Value of Solar Tariffs (VOSTs) are a hot topic right now, following the Minnesota Public Utilities Commission's recent adoption of a Value of Solar methodology. The Commission voted to value solar above the retail rate, and to allow solar customers to receive compensation at that rate for the power they produce. It may sound like a sweet deal for solar, but the reality is that VOSTs are a major red flag.
While I agree with giving solar power the full credit it's due, VOSTs are not smart policy. VOSTs create hidden taxes for consumers, give utilities control over customer-sited solar by taking away a customer's right to actually use the power they generate, and create market uncertainty that can hurt solar businesses. If rooftop solar is to continue its record-breaking growth, VOSTs are not the path to success.
For starters, let's back up and explain what VOST actually means. Essentially, it's a buy-all, sell-all approach to solar interconnection. Solar customers would sell 100 percent of the energy they produce back to the utility rather than use it to power their homes. This throws the customer's right to use their own power right out the window. The customers then have to buy 100 percent of the energy they need from the utility. READ: The utility maintains its monopoly. The VOST would replace net metering, the core solar policy that allows homeowners to actually use the energy they generate on site. Under net metering, the customer receives full retail credit for the excess electricity they send back to the grid.
The buy-all, sell-all VOST transaction raises a couple issues that are not present with net metering. First and foremost: hidden taxation for consumers. When a customer makes money selling the solar power they generate, that is considered taxable revenue according to top national law firm Skadden, Arps, Slate, Meagher & Flom. That means higher income taxes for solar customers, which eats into the financial benefits of going solar. What's more, the VOST renders customers ineligible for the benefits of the 30 percent federal investment tax credit (ITC). It's a Value of Solar Tax.
But that's not all. With a VOST, the utility sets the rate at which it purchases the generated power. Yes, those same organizations who are trying to kill net metering to protect their bottom line. Though Minnesota law requires that the VOST remain at or above retail rate for the first three years, utilities can recalculate the rate annually after that initial period. How long do you imagine utilities will allow the VOST to be higher than retail? Solar companies will find it difficult to sustain growth and secure financing while facing yearly rate uncertainty. And, for those customers who are locked into a fixed "above-retail" rate, it may sound like a sweet deal now, but as the actual retail rate rises, these customers will be losing money by having solar.
What we're likely to see in Minnesota is a boom-bust scenario: Growth in the industry for the first three years with an above-retail VOST, and then an immediate bust following the utilities' recalculation of the tariff. That's an unstable market that doesn't support the long-term, high-impact growth that solar is poised to achieve with net metering in place.
Across the 43 states where net metering is in place, the solar industry supports thousands of jobs and hundreds of MWh of clean, distributed solar energy. This is a stable and highly-successful policy that will continue to benefit the entire country and help America lead the world in solar adoption. It's not broken. We need to maintain net metering, not "fix" it.