South Florida has an abundance of two key ingredients for a residential solar revolution: sunshine and rooftops. From suburbia to the strip malls, acres of rooftops in the region are drenched in unrelenting sunshine, making the region rich in residential solar development potential. But before there can be a solar revolution, there are two main obstacles to be overcome: the law and the dollar.
The dollar is not an obstacle just because residential solar systems are expensive. It is also an obstacle because electricity in Florida is not expensive. The dollar also matters because, put simply, public utilities make money from selling electricity.
To understand why there is not a solar system on every rooftop in South Florida, it is important to understand a few fundamentals about the regulation of the electricity industry.
The sale of electricity at retail in Florida, like most of the Southeast, is traditionally regulated by the state’s utility commission. The state is divided into territorial monopolies and each is served by one public utility. The obligation of utilities to serve all within their territories carries with it the exclusive right to provide that service. Thus, the only control customers have over their electricity provider is their choice of where to purchase a home.
Utilities trade some of their autonomy for this monopoly. Among other things, the utility can only charge customers rates that the PSC has approved. Those rates include a return on the utility’s capital investments and recovery of its fixed costs.
In Florida, those rates are not high. In August 2014, the average residential customer paid 11.98 cents per kilowatt hour, lower than the national average and significantly lower than the rates paid by residential customers in New York, a “deregulated” state, and California, which has the most installed solar.
In contrast, residential solar systems remain quite expensive - as much as $40,000. Although that cost can be offset by tax incentives, profits from selling excess production to the utility (known as net metering), and lower electric bills, it can be prohibitively expensive for customers.
This can reduce a customer’s motivation to install a solar system. A rational customer will pay extra for gasoline of a higher quality. But the quality of a kilowatt from FPL is indistinguishable from that of a kilowatt from a solar system, unless the customer ascribes a secondary characteristic to it, like greater autonomy from the grid or the greater good.
Residential solar has thrived in states where laws explicitly allow third-party arrangements that remove the prohibitive start-up cost as an obstacle. Providers install and retain ownership of residential solar systems, and either lease the system to the resident or directly sell it electricity.
These third-party relationships are not explicitly permitted under Florida law, and, under Florida Supreme Court jurisprudence, they could likely be explicitly prohibited. The court has ruled that an entity would be a “public utility” if it sold electricity from a generation unit in FPL’s service territory at retail even to only one of FPL’s customers.
Without a statute specifically exempting third-party providers from the definition of “public utility,” such provider could be prohibited from selling electricity directly to retail customers. Third-party providers in Florida have been able to get around this by leasing the system to the customers but these arrangements must be structured so that the lease payments do not resemble a payment for a certain quantity of electricity.
Utilities also have very rational reasons for not encouraging customers to install solar systems. Each kilowatt that such systems provide is one less that utilities sell.
Utilities thus lose both the profit and the portion of fixed costs embedded in the kilowatt’s price. As a result, utilities must recover those fixed costs from customers that do not use solar. A 2013 report ordered by the California Public Utilities Commission regarding the state’s popular solar net metering program concluded that the use of residential solar systems would shift $287 million of costs annually to residential customers without solar systems.
In addition, utilities argue that they bear the capital and operations and maintenance cost burden of providing interconnection and back-up supply to residential solar systems. Unless a resident has storage technology or disconnects completely, the resident calls on the utility’s system when its own system cannot provide sufficient electricity to meet demand and will use the utility’s system for net metering.
For residential solar to be successful in Florida, there must be a clear regulatory scheme that addresses the legitimate concerns of utilities while removing impediments for the customer. A balanced approach might include cost-based charges for customers that opt to install solar and a limit on the number of customers that can do so in each utility’s service territory. The law should also be clarified so that customers can take advantage of third-party arrangements, as well as, of course, the Florida sunshine.
Noelle J. Coates is an associate at Hunton & Williams LLP. Her practice focuses on energy regulation, including ratemaking, market issues, certification of generation and transmission facilities, renewable portfolio standards, demand response, and other conservation initiatives.
By Noelle J. Coates
Hunton & Williams LLP
1111 Brickell Avenue, Suite 2500
Miami, FL 33131
South Florida Legal Guide 2015 Edition