Solar Investing: Utility-driven regulations hound solar industry

Solar Investing: Utility-driven regulations hound solar industry

The Arizona legislature recently approved a controversial bill that will require solar leases to be more transparent. This could potentially hinder the growth of residential solar leases across the state and beyond. Investors in the solar energy industry and utility industry should see this as a sign of caution that utility-driven opposition is attempting to thwart the will of a growing sector of the energy industry.  

The effects of more bills such as this being passed could cost the solar industry’s residential sector much of its recent growth. The Solar Energy Industry Association (SEIA) reported that, “overall [residential] installations in the first quarter were up 76 percent compared with a year ago.” Reduction in this growth could have far-reaching, long-lasting implications as the valuable momentum the solar industry has built up to increase renewable energy production nationwide and decrease greenhouse gas emissions is lost.

Consumer protection law SB 1465 will affect the current crop of solar leases, PPAs (power purchase agreements), and loan companies in Arizona. The bill’s enforcement will start with the New Year on Jan. 1. According to Legiscan, the bill requires greater clarification about costs to residential customers from solar leasing companies. The “companies must also guarantee whatever performance they promise for the modules … And consumers will now have at least three days to cancel a contract after signing.”

There are two opposing sides to this bill. On one side are the local utilities who are in support of the bill. According to Mr. Donald Brandt, chairman and CEO of the company in charge of Arizona Public Service Co., the utility that serves much of the state, “No solar installer should be opposed to this bill or to consumer protection.” He suspects that solar leasing companies are in opposition to this bill because they want “to avoid scrutiny of their leasing model and the complexity of these consumer leases.”

Members of the solar industry claim, however, that the new rule is not needed and is part of an effort by traditional utilities to stop the spread of residential solar. Lyndon Rive, chief executive of SolarCity Corporation says, “Claims about consumer protection are camouflage for opposition to solar power among utilities and some government officials.” In fact, SolarCity has already filed a suit in Arizona over measures the company says are meant to thwart solar rooftop customers.

Furthermore, while Arizona Public Service Co. claims that solar installers are opposing this law to avoid criticism, Arizona State Senator, Debbie Lesko, reportedly received only 45 letters of complaint this year from consumers unhappy with their solar leases. Few homeowners have actually complained about SolarCity and other leasing firms to the state Registrar of Contractors, which regulates solar installers.

According to the solar industry, there is no need for further regulations. SolarCity General Counsel Seth Weissman says, “there are at least 12 to 15 statutes in place … Regulation M under the Fair Trade Commission (FTC) governs solar leasing, the same law that applies to car leasing … Selling solar systems with financing is governed by the Truth in Lending Act, Regulation Z. There are uniform deceptive and unfair trade practices acts and FTC’s Fair Credit Reporting Act. The industry is well-governed.” According to the Wall Street Journal, only a “handful of homeowners have complained about SolarCity and other leasing firms to the state Registrar of Contractors, which regulates solar installers,” and “the companies resolved nearly all the complaints.”

It therefore appears that this Arizona bill is intended to make solar finance products look less appealing as the cost discrepancy between leasing a solar installation and buying one is significant -- something companies will now be required to explain in detail. These disclosure requirements are intended to cause confusion and skepticism among both homeowners who have financed a solar installation, as well as homeowners who are considering doing so. For example, a lease can total nearly $30,000 over its duration, whereas purchasing a solar installation costs approximately $12,110. Even though SolarCity, the largest solar company in the country, already disclose all their financial costs upfront, and is offering leasing options that are less expensive than purchasing traditional power from the local utility in many markets, the new bill will require all solar companies do this. This could possible deter consumers and investors from some solar financing companies because it will “show [those] solar finance products in bad light and considerably reduce the market opportunity.”

While some companies such as SolarCity, who already disclose all their financial costs upfront, will remain unaffected by this bill, solar companies are very concerned about requirements like this spreading as other states consider similar rules. Traditional utilities will continue their efforts to stall residential solar development as long as they continue to lose profits to residential solar. This is just one of many challenges the solar industry faces. There are industry wide factors currently in play that could cause dramatic valuation compressions including utility rate actions, customer protection regulations, and the end of the solar investment tax credit. The residential market is predicted to be the fastest growing sector of the solar industry this year, but if similar laws pass in more states, the recent growth in the residential sector could be lost.

Many traditional utilities are feeling the squeeze from solar and they are reacting fervently. After all, electricity generation is currently the number one source of greenhouse gas production in the U.S. and solar is the fastest growing source of electricity generation. It is also emission free. If unneeded regulations, such as this new bill in Arizona, continue to get stacked against renewable energy industries, reductions in greenhouse gas emissions will surely be hindered as well. A case study by Energy Informative indicated the average home in California using just a 3-kilowatt solar panel reduces its carbon footprint by 6000 pounds of carbon dioxide a year. More bills like this one in Arizona could drastically reduce the amount of greenhouse gas production prevented by new solar installations.

This bill is one small part of the ongoing political battle between the solar industry and utilities. It is supported by opposition to solar and seems to be an extra, unneeded increase in regulation intended to scare consumers and investors alike away from solar. If actions such as this continue to happen, it could not only disrupt the growth of the solar industry and other renewable energy industries, but also impact the solar industry in its role as a leading force in the reduction of greenhouse gas production.

 

Companies to Watch

Companies that own utilities in affected states:

  • Fortis Inc. (TSE:FTS) Fortis is the parent company of Tucson Electric Power, “the second-largest investor-owned utility in Arizona.” Fortis accrued 5.4 billion dollars fiscal revenue in 2014, an unprecedented amount for them. Fortis serves over “3 million customers across Canada and in the United States and the Caribbean… [And] is a leader in the North American electric and gas utility business.”
  • Pinnacle West Capital Corporation (NYSE: PNW): Owns the largest electric utility company in Arizona, Arizona Public Service Corporation. PNW competes with solar for consumers and as previously mentioned, SolarCity has already filed suit in Arizona over measures the company says are meant to thwart solar rooftop customers. More than 90 percent of PNW's revenues come from a regulated retail rate base and transmission business (a stable growth business). The rate base growth opportunity for PNW is better than most of the regulated utilities companies.

Solar Leasing Companies and Other Solar Financing Options:

  • First Solar, Inc. (NASDAQ:FSLR) First Solar offers utility-scale installations and has over 10 gigawatts installed worldwide. It also happens to be based out of Arizona. First Solar’s Agua Caliente Solar Project, provides energy for 100,000 homes while offsetting 220,000 tons of carbon dioxide every year. As utilization of solar energy continues to grow, more large-scale projects such as this will as well.
  • SolarCity (NASDAQ:SCTY) SolarCity has a massive growth story due to its leadership status in deploying residential and commercial solar generation in the U.S., and will remain unaffected by this bill because they already meeting regulations.

 

Corey Blum is an independent journalist specializing in natural resources, the environment, and the energy industry. He is the Director of Sustainability and a regular contributor at AboutBoulder.com.  He hopes that his writing will educate readers on ways to protect the environment and boost sustainability without sacrificing their quality of life.

Originally published on October 22, 2015