As schools look to solar, existing state law shuts down further development

When 2020 dawned, every school in rural Middlesex County on the Middle Peninsula was entirely powered by solar. 

Superintendent Peter Gretz had been working toward this moment since shortly after he arrived in Middlesex in July 2016. To him, the decision had been a no-brainer. Installing solar let the district be what he called “responsible stewards of natural resources.” The field of solar panels behind Middlesex Elementary offered hands-on education for students, especially after a local Boy Scout installed informational signage, while also providing an introduction to an emerging job sector in a county with little industry. 

And, perhaps most persuasively, the panels allowed Middlesex County Public Schools to reduce their energy costs by $50,000 in their first year of operation, with an estimated $4.7 million in avoided costs over the agreement’s lifetime.

“If it hadn’t been for a very obvious financial benefit, it would not have been feasible for us to go out and afford this technology,” said Gretz. “No small school division could afford to do that. I’m not sure large school divisions could justify the expense.”

But at virtually the same time that Middlesex was celebrating the conversion of its third and final school to solar, the door for other school districts around the commonwealth was quietly closing.

Since 2013, Virginia has run a pilot program allowing customers to use a financing mechanism known as the power purchase agreement, or PPA, with non-utility solar developers. Under a PPA, a developer installs solar panels on customers’ property and then sells the electricity back to them, usually for less than the utility would. 

“PPAs are in a lot of ways a great equalizer,” said Rob Corradi, public affairs adviser for Sun Tribe Solar, one of Virginia’s most active developers in the PPA market and the company behind Middlesex’s solar. They “allow school systems and governments that don’t have access to a lot of capital to be able to access solar at a low cost.”

In Virginia, however, the pilot program came with a major string attached: a 50-megawatt cap on projects in the territory of Dominion Energy, the state’s largest electric utility. Once the State Corporation Commission was notified the program had reached that scale, the process would grind to a halt. Unless they were already in the pipeline, no more projects could be developed.

On Jan. 7, a 65-kilowatt project at Chesapeake’s Church of St. Therese finally tripped the wire, bringing the total amount of power committed under the pilot to within 2 kilowatts of the cap — so close, said SCC spokesman Ken Schrad, that “no further notices of intent will be accepted by staff because no particular project would be that small.”

The reaching of the cap was in many ways not a surprise. Bills proposing that the cap be raised had been filed during the 2019 General Assembly. A November report to the governor and the legislature from the SCC had flagged the possibility that the cap would soon be reached and noted that officials “may wish to consider increasing the program limit.” Letters from solar developers warned that already market uncertainty was spreading.

“There’s this huge unmet contracted demand that won’t be built or can’t be built until the cap is raised,” Tony Smith, CEO of solar developer Secure Futures, told the Mercury. “That has ripple effects on the marketplace. Already we’re hearing from public school districts that have (requests for proposals) or want to have projects that they’re holding off.”

‘Pretty much everything else is off the table’

Since Virginia launched its PPA pilot, the program has proved particularly alluring for school districts, local governments and churches for one key reason: taxes.

To incentivize solar, the federal government has since 2005 offered a tax credit to offset some of the expense of installing panels. But as either non-profits or government entities, schools, churches and localities are all tax exempt — meaning they have little incentive to adopt solar and even pay more for it than the average buyer.

PPAs were devised as a way around that hurdle. The customer gets cheaper electricity and avoids having to pay the hefty upfront cost of purchasing panels; the developer gets revenues, a long-term commitment and, in a state like Virginia where energy is almost entirely controlled by monopoly utilities, a foothold in the market.

For many school districts still recovering from low bottom lines in the wake of the recession, the attraction of solar was less environmental and more financial: converting could significantly bring down energy costs.

“Is there a financial benefit to the taxpayers of Middlesex County? Could we put a dent in the school budget?” Gretz recalled the Middlesex task force on solar asking. “Then pretty much everything else is off the table except the PPA.”

Other systems came to the same conclusion. Between the beginning of the pilot and the closing of the cap, 24 districts, from Albemarle to Westmoreland, signed PPAs.  

“The rate of adoption of PPAs followed the traditional trajectory … slow growth initially, and then in the last couple years very fast growth,” said Smith, CEO of Secure Futures, the solar company that helped craft the 2013 pilot legislation. “This past year, 2019, it was just like a firehose.”

By December, it had virtually become a flood. That month Fairfax County announced it would sign agreements for 44 megawatts of solar through the pilot to serve 113 school and government sites (about a dozen others were subsequently added to the roster). Savings were expected to be about $60 million in energy costs over the agreement’s lifetime. 

Other counties, knowing Fairfax’s plans were in the works and that the cap was drawing near, also began hurrying to pull together agreements.

“They were in a race to get their projects on the table,” said Smith.

Only some made it across the finish line. Fairfax managed to get a few of its projects into the state’s pipeline before the cap was met, but about 85 percent of its plans have been halted.

“The fact that the state pilot program is essentially closed (means) we really can’t install any additional solar through the power purchase agreement contract,” said Kambiz Agazi, director of the Fairfax Office of Environmental and Energy Coordination. “We are leaving about $60 million of utility cost avoidance on the table over the next 25 years.”

‘Symptomatic of a larger issue’

For many local governments, either raising or doing away with the cap is the most rational next step — Agazi, for one, was adamant about the need to do away with it: “There is no reason for a cap.” 

The solar industry, too, facing the potential loss of a growing Virginia market, is aggressively pushing for change.

Smith said that Secure Futures is already shifting investment outside of Virginia because of the uncertainty that the cap is fostering, while Corradi of Sun Tribe Solar conceded that “the PPA cap remaining in place after session would make it much harder for us to do business in Virginia.” David Murray, executive director of the Maryland-DC-Delaware-Virginia Solar Energy Industries Association, called the cap “a major priority of the Virginia solar industry.”

But not everyone agrees that the answer is opening up the market. 

Dominion Energy has said it has a policy of not speaking with the Virginia Mercury, but one of its representatives recently told the Washington Post that the company is “open to the expansion of the cap” as long as “it doesn’t cause any kind of cost-shifting.” 

What is net metering?

Net metering is a type of billing used by utilities for customers who generate electricity of their own — typically from solar panels. (These customers are sometimes called “prosumers” in recognition of the fact that they both produce and consume electricity.) The general idea is that because customers who generate energy are feeding it back into the grid, they should be compensated in some way. Under net metering, a utility measures how much energy the customer has produced and then offers him or her a credit that can be applied to their bill. Different utilities have come up with different net metering schemes that incorporate elements like standby charges, a charge levied on customers for drawing power from the grid when their panels aren’t producing energy.

Dominion’s argument, one echoed by other monopoly utilities across the country, is fairly straightforward.

Customers who mount solar panels on their property use less electricity from the grid than other customers in the utility’s territory, whether through PPAs or through net metering. But because solar is an “intermittent” type of energy — in which output depends on external factors like weather and daylight— these users still rely on the grid to fill in gaps in power. Consequently, say utilities, they’re benefiting from the system but not paying their share of its costs, making other users effectively subsidize their solar investment.

Many solar advocates, however, dispute this account. Smith called it a “red herring,” pointing to studies that have found minimal or no effects on ratepayer costs. In his view, utilities are simply being slow to react to the transition underway from a traditional energy market dominated by monopolies to a “distributed grid” with many generators, including individuals with solar panels, with utilities are mainly responsible for managing power transmission.

“This battle over the PPA cap is just symptomatic of a larger issue,” he said. 

Legislators seem to agree: many of the bills put forward this session that would affect the cap — there are at least a half-dozen bills, including the Virginia Clean Economy Act and the so-called “Solar Freedom” bills from Democratic delegates like Marcus Simon of Fairfax — are geared more broadly toward encouraging distributed generation. 

“It’s our preference to see the cap removed entirely. We think that it should just be part of a broader distributed generation system,” said Murray. “It’s just a part of how we’re going to transform our energy grid.”

Still, while the cap may be only one facet of the debate in Richmond, to many school systems around the commonwealth, it’s the only energy issue that matters. 

“This is one of the most positive projects from a capital improvements as well as an educational basis that I’ve experienced,” said Gretz. “I’m fine with anything that lifts the restriction.”

This story has been corrected to reflect that Middlesex is on the Middle Peninsula, not the Northern Neck. The reporter regrets her geographical lapse.