We’re farming solar,” he said of the property, which includes The Farmer’s Omelette restaurant.

“The hayrides and the agritourism are fun, but the land is there and we need to be able to afford to keep it,” he said. “It’s all about trying to make financial sense.” •

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1 COMMENT

  1. Don’t be fooled by Grid. What they really want is to discourage locally-based renewables (I hate the uninformative term “distributed generation”) so they can build expensive transmission projects for which they are paid cost plus a guaranteed profit.

    If we want to combat global warming, sea level rise, storm intensification and preserve our precious coasts, we need to incentivize use of renewable energy, not discourage it with Trojan Horse fees that claim to seek fairness but are really intended to preserve profits for Grid at the expense of the environment, and therefore all Rhode Islanders. It is appropriate to charge people more to rely on fossil fuel-based electricity and expensive transmission lines. We need to discourage this model and promote creation of locally-based renewables. Of course we all need to share in appropriate infrastructure costs over time, and as renewable generation becomes widespread, we should develop fair methods for paying for the infrastructure needed to support that future. Rhode Island has done a good job of encouraging adoption of renewables to date and looks poised to do more. I am a private citizen, with no business interests in energy, and support public policies that encourage development of locally-based electricity systems fueled by renewable energy.