A solar future for the Bermuda consumer
In reviewing the treatment that the Government, Ascendant Group and the Regulatory Authority of Bermuda have offered the retail solar panel installer to date, we think it is important for the public to be aware of the history so that clear decisions can be made on whether the government subsidies being offered to entice homeowners to make personal financial investments in placing solar panels on their roofs make good economic sense.
First and foremost, for any member of the public considering the solar panel option, it is most important to have an energy assessment done of the home to see what efficiencies can be accomplished simply and at the least cost to reduce your electricity bills.
Less expensive improvements such as LED lighting/timers on water heaters, towel and closet heaters, and dehumidifiers, replacing inefficient appliances with Energy Star-rated ones such as refrigerators, freezers and air conditioners should be considered first.
Seeing what effect these less expensive improvements could have on your electricity bill may be the first step, as solar-panel installations by themselves might not lead to as much of net saving per dollar invested as the simpler, less expensive choices offer despite the government subsidy being provided.
• Recent history of Retail Solar Development in Bermuda
In about 2010, in conjunction with the Government, Belco offered to a limited number of customers the opportunity to use their grid along with a maximum government rebate of $5,000 at terms to induce the consumers to make significant investment in solar panels on their roofs.
When the programme started, Belco contractually bound itself to sell back to the solar installer at the same price it purchased electricity from the solar installer, including the fuel adjustment price in the rate — plus the $30 per month hook — up charge — even if the provider sold more solar-generated electricity than it took back from Belco for its own use.
From that original 2010 start, eight years later, electricity is fed into the Belco grid from 474 homes and businesses across the island via private solar installations.
According to Belco, these private investments now contribute approximately four megawatts of installed capacity, including some solar panels on Belco’s roof.
However, in 2016 the negotiated terms of agreements between Belco and the customers who relied on the terms of the original agreements were substantially changed in favour of Belco, and to the detriment of the private solar investors, who made substantial investments of their personal funds based on the original terms.
Normally, when a contract is unilaterally changed by one party without the consent of the other contracting party, the lawsuits fly in the wake of such egregious conduct.
Today, these same solar-panel customers buy any electricity they need from Belco at the full rate of about 48 cents per kWh, but sell to Belco their electricity produced by the sun at about 17 cents per kWh, plus pay an increased hook-up rate to Belco starting at a minimum of $40 per month — all of which highly favours Belco.
Basically, starting in 2010, the Government through its $5,000 rebate, which ended in 2014, and Belco, by negotiated contract, induced its customers to make private solar-panel investments.
Then in conjunction with the help of the RAB, which authorised the contractual override, Belco took away the benefits to the same consumer who trusted the contract terms, turning the private investments into a profit for Belco.
Even Belco recognised the unfairness of this treatment of its consumers who supplement their electricity needs with solar.
It pointed out in an August 15, 2016 submission to the RAB that “if a solar PV customer uses 600kW in a month and generates 500, it will pay for the 100 at the normal retail rate ... if the solar PV customer uses 500kW in a month and generates 600, it will be paid for the 100 at the avoided cost rate calculated by Belco to be 17.36 cents per kWh.
The basis of Belco’s calculation to arrive at 17.36 cents is highly questionable in itself because it chose the lowest cost for fuel in 2016 and is still using the lowest prices for variable fuel costs over a 2014 to 2018 base period, which is now outdated by substantially higher fuel prices.
The more realistic avoided cost rate appears to be in the 24 to 30-cent range, rather than 17.36 cents when the details and assumptions behind the avoided cost rate are carefully analysed. Under the Electricity Act of 2016, Section 6(e), the “Independent” Regulatory Authority is obligated “to protect the interests of end users with respect to prices and affordability”.
Has the RAB, in breaching the contract between Belco and the solar installer, fulfilled the purpose stated under 6(e) of the Electricity Act?
In addition, not only did the RAB endorse Belco’s methods, but it then went further and took more of the economic benefit away from the solar installer by forcing the customer to pay the full normal 48 cent rate for each Belco-generated kilowatt used without offsetting the kilowatts the solar installer provided to the utility in a fair swap at the same price as the contract had stated.
In short, the solar installer was duped into making a large solar capital investment to generate electricity for its home needs, which now mostly benefits Belco and which was endorsed also by the “independent” regulator.
This treatment hardly builds customer trust in either the RAB’s independence from Belco or in Belco itself at a time when Bermuda is faced with a most serious decision of committing our future electricity production to either fossil fuels or renewables, where both parties play a significant role.
Needless to say, the retail solar installation businesses to provide solar panels for homeowners dried up overnight when the contract terms were negated by the RAB.
Many of these customers who already made the capital investment in solar panels are left with little choice but to consider going off the Belco grid, which will hurt the entire system in the long run.
Now, as part of the Government’s initiative as stated in the recent Throne Speech, a “new” solar panel homeowner plan is being offered to smaller homes with less than $30,000 annual rental value, whose owners presumably have less funds to spare. The Government offers an $8,000 rebate to these new solar installers to generate up to 4kW of solar electricity.
However, the monthly hook-up charge for all customers using solar panels to feed the Belco grid has been increased from $20 per month minimum to a minimum of $40 per month, even for homeowners with an ARV of $30,000 or less — an astounding hook-up rate that may make Bermuda No 1 in the world for this cost.
Belco’s increased hook-up rate to a minimum of $40 per month for solar installers is not consistent policy with the $8,000 rebate that the Government offers.
Will Belco and the RAB honour the contract they sign with you, the customer, when you go to the bank to finance your new solar panels, or will they put you in debt to the lending bank by changing your contract terms in midstream to favour Belco, as happened in the 2010 experiment?
We believe that if Belco, the RAB and the Government are consistent, clear and transparent in making a public statement in good faith of the complete terms of the new plan with all parties agreeing up front, the debacle of changing the terms as in the 2010 plan can be avoided.
Reaching consensus over a fair and normalised policy towards renewables and offering alternative energy generation to fossil fuels is of paramount importance, given recent dramatic technological advancements.
In the past two years alone, battery storage and solar-panel efficiency have become much more affordable to the retail consumer.
Given these advances, many regulatory authorities in places in the United States, with much lower electricity rates than Bermuda, have decided to bypass investments in natural gas entirely in favour of renewables and batteries.
A few years ago, natural gas may have been viewed as an acceptable bridge to future sources of renewable generation; however, that is no longer the case (for example, see the following link: https://www.vox.com/energy-and-environment/2018/7/13/17551878/natural-gas-markets-renewable-energy).
These very recent developments lead the solar installer farther away from continuing to rely on the Belco grid.
Bermuda’s Department of Energy, the RAB and Belco, along with a knowledgeable consumer group, need to sit down together and set a long-term plan with details involved for solar installers to receive fair treatment to become part of feeding the grid before an uncoordinated integrated resource plan leads over the long term to a fatally irreversible and outdated capital investment in a fossil fuel.
Perhaps, since the Government signed a memorandum of understanding with the Rocky Mountain Institute to study the update of our bus fleet to electric, it can be induced to play a central role in these important, long-term decisions.
As Rocky Mountain is a non-profit organisation that offers free advice, with a long-term record in studying and staying on the cutting edge of renewable technology, it would be best suited in bringing all parties to the table together to make the best decisions for Bermuda on this vitally important matter.
• Sir John Swan, a businessman, was the former Premier of Bermuda between 1982 and 1995, and a former Belco board member. Michael Murphy, a former attorney for American International Group, was the chairman of the Association of Bermuda Insurers and Reinsurers between 1985 and 2005