The one thing that could make or break solar energy

The one thing that could make or break solar energy

REUTERS/Carlos BarriaA worker inspects solar panels.

One of the more important and misunderstood parts of the solar industry is the impact policy has on making solar energy viable in the electric grid. Without policies like net metering -- which allow solar customers to send extra electricity back to the grid during the day and only pay for net usage each month -- companies like SolarCity (NASDAQ: SCTY) and Sunrun(NASDAQ: RUN) wouldn't exist. Policies like feed-in tariffs and renewable requirements that promote large solar energy projects in California, Japan, and Germany have also created demand for projects from SunPower (NASDAQ: SPWR) and First Solar, which has allowed them to grow.

I'm not talking about subsidies, like the US' Business Energy Investment Tax Credit, but rather ways the solar industry gets access to the grid, particularly for very small projects. 

But as the solar industry grows to become a larger piece of the electric industry, it puts a strain on utilities that aren't used to customers creating their own energy and have to deal with the supply and demand changes solar energy brings. As a result, many utilities and governments are either fighting solar or changing the policies that have caused its growth in the first place. Here are some important trends to watch and who might be affected.

Solar policy wins As utilities have tried to fight solar, there have been some important wins for the industry. These are often seen as signs of a positive policy environment, at least in the U.S.

A Wisconsin state court recently overturned regulator-approved charges for solar customers in WE Energies' territory. Charges based on the size of a solar system were overturned because the utility couldn't prove that residential solar really cost it money, especially with extremely low market penetration in Wisconsin. 

In August, after NV Energy said it had hit the solar cap for net energy metering, the Nevada Public Utilities Commission decided that it would allow the policy to be expanded to new customers until the end of 2015 when a new policy could be decided on. 

Arizona's utility proposals to increase grid access charges for solar customers from $0.70/kW to $3/kW was withdrawn after a public outcry against the fight on solar.

In nearly every case where solar energy has been challenged the solar industry has won, either on the regulator level or in court against utilities. But that doesn't mean policy will always be favorable for the solar industry, and changes are definitely coming. 

REUTERS/Jean-Paul Pelissier

Clouds are forming for solar In Hawaii, regulators recently released solar tariff plans that include a self-supply and a grid-supply option. Self-supply will be great for energy storage assisting self consumption, but it eliminates the ability to feed solar energy to the grid. The grid-supply option reduces what solar customers are paid from the net energy rate to the wholesale energy rate, or from about $0.30 per kWh to about $0.15 per kWh. That's a big reduction in the value solar provides to homeowners. In both cases, it will be less profitable to install solar in Hawaii than it was previously.

California is also discussing what's known as net energy metering 2.0, which will change how much homeowners are compensated for solar energy. This could include lower tariff rates, fixed charges, and other fees that make solar less economical. Initial proposals were submitted earlier this year, and a plan is due later this year.

What's clear is that where solar energy has the highest penetration -- and therefore the biggest markets for solar companies like SolarCity, Sunrun, and SunPower -- there are going to be changes that will make solar less attractive to customers in the near future. That's the bad news.

The light at the end of the tunnel What's good for the solar industry is that any changes to net metering will likely be good for energy storage and a broader range of energy services. SolarCity and SunPower are investing heavily in these new broader offerings, which will be able to take advantage of changing rates or the need for self consumption. If done right, that could be an advantage for both going forward.

Sunrun, on the other hand, will need to adapt its business model to keep up in a new energy world.

Policy is important for the solar investor, and while it may not be something you pay attention to every day it's worth understanding what the trends are. For now, the solar industry is in business as usual, fighting off challenges from utilities across the country and winning. But as the industry grows there is a need for reform in energy rates and utilities, and regulators are learning how best to make solar work for homeowners and the grid. That can be an advantage for a solar company or a threat. So it's important to understand how the stocks you own will be affected positively or negatively by the changes we can see coming a mile away.

Read the original article on The Motley Fool. Copyright 2015. Follow The Motley Fool on Twitter.

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