Nevada is one of the sunniest states in the country, and until recently it was one of the best places to go solar. That’s largely because of a solid solar policy called net metering, which basically means each kilowatt-hour (kWh) of electricity produced by a solar system reduces the homeowner’s energy bill on a 1-to-1 basis, whether the energy is used to power the home or sent out to the grid.
But in late December, 2015, in a move that shocked the solar industry and solar owners alike, Nevada’s Public Utilities Commission (PUC) approved radical changes to the state’s net metering rules and electricity rate structures, sparking huge public protests and causing multiple solar companies to shut their doors and ship jobs elsewhere.
The changes include increases in fixed monthly service fees on solar system owners and reductions in the prices system owners are paid for electricity that they send onto the grid, to be phased in over 5 years. All told, the PUC has approved a 300% increase in fees and a 76% reduction in per-kWh payments to solar owners.
That adds up to make home solar in Nevada an investment that makes no sense. But the most heinous part of this plan is that the changes will apply retroactively to people who put thousands of dollars into solar when it was a great deal, which was as recently as a month ago. And this is just the latest attack on solar at the state PUC level, a new tactic that utility companies and their cronies are using to make solar less profitable. They’ve done it in Florida, they’ve done it in Arizona, and they might be coming for your state next, so it might be time to start electing better state governments.
We wanted to know the scope of the financial impact of this decision, so we ran the numbers for Nevada home solar under the new system. The comparisons show a pretty clear picture of what the PUC has done. Our findings are below.
Before the changes
Before the recent changes in Nevada, home solar was an amazing investment, with an initial outlay of $17,500 paid back in just 10 years, and a $26,540 profit over an estimated 25-year system life. That represents an internal rate of return (IRR) of 12.75%—about 1.5 times as good as a long-term investment in the stock market. Furthermore, it was possible to go solar for $0 down with a power-purchase agreement or a loan and still rack up big savings over the long term.
Here’s how that looked:
Those returns were great! And like we said above, it wasn’t just because Nevada is one of the sunniest places in the country. Mostly, it was because of net metering. The sun shines brightest during the day when most people aren’t home, so a system produces a lot of power that is sent along to the owner’s neighbors. Under net metering, this power is also credited at the full retail rate, directly offsetting the system owner’s bill.
Since the PUC decision
Under the new scheme, electricity that is not consumed by the owner is credited at a lower rate. This year, that difference will be small—about 2 cents per kWh—but as the new rules are phased in, solar owners will be getting paid 7.5 cents/kWh less than they will pay for electricity from the utility company. That’s a reduction of 74%!
NV Energy, the state’s largest utility, says the changes in rate structures are necessary so that non-solar ratepayers aren’t subsidizing solar owners, who because of net metering pay much lower bills and thereby haven’t been charged for things like upkeep of the transmission infrastructure. But those claims run counter to the results of an independent study commissioned by the PUC in 2014, which showed that the benefits of net metering at full retail rates outweighed the costs to other ratepayers, the utility, and the state.
That disconnect has prompted many to wonder whether NV Energy plotted to kill rooftop solar so that it can continue to expand its own solar infrastructure and maintain control of the energy marketplace. In fact, many citizens have banded together to file a class-action lawsuit alleging NV Energy has engaged in illegal anti-competitive actions.
And it’s not just one lawsuit. As of today there are five petitions for reconsideration pending before the PUC, and responses to the petitions are due on January 25th. That could mean the new rate schedules will be abandoned and there might be a more favorable outcome for solar owners. But given the commission’s recent actions, a reversal doesn’t seem likely.
The current financial picture for a Nevada solar investment
That brings us to the meat of this issue. What will the effects be on people who have just recently invested in solar? As we mentioned above, before the rules changes, a solar investment in Nevada resulted in $26,540 in profits and a 12.75% IRR over 25 years.
If you can use 100% of the energy
After the new rules, the absolute best-case scenario would be a home solar installation that produces only the energy that will be used by the homeowner. But a smaller system in the new Nevada is a financial disaster, because the increase in fees has proportionally more impact. So we went with our standard estimate of a 5-kW system, which would produce more than enough energy for a standard home.
In this case, we’re either talking about a larger residence, or one where the inhabitants are at home during the day using all the electricity the panels produce. So, if you can use all the energy a 5-kW system can produce, your best possible outcome is a 13-year payback with $13,000 in profits and an IRR of 7.5%. Those are similar numbers to solar in Alaska. Ouch.
If you use 50% of the energy
But it’s much more realistic to assume that you use about half of the energy your panels produce. The other half gets sent to the grid. In most states, that works great, but under Nevada’s new rate structure, you’re screwed. Buying a solar installation outright becomes a bad investment, with a 20-year payback, $3,375 in returns, and a 2.4% IRR. Inflation traditionally beats that.
And look at the orange bars, which represent taking a loan for solar. A loan is usually a slam dunk, because you get the federal tax credit and energy savings while paying the system off slowly, but under Nevada’s new rules, it won’t save you a penny until year 33 (not shown), which is more than the maximum system life we use in our estimates.
You can’t get a PPA, because the PPA companies are moving out of the state. The blue bars make it pretty plain why that is.
So what can you do?
It’s a really difficult situation for solar owners in Nevada. The best thing you can do is to keep the pressure on the PUC to change the rules. The PUC consists of three members appointed by Governor Sandoval, and his term is up at the end of 2018. Nevada’s term-limits for governor mean an open election for 2018, and we bet that solar policy will be a major point of contention.
Should you go off-grid?
Uh, no. unfortunately, we’re not in a place right now where going off-grid makes any sense at all. First, it’s probably illegal inside your city, but it’s also inadvisable. If you’re off-grid, you’re entirely liable for any outages or other problems that might occur. Finally, from a financial standpoint, it’s a nightmare. Sure you’ll save on all those usurious NV Energy fees, but the costs still far outweigh the benefits. Need proof? Read on.
While it’s technically feasible to live comfortably with solar panels on your roof and Tesla’s Powerwall batteries in your garage, it’s really expensive. We like math, so we did some. We assume that you’ll need four 7-kWh Powerwall batteries, for a total of 28 kWhs of storage. At a cost of $3,000 per battery plus installation, we rounded the initial investment to $15,000, and plugged that into our above calculations. BUT, Powerwall batteries are under warranty for only 10 years, so we assume you’ll have to replace them once, about 13 years in, at a significantly reduced cost. Here’s how that all looks:
Ouch again. You might break even over 25 years, but only just. And again, you’re on your own if anything breaks, waiting for warranty repair or worse, while your house is un-powered.
Best just to stick with the utility company for now, as crappy as they are, and work for a change in leadership in two years. Until then, Nevada, we’ll keep the lights on for you.