In the State Corporation Commission (SCC) hearing last Thursday, Francis Hodsoll on behalf of MDV-SEIA (the local solar association) testified to the benefits from competitive third-party solar. Mr. Hodsoll has 20 years’ experience in the energy industry including leadership positions in both the private and public sectors. He compared costs, risks and likely future deployments of solar energy from competitively procured solar power in contrast to a plant built and operated by the regulated monopoly Virginia Electric Power, Dominion’s Virginia regulated utility (Dominion). At the end of the hearing, Dominion announced plans for a competitive process sought by the industry. Given Dominion’s incentives for funding these projects through the rate base rather than purchasing solar power from third-party arrangements, the devil is in the details.
Dominion, the Attorney General’s office, the solar industry, and environmental groups all participated in Dominion’s request to the SCC for regulatory approval and associated rate adjustment for the twenty megawatt solar electric generating facility near Remington Virginia, Fauquier County (“Remington”). This case may set precedents for the future deployment of solar in Virginia’s. Last legislative session, the Virginia General Assembly provided for cost recovery for up to 500 megawatts of solar generation. This project represents the test case for this new legislation and for new requirements that Dominion fully evaluate competitive alternatives.
The solar industry argued for three objectives
- Minimize the cost;
- Minimize the risks; and
- Maximize the federal support (federal Investment Tax Credit)
The competitive solar market should provide lower cost electricity than the monopoly. The competitive market has a lower cost of financing, lower overhead costs, and can more efficiently pass through the tax benefits to the electricity consumer. Further, Dominion’s failure to deploy any significant amounts of solar despite years of trying harms Virginia’s electricity customers by squandering federal support set to expire at the end of 2016. Finally, Dominion approach places unnecessary performance and market price risks on their customers.
Toward the end of the hearing, Dominion unexpectedly announced the imminent release of a Request for Proposal (RFP) for solar with the objective to begin developing 100 MWs in 2016. Clearly, the solar industry fully supports a process that holds promise for accelerating the anemic pace of solar development through a competitive, transparent process. While Dominion’s announcement appears to provide the remedy sought by the industry, Dominion’s description of the process raised concerns about unreasonable deadlines and the complete lack of transparency.
Now that Dominion announced they would issue an RFP, the industry has turned their attention to the form of the RFP. Unfortunately, Dominion only generates profits for its shareholders if they own the projects rather than buy the power from a third-party. Hence, a successful RFP process resulting in Dominion buying the solar power from third-parties sacrifices profits to their shareholders.
Mr. Hodsoll and the industry argued for a simple principle. We all benefit from price transparency in competitive markets. Dominion argued that Remington’s “capital [construction] costs … compares favorably to … third party developers …”. Unfortunately for Dominion’s argument, evaluating the reasonableness of the electricity price – what you and I buy from Dominion – cannot be determined solely from the construction cost. The SCC should require that Dominion utilize a RFP to evaluate competitive offers for the price of electricity. Third-parties bidding on an RFP drives down pricing and provides pricing transparency. Further, the RFP process signals the Virginia market is open for business bringing more business to the state.
The RFP process is not a radical idea. Numerous other states and utilities have utilized the RFP process to secure competitively priced solar power and structure contractual relationships that minimize risk to the electricity customer. Mr. Hodsoll’s testimony provided multiple examples of successful RFP processes for solar power.
For a successful RFP process, the industry should be able to review a draft and provide input. The RFP should contain realistic deadlines to maximize the number of projects bid into the process. The RFP should recognize the differences between market segments to maximize the solar projects bid within each segment – distributed at customer sites verse interconnected into the distribution grid and size differences. Finally, the RFP process should recognize the relative small scale of these projects – compared to power plants costing billions – and utilize bidding procedures and submittal requirements appropriate to the scale of the solar projects.
The industry welcomes the opportunity to collaborate with Dominion to deploy clean solar energy at the lowest costs with the least risks. Further, a truly competitive transparent market would foster tremendous growth in the local industry and benefit the electricity customers.