Hidden Cost of Net Metering Might Pose Problem for WAPA

This is the third installment of an ongoing series examining the V.I. Water and Power Authority’s net metering program, its challenges, and its future.

Carl Knight, director of the Virgin Islands Energy Officer, wants consumers to understand that the Water and Power Authority’s net-metering program is, at the end of the day, a subsidy.

“Most people don’t realize that WAPA pays more for that net-metered electricity than it pays Hovensa or Trafigura for the oil to make that same kilowatt hour of power,” he said.

As net metering becomes increasingly popular throughout the territory, officials at WAPA and the Energy Office are taking a closer look at the books and finding that average rate-payers, not net metering customers, are bearing the cost of the program’s success.

Knight says that the core of the issue comes down to basic economics. There’s two parts to the cost of electricity: the cost of fuel and the cost of the utility’s overhead. In the Virgin Islands, these costs are effectively divided on consumers’ bills. The LEAC charge represents the cost of fuel while the base rate covers the overhead.

Knight says that WAPA’s overhead costs are effectively fixed. There is a certain amount of money the authority must pay in salaries, maintenance, insurance, etc. The problem is that the way the program is run, net-metering customers are not paying their share of that cost, leaving average ratepayers to make up the difference.

When net metering was set up in 2007, WAPA envisioned a one-to-one exchange rate for electricity between the utility and net-metering customers. That means that when the solar panels on a customer’s roof put 1kWh of electricity onto the grid, that customer receives a credit allowing them to take 1kWh of electricity back from WAPA’s power plants at night when their panels are ineffective for no charge.

A one-to-one exchange may sound fair on the surface, but Knight says it puts WAPA in a position where an increasing number of customers are utilizing the utility’s infrastructure for free.

Since WAPA’s overhead costs are covered in the base rate, average customers carry their share of that cost in proportion to the amount of energy they use. But for net-metering customers, they are only charged for the difference between the electricity they consumed and the electricity they produced. If they produce as much or more than they consume, they aren’t charged for any electricity at all. In that case, they do not pay the base-rate fee to maintain WAPA’s generators and power lines, even though power is flowing to their homes from the utility for large portions of the day.

Their portion of WAPA’s overhead is then redistributed to customers who are not in the net-metering program, which they see as a higher base-rate fee. It is not a large amount now, but as the net metering program grows, it may become noticeable in average ratepayers’ bills.

This strikes many in the energy industry as unfair.

“There’s going to be people that are stuck with WAPA and can’t do anything about being on WAPA,” said Don Buchanan, spokesman for the Energy Office. “So we need to make that the least painful as possible.”

Officials at both WAPA and the Energy Office say that one-to-one exchange rates are incredibly rare. Most utilities in the country that have net-metering programs account for their overhead costs by discounting the energy they receive from net-metering customers. So instead of receiving a 1kWh credit for each 1kWh they produce, they may receive .9kWh instead.

Cassandra Dunn, spokeswoman for WAPA, said the increasing popularity of the program has forced them to reconsider their arrangement with net-metering customers.

“It was a pilot program,” she said, referring to WAPA’s rationale when setting up the system. “We didn’t expect a lot of response, and at that point [the one-to-one exchange rate] seemed feasible.”

Some of WAPA’s engineers are worried about a potentially more costly repercussion of the net-metering program.

Milton Smith, design and construction manager for WAPA, says that the law passed by the Senate in 2009 does not give WAPA the authority to deny a customer a net-metering system even if the surrounding infrastructure cannot handle the size of the system they intend to install.

He said this was becoming a larger concern because several businesses are considering installing 100kW systems.

“Very few of our businesses on St. Croix are being served from a 100kva transformer, and if that consumer or consumers put 100kW onto a transformer that’s serving less than 100kW, what happens to that transformer?” he asked. “If we don’t change it, the transformer is going to blow up, every time.”

Smith said WAPA may be forced into upgrading otherwise functioning transformers to accommodate large net-metering systems, and he did not believe the customer could be charged for that work. He said the cost of the upgrade would likely be chalked up as “line loss,” and the cost would be distributed among ratepayers.

Dunn says that WAPA is in the early stages of discussions to identify ways the net-metering program can be reformed to more fairly distribute the costs.

“It is a discussion that’s taking place, and it will be a more formal discussion in the months coming,” she said. “We need to make sure that what we do does not just benefit the net-metering customer, but also benefits those customers who will never be able to afford the investment of net metering or will never have the roof to install a solar panel or a hill to install a wind turbine.

“We’ll be looking at in it terms of trying to come to a more equitable place for the net-metering customer and the non-net-metering customer,” she said.

It’s not just members of WAPA and the government pushing for reform. Gary Udhwani, chief operating officer of Eco Innovations, a solar panel installer, said he couldn’t fathom why WAPA ever instituted a one-to-one exchange rate.

“It’s a very bad plan to begin with,” he said. “I wasn’t involved in this business when this was passed, or I would have opposed it in a very strong manner, because it’s unfair to WAPA. It’s a very unfair net-metering program.”

Udhwani has reason to worry about WAPA’s bottom line. He fears his company will not survive after net metering reaches its legal production cap of 15MW territorywide. His hope is that the cap will be raised before it’s met, and he said the only way that would happen is if the program is profitable for WAPA.

The likelihood of the cap being raised is slim, however, and it has little to do with what WAPA does or does not want. There is a maximum percentage of energy on any utility’s power grid that can come from intermittent energy producers, such as solar arrays and wind turbines, before the grid destabilizes.

As the net metering program fills up and industrial solar and wind farms begin to move off the drawing board and into reality, WAPA’s grid is rapidly approaching that threshold

In the next installment of this series, we will explore just how much renewable energy WAPA can install before running into problems, and what steps are being taken to maximize the amount of solar and wind that can be added to the grid.

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