On January 27, 2022, Nova Scotia Power (NSP) set the solar sector a flurry with its announcement that it was, on application to the provincial Utilities and Review Board (URB), seeking to increase consumer rates 10% over the next three years and implement a new “system access charge” (SAC) for net-metering customers.
The SAC was immediately criticized for the financial impact it would have on some local ratepayers – but also on solar companies operating in the region. If approved, the SAC will introduce a fee of $8/month for each kilowatt of installed solar capacity and it would apply, starting February 1, 2022, to any person who installs solar panels at their residence or place of business or who buys a home with a pre-existing solar array.
As is the case for most projects, the investment decision is based on economic fundamentals – costs, revenues and netback period. A typical 10-kilowatt solar system with a CAPEX of ~$25,000 will generate about $1800 of electricity per year and provide owners with a return on their investment within 10 years. If the SAC comes into effect, project owners would be required to pay NSP $960/year and the ROI would now take 20-30 years.
The Monopolist’s Mandate
NSP justifies the need for the SAC on the basis of what it alleges is an unfair outcome for some utility ratepayers who are ‘subsidizing’ the true costs of electric generation, transmission and distribution services for solar users. NSP contends that even if solar customers are at certain times of the year providing excess electricity back to the power pool, they nonetheless rely on NSP’s electric infrastructure (the Grid) to do so and more importantly, they need to be able to access electricity from the Grid during peak periods (e.g., winter months, evenings, rainy days). This means that NSP still has to procure sufficient generating capacity to meet the peak demand, independent of whether the solar customer is a net supplier of electricity. And electricity doesn’t grow on trees, after all.
But might this subsidization argument mask potential other truths to the story?
One truth is that NSP is a monopoly. They control the supply of electricity within the province and as such, they wield a lot of power (pardon the pun!). They are also privately owned by power giant, Emera Inc., which is publicly listed on the TSX.
Independent power generation, including from micro-scale solar installations, presents certain threats to the monopolistic-oligopolistic revenue model that many utility companies have grown fat on over the years. This is in part because a significant portion of the ratepayer’s electricity bill is attributed to the costs of transmission and distribution. Every consumer of electricity is expected to share the sunk costs of constructing, maintaining, upgrading, and expanding this capital intensive infrastructure. The Grid, while privately owned, is publicly funded, and the monopolist is entitled to recover its capital expenditures through rates (tariffs) approved by the independent regulator – in this case the URB.
The problem is that if more and more customers are net-metering through the installation of solar panels at their residences and business, they do not need to consume (take) as much electric power throughout the year from off the Grid. As a result, there are fewer people from whom the utility company (NSP) can recover the distribution portion of their tariff. Lower tariffs…lower profits…unhappy shareholders…lower stock price…this is not exactly the monopolist’s mandate!
The Politician’s Purview
Not only does the NSP’s announcement appear to be rubbing customers and members of the local solar industry the wrong way, but it also appears to be creating static with the provincial government. Nova Scotia has publicly committed to reduce is greenhouse gas emissions by 53% below 2005 levels no later than 2030 and net-zero emissions are the goal for 2050. There is, of course, a real monetary cost to implementing these goals; renewable power does not grow on trees either. Incentivizing the public to invest in renewable energy generation, change consumption habits, and reduce carbon footprints requires the proposition be economical to the ratepayer. But approving the implementation of the SAC is counterproductive to the government’s political agenda; it has the potential to stifle the transition to solar power generation in its infancy. Unfortunately public relations…ESG signalling…climate change initiatives…renewable investment – not the bottom line of a homeowner’s utility bill – are the politician’s purview.
The Ratepayer’s Reality
So where does all this leave the ratepayer? While simultaneously trying to reduce their skyrocketing electricity bill and participate in climate change initiatives that reduce carbon emissions, the question is quickly becoming whether they can actually afford to do both at the same time. Investing in renewable power generating infrastructure at the micro level is supposed to permit them to do both at a reasonable cost!
But when squeezed between two giants, another truth seems likely…perhaps even inevitable…in the clash between the monopolist and the politician, the ratepayer’s reality is to become the pauper.
1 Meaning a customer that ‘puts’ excess electricity back into the power pool because they consume less electricity than they produce from their on-site micro-generation installation.
2NSP estimates that by 2030, the number of customers net-metering will quintuple – from ~4,000 presently to 20,000. See here.