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Taxes, fees: the worldwide battle between utilities and solar

by Reuters
Sunday, 28 September 2014 21:00 GMT

Spanish architect Inaki Alonso installs a solar panel on a beam over his central Madrid roof terrace September 9, 2014. REUTERS/Sergio Perezlar

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Solar photovoltaic panels are world's fastest growing renewable energy technology since 2000

By Tracy Rucinski and Byron Kaye

MADRID/SYDNEY, Sept 28 (Reuters) - A year after Spain, the sunniest country in Europe, issued notice of a law forcing solar energy-equipped homes and offices to pay a punitive tax, architect Inaki Alonso re-installed a 250 watt solar panel on a beam over his Madrid roof terrace.

"The government wanted people to be afraid to generate their own energy, but they haven't dared to actually pass the law," Alonso said as he tightened screws on the panel on a sunny summer day this month. He had removed solar panels from the roof last year.

"We're tired of being afraid," he said.

Halfway across the globe, in the "sunshine state" of Queensland, Australia, electrical engineer David Smyth says the war waged by some governments and utilities against distributed energy, the term used for power generated by solar panels, is already lost.

"The utilities are in a death spiral," he told Reuters by telephone while driving between a pub where he helped set up 120 solar panels to cut its A$60,000 ($53,000) annual power bill and a galvanising plant which was also adding solar panels to reduce costs.

In Australia, he said, solar panels have shifted from being a heavily subsidised indulgence for environmentally-conscious households to a pragmatic option for businesses wanting certainty about what their running costs will be next year.

"Not many people are doing it because of emissions or the environment," Smyth said. "It's about the cost."

Solar photovoltaic (PV) panels constitute the fastest growing renewable energy technology in the world since 2000. Global capacity has exploded from 1.5 gigawatts at the turn of the century to 136 gigawatts currently, according to the Paris-based International Energy Agency. Meanwhile, the price of solar panels has plummeted 80 percent since 2008 thanks to generous state subsidies aimed at promoting clean energy.

It's still less than one percent of energy capacity worldwide, but the surge in installations of rooftop solar panels is beginning to hit utilities and their business model of charging customers on the basis of consumption.

Joined by traditional energy companies, they are lobbying governments to reverse decades of subsidies to green, renewable energy such as solar and, in some cases, to tax them.

In Europe, Australia and in the United States, energy companies have powerful lobbies that argue that they form a cornerstone of the economy and provide jobs to tens of thousands. Governments are forced to pay heed and in some cases they have acted.


Local Australian governments have slashed rebates for households which feed spare solar energy back into the grid, and approved massive increases to set daily connection fees. In Queensland, Australia's most solar-powered state, one state-owned grid company just raised daily connection fees by 1,142 percent while removing per-unit consumption charges - effectively removing the incentive to switch to solar.

Spain's decree, although never converted to law, would force solar-equipped homes and businesses to connect to the grid and pay a tax on each kilowatt consumed.

Asked when it might be approved, an industry ministry official told Reuters by e-mail: "It all depends on what the cabinet decides to do in the coming months."

Nevertheless, the mere threat of the law was enough to ground solar panel installations to a halt in the country. Fewer panels have been installed in Spain this year than any since the early 2000s, renewable energy experts say.

"The draft law was a brilliant move by the government to keep people from going off the grid, delaying competition for the big utilities," said Cote Romero of renewable energy advisors ECOOO. "They've paralysed a whole sector without actually regulating it."

And yet, households and businesses find solar energy appealing in an environment where utility bills are increasing.

"Current policy is encouraging people to go off the grid," said Roger Gill, owner of Spanish solar energy company Expert Sistemas Solares.

"Most of our clients right now are small businesses, particularly in the farming and fishing industries, who are fed up and want some stability in their energy costs."

Although the surge in solar energy may be fuelled in part by environmental concerns, it is not being led by environmentalists. Apple Inc, America's biggest company, powers its biggest data centre, in Maiden, North Carolina, with the country's largest privately-owned solar farm which it owns.

Google Inc, America's third-largest company, gets a third of the power for its giant Mountain View, California headquarters from its own solar installation.

The record for a country installing solar PV in a year was China, in 2013, with 11.3 gigawatts or nearly a third of global installations. China wants 35 gigawatts of solar PV capacity by 2015 and 100 gigawatts, nearly the entire current world total, by 2020.


Solar's rapid rise - along with warmer weather, more energy efficient appliances and various geopolitical factors - has pushed down demand for traditional electricity and cut into utilities' profits across the world.

Earlier this year, German energy giant RWE AG blamed plant closures caused by solar demand for its 2.76 billion euro ($3.52 billion) loss in 2013; its first annual net loss in more than 60 years. It and the two other German energy companies - E.ON and EnBW - have seen their combined market value dwindle by an average 54 percent since 2007.

A 60 percent drop in wholesale power prices in six years has forced Germany's utilities to book billions of euros in writedowns on their coal and gas plant portfolio.

"The low power prices are leaving a trail of blood in our balance sheet," RWE Chief Financial Officer Bernhard Guenther said in May, reporting first-quarter operating profit fell by a fifth.

Although U.S. utilities have yet to feel a financial sting from solar's rise, they are leery of a future in which the burden of maintaining their delivery systems is spread among a smaller number of customers.

Last year, Arizona became the first U.S. state to introduce a solar tax after the state regulator let its main utility, Pinnacle West Capital Corp unit Arizona Public Service Co, charge 70 cents per kilowatt, or about $5 per month for most households, to those on the grid who use solar.

That is much less than the $100 a month APS wanted, but several other states are considering similar proposals, or have pledged to reform electricity rates to address the rise of distributed generation.

"Public utility commissions are all looking at this change in the distribution system and potential change in the business model of utilities," said David Owens, executive vice president at Edison Electric Institute, the trade group for investor-owned utilities in the United States.

The experience of Hawaii, which has a far larger percentage of homeowners with rooftop panels than any other U.S. state, offers a window into the challenges other regions may face as they bring more and more distributed generation onto their grids.

Homeowners on Oahu - Hawaii's most populous island - need to get the utility's approval before installing solar because some of the island's power circuits have reached a threshold where it would be dangerous to add more PV without investing in upgrades to the distribution system.

In Australia, Queensland state-owned power network company Ergon reported a 5 percent slide in household energy consumption in the 2013 financial year. Last month, the country's No. 1 and No. 2 energy retailers, Origin Energy and AGL Energy , both blamed solar uptake for declines in underlying profit.


So old energy is fighting back.

Germany, the world's largest solar market following years of generous state subsidies, imposed a levy in 2014 on small businesses which use self-generated solar power - referred to as the "sun tax".

"Those who protect the climate get penalised, those who harm it get cleared," said Carsten Koernig, managing director of German solar campaigner BSW.

"Instead of supporting solar power in its transition to become competitive, it is now artificially made more expensive."

Australia's Queensland has ruled out a solar tax but promised to re-jig energy pricing so that everyone - solar-reliant or otherwise - pays the same. But that removes the incentive to go solar, and leaves customers at the mercy of later price rices by the utilities.

"Distributed generation (DG) could be the end of utilities as we know them today," U.S. investment research firm Morningstar said earlier this year. "Utilities' centralised network monopolies break down when customers become self-sufficient competitors."

Romero, the Spanish renewable energy expert, said: "Utility companies know that the future is in renewables, but they're not going to go down without putting up a fight." (1 US dollar = 1.1361 Australian dollar) (1 US dollar = 0.7846 euro) (Additional reporting by Nichola Groom in Los Angeles, Christoph Steitz in Frankfurt, Rory Carroll in San Francisco and Jose Elias Rodriguez in Madrid; Editing by Raju Gopalakrishnan)

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