The Iowa Supreme Court ruled July 11 that a solar installation atop a municipal services center in Dubuque does not violate Iowa law, a decision experts called potentially ground-breaking for the spread of rooftop solar power.
“This is a great win for Iowa,” said Brad Klein, a senior attorney with the Environmental Law and Policy Center (ELPC) who represented a collective of renewable energy advocates from Iowa and across the country. Given the thoroughness of court’s decision, and the lack of any other high court rulings in this arena, Klein said he expects the Iowa court’s ruling to be “very influential” in future legal decisions nationwide, as well as “a great guidepost for conversation across the country.”
Joe Bolkcom, an Iowa state senator who has worked hard to advance renewable energy, called the ruling “a very positive decision for the advancement of solar in Iowa. I hope it provides a rationale for the Iowa Utilities Board to make some good decisions about distributed generation.”
The board early this year solicited feedback about the future of rooftop solar and other forms of distributed renewable energy. It recently requested additional comments, and now is mulling over its next move.
Bolkcom predicted that today’s ruling could encourage Iowa legislators to take a more supportive position towards renewable energy.
“If there’s more deployment of solar in Iowa, [legislators] are going to be more inclined to make policy that advances distributed generation,” he said.
Eagle Point Solar, based in Dubuque, installed a 175-kilowatt system on top of the Dubuque city building in 2011. Alliant Energy, the electric utility that serves the city, appealed to Dubuque’s city council, then to the state’s utility regulator, claiming that the project would violate the law. Alliant argued that Eagle Point would be functioning as a utility, and thus impinging on the utility’s legal monopoly over electrical service in Dubuque.
The Iowa Utilities Board ruled that Eagle Point was, in fact, functioning as an illegal utility. The ELPC and other renewables advocates appealed to the Polk County District Court, which in 2013 reversed the regulator’s ruling. The Iowa Supreme Court then opted to review the case.
Eagle Point’s president and CEO, Barry Shear, was busy hosting out-of-town visitors on Friday. He found just enough time to say, “There’s nothing not to like about this ruling unless you’re a coal miner in Virginia or a utility in Iowa.”
Third party financing
The case basically turned on a funding mechanism known as third party financing. It allows a party other than the solar installer or provider to finance, own and operate a solar installation on another entity’s property, providing energy to the property through a power purchase agreement.
Entities without any tax liability – governments, non-profit institutions, some hospitals and schools, for example – cannot collect tax credits for renewable energy. Hence such third party power purchase agreements are often crucial to making the finances of rooftop solar work.
Meanwhile even many people or institutions who can collect tax credits have trouble coming up with capital to install solar panels. Tim Dwight, a solar developer in Iowa, said that the typical residential solar installation now costs in the neighborhood of $16,000. Although almost half of that could be covered by the federal and Iowa state government credits, the remaining funds can be a barrier for homeowners or business owners; and banks are often reluctant to make loans for solar installations. Hence third party financing can be crucial for a wide range of solar and other renewable applications.
Dwight predicted that today’s ruling will help turn small-scale renewable energy projects into an attractive investment opportunity for insurance companies, banks and even individual investors.
Klein predicted that the court ruling “will open up [solar] to a broader set of Iowans. It’s been very successful in opening up solar in other states. I think this is one of those baseline policies that lays the ground for solar growth.”
The big picture
The ruling came on the heels of a recent tripling of the state’s renewables tax credit; and renewable advocates also hope the utility board’s ongoing inquiry into distributed generation will yield positive results.
“All of these things collectively in Iowa are going to give the industry the boost it needs,” said Klein. “We expect great things in Iowa.”
Officials at Alliant Energy, which has lost nearly 600,000 kilowatt hours in sales to the City of Dubuque since the solar panels started producing in 2012, have mixed feelings about today’s ruling, according to spokesman Justin Foss. “It’s been painted that this is a fight between the utility and renewable energy,” he said. “It’s anything but the truth.”
Foss said Alliant maintains “unwavering” support for renewables, and for integrating them into the utility’s distribution system. There are now about 670 renewable energy generators on Alliant’s system in Iowa, “and more people asking to connect to the grid every day,” Foss said. He added that customers will still be reliant on power provided by Alliant when the sun isn’t shining or the wind isn’t blowing.
“We have a financing model that hasn’t changed,” he said. “If nobody’s buying energy, in the middle of the night, there’s no one to pay for the power plant. We have two sets of generation. The problem is, there are lots of costs involved. What wi
ll be the impact on our customers? And how will this affect their costs?”
Klein acknowledged that the growth of distributed generation raises tough issues for utilities.
“One of the important aspects of the case is that it says that the purpose of utility regulation is to protect the public, not the utility industry,” he said. Generating one’s own power “behind the meter” — meaning it doesn’t move through a utility’s distribution system – is a private transaction and should not be subject to interference by a utility, Klein said.
Even so, he said this ruling clarifies the need for utilities and the renewable energy advocates to collaborate.
“We can’t have policies that single out customer generation and try to kill it,” Klein said.
On the East Coast, he added, “There are conversations beginning on how the electric utility industry transitions to a system that’s more decentralized. We want to see these conversations happen in Iowa and the Midwest. We want to work with Alliant on approaches that are win-win.”
As Iowa faces a potential surge in distributed generation, advocates and some legislators are concerned the state isn’t prepared.
In recent comments to state regulators, MidAmerican Energy, one of the state’s two largest investor-owned utilities, says that to date this year inquiries about interconnections for distributed generation are coming in at twice the rate they did in early 2013.
However, the utility forecast that substantial growth in distributed power will cause a raft of problems, at least in the current policy environment.
The Iowa Utility Board, sensing a growing interest in renewables, in January invited feedback about where the potential and the pitfalls might lie. While dozens of people expressed a desire for more distributed energy in the state, they also identified significant issues that stand in the way.
In its comments, MidAmerican voiced concerns common among utilities: that customers who don’t generate their own power may be bearing an unfair proportion of the system-wide costs of transmission and distribution services – on which small generators rely just as much as customers who don’t produce power. Bills need to reflect the cost of services used by customers who generate at least some of their own power, the utility said.
MidAmerican roughly estimated that, should 25 percent of its customers install solar panels, costs for the other 75 percent of its customers might increase by about 8.5 percent.
Those concerns, however, were part of a raft of comments supportive of expanding distributed renewable power.
‘Part of the solution’
Since the board issued its notice of inquiry on Jan. 7, comments have come in from 208 people and organizations — including a man trying to build a net-zero house, a collection of 66 farmers and rural business-owners, the state’s large power utilities and 25 state legislators.
David Osterberg, founder of the Iowa Policy Project and a professor in the occupational and environmental health department at the University of Iowa, said the key is providing utilities with proper incentives.
“Climate change is a reality and the investor-owned utility companies must adjust their business model to contend with it,” he wrote. “The question for the board should be, ‘How does the state of Iowa procure more distributed electric generation installed in a way that gives the utilities a way to be part of the solution?’”
One recurring theme in the comments to the board concerns the need to determine the costs and benefits of distributed energy.
Utilities and advocates agree on the need for an objective assessment that has a chance of putting to rest questions about how distributed energy impacts utilities. Studies have been done in several states, yet the debate rages on about whether distributed energy is a net benefit or a net cost to the companies that move power from one point to another.
“We need to base decisions on actual data, rather than on fears or blanket assertions,” said Josh Mandelbaum, who submitted comments on behalf of seven environmental organizations including the Environmental Law & Policy Center, where he is a staff attorney.
The enthusiasm expressed for distributed energy comes just weeks after the Iowa legislature opted not to move ahead on three bills that would have advanced solar energy in the state. One of them proposed a new renewable energy standard requiring 105 megawatts of solar by 2017. Another would have doubled the amount of state tax credit funds available to subsidize installation of on-site renewables.
In a phone interview, Rep. Charles Isenhart said the utilities board, with the information gleaned from this information-gathering exercise, could add considerable heft to legislation aimed at fostering more distributed generation.
In the general assembly, he said, “It’s easier for us to move legislation that comes from agencies.” Proposals from the IUB that favor distributed energy “are going to get more serious consideration than if they came from a different direction.”
In comments submitted to the regulatory agency, Isenhart and two dozen legislative colleagues proposed:
• Establishing a solar renewable energy standard,
• maintaining the existing net metering law, which allows some utility customers whose systems produce excess power to earn credits against future bills,
• allowing several new financing methods, including third party power purchase agreements,
• and avoiding extra charges on small generators, at least until a cost-benefit analysis has been completed
Those who submitted comments addressed many other issues. Several parties wanted the state to extend existing incentives to industries for the development of combined heat and power, a largely untapped technology with substantial potential in Iowa to reduce industrial power use by generating both heat and electricity with a single fuel source.
Others urged the board to extend net metering, which now is available primarily only to customers of large investor-owned utilities, to customer/owners of rural electric cooperatives and municipal utilities.
Still others pointed to a need to update interconnection standards. Moving ahead with a distributed generation project requires an interconnection agreement with the local utility. And while the state’s large investor-owned utilities must comply with interconnection standards, “The customers of the cooperatives and municipal utilities in Iowa do not have that same level of predictability,” said Steve Guyer, president of GWA International, an Iowa designer and installer of solar systems. “In fact, many of the cooperatives and municipal utilities have policies in place that unduly increase the costs of interconnection.”
James L. Eliason, who identified himself as a retired scientist, expressed a common view that the transition to distributed energy is inevitable.
“I think the future of nearly all technological issues is decentralization,” he wrote. “The internet has decentralized information generation and transmission, and energy generation and transmission will not be far behind.”
While solar advocates didn’t get everything they wanted in the Iowa legislature this year, a nearly-unanimous vote to triple the state’s tax-credit fund for rooftop installations is expected to have a major impact.
Provided the bill is signed by Gov. Terry Branstad, it also could be a prelude to bigger developments next year, according to two lawmakers.
“I think this will give an enormous boost to an already rapidly-growing solar industry,” said Sen. Rob Hogg, one of the measure’s sponsors. Increasing the available tax credits “will allow us to keep up with the growth and boost it further.”
In addition to tripling the available tax-credit funds from $1.5 million to $4.5 million annually, the measure increases the maximum credit. For residential projects, the cap has been hiked from $3,000 to $5,000. For commercial projects, it’s been increased from $15,000 to $20,000. The law also enhances the total allowable claim from the current 50 percent of the federal solar tax credit to 60 percent of it.
Hogg thinks perhaps the bill’s most potent provision is the one allowing businesses with multiple locations — like retail chains, for example — to receive a separate tax credit for each facility. Businesses are the leaders in adopting solar in Iowa, according to Hogg, and allowing them to apply for a separate credit for each location puts a whole new spin on investing in solar energy.
“A lot of businesses have taken advantage of solar energy,” he said. “It’s being spread through the business community.” With the possibility of a $20,000 credit for each location with a solar installation, he said, “The day is coming when it will be the norm to put solar into a business project. I think we’re getting very close to that point.”
State Sen. Joe Bolkcom, who also advocated for the tax-credit expansion, expects “a lot more projects to be deployed” as a result. “There’s been a lot of interest in the credit.”
In fact, applications for the credit in 2013 far exceeded the $1.5 million available. A revenue department spokeswoman said that as of April 15, applications for about $755,000 in state tax credits were on a “waiting list” because last year’s $1.5 million pool was exhausted. Once the governor signs the bill, the agency will have the funds to resume processing those.
Bolkcom said he’s confident Gov. Branstad will sign the bill.
“He told advocates at a recent forum that if it got to his desk, he would sign it,” Bolkcom said
‘Keep the momentum going’
If the bill becomes law, installers generally expect the expanded benefits to add fuel to the solar fire.
“It will help keep the momentum going on solar,” said Roger Garde, who sells and installs solar systems in southeast Iowa. “People ran into the cap last year. Businesses maxed out and some homeowners did too. There were people who would have put in a bigger system, but they stopped because they ran into the rebate limit.”
People who run businesses out of their homes, and farmers – many of whom power their farm operations and homes on one residential meter – would gain from a higher cap, Garde said.
Michelle Wei, a solar installer based in Des Moines, predicted that more generous tax benefits “will definitely give some push to solar.” In particular, because of the $5,000 increase in the commercial solar cap, she believes that “on the commercial side it will pick up.”
Mike Haman isn’t so convinced. As the industrial program manager of the Iowa Energy Center, he closely monitors solar installations statewide. Lately, they’ve been concentrated in the part of Iowa served by Alliant Energy, which offered an extremely generous solar benefit last year. The Iowa Utilities Board allowed the company to terminate it last Dec. 31.
After those projects are completed later this year, Haman said, “I’d expect the activity will start to decline. If I saw more of a balance between MidAmerican [territory] and Alliant [territory], my conclusion would be different.”
Alliant’s solar rebates typically ranged between $7,000 and $10,000, Haman said. Even with state tax credits boosted to $5,000, he said, solar is now much less profitable for customers of Alliant without the rebates.
The flip side of that, Hogg pointed out, is that only about one-quarter of Iowans get their electricity from Alliant. So for the other three-fourths of the state’s electric customers, this expanded tax credit will be a gain.
‘Next year we’ll be back’
Hogg and Bolkcom expect to see more solar policy advancements during the 2015 legislative session. Given the overwhelming and bipartisan support for the tax credit bill – 46 to 0 in the Senate, and 90 to 4 in the House – Hogg thinks there’ll be support for more solar moves next year.
“Next year we’ll be back addressing the regulatory framework for solar,” he predicted. “The utilities need to find a way to make solar work for their customers.”
He’s spoken to the state’s major utilities, and believes they “are ready to embrace solar.”
Bolkcom, too, expects some further developments next year.
“We have some interim work to do, to see what it might look like,” he said. “There’s going to be some effort by utilities and advocates on how we can work together on building a renewables agenda.”
Hogg thinks that history could provide a way forward. About a decade ago, he said, wind was at the stage of development that solar is now. The legislature passed laws permitting utilities to own wind farms, and allowing for major changes in the way rates are set. As a result, he said, wind energy took off. It now generates about 27 percent of the power produced in Iowa.
“We made that work for everybody,” he said. “I think we can make solar work for everybody.”
One bill, introduced on Wednesday, requires Iowa’s major investor-owned utilities to install 105 megawatts of solar power by the end of 2020, among other provisions.
Another would appropriate $18 million to the state’s three major universities, requiring each of them to install at least two megawatts of solar capacity by June 2017.
A third bill would double the money in the state’s tax credit fund for solar or other renewable energy systems. The fund was created in 2012 with $1.5 million in tax credits to be made available each year. Iowans collected about $620,000 in 2012, and claimed the full $1.5 million in 2013.
In fact, 94 applications in 2013 came in after the fund was depleted for the year, according to an Iowa Department of Revenue spokeswoman, and will be the first applications processed in 2014.
“I’d like to make sure all the projects applied for in 2014 get funded,” said state Sen. Rob Hogg.
At $1.5 million per year, state Sen. Joe Bolkcom said the fund “is still pretty meager. We’re going to try to make it more robust.”
He believes an expansion of the tax credit has a good shot at passing, considering the widespread – and bipartisan – support when it was initially approved in 2012. It passed on votes of 45 to 1 in the Senate and 82 to 14 in the House of Representatives.
“I’m hopeful we can make the case for job creation,” he said. “Like a lot of things in the energy sector, we provide incentives to get them going, so people can see the promise of solar.”
Read more at Midwest Energy News