Michigan utilities may soon limit payouts to homes with rooftop solar

Solar panels atop Bert Seyfarth’s East Lansing home help reduce his energy bill to almost nothing, in part because he’s able to offset the cost of energy he buys by selling his excess energy back onto the grid. (Photo courtesy of Bert Seyfarth)

Bert Seyfarth is concerned about climate change, but the solar panels on the roof of his East Lansing home aren’t just a symbol of environmental awareness, he said. They’re a financial investment.


The panels supply the bulk of his home electricity, and when he’s not using power, he sells the excess energy back to the grid, nearly eliminating an electricity bill that would otherwise cost him about $1,100 annually. 

“It makes good economic sense,” said Seyfarth, so he’s pursuing a similar project on a home he owns Glen Arbor, in Consumers Energy territory.

But due to a state policy that limits rooftop solar owners’ ability to sell their excess power, the financial math that motivates Seyfarth might not be available for future customers of Consumers or other Michigan investor-owned utilities. 

Under state law, utilities are required only to reimburse private customers for renewable energy given back to the grid until the sum of that energy reaches 1 percent of a utility’s average peak demand. That allotment is further broken down by size, with installations that produce small quantities of energy, such as residential solar arrays, allowed to make up .5 percent. Throughout Michigan, utilities are now bumping up against those caps. 

Consumers Energy hit its cap this fall. Upper Peninsula Power Co. (UPPCO), the U.P.’s largest utility, is about to hit its residential cap for a second time after raising it to 2 percent as part of a settlement last year. Solar advocates say caps are looming in other territories, too, including those of DTE Energy, removing a powerful incentive for homeowners to invest in solar.

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Legislation by Sen. Ed McBroom, R-Vulcan, that aims to lift the current cap languishes in committee with just one scheduled working day left this session, leaving solar industry advocates warning of a looming cliff for an industry that has seen steady growth in recent years.

“Our installers are small businesses that create good-paying jobs,” said Laura Sherman, president of the Michigan Energy Innovation Business Council, which advocates for renewable energy. “And in all likelihood, some of them are going to lose their jobs.” 

Utilities contend the cap is necessary because rooftop solar owners are compensated too generously for the power they feed to the grid, resulting in a subsidy that other customers are forced to shoulder.

“That cross-subsidization gives us heartburn,” said Brett French, vice president of business development and communication at UPPCO, and every new rooftop solar installation makes the subsidy bigger.

Crews from Peninsula Solar install panels on an Upper Peninsula home. High electricity rates in the U.P. have fueled strong interest in switching to solar power, causing the peninsula’s largest utility to exceed caps on the amount of solar power it must accept from rooftop array owners. (Photo courtesy of Peninsula Solar)

The economics of solar 

In the Upper Peninsula, where electricity rates are among the nation’s highest, Peninsula Solar owner Ian Omsted’s Marquette-based business was booming. 

UPPCO’s high rates make rooftop solar an enticing alternative for residents who can afford upfront installation costs that can run well above $10,000. Low-interest loans through the nonprofit Michigan Saves program further boosted business by making solar panels accessible even to those without the cash to front a project, Olmsted said.

“Up here, solar is an actual money-saver,” he said. “It’s not just about being good to the environment. I have customers who were paying a $350-a-month electricity bill.”

Michigan’s early-adopting rooftop solar owners are compensated for the energy they contribute to the grid through a “net metering” regime that values it at the retail price that electric customers pay to draw energy from the grid. 

In 2018, the most recent year in which state figures are available, an additional 1,942 Michiganders enrolled in net metering programs to sell their excess energy back to the grid, a 59 percent increase over the previous year, bringing total net metering participation in Michigan to 5,219 customers. 

Utilities have long argued that this compensation is too high because it fails to charge solar customers for using the power lines and other infrastructure that deliver their energy to the grid, and doesn’t account for other services utilities provide. In a nod to industry concerns, legislation passed in 2016 required Michigan to shift to a distributed generation program, which shrinks credits for customers who send surplus power onto the grid in an attempt to account for those costs. 

The Michigan Public Service Commission is phasing in the new compensation program on a utility-by-utility basis as part of a larger effort to address rates utilities charge customers. 

When UPPCO agreed to increase its cap to 2 percent as part of a settlement before the commission, it also reduced compensation for rooftop solar owners. But demand for new installations remains strong, and UPPCO is nearing its higher cap.

French said even at the lower rate, UPPCO believes rooftop solar owners aren’t paying their fair share to use the utility's infrastructure. If the cap is raised, he said, non-solar customers’ rates will increase to make up the difference.

Market impacts

But Olmsted, of Peninsula Solar, contends his customers are paying their fair share, and helping Michigan achieve its greenhouse gas reduction goals in the process. With the cap looming, he said, uncertainty about the financial viability of rooftop solar has already slowed his business.

It’s the same story for Ken Zebarah, a sales manager at Jackson-based Harvest Solar. After Consumers Energy reached its residential cap last month, Zebarah said, demand for new home solar installations dropped precipitously. Zebarah began to reassign staff to other states where business is steadier.

“We're shifting a lot of marketing money and people to Indiana and Illinois,” he said.

Consumers announced this month that it will consider voluntarily raising its cap to 2 percent in January if it gets its way in an ongoing rate case before the Michigan Public Service Commission. A decision in that case could come as soon as this week.

The company wants permission to increase revenue by $244 million annually, resulting in an average electricity rate increase of 14 percent for residential customers, while compensating solar owners slightly more than half of retail value for the energy they contribute to the grid.

“We still think that has a fairly significant subsidy [to solar users] embedded in it,” said Brandon Hofmeister, Consumers’ vice president of governmental, regulatory and public affairs. 

Though rooftop solar owners buy less electricity than the average customer, Hofmeister said, they benefit equally from Consumers’ investment in infrastructure that ensures customers have reliable electricity amid fluctuating demand. 

“We think it’s appropriate that you pay your proper and fair share for that,” Hofmeister said, “so other customers aren’t paying more.”

Rather than raising caps under the current compensation regime, he and other utility representatives said they first want to see a new compensation model that charges rooftop solar owners more for those costs. 

Solar advocates respond that the current method of compensating rooftop solar owners dramatically undervalues the benefits they provide, and overestimates solar’s use of utility infrastructure. For example, Sherman said, because rooftop solar energy travels short distances on power lines before it’s used by neighboring homeowners, it suffers fewer “transmission losses” along the way—an increase in efficiency that translates into cost savings for utilities.

“Retail net metering is not even fully compensating for those benefits,” Sherman said.

Solar advocates hope the imminent decision in the Consumers rate case will help their case. An administrative law judge earlier this fall recommended that the commission order Consumers to conduct a “value of solar” study that would establish a fair rate for energy that owners of small solar arrays send to the grid. 

But Sherman, of the renewal energy council, said permanently lifting the cap — both in Consumers territory and statewide — remains her top priority. With McBroom’s bills destined to die this legislative session, she’s begun strategizing with rooftop solar supporters in the Legislature about introducing similar legislation next session. 

“If there’s a cap, nobody can do anything,” she said, “so who’d care what the value is?”

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Wed, 12/16/2020 - 9:35am

The power companies are double speaking: They claim they want clean energy, yet they want to discourage solar.

Sun, 12/20/2020 - 1:56pm

No, they're entirely consistent: the power companies love solar. AS LONG AS THEY OWN ALL SOLAR POWER.
They have monopolies granted by the state and love those rates and don't want to have give them up.
That's what they have and want to preserve.
Kind of like our Republican legislators who have a monopoly on who can vote them in.

Mon, 12/21/2020 - 5:07pm

DTE likes solar. But it doesn't want consumers to become sellers / producers of solar energy. Their monopoly trumps all - as long as they can control the production of energy the more they can charge us. Pretty simple.

Wed, 12/16/2020 - 10:58am

This cap thing seems contrived and overly complicated.

Power companies purchase electricity wholesale, so there has to be a wholesale price for what they buy, a price somewhat driven by the market I'd assume. What difference does the source make, a source from some power company in Ohio or some mom and pop with a solar array on their roof? If I'm selling power to the power company, it seems logical that the just compensation is the wholesale price.

That power sale would have to be metered, but I'd think metering power both in and out and applying different rates to each probably isn't rocket science.

Fri, 12/18/2020 - 11:28am

Metering power in and out isn't terribly complicated, and the utilities do that now, even for net metering customers. The issue is that there isn't just one wholesale price that utilities pay for power, and the amount of power generated or imported must match the demand for power in a distribution circuit and for the utility grid as a whole on a minute by minute basis. The small scale and highly time-variable power output of residential solar installations complicate this power in = power out balancing act for the power distribution circuits they are attached to, and for each utility as a whole. That translates into greater expense for monitoring and controlling the power grid because of the unpredictable transient changes to solar power input caused by clouds. (Or by changes in wind direction and speed for wind turbines.)

The other issue is that solar panels, whether mounted on commercial buildings, homes or in solar farms tends to produce the greatest amount of power at times and seasons where power demand, and therefore the wholesale price of power is lowest. Solar advocates want homeowners and solar farm developers who produce those "green" kilowatts, but only while the sun shines to be credited with a higher, fixed wholesale price than the 15 minute, 1 hour, or even the "day ahead" wholesale prices in effect at the time the power was generated. They also want no extra charges (called capacity charges) for the extra capacity that must be added to local power distribution systems to handle solar power generation. A utility's capacity charges are normally based on the peak power generation or peak power demand, but have not yet been allowed for residential customers in Michigan.

Bert seyfarth
Sat, 12/19/2020 - 8:31pm

Net metering doesn’t involve buying and selling energy. It’s just bookkeeping- keeping a record of how much excess solar energy the homeowner puts back into the power line which is delivered to the next nearest customer. When the solar home owner needs more power than h/h system can generate, it supplies the energy but gives the owner credit on the bill for the energy supplied.

Wed, 12/23/2020 - 11:01am

The power that a solar panel "puts back" into the power line cannot be delivered to "the next nearest customer" unless that customer has a demand for power that occurs simultaneously with generating it. This happens much less often than solar power advocates think. Yes, net metering tariffs involve (relatively) simple financial bookkeeping. But that's not the whole issue.

Adding more than a small percentage (e.g. 1% of residential customers) of solar generation to the power grid requires almost complete re-engineering of local power distribution circuits to handle two-way power flow and higher peak loads. Adding solar power on a medium or large scale also adds the cost of the standby dispatchable power resources needed to instantaneously balance power supply with demand, maintain voltage within safe levels, and maintain a steady AC frequency. Right now, those additional costs are paid for by all the utility's customers, while the benefit of reduced utility bills due to net metering accrues to those who both own property and are rich enough to "invest" in solar panels. Or possibly those who have a good enough credit rating to let some other business (like Solar City or Sunpower) to collect those 18-22% annual profits instead. This cross-subsidization, and the driving out of other essential utility upgrades because of increased renewable power mandates is a serious problem.

Wed, 12/16/2020 - 10:58am

Free the market monopoly and grant homeowners the ability to generate not only clean alternative energy, but income on their investment. DTE Monopoly = Communism

Chuck Jordan
Wed, 12/16/2020 - 11:03am

How much did Consumers Energy CEO make last year? Does use of solar energy benefit everyone? Should use of solar energy be encouraged? Who does our legislature represent? Big business energy producers or the people? Consumers likes to talk about Green Energy, but they want to control it.

Wed, 12/16/2020 - 12:22pm

I think setting a fair price for reselling electricity would be a good discussion, knowing that what's fair is subjective. In the meantime, I'd like to know more about the homes and behaviors where residential customers - plural - are paying $350 a month for electricity. Wow!

Wed, 12/16/2020 - 6:14pm

How about electricity and gas combined? Very common in the winter for many people. It's the reason why DTE and Consumers don't want competition from homeowners who generate their own energy and sell it back.

Fri, 12/18/2020 - 11:57am

My household of 5 people living in an exurban neighborhood in Washtenaw County, has an electric bill that ranges from $275 to $400 per month, depending on the season and the weather. We have our own well, and the pump to generate water pressure is electric. We have a koi pond that requires a smaller electric water pump to be run 24/7. We have a hobby greenhouse which requires a 24/7 inflation pump to maintain the insulating air gap between layers of plastic.

Our house is super-insulated (2 x 6 rather than 2 x 4 studs in the walls, all brick exerior), double glazed windows, and has a heat pump, which uses ground water as the heat transfer fluid. We run the heat pump only during the summer, as a chiller, because the "make up heat" needed when the heat pump is used as a furnace, is an electric resistance heater which costs about 2X as much per degree-day of heating as our natural gas (originally propane) forced air furnace does to run, in spite of DTE's discount for "interruptible power" for that separately-metered appliance. We have two relatively new and efficient refrigerators and a (new this year, highly efficient) freezer for the produce we grow and the cider we press from our dozen apple and pear trees. Our cooktop and dryer use natural gas, but the oven is electric. We have one large TV and a total of 7 computers for 5 adults, 3 of whom now work from home exclusively rather than occasionally. For company security reasons, 1 person has both a personal and a work-issued computer. We also have a server to let all 5 of us access the printer, mass storage and backups.

Our neighbors, all with 3 or fewer people in the home, have similar appliances, fewer computers, no extra insulation, traditional AC systems instead of a heat pump, no greenhouse or pond and are paying $200-350 per month for their electricity per the DTE "Energy Efficiency Scorecards" I get with each bill.

Jim Sherburne
Wed, 12/16/2020 - 12:52pm

This is concerning, the logical direction would be to further incentivise Solar Energy. I will be forwarding this to my Representatives. And maybe a common interest group to track this could be organized.

Wed, 12/16/2020 - 6:16pm

Who knew? I will do the same. Everyone should demand solar energy incentives. If they can do it in Germany, they can do it in Michigan and Granholm will be a wonderful ally in DC.

Wed, 12/16/2020 - 1:50pm

I hope our legislators agree that rooftop solar is critical for reducing Mi greenhouse gas production. Energy companies externalize the costs of coal including air and water pollution that we all pay for with our health. Rooftop solar provides real savings while coal costs everybody. Until all carbon producing electricity production is phased out, reimburse rooftop electricity buy back at the same amount we pay for the electricity.

Jenny B
Fri, 12/18/2020 - 2:23pm

It seems there would be bipartisan support to remove the caps. Write to your representatives!

Tim Joseph
Wed, 12/16/2020 - 2:20pm

For whatever reason, our rural electric co-op, Cherryland, is not required to pay us retail price for electricity we produce in our solar installation and instead, pays a little less than half. I do not know what the fair price should be; I'm sure it is complicated. I am guessing it should be higher, but I realize the Co-op has fixed cost for their grid. I still am glad to have our solar panels because they do produce as much electricity as we use in a year, thus giving us a carbon-neutral source of electricity. The moral side of this should not be undervalued, and I encourage everyone to consider making this investment for the sake of our children, who will not inherit as good of a planet as my generation did if we don't cut way back on burning fossil fuels.

Enough is Enough
Wed, 12/16/2020 - 6:21pm

They aren't even maintaining the dilapidated grid, never trim trees. We have power outages regularly. It's third world quality. They just pocket greater profits and screw the customers with awful service that is extremely costly. Let homeowners generate energy at a small profit, as much as they can produce. Provide low-cost financing for purchase and installation of solar panels. Stop HOAs from banning solar panels.

Wed, 12/23/2020 - 11:10am

Decreased budgets for tree trimming and power line maintenance were among the things that Michigan's Public Service Commission demanded that utilities use to offset the cost of mandatory programs to help homeowners learn how to reduce their electric bills, insulate their homes, and the credits or cash payments for turning in old appliances. The effect on power outages has been worsening over the decade or more that the budget cuts have been in effect.

Wed, 12/16/2020 - 3:23pm

The power companies make money on producing power from generating assets that they own. Solar panels on homeowner's roof are a threat to their profits. The grid cost excuse is just their latest plan to use monopoly power to stop competition. Whoever thought letting publicly traded companies have a monopoly on selling electricity was a good idea, did not think through the long term consequences.

Wed, 12/16/2020 - 6:11pm

The utility companies love their monopolies. It's a great gig, if you can get it.

Michael Rankin
Thu, 12/17/2020 - 6:59am

Funny how the shoe is on the other foot. Good for the Consumer. But not good for company. Solor energy should be encourage to all! I'm a firm believer that we the people are entitled to free energy!

Robert Honeyman
Thu, 12/17/2020 - 10:34am

It's bad economics to require utilities to pay retail prices for acquiring excess capacity from private energy producers. When drawing from the grid, homeowners are consumers and should pay the regulated retail price. But when feeding energy back into the grid, they are no longer consumers, but energy producers.

Legislation should set the buyback price at some average production or acquisition cost for the utility and let the Michigan Public Service Commission set that rate based on data to which they have full access.

Al Warner
Thu, 12/17/2020 - 1:08pm

Write your legislator to move SB 597 out of the Senate Energy and Technology Committee where it currently languishes. Action, not words! Set the cap to 15% for clean energy action and home electric car charging.

Thu, 12/17/2020 - 6:33pm

Sounds like it is time forn those solar folks to invest more money into batteries and.inverters and pull the plug on their grid connection!

Fri, 12/18/2020 - 11:55am

"Legislation by Sen. Ed McBroom, R-Vulcan, that aims to lift the current cap languishes in committee with just one scheduled working day left this session, leaving solar industry advocates warning of a looming cliff for an industry that has seen steady growth in recent years."

This blockage by the majority GOP in control is outrageous and everyone, Democrats and Republicans, needs to write to their reps across the state to support this proposed legislation. Only corrupt politicians would be against it. Time to see who those corrupt politicians are and spread the word. Removing the caps can mean turning consumers into providers, ie, new small businesses! GOP are you for small businesses or corrupt lobbyists?

Common decency
Fri, 12/18/2020 - 11:57am

Nothing stimulates an economy like an additional income lifeline. You know the saying: give a man a fish, stimulus check, feed him for a day, teach a man to fish, uncap the solar buyback, feed him for his life.

Robert Seyfarth
Sat, 12/19/2020 - 8:18pm

My house is featured at the lead. I DO NOT SELL ENERGY BACK TO CONSUMERS POWER.
Consumers keeps track of EXCESS energy my solar system generates. The excess goes back from my house collectors and to my neighbor’s house. When my system doesn’t generate enough energy to fill my needs, Consumers subtracts from the excess to supply my needs. If I need more, I pay Consumers for it. Consumers does bookkeeping. That’s it.