The U.P. is governed by Michigan’s 2008 energy policy, briefly categorized as follows –
- Electric Choice: Up to 10% of all energy sold by each utility can be purchased from an alternative energy supplier. This means a small portion of ratepayers enjoy the privilege of choosing their electric utility regardless of their location. Additionally, any iron ore mining or processing facilities (Cliffs Mines) also enjoy this benefit. Choice is awarded on a first-come, first-serve basis. Status: Most utilities have filled up their choice quota and have customers on the waiting list, with the exception of Cloverland Electric Co-op and WPS. Several large businesses, schools and universities in the Upper Peninsula are realizing significant savings on their monthly energy bills by opting for electric choice.
- Renewable Portfolio Standards: 10% of all energy supplied by each utility has to come from a mixture of renewable energy sources. Currently, all Michigan utilities are on track to meet this target. Utilities that do not own renewable generation can purchase Renewable Energy Credits (RECs) to meet the target.
- Energy Optimization Standards: All Michigan utilities are authorized to add a small surcharge to every utility bill. A typical residential customer might see a $1-$2 surcharge on their electric and gas bill. Utilities are authorized to use these funds to provide rebates for energy efficiency retrofits on a first-come first-serve basis.
- Customer Renewable Self Generation: Customers can reduce their energy consumption from the grid by installing renewable energy systems on their properties. The size of the system is limited by each customer’s annual power and energy consumption. While customers do not get paid for the energy produced by these systems, they may receive credits on their bill. Smaller systems (<20KW typically residential size) are credited at full retail rate, and larger systems (20kW-150kW) are credited at wholesale rate. Currently, this program is under-subscribed with only 7% of available capacity being filled. Energy from customer generation accounts for <0.02% of all electricity energy consumed in Michigan.
Michigan Energy Legislation
At present, several bills pending before MI legislature pending before legislature could fundamentally alter how Michigan produces, distributes and consumes energy. The dynamic changing landscape of energy policy in Michigan introduces a component of risk in terms of capacity investments in customer-owned self generation for UP businesses.
For example, solar industry in Michigan is nascent. Energy from Solar PV forms a negligible portion (< 1%) of Michigan’s Renewable Energy Standards (RES) and a miniscule portion (0.015%) of the overall energy mix.
About 1600 Michiganders with solar on their property represent all of the solar in Michigan. These families and very few small businesses participate in net-metering, i.e., sending excess energy (example: during summers) from their solar PV to the grid in return for a credit. Credits can be used during periods of net consumption (example: during winters). With proper system design, solar PV owners can generate enough energy annually to meet their consumption, with the grid effectively acting as a storage device.
Current Michigan law offers credit at retail rate for every kWh of energy sent back to the grid with several parts of Michigan offer a good value proposition for solar PV due to high electric rates.
However the new Michigan Senate Bill 438 proposes that customers with net-metering should buy ALL energy from the utility at retail rates, while receiving a credit ALL generation at wholesale rates. A utility can now treat individual solar owners the same way it treats large power plants, and will buy power from both at same rates. Indeed, Senate Bill 438 ends the ‘net-metering’ program and calls for a ‘distributed generation’ program.
Energy rates at wholesale prices are significantly lower ($0.04/kWh) than retail prices (MI average: $0.14/kWh). Such low rates severely pushes back the Return on Investment (ROI) on solar PV installations.
At current market prices, the new Senate Bill 438 would result in a ~40 year payback on investing in a solar PV system, nearly 2 to 5 times longer than under today’s laws.
Research shows that after the early adopters, consumers interested in solar are motivated by ‘economic incentive variables’. A 40 year payback scares away new buyers, effectively ending any further interest in solar in Michigan. This would also be the most consumer-unfriendly distributed energy program in the country.
- Current Michigan law allows Solar PV (and other renewable) customers net-metered to grid to receive a credit at retail rates for excess generation.
- MI Senate Bill 438 will mandate ALL electricity to be purchased from the utility at retail rates and for ALL electricity generated to be sent back to the utility at wholesale rates.
- This pushes the payback period on solar PV in Michigan to ~40 years, well beyond all system warranties. Such low value proposition for customer owned generation will effectively end Michigan’s emerging solar industry.