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APS sees surge in rooftop solar applications ahead of rate change

An estimated 70,000 homes served by Arizona Public Service Co. soon are expected to be able to generate electricity from rooftop solar panels, which would give the utility approximately 5% of the residential solar systems installed nationwide.

The number of ratepayers looking to add rooftop systems has surged ahead of a change in regulations that will reduce compensation to customers who deliver power to the grid. In June, Arizona Public Service, or APS, a subsidiary of Pinnacle West Capital Corp., received more than 4,500 applications for solar interconnections, more than double the recent monthly average, Pinnacle West Chairman, President and CEO Donald Brandt said Aug. 3 on a second-quarter earnings conference call.

Arizona's utilities have argued for years that the existing net-metering policy shifts the fixed costs of building and running the electric system from solar to nonsolar customers. The Arizona Corporation Commission voted late last year to move to a formula-based approach intended to more accurately value the electricity homeowners generate. An administrative law judge recently recommended that state regulators approve an APS rate case that included the change in net-metering policy. The judge recommended that new rates take effect on Sept. 1.

"After that, it remains to be seen" how the rooftop solar market will fare in APS' territory, said James Hatfield, the CFO at Pinnacle West and APS.

Twenty-nine stakeholders representing consumer advocates, environmental groups and rooftop solar organizations, among others, signed the law judge's recommended settlement. Anne Hoskins, chief policy officer at residential solar developer Sunrun Inc., said the settlement was "proof that rooftop solar is inevitable," though it failed to "recognize the multitude of benefits that rooftop solar brings to all Arizonans."

Arizona Corporation Commission member Andy Tobin in July said that in a confidential side agreement to the rate case, solar industry representatives and advocates agreed not to undermine the settlement through ballot initiatives, legislation or other efforts.

As of July, more than 62,000 residential solar systems totaling 483 MW had been installed in APS' territory, Brandt said. At the end of the first quarter, nearly 1.4 million residential solar systems were installed in the U.S., including approximately 672,000 in California, the country's biggest solar market, according to Alex Hobson, a spokeswoman at the Solar Energy Industries Association, a trade group.

As the amount of solar power on the grid increases, regulators are facing operational challenges, including how to accommodate power demand in the evening as solar drops offline. On a particularly hot day in June, for example, APS was still seeing near-record peak demand as late as 8 p.m. Power generation from private rooftop solar systems had peaked at 1 p.m., and they were only producing about 30% of their capacity at 6 p.m., Brandt said.

"Our growing customer demand and the misalignment between when our demand peak occurs and when rooftop solar produces the most energy further demonstrates the need to continue grid enhancements while adding peaking resources," he said. In April, APS issued a request for proposals for between 400 MW and 700 MW of capacity to meet peak demand beginning in 2021.

Asked whether energy storage could be a solution, APS Executive Vice President and COO Mark Schiavoni said the utility looks for resources that "provide the right solution at the right cost for our system reliability."

"We have installed a couple 2-MW batteries into our system, and, quite frankly, use them as part of the solution set," he said on the call. "So we're pretty agnostic when it comes to that."

In California, a methane leak at Southern California Gas Co.'s Aliso Canyon natural gas storage facility prompted state regulators to allow local electric utility Southern California Edison Co. to quickly procure energy storage resources to mitigate the risk of blackouts. The utilities have also made customers part of the solution, allowing them to curtail power demand when called upon to do so using various technologies including smart thermostats, according to Seth Frader-Thompson, president of EnergyHub Inc., which offers demand-response services to utilities.

"That program is really interesting because it shows a little bit of a glimmer of the future of where I think we're going, where grid services providers ... are not occasionally-used resources, they become kind core operational resources to the grid," Frader-Thompson said at an industry conference in July.

"You've got this constellation of technology companies, you've got two sort of overlapping utility service territories, all ... banning together to solve this crisis associated with a gas shortage, and you're keeping the grid running and the lights on," he added.