1

THE EFFECT OF AUST IN ENERGY ’S

VALUE-OF-SOLAR TAR IFF

ON SOLAR INSTALLAT IONRATES

THUYPHUNG,ISABELLERIU,NATEKAUFMAN,

LUCYKESSLER,MARIAAMODIO,GYANDESILVA

MAY9,2017

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EXECUTIVESUMMARY

AustinEnergy,themunicipalutilityinAustin,Texas,introducedthefirstValue-of-Solartariff(VOST)inthe

UnitedStatesforitsresidentialcustomersin2012.TheVOSTreplacedAustinEnergy’snetmetering

policy,whichhadallowedforsolarcustomerstosellelectricitygeneratedinexcessoftheirconsumption

backtotheutilityattheelectricretailrate.UndertheVOST,customersarechargedfortheirelectricity

usageandreceiveaseparatecreditoneachkilowatt-hour(kWh)theirsolarpanelsdelivertothegrid.The

VOSTaimedtocovertheinfrastructurecostsassociatedwithdistributedgeneration,whilefairly

compensatingcustomersfortheelectricitytheyproduced.

Usingthedifference-in-differencestechniquetoassesstheimpactoftheVOSTonresidentialsolar

adoptionrates,weanalyzedsolarinstallationratesbeforeandafterthetariffwasimplemented.The

analysiscontrolsforothervariablestoaccountforaggregatetimetrends,seasonality,population,

averagehouseholdincome,politicalaffiliation,solarrebates,installationcost,andretailelectricityrate.

WeusetwocontrolgroupstocomparewithAustin’ssolarinstallationdata:1)therestofthestateof

Texasand2)thecitiesofSanAntonioandDallas.

OuranalysissuggeststhattheVOSTincreasedsolarinstallationsratesinAustinwhencomparedtothe

restofTexas.However,thispositiveresultwasnotstatisticallysignificantwhencomparedtoSanAntonio

andDallas.ThislackofsignificancemaybeduetothesmallersamplesizewhenusingSanAntonioand

Dallasasacontrolgroup.However,itmaysuggestthatthereareunobservedfactorsortrendsnot

relatingtoVOSTthatoccurredinthemoreprogressivecitiesandcausedtheincreaseinsolarinstallations

ratesinAustincomparedtotherestofTexas.Whilewecannotmakeanyconclusivestatementsabout

theimpactoftheVOSTonsolarinstallationsinAustin,wediscusslessonslearnedfromthe

implementationofthisnewratestructureinAustinandhowreplicabletheyaretootherlocationsinthe

UnitedStates.

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INTRODUCTION

InOctober2012,AustinEnergy,themunicipalelectricutilityinthecityofAustin,Texas,becamethefirst

utilityintheUnitedStatestoimplementaValue-of-Solartariff(VOST)forresidentialelectricitycustomers

withsolarphotovoltaic(PV)systemsontheirhomes.ThetariffwasimplementedtosupersedeAustin’s

netmeteringpolicy,whichhadallowedforPVcustomerstoeffectivelysellelectricitygeneratedinexcess

oftheirdemandbacktotheutilityattheelectricretailrate.

AustinEnergyofficialsdeterminedthatitwasnecessarytoreplacenetmeteringwithatariffstructure

thatimposedsomegridcostsonPVcustomerswhilealsorecognizingthevaluetheirPVsystemsprovided

tothegrid.1Inaddition,theutilitysoughtastructurethatwouldenablethemtoproperlychargePV

customersforconsumptionwithmoredynamicratestructures,ratherthancreditingcustomerswitha

simplelumpsumbasedontheirexcessproduction.TheresultwasthedevelopmentoftheVOST,

designedtofairlypriceelectricityforresidentialPVcustomerswithoutundulyburdeningthemorgiving

themafreepasstoutilizetheelectricsystemwithoutappropriatelypayingtheirfairshareofcosts.

AsdebateintensifiesacrosstheUnitedStatesastowhether,when,andhownetmeteringpoliciesshould

bephasedoutandwithwhatpoliciestheyshouldbereplaced,AustinEnergy’sdevelopmentofand

experiencewiththeVOSTcouldhelpguideotherutilitiesandregulatorycommissions.However,while

theconceptofaVOSTmaybeacceptabletoutilitiesandsolaradvocatesalike,thedevilisinthedetails.A

Value-of-Solarcalculationthatisfavoredbyautilitymaydiscouragesolaradoptioninpractice,andatariff

structurethatincentivizesadoptionatarateinlinewitharetailnetmeteringprogrammayplaceundue

costburdensoncustomerswithoutPVandonutilities.

BecausetheVOSTprogramwasimplementedbyAustinEnergyinparttoensurethatsolarcustomers

wouldpaywhattheutilitydeemedtobeanequitableproportionoffixedinfrastructurecosts,we

expectedthatthenewtariffstructurewouldbelessattractivetoprospectivesolarcustomers,andwould

resultinadecreaseinsolarinstallationratesinAustin.Inthesectionsbelow,wefirstdiscussthe

backgroundofthenetmeteringdebate,AustinEnergy’sdecisiontoadoptaVOST,andthestructureof

thenewtariff.Wethendescribehowwetestedourhypothesisbyanalyzingsolarinstallationratesin

Austinbeforeandafterthetariff,controllingforothervariables,inordertoassesswhatkindofeffect,if

1Harvey,Tim.EnvironmentalProgramCoordinatoratAustinEnergy.Telephoneinterviewconductedbyauthors.April11,2017.

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any,theVOSThadonresidentialsolaradoption.Finally,wediscussadditionalfactorsthatmayhave

influencedthesolarinstallationrateinAustin,aswellasthepotentialreplicabilityofsimilarVOST

programsatotherutilities.

BACKGROUND

AUSTINENERGY

AustinEnergyisthepubliclyownedelectricityproviderinAustin,Texasandsurroundingareas.Itisthe

eighthlargestpublicutilityintheUnitedStates,withmorethan440,000customersandageneration

capacityofmorethan3,400megawatts(MW).2About86%ofitscustomersarelocatedwithinAustincity

limits.

Ofthe12,574gigawatt-hours(GWh)ofelectricityconsumedbyAustinEnergyin2015,coalgeneration

accountedfor27%,naturalgasandoilfor18%,nuclearfor29%,andrenewablesfor26%oftotal

consumption.AustinEnergy’s1.5gigawatts(GW)ofrenewablecapacityin2015wascomposedof88%

windandlessthan2%(or27.5MW)rooftopsolar.AsofOctober2016,AustinEnergysupportedmore

than5,600residentialsolarPVsystems.3

2AustinEnergy.CompanyProfile.http://austinenergy.com/wps/portal/ae/about/company-profile.3AustinEnergy.SolarSolutions.https://austinenergy.com/wps/portal/ae/green-power/solar-solutions/solar-solutions

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FIGURE1.AUSTINENERGY’SELECTRICITYGENERATIONBYFUELTYPE(MARCH2017)4

ThoughtheStateofTexashasnegligiblerenewableenergytargets,theCityofAustinhasaggressivegoals.

TheAustinCityCouncilfirstadoptedarenewableportfoliostandard(RPS)in1999,whichwas

subsequentlyincreasedmultipletimes.ThecurrentRPSgoalis65%ofelectricityconsumptionfrom

renewablesby2025,whichisamongthemostambitioustargetsinthecountry.5WithintheRPS,theCity

Councilapprovedasolarcarve-outin2014,whichrequiresAustinEnergy’sgenerationmixtoinclude950

MWofsolarcapacityby2025,including200MWof“localsolar,”ofwhichatleast100MWisrequiredto

becustomer-controlledor“behindthemeter”solar.6Inaddition,AustinEnergyhasagoaltoreduce

carbondioxideemissions20%below2005levelsby2020.7BoththeRPSgoalandtheemissionreduction

goalareacceleratingtheinstallationofrenewableenergyinAustin,suchassolarpower.

Asamethodtoprovidecommunityvalue,AustinEnergyoffersanumberofenergyefficiency,renewable

energy,andrebatesprograms.TheseeffortsaimtodirectlybenefitcustomersandtohelpAustinEnergy

achieveefficiencyandrenewableenergygoalssetbyAustinCityCouncil.Forexample,in2004,Austin

EnergybegantheSolarRebateProgram,forresidentialcustomers,whichisacapacity-basedincentivefor

solarPVinstallationsofupto10kilowatts(kW).

4OpenData-CityofAustin.GenerationbyFuelType.https://data.austintexas.gov/Utility/Generation-by-Fuel-Type/ss6t-rumq5USDepartmentofEnergy.CityofAustin-RenewablePortfolioStandard.https://www.energy.gov/savings/city-austin-renewables-portfolio-standard6AustinEnergy.AustinEnergyResource,GenerationandClimateProtectionPlanto2025:AnUpdateofthe2020Plan.https://austinenergy.com/wps/wcm/connect/461827d4-e46e-4ba8-acf5-e8b0716261de/aeResourceGenerationClimateProtectionPlan2025.pdf?MOD=AJPERES7AustinEnergy.CorporateReports&DataLibrary.https://austinenergy.com/wps/portal/ae/about/reports-and-data-library/data-library/power-supply

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DECISIONTOADOPTAVALUE-OF-SOLARTARIFF

Asdiscussed,AustinEnergy’sdecisiontoreplacetheirnetmeteringprogramwasprimarilyafinancial

one.Withanincreasingblockratestructurewithtwopricetiersandaplantoexpandtofivetiers,many

PVcustomerswerebeingcompensatedforexcessgenerationatrateshigherthanwhatsimilarnon-PV

customerswouldhavebeenpayingtoconsumeamarginalkilowatt-hour(kWh)ofelectricity.Net

meteringcouldalsobeperceivedasadisincentiveforenergyefficiency,asitkeptrateslowforcustomers

whosoldenoughelectricitybacktothegrid,regardlessoftheirconsumptionlevel.8Additionally,PV

customerswerepayinglowervariableamountsunderthenetmeteringpolicy,andutilityofficialsandnet

meteringopponentswereconcernedthatPVcustomerswerebeing“cross-subsidized”bynon-PV

customers,astheformerwerepayinglesstocoverfixedgridcosts,despiteusingmuchofthesamegrid

benefitsasthelatter.

Seekingtoensureadequaterecoveryoffixedgridcosts,AustinEnergyproposedintheir2011-2012rate

casetolevyadditionalfixedfeesoncustomers.Thisproposalwouldhaveledtofixedchargesfor

residentialcustomersincreasingfrom$10to$22perbillperiod,despitetheutilityestimatingthatafee

of$34perbillperiodwasnecessarytofullycoverinfrastructurecosts.9Thissolutionwasnotpolitically

palatableasithadunfavorabledistributionalconsequences,particularlyforlow-incomecustomersand

couldhavetheeffectofdiscouragingenergyefficiency.AustinEnergylookedforamoreagreeablepath

forwardthatwouldstillequitablyrecoverfixedcosts,whileencouragingefficiencyinvestments.

Ultimately,AustinEnergydecidedthatthebestsolutionwastodecoupletheconsumptionratefromthe

productioncredit.Thisway,theycouldfairlychargePVcustomersfortheuseofthegrid,whilealsofairly

creditingthemforthevalueofthesolarelectricitytheyprovided.Whiletheconsumptionportionofthe

billwasstraightforward,thecreditportionwascomplexandrequiredcarefulandmeticulouscalculations.

AustinEnergyhadbeenworkingwithafirmcalledCleanPowerResearchsince2006onaValue-of-Solar

calculationmethodologythatoriginallysoughttoestablishtheappropriaterateforpowerpurchase

agreementswithutility-scalesolarproviders—inotherwords,thecost-neutralpointatwhichtheutility

wouldhavenopreferencebetweenpurchasingenergyfromasolarplantorproducingitthemselves.

RecognizingthattherateatwhichtocreditPVcustomersfortheirelectricityproductionshould

8Rábago,Karl.The‘ValueOfSolar’Rate:DesigningAnImprovedResidentialSolarTariff.SolarIndustry.February2013.http://rabagoenergy.com/files/ra0301bago-value-of-solar-sim-feb-2013.pdf9AustinEnergy.PUCDocket40627.ResponsetoPUCTexasStaff,1-10.Attachment2.http://interchange.puc.state.tx.us/WebApp/Interchange/Documents/40627_59_743212.PDF

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essentiallyanswerthesamequestion,theutilityrevisitedthesecalculationsandmadetweakstothe

methodologytoapplyittosmalldistributedgenerators.Aftercountlessconversationswithstakeholders,

publichearings,andapprovalfromboththeCityCouncilandthePublicUtilitiesCommission,theVale-of-

SolarcreditwasrolledouttoAustinEnergy’sPVcustomersinthefallof2012.

Fromaneconomicperspective,thereareanumberofadvantagestotheVOST.First,itaddressesthe

distributionalconcernsassociatedwithnetmetering,asPVcustomerspayfullyforthegeneration,

transmission,anddistributionservicesembeddedintheretailrateoftheelectricitytheyconsume.10

Second,itreducesthedistortionscausedbytheblockratestructure,removingdisincentivesfor

efficiency.Third,itprovidesfairvalueforproductiontoPVcustomersbycompensatingthembasedon

thebenefitsoftheirelectricityproductiontothegrid.Fourth,itkeepsAustinEnergyfinanciallywholeby

ensuringthatgridcostsarefullyrecoveredbeforecreditsforsolargenerationaredistributed.Finally,it

canhelpAustinEnergymakesmarterdecisionsaboutresourceplanningandloadbalancinginthefuture,

sincetheVOSprogramrequiredtheinstallationofanadditionalelectricalmeterathouseholdswithPVin

ordertoseparatethemeasurementofelectricitygeneratedbyPVfromelectricityconsumedfromthe

grid.

VALUE-OF-SOLARCREDIT

Unlikewithnetmetering,theVOSTprogramdecouplesenergyconsumptionfromtheValue-of-Solar

creditrate;residentialsolarcustomersarebilledforelectricityconsumedinagivenbillperiod,then

receiveaseparatecreditontheirbillforeachkWhtheirsolarpanelsgenerateanddelivertothegrid.All

fixedchargesundertheResidentialServiceratescheduleremainunaffected.

ThecreditisbasedontheaverageoftheannualValue-of-Solarassessmentofthenextyearandthe

previousfouryears’Value-of-Solarassessments,andtheresultantVOSrateiseffectiveasofJanuary1

thefollowingyear.11TheamountoftheVOSTcreditiscalculatedusingalgorithmsdevelopedbyAustin

EnergyjointlywithCleanPowerResearch.Itiscalculatedbasedonthecomponentslistedbelow.

10NationalRenewableEnergyLaboratory.Value-of-SolarTariffs.http://www.nrel.gov/tech_deployment/state_local_governments/basics_value-of-solar_tariffs.html11AustinEnergy.CityofAustin-ElectricTariffValue-of-SolarRider.http://austinenergy.com/wps/wcm/connect/c6c8ad20-ee8f-4d89-be36-2d6f7433edbd/ResidentialValueOfSolarRider.pdf?MOD=AJPERES

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TABLE1.AUSTINENERGYVOSTVALUECOMPONENTSANDASSOCIATEDFORMULAS12

VOSComponent Formula

EnergyValue

PlantO&MValue

GenerationCapacityValue

TransmissionandDistributionValue

EnvironmentalComplianceValue

Setat$0.02perkWh,basedonaveragepremiumpaidinvoluntarygreenpowerpurchasingprogramsinTexaswhenVOSwasimplemented

12CityofAustin-ElectricTariffValue-of-SolarRider.

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ENERGYVALUE

Theenergyvalueistheestimatedavoidedcostofenergythatwouldhavebeenneededtomeetelectric

demand,aswellastransmissionanddistributionlosses.Thevalueisbasedonthesolarproductionprofile

inAustintoaccountforthetimeofdaywhensolarisoffsettingthosecosts.Itisinferredfromwholesale

marketpricedataintheElectricReliabilityCouncilofTexas(ERCOT)region,aswellasfromprojected

naturalgasprices.

PLANTOPERATIONSANDMAINTENANCEVALUE

Theplantoperationsandmaintenancevalueistheestimatedcostassociatedwithnaturalgasplant

operationsandmaintenanceduringtimesofpeakdemandthatareoffsetbydistributedenergyresources

(DER)supplyingpowerduringthosetimes.

GENERATIONCAPACITYVALUE

ThegenerationcapacityvalueistheestimatedavoidedcostofcapitalofgenerationthatisoffsetbyDER

productionduringpeaktimes.Liketheenergyvalue,thegenerationcapacityvalueisinferredfrom

ERCOTmarketpricedata.

TRANSMISSIONANDDISTRIBUTIONVALUE

Thetransmissionanddistribution(T&D)valueistheestimatedsavingsintransmissioncoststhatresults

fromthereductioninthepeakloadbyDER,aswellasthesavingsorcostsrelatedtocapitalinvestments

tothedistributiongrid.ThedistributionvalueinAustinEnergy’sserviceterritoryiscurrentlynot

calculatedaspartoftheVOSTbutwillcontinuetobereviewedassolarpenetrationincreasesto

determinewhetherandwhenitmeritsbeingincorporated.

ENVIRONMENTALCOMPLIANCEVALUE

Theenvironmentalcompliancevalueistheestimatedavoidedcostofcomplyingwithenvironmental

regulationsandlocalpolicyobjectives.TheenvironmentalcompliancevalueforAustinEnergy’sVOSTis

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currentlysetat$0.02perkWhbasedontheaveragepremiumthatamountwasbeingpaidinvoluntary

greenpowerpurchasingprogramsinTexaswhentheVOSTwasfirstimplemented.

ThesumoftheabovefactorsisintendedtoreflectthevalueofdistributedPVtoAustinEnergy—avalue

atwhichtheutilitywouldostensiblybeeconomicallyneutraltowhetheritsuppliesakWhitselfora

customersuppliesittothegrid.13AlthoughtheVOSTcalculationaccountsforenvironmentalbenefitsof

distributedPV,whichsomeVOSstakeholdersconsidertobecontroversial,itdoesnotincludeanyvalue

ofeconomicbenefitsorvariationsinvalueduetothelocationofthesysteminthegrid.Thesevalues

havebeenconsideredinotherVOSstudies,andsomearguethatomittingthemresultsinamore

conservativecalculationforthevalueofsolar.

ADJUSTMENTSTOTHEVALUE-OF-SOLARTARIFF

AustinEnergy’sValue-of-Solartariffdoesnotinstituteastaticcreditamount;itisdesignedtochange

annuallyaspartoftheutility’sbudgetapprovalprocess,basedonupdatedinputstotheratecomponents

describedabove.Sinceitsinitialimplementation,thecreditratehasbeenreadjustedforeachcalendar

year,withthenewcreditrategoingintoeffectfortheJanuarybillingcycleofeachyear.Theoriginal

VOSTcreditratewas$0.128perkWh,whichwasthenreducedforthe2014calendaryearto$0.107per

kWh,andthenincreasedin2015to$0.113perkWh.

13Rábago,Karl.The‘ValueOfSolar’Rate:DesigningAnImprovedResidentialSolarTariff.SolarIndustry.February2013.http://rabagoenergy.com/files/ra0301bago-value-of-solar-sim-feb-2013.pdf

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TABLE2.AUSTINVOSASSESSMENTRATESANDEFFECTIVEVOSRATES,142012-201715

EffectiveDate VOSassessment($/kWh) VOSrate($/kWh)

10/1/2012 $0.128 $0.128

1/1/2014 $0.107 $0.107

1/1/2015 $0.100 $0.113

1/1/2016 $0.097 $0.109

1/1/2017 $0.097 $0.106

InAugust2014,tofacilitateachievingthecity’sambitiousRPSgoals,theAustinCityCouncildirectedthe

CityManagertocarryoutanumberofpolicychanges,whichincludedchangestotheVOST.16These

changesincluded1)theabilityforcreditstocarryoverfromyeartoyearinsteadofresettingatthestart

ofeachyear,2)theremovalofa20kWcaponresidentialsolarcapacityforsystemseligiblefortheVOS

credit,3)theestablishmentofanannualpricefloorequaltotheresidentialelectricityratesofa“tier3

customer,”4)theabilityforleasedsystemhoststoreceiveVOScredits,and5)theadoptionofafive-year

rollingaverageintheannualcalculationofthecredit.

14Aspreviouslydescribed,therateisbasedontheaverageoftheannualValue-of-Solarassessmentofthenextyearandthepreviousfouryears’Value-of-Solarassessments.TheresultantVOSrateiseffectiveasofJanuary1thefollowingyear.15CityofAustin-ElectricTariffValue-of-SolarRider.16USDepartmentofEnergy.CityofAustinRPS.

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FIGURE2.VOSTRATE($/KWH)ANDPRICEOFNATURALGAS($/MCF)17

Theadoptionofafive-yearrollingaveragewaslargelyduetochangesingenerationcostsfornaturalgas

powerplants.AfteradramaticdeclineinnaturalgaspricesandacorrespondingdecreaseintheVOST

creditrate,inthefirstfewyearsoftheprogram,AustinEnergymodifiedtheVOSTratetoincorporatethe

rollingaverageinordertotempertheimpactthatshort-termgaspricefluctuationscanhaveonVOST

rates.WhiletheVOSTratechangesannually,theratecustomersreceiveisnowanaverageofthecurrent

yearandthefourpreviousyears.Despitefallinggasprices,VOSTratesin2015exceededretailelectricity

ratesby$0.036perkWh.18

17CityofAustin-ElectricTariffValue-of-SolarRider;EIA.NaturalGasPrices.2017.https://www.eia.gov/dnav/ng/ng_pri_sum_dcu_STX_a.htm18Revesz,RichardandBurcinUnel.ManagingtheFutureoftheElectricityGrid:DistributedGenerationandNetMetering.InstituteforPolicyIntegrity,NewYorkUniversityLawSchool.February2016.http://policyintegrity.org/files/publications/ManagingFutureElectricityGrid.pdf

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ANALYSIS

DATA

OurmainobjectivewastoinvestigatetheVOST’simpactontherateofresidentialsolarinstallationsin

Austin.Toconductthisanalysis,weusedresidentialsolarinstallationdatafromtheNationalRenewable

EnergyLaboratory’sOpenPVProject.Thisdatasetprovidesinformationforeachinstallation,suchasthe

dateofinstallation,zipcode,costperwatt,andutility,fortheentireUS.However,becausethisdatabase

consistsofdatathatarecontributedvoluntarilyfromavarietyofsources,thedataareincompleteand

couldbeinaccurate.

Forouranalysis,weuseddataforTexasinstallationsfrom2004through2015.Datafor2016were

availablebutappearedincompleteandwereomittedfromtheanalysis.Therawdatasetforthistime

periodcontained9,347recordsofsolarinstallationsinTexas.Ofthese,8,163wereresidential,orabout

87.3%oftotalsolarinstallationsinTexas.Cumulativeinstalledcapacitywas234,846kW,ofwhich

residentialinstallationsaccountedfor43,809kWorabout18.7%ofthetotal.

Itappeared,however,thattheresidentialinstallationdatacontainedanumberofduplicaterecords.19A

totalof1,504duplicaterecordswereidentifiedandremoved,leaving6,659recordsforresidentialsolar

installationsinTexas.

Asdiscussedbelow,wecontrolledforothervariablessuchaspopulation,income,andpoliticalaffiliation,

rebatesandretailrates.WeusedpopulationandincomedatafromtheUSCensusBureau’sAmerican

CommunitySurveyandcounty-levelpoliticalaffiliationdatafromthe2016Presidentialelection.Weused

therebatedataforinstallationsinAustinfromtheOpenPVProject,andaddedrebatedatafrom

DatabaseofStateIncentivesforRenewablesandEfficiency(DSIRE)forSanAntonioandDallas(sinceit

waslargelymissingfromOpenPV).WeusedtheretailratedatalistedforeachutilityonthePUC

website.20

19Theremaybeduplicationinnon-residentialinstallationsaswell,butthesewerenotthefocusofouranalysis.20PublicUtilityCommissionofTexas.ResidentialandCommercialBillComparisonsforNon-CompetitiveMarkets.https://www.puc.texas.gov/industry/electric/rates/NCrate/viewdownarc.aspxPublicUtilityCommissionofTexas.AverageAnnualRateComparisonArchive.https://www.puc.texas.gov/industry/electric/rates/RESrate/RESratearc.aspx

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ThedatashowthatAustinaccountedforabout80%ofallinstallationsandinstalledcapacityinTexas

(Figure3).TherewasasteadyincreaseinthenumberofsolarinstallationspermonthinbothAustinand

Texas,asseeninFigure4.AsharpspikeinmonthlyinstallationsoccurredinAustininJuly2012,

immediatelybeforethecity’snetmeteringpolicywasreplacedbytheVOST.Itispossiblethatthe

announcementofVOSTcouldhavetriggeredtheincreasein2012beforetheintroductionofVOST.

However,theactualmethodandtimingofthepolicyannouncementremainsunclearthereforeno

conclusioncouldbemade.

FIGURE3.CUMULATIVEINSTALLEDCAPACITYANDNUMBEROFINSTALLATIONSFORAUSTINANDTEXAS

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FIGURE4.MONTHLYSOLARINSTALLATIONSINAUSTINANDTEXAS(INCLUDINGAUSTIN)

METHODOLOGY

DIFFERENCE-IN-DIFFERENCESTECHNIQUE

Weusedthedifference-in-differencestechniquetoevaluatetheeffectofthetreatment,the

implementationoftheVOSTprogram,onthedependentvariable,solarinstallationratesinAustin,by

comparingtheaveragechangeovertimeinsolarinstallationsinAustintotwocontrolgroups—1)the

restofTexasand2)thecitiesofSanAntonioandDallas,aggregated.Toeffectivelyisolatetherelationship

betweentheintroductionofVOSTinAustinandachangeinsolarinstallationrates,wecontrolledfor

othervariablesandcarefullyselectedcontrolcitiestoconductanappropriatecomparison.Our

methodologyforchoosingthesecitiesandcontrolvariablesisoutlinedbelow.

CONTROLCITIES

WechosethecontrolcitiesofSanAntonioandDallasbecausetheyaresimilartoAustinintermsofsolar

radiation(Figure5),income,politicalleaningandhomeownership(Table3).Theothercontrolgroup

usedwasallofTexasexcludingAustin.WhilethisgroupwasnotassimilartoAustinasSanAntonioand

Dallaswere,itstillsharedthesamestatepolicies,whichareimportantdeterminantsinsolaradoption.

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TABLE3.COMPARISONBETWEENAUSTIN,DALLAS,ANDSANANTONIO

City Population21Area

(sq.mi)22

MedianHouseholdIncome23

PartyAffiliation24 Owner:Renter25

Austin 885,400 272 $57,960 65.8%D,27.1%R 51:49

Dallas 1,258,000 386 $51,824 54.2%D,40.8%R 51:49

SanAntonio 1,409,000 465 $52,230 60.8%D,34.6%R 57:43

FIGURE5.SOLARRADIATIONINTEXAS26

21USCensusBureau.AmericanCommunitySurvey2011.https://www.socialexplorer.com/explore/tables22USCensusBureau.QuickFacts:Places.https://www.census.gov/quickfacts/table/PST045216/0023USCensusBureau.AmericanCommunitySurvey2011.https://www.socialexplorer.com/explore/tables24Townhall.CountyLevelElectionResults.https://github.com/tonmcg/County_Level_Election_Results_12-1625USCensusBureau.AmericanFactFinder:CommunityFacts.https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_15_1YR_S2502&prodType=table

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CONTROLVARIABLES

Inadditiontousingcontrolgroups,ouranalysiscontrolledforaseriesofvariablesthatlikelyinfluenced

solaradoption,inordertofurtherisolatetheeffectofVOST.Thisincludedmonthandyearfixedeffects

(tocontrolforaggregatetimetrendsandseasonality),population,averagehouseholdincome,political

affiliation,solarrebateamount,installationcostperwatt,andretailelectricityrate.

REBATEAMOUNTS

Indesigningouranalysis,wedeterminedthatthedollaramountofresidentialsolarrebateswasoneof

themostimportantvariablestocontrolfor,sincefinancialincentivesundoubtedlyinfluenceconsumer

decisionstoadoptsolar.Asthesolarmarkethasgrownandinstallationcostshavedeclined,Austin’ssolar

rebateamountshavedecreasedconsiderablyfromtheoriginal2004incentiveof$5perwatt.In2015,

AustinEnergyintroducedacapacity-basedincentiveramp-downscheduletoprovidegreatercertainty

andtransparencyforcustomersandallowtheutilitytomeetitssolargoalsonscheduleandwithin

budget.27

Althoughincentivesforsolardecreasedby88%between2004and2016,solarinstallationsinAustin

increaseddramaticallyoverthesametimeperiod.28Insomeinstances,theannouncementofarebate

decreaseappearstohaveledtoasharpincreaseinsolarinstallations.Forexample,accordingtoAustin

Energy,alargeuptickininstallationsaroundSeptember2011(Figure6)occurredinresponsetoan

announcedrebatereductionfrom$2.50to$2.25perwatt.Thisresultedin$4.5millionworthofincentive

requestsubmissionsinMarch2011,whichtriggeredthespikethefollowingSeptember.29

26Clayton,MaryE.,JillB.Kjellsson,andMichaelE.Webber.EarthMagazine.Canrenewableenergyanddesalinationtackletwoproblemsatonce?October2014.https://www.earthmagazine.org/article/can-renewable-energy-and-desalination-tackle-two-problems-once27AustinEnergy.2017.SolarProgram:ResidentialSolarPhotovoltaicIncentiveProgramGuidelines.https://austinenergy.com/wps/wcm/connect/e4b07e7e-da58-42bc-8240-e2dfc8171de4/Residential+Solar+Program+Guidelines.pdf28Harvey,Tim.EnvironmentalProgramCoordinatoratAustinEnergy.Emailmessagetoauthors.April24,2017.29Harvey,Tim.EnvironmentalProgramCoordinatoratAustinEnergy.Telephoneinterviewbyauthors.April11,2017.

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FIGURE6.RESIDENTIALSOLARINSTALLATIONSANDSOLARREBATESPROVIDEDBYAUSTINENERGY

Incontrast,SanAntonioandDallasofferedsolarPVrebatesmuchlaterandinsmalleramounts.For

example,CPSEnergy,themunicipalutilityinSanAntonio,offeredarebatebeginningin2007of$1.20per

wattthatalsofollowedacapacity-basedramp-downschedule.30OncorEnergyinDallasbeganitsrebate

programin2009,whichofferedone-timepaymentsof$538.53perkWand$0.2519perkWhthrough

2012,andrevivedtheprogramin2016.31

30DSIRE.CPSEnergy-SolarPVRebateProgram.http://programs.dsireusa.org/system/program/detail/279431DSIRE.OncorElectricDelivery-SolarPhotovoltaicStandardOfferProgram.http://programs.dsireusa.org/system/program/detail/3168

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REGRESSIONMODEL

Theregressionmodelemployedinouranalysisusedthefollowingequation:

where:

● y=numberofmonthlysolarinstallationsbyzipcode

● α=constantterm

● β=treatmentgroupspecificeffect(toaccountforaveragepermanentdifferences

betweenAustinandthecontrolgroup)

● γ=trueeffectoftreatment

● δ=timetrendcommontocontrolandtreatmentgroups

● λ=effectofothercontrolvariables

Akeyassumptionofthedifference-in-differencesmodelisparalleltrendsbetweenthetreatmentand

controlgroupsintheabsenceofthetreatment.Wecomparedtrendsinsolarinstallationsbetweenthe

twogroupsbeforeandaftertheVOSTtotestthevalidityofthisassumption.AsshowninFigures7and8,

therewassomewhatofaparalleltrendbetweenAustinandrestofTexasbeforetheVOST,whereasno

discernibletrendwasobservedbetweenAustinandSanAntonioandDallas.Thisismainlyduetominimal

solarinstallationsinthelattercities(asillustratedintheLBNLSolarPVdataset),despitetheintroduction

ofsolarrebates32andnetmeteringpolicies(Figure9).However,SanAntonioandDallassharesimilar

characteristicswithAustinandthereforeprovideabettercounterfactualofsolaroutcomesinAustin

absentVOST.Asaresult,weranregressionsforbothcontrolgroups(Austinvs.therestofTexasand

Austinvs.SanAntonioandDallas).

32DSIRE.CPSEnergy-SolarPVRebateProgram.http://programs.dsireusa.org/system/program/detail/2794;DSIRE.OncorElectricDelivery-SolarPhotovoltaicStandardOfferProgram.http://programs.dsireusa.org/system/program/detail/3168

20

FIGURE7.MONTHLYRESIDENTIALSOLARINSTALLATIONSINAUSTINVS.THERESTOFTEXAS

FIGURE8.MONTHLYRESIDENTIALSOLARINSTALLATIONSINAUSTINVS.SANANTONIOANDDALLAS

21

FIGURE9.MONTHLYRESIDENTIALSOLARINSTALLATIONSINSANANTONIOANDDALLAS

RESULTS

AsshowninTable4,theimpactofVOSTonsolarinstallationsinAustinispositiveandstatistically

significantwithap-valueof0.038(<0.05)whenthecontrolgroupistherestofTexas.Inthiscase,the

resultsimplythatVOSTincreasedsolarinstallationsinAustinby0.667installationsperzipcodeper

month.

However,whenthecontrolgroupisSanAntonioandDallas,theeffectoftheVOSTisstillpositive,butnot

statisticallysignificant,withap-valueof0.154.Whenrebatesandretailratesareincluded,theeffectof

theVOSTontherateofsolarinstallationsisreducedbyhalfandalsonotstatisticallysignificant,withap-

valueof0.575.Thischangeismostlycausedbyrebates,whereastheinclusionofretailratesleadsto

minimalchangesintheregressionresults.However,thereareconcernswithrebatedataasdiscussedin

theLimitationssectionbelow,sotheresultsinthelastcasemaybeunreliable.

Inaddition,theresultsshowthatlivinginAustinclearlyhasapositiveandstatisticallysignificantimpact

onsolarinstallationrates.Thisislikelyduetoacombinationoflocalpolicies—includingfinancial

incentivesforsolar—andtheuniquecharacteristicsofAustinasdescribedintheDiscussionsection

below.

22

TABLE4.REGRESSIONRESULTSFORMONTHLYTOTALSOLARINSTALLATIONSBYZIPCODE

Austinvs.RestofTX Austinvs.

SanAntonio&Dallas

Austinvs.

SanAntonio&Dallas

(incl.rebates&retailrates)

CityAustin 1.610***

(0.232)

1.650***

(0.403)

2.515***

(0.492)

PostVOST 0.667**

(0.321)

0.748

(0.524)

0.312

(0.557)

TimeFixedEffects Yes Yes Yes

CostperWatt -0.030

(0.050)

-0.064

(0.088)

-0.130

(0.090)

Population 0.00001***

(0.00000)

0.00003***

(0.00000)

0.00003***

(0.00000)

AverageIncome 0.00001***

(0.00000)

0.00001***

(0.00000)

0.00002***

(0.00000)

Politicalaffiliation -0.334

(0.601)

4.232*

(2.108)

3.961

(2.174)

RetailRate 1.922**

(5.213)

Rebates -0.000

(0.000)

Constant -1.435 -5.208 -4.692

23

(0.803) (1.618) (1.642)

R-squared 0.0912 0.0867 0.0976

AdjR-squared 0.0830 0.0750 0.0850

NumberofObservations 3,149 2,216 2,175

Standarderrorsarereportedinparentheses.*,**,***indicatessignificanceatthe90%,95%,and99%levels,respectively.

DISCUSSION

Asdiscussedabove,weexpectedadecreaseinsolarinstallationsfollowingtheimplementationofthe

VOSTprogram,sincewepositedthatthefinancialattractivenessofsolarwoulddecreaseunderVOST

comparedtonetmetering.Contrarytoourexpectation,wefoundthatVOSThasapositiveand

statisticallysignificanteffectonsolarinstallationsinAustinwhentherestofTexasisusedasacontrol

group.However,therestofTexasmaynotbeasuitablecontrolforAustinduetofactorsthatwedonot

observe,thereforeweconsideredanotherspecificationthatusesDallasandSanAntonioasthecontrol

group.Theresultsfromthisspecificationareagainpositivealthoughthestandarderrorsincrease(the

coefficientisnownotstatisticallysignificantatasignificancelevelof0.1).Thelackofsignificancecouldbe

duetodecreasedpowertodetectaneffectfromlimitingthesamplesize.Alternatively,theseresultsmay

leadustointerpretthefirstspecificationmorecautiouslyifwesuspectthatthereareunobservedfactors

ortrendsnotrelatingtoVOSTthatoccurredinthemoreprogressivecities(Austin,Dallas,andSan

Antonio).Regardless,wefoundthatAustinresidentsaresignificantlymorelikelytoinstallsolarcompared

totherestofTexas,includingSanAntonioandDallas.

LIMITATIONSTOANALYSIS

Ourregressionanalysishadanumberoflimitationsduetodataavailabilityandquality.Below,weoutline

theassumptionswemadeandhowweaddresseddatadiscrepancies.

24

TheOpenPVProjectisavoluntarydatabase,andthereforemayincludeincompleteorinaccuratedata.

Weidentifiedandremovedapproximately1,500duplicaterecords,buttheremayhavebeenadditional

duplicatesthatwewereunabletoidentify.However,webelievethatthisisthemostcomprehensive

datasetandthusweassumethatanyfurtherinconsistenciesareminoranddonotsignificantlyimpact

ouranalysis.

Therewasnosingle,comprehensivesourceofdataforsolarrebatesinAustin,SanAntonio,andDallas.

ForAustinEnergy’sresidentialsolarrebate,weusedthedatalistedintheOpenPVProject,whichwas

consistentwiththedatawereceivedfromAustinEnergy.However,rebatedataweremissingforSan

AntonioandDallasintheOpenPVdatasetsoweusedtheDSIREdatabaseinstead.Itisimportanttonote

thattherewereinconsistenciesinAustin’srebatedatabetweentheOpenPVdatasetandDSIRE,which

suggeststhattheDSIRErebatedataforSanAntonioandDallasmayalsocontaininaccuracies.

TheOpenPVProjectprovidesdatabasedontheUSCensusBureau’sZipCodeTabulationAreas(ZCTA)

ratherthanpostalzipcodes.However,weassumethatthedifferencebetweenthesedesignationsis

negligibleanddoesnotimpactouranalysis.

PopulationandincomedataaccordingtoZCTAwereonlyavailablefromtheUSCensusBureau’s

AmericanCommunitySurveystartingin2011.Therefore,weappliedthe2011datatothepreceding

years.Lastly,forpoliticalaffiliation,weuseddataexclusivelyfromthe2016Presidentialelection,rather

thanfromeachyearforwhichweperformedouranalysis.Wedonotexpecteitheroftheseadjustments

tohaveameaningfulimpactonouranalysis.

OTHERKEYVARIABLES

Thereareanumberoffactorsthatcaninfluencesolaradoption.Inourregression,wecontrolledfor

severalfactors,buttherewereanumberoffactorsforwhichwewereunabletocontrol.

First,thewayAustinEnergycommunicatedthechangetotheVOST,andthewaycustomersinterpreted

thosechanges,mayhavehadasignificantimpactsolaradoption.AccordingtotheEnvironmental

ProgramCoordinatoratAustinEnergy,theutilityheldcommunitymeetingsaboutthepolicychange,but

itisnotcleartowhatextentprospectivesolarcustomersweremadeawareofthechange,andhowthese

25

communicationsaffectedtheirpropensitytoinvestinsolar.33Inthesamevein,thewayinwhichthe

changetoVOSTwasportrayedbylocalplayers,suchascitygovernment,solarinstallers,andmedia

organizations,couldhaveaffectedsolaradoption,butwasnotaccountedforinouranalysis.

Anotherfactorthatwecouldnotcontrolforwassocialcontagion,wherebycertainbehaviorsexhibitedby

onepersonareemulatedbyothers.Iftherewereanumberofnearbyinstallations,oraclusterof

residentialsolarpanelsincertaindenselypopulatedneighborhoods,thoseproximalexamplescouldhave

encouragedotherresidentstoadoptsolar,regardlessofthechangefromnetmeteringtoVOST.34

Lastly,althoughourregressiondidcontrolforpoliticalaffiliation,whichmaybecorrelatedwithsupport

forenvironmentalcauses,Austinresidentsmayhaveaparticularproclivityforsolarenergy,andmayhave

beenmoreinclinedthancustomersinotherregionstoadoptsolarPV,despitethechangeinpolicy.

POTENTIALREPLICABILITY

Asutilitiesacrossthecountrypursuealternativestonetmetering,itisworthconsideringwhyAustinmay

havebeenuniquelypositionedtopioneeraVOSTmethodology,andwhethersimilarprogramscouldbe

implementedelsewhere.

UNIQUEAUSTINCIRCUMSTANCES

BecauseAustinEnergyisamunicipalutility,theirfinancialdecisionsmustbeapprovedbytheAustinCity

Council,incontrasttootherUSutilities,whicharelargelyregulatedbystatepublicutilitycommissions

(PUCs).PUCstendtomakedecisionsbasedonwhatwillkeeputilityrateslowforcustomers.Whilethisis

certainlyaconcernoftheAustinCityCouncil,theCouncilhasawidermission,makingdecisionsbasedon

avarietyofobjectives.TheCityCouncilisdirectlyelectedbyAustinresidentsandassuch,representsthe

city’srelativelyprogressive-mindedpopulation.ItislesslikelythatastatePUCwouldbeassupportiveof

thetypeofpioneeringVOSTprogramthatwasimplementedinAustin.

33Harvey,Tim.EnvironmentalProgramCoordinatoratAustinEnergy.Telephoneinterviewconductedbyauthors.April11,2017.34Graziano,MarcelloandKennethGillingham.“Spatialpatternsofsolarphotovoltaicsystemadoption:Theinfluenceofneighborsandthebuiltenvironment.”JournalofEconomicGeography.(2015)15(4):815-839.October7,2014.https://doi.org/10.1093/jeg/lbu036.

26

Inadditionto—andperhapsbecauseof—thefeaturesuniquetoAustinEnergy,someoftheparticulars

oftheVOST’scomponentcalculationsmaynotbeaspalatableinotherstatesandregulatoryjurisdictions.

Forexample,AustinEnergy’sValueofEnergycalculationisbasedonhighlytransparentERCOTpower

prices,butmarginalenergycostsaremuchmoreopaqueinotherpartsofthecountryandthusdifficult

toidentify.AustinEnergy’s$0.02perkWhEnvironmentalBenefitscomponentisintendedtocapturethe

societalenvironmentalbenefitsassociatedwithincrementalPVdeployment.However,thesebenefitsare

notfinanciallymeasurablefromautility’sperspective,asfewregulationscurrentlyexisttoreducethe

environmentalexternalitiesimposedbytheelectricitysector.

Atpresent,theonlyotherinstanceofaVOSTintheUSisinMinnesota,wherelegislationadoptingaVOST

wasenactedin2013.However,ratherthancomprehensivelyreplacingnetmetering,thestatelegislature

employedamorecautiousstrategy,makingtheVOSTprogramoptionaltostart.Thiswaytheefficacyof

theprogramcanbeassessedbeforenetmeteringisfullydiscontinued.Todate,noutilityhasadoptedthe

VOST,astheassessmentcurrentlyvaluessolarmorehighlythanretailelectricityrates.

OtherstateshavetakenacloselookatthepotentialforVOST,suchasMaine,whereCleanPower

ResearchhasconductedastudysimilartothoseinAustinandMinnesota.35Inaddition,numerousVOS

studieshavebeenreleasedbyavarietyofstakeholders,mostofwhomhaveeithertoutedthebenefitsof

distributedsolarorwarnedofthecosts.SomeutilitieshavecommissionedVOSstudiestoquantifysolar’s

coststothegrid.InArizona,arecentVOSproceedinghasresultedinthereplacementofnetmetering

withaVOSprogramthatwillreducePVcustomercompensation.36

CONCLUSION

BecauseAustinEnergychosetoreplacenetmeteringwiththeVOSTprimarilyforfinancialreasons,we

expectedthechangeintariffstructuretoleadtoadecreaseintherateofsolarinstallationsinAustin.

Instead,ouranalysisindicatesthattheVOSTledtoastatisticallysignificantincreaseinsolarinstallations

inAustinwhencomparedtotherestofTexas.However,thispositiveeffectwasnotstatisticallysignificant

whencomparedtoSanAntonioandDallas.WhileSanAntonioandDallasprovidebettercounterfactuals

35CleanPowerResearch.MaineDistributedSolarValuationStudy.2015.http://www.maine.gov/mpuc/electricity/elect_generation/documents/MainePUCVOS-ExecutiveSummary.pdf36UtilityDive.Arizonaregulatorsendretailnetmeteringinvalue-of-solarproceeding.December21,2016.http://www.utilitydive.com/news/updated-arizona-regulators-end-retail-net-metering-in-value-of-solar-proce/432838/

27

forsolarinstallationsinAustinabsenttheVOST,thelimitedsamplesizemayhavedecreasedthe

statisticalsignificanceoftheresults.Wethereforecannotdrawanydefinitiveconclusionsaboutthe

impactoftheVOSTonsolarinstallationsinAustin.

Moreover,thenascentnatureoftheVOSTandtherapidchangesinthesolarindustrymakeitdifficultto

isolatethemostsignificantfactorsonthesolarinstallationrateinAustin.Furtherstudywouldlikelybe

helpfulinassessingtheimpactofaVOSTpolicycomparedtoanetmeteringpolicybeforeitispossibleto

speculateonthepotentialsuccessofaVOSTinanotherjurisdiction.Asdiscussedabove,the

circumstancesinAustinmaybeuniqueandthistypeofprogrammaynotbeeasilyreplicatedelsewhere.

Asmoreutilities,regulators,andotherstakeholdersdevelopVOStariffsandotherinnovativeprogramsto

replacenetmetering,otherregionscanadoptsimilarapproachesthatbothpreserveutilityfinancialsand

allowforavibrantmarketforresidentialsolar.Despitethelimitationsofouranalysisandtheuncertainty

ofreplicability,ourresultsindicatethattheVOSTdidnotdecreasetherateofsolarinstallations,which

mayhavepromisingimplicationsforotherwell-executedVOSTpoliciesinthefuture.

28

APPENDIX

APPENDIX1.AUSTINENERGYREBATEHISTORY:AMOUNTANDCAPACITYINSTALLED37

DateRebatechanged Rebatechangedto($/W)

CapacityInstalledatrebatelevel(kW-AC)

4/20/2004 $5.00 522

11/16/2005 $4.50 88

2/1/2006 $4.00 172

10/1/2006 $4.50 1,350

3/13/2009 $3.75 684

10/1/2009 $2.50 755

5/17/2011 $3.00 1,084

10/1/2011 $2.50 1,614

6/11/2012 $2.00 2,940

5/7/2013 $1.50 2,719

12/4/2013 $1.25 1,656

6/16/2014 $1.10 5,290

6/26/2015 $1.00 944

8/24/2015 $0.90 1,275

11/9/2015 $0.80 3,750

9/14/2016 $0.70 2,607

2/13/2017 $0.60 1,005

37Harvey,Tim.EnvironmentalProgramCoordinator,AustinEnergy.Emailtoauthors,April11,2017.

29

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