Shining a light on solar power

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Look up and you just might see one: solar panels are on top of more homes and businesses than ever before. Around the country, rooftop solar is an increasingly important source of electricity. For many customers with solar panels, solar power provides most of their electricity; many even sell power back to the power company.

With the growing interest in solar power come new questions: Consumers wonder whether investing in solar panels will pay off in energy savings. Utilities wonder how to manage their systems with new sources of local (rooftop) generation. Regulators wonder how much consumers should pay for backup power that they will need only during cloudy times. Everyone wonders what technological changes are on the horizon in the solar world.

Changes in the energy marketplace are prompting changes in regulatory policy, too. Public utility commissions and some state legislatures are debating important issues, such as (1) how much to pay customers with solar panels under a “net metering” approach, (2) whether regulated utilities should be permitted to own rooftop solar businesses, (3) how the spread of solar and other “distributed” sources of energy may affect the reliability and resiliency of the power grid, and (4) what disclosures solar installers are making and whether consumers understand them. Decisions made today by state legislatures and utility regulators will greatly influence the solar industry’s evolution, and how consumers – those that have solar panels and those that don’t – fare.

Here at the FTC, part of our job is to gather and analyze information about the nature of competition and consumer protection in key industries. Not surprisingly, we have done a lot of work in the energy sector, a critical part of the economy. On June 21, the FTC will host a workshop on “Something New Under the Sun: Competition & Consumer Protection Issues in Solar Energy,” at our office in Constitution Center. A range of stakeholders and experts will gather to share perspectives and gain a better understanding of a number of questions, including:

  • How should utility customers be compensated for the power they generate with solar panels?
  • How does the rapidly growing use of solar power affect utilities, either positively or negatively, when solar customers must still depend on power from the grid at times when their solar panels don’t provide the electricity they need?
  • How vigorously do solar installers compete with one another and with traditional utilities that provide power from the grid?
  • What information do consumers need to make an informed decision about whether to go solar? What could the FTC do to help consumers make better decisions? What sorts of information do companies that sell solar panels provide to consumers, and is that enough?

The workshop will start at 8:30 am, with Chairwoman Edith Ramirez delivering opening remarks. The event will be webcast live from the FTC website, and we’ll be posting an agenda soon. Mark the date and plan to join us or tune in. And watch for updates on Twitter @FTC using the hashtag #FTCsolar.

Comments

Hopefully the FTC staff will examine misleading claims by solar marketers who routinely -- and unreliably -- project potential cost savings from third party owned solar projects.

A securities broker would be sanctioned for (i) misrepresenting past performance or (ii) projecting future market prices. Yet numerous solar marketing companies, directly on websites and in marketing collateral or through sales agents, (i) mislead consumers with false claims about past utility price trends and (ii) project savings for consumers based on speculative, unreliable and illusory forward price curves.

Phony charts are published showing utility price increases over the past, say, 20 years of 6% per annum when in fact most utilities have had less than 3% per annum growth on average and many prices have dropped since 2008. Similar claims are made by aggressive sales people. These false reports are then projected into the future and the difference between the forward price projections and the price pursuant to Purchase Price Agreements is shown as future savings.

Electricity is one of the most volatility commodities on the planet. Prices do not increases year to year as misleading charts and claims would suggest. Electricity does not increase with inflation; it responds to supply and demand forces, some of them international in nature. Price swings can be dramatic. Prices can move -- and have moved -- down as well as up.

Many of the savings projections ignore or obfuscate annual price escalators contained in PPAs. In other words, while utility prices may go up at, say 3% per annum, an escalator of 3% would nullify any savings. Moreover, few marketers warn consumers that utility prices could decrease and consumers could pay more than their local utility. Some of the exceptions are contained in tiny footnotes that are effectively negated by pictorial graphs. Finally other risks of third party ownership are rarely described: Termination costs and penalties, potential inability to assign PPAs to buyers, inverter replacement costs, etc.

Sadly some state regulators have encouraged third party ownership as a way to stimulate solar market development, lending a patina of respectability to practices that are inconsistent with basic consumer protection standards.

Some consumers may be willing, for environmental or other reasons, to pay more for their solar than they would pay in avoided costs to the utility. Many, however, would be surprised if they learned their costs had increased.

Consumer frustration with a failure to realize future cost savings that were promised or expected could have negative repercussions for a very important industry, impacting jobs and undermining important economic as well as environmental benefits of renewable energy development.

Reliable projections would include comparative data similar to that which is contained in disclosures of interest rates. What is the present value of future costs? What would the savings (or incremental costs) be if utility prices decreased? How do savings compare to alternatives? What are the risks of termination?

Undoubtedly some consumers can benefit from third party ownership where they cannot take advantage of federal tax credits and other federal and state incentives. Examples include retired individuals without sufficient income to utilize tax credits or corporations and non-profit institutions that do not have tax liabilities.

Nevertheless, all consumers deserve the benefit of accurate and comprehensive information before they enter into long term contractual commitments that can last 20 years or more.

The FTC workshop in June will provide a long overdue forum for discussing some of these issues. Perhaps the Commission will not only aim to put better information into the hands of consumers but will also take prompt steps to enforce basic standards of consumer protection.

I am equally hopeful that the FTC will thoroughly investigate the misleading utility claims that ratepayers who invest in their own energy generation somehow hurt their neighbors. Nothing is further from the truth. The utility message effectively says that anyone who buys less electricity from them causes rates to go up for everyone else. Their solution is to charge customers a fixed rate every month for electricity regardless of how much energy is used. Not surprisingly, this "all you can eat" approach provides virtually no incentive to save money by using energy more efficiently and leads to more consumption, and of course increased need for centralized utility-owned power plants. Why? Our current regulatory model rewards utilities and their shareholders for building and owning power assets. What's wrong with that? Lots. Burning more coal and gas will only make our planet warm faster, and this year has already been setting records - every month thus far this year has been the warmest ever recorded. Worse, communities of color are disproportionately impacted - 70 percent of all African Americans live within 30 miles of a coal fired power plant. This is why net metering is one of the key energy policies the NAACP supports to move the country towards energy justice and democratization in its "Just Energy" report.

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