Alabama allows largest utility to increase ‘solar tax’ - guts state solar industry


The solar energy industry took a major blow earlier this week when The Alabama Public Service Commission voted to not only uphold a controversial fee on solar owners, but also approved to raise this fee by 8%. 

The fee, which critics call the ‘solar tax’, is billed monthly to power company Alabama Power’s customers who install solar panels to generate their own electricity. With the solar tax now coming in at $5.41 per kilowatt (kW) of rooftop solar installed, it’s now almost impossible to get a good return on a solar investment in Alabama. 

Raising the solar fee not only prevents the growth of Alabama’s solar industry and decreases homeowners’ solar savings, it also sets a precedent for other states to implement solar fees of their own.

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    alabama power solar charge

    Alabama Power recently received permission to increase their Capacity Reservation Charge, which decreases the economic benefit of installing solar. Image source: Power Engineering

    What is Alabama Power’s solar tax?

    Alabama Power’s solar tax, which is formally referred to as the Capacity Reservation Charge, is a monthly, per kW fee that residential customers have to pay when they install solar.

    Alabama Power justifies the fee by stating that solar homeowners should have to pay for using the grid as a ‘supplemental source of power’ when their solar panels don’t produce enough energy. Otherwise, the utility claims electricity rates would have to increase for non-solar customers. 

    Previously, the charge was equal to $5.00 per kW of solar installed. This is a hefty charge that has deterred many Alabama residents from making the switch to solar. An environmental advocacy group, the Southern Environmental Law Center (SELC), filed a complaint against the $5.00 fee, claiming it was unjust. 

    In response to the complaint, Alabama Power submitted a request to raise their fee for solar owners who use the power grid as backup power by a whopping 8%. This request was ultimately approved on September 1, 2020. Now, solar panel owners have to pay $5.41 per kW.

    How does Alabama Power’s solar tax impact homeowners?

    Previously, the Capacity Reservation Charge was equal to $5.00 per kW of solar on your property. The charge for Alabama Power customers who go solar will now be equal to $5.41 per kW. This doesn’t seem like much, but when you consider the costs over the lifetime of the agreement, it’s a significant financial burden. 

    Let’s look at an example. The average home in Alabama consumes about 1,236 kilowatt hours (kWh) per month. In order to produce enough electricity to cover this usage, you would need to install a 9.2 kW solar array. 

    With a 9.2 kW rooftop solar system, you would have to pay $49.77 each month, on top of your regular electricity bill. That’s almost $600 extra a year just for switching to solar! 

    Over the 25-year lifetime of the solar system, you’ll have paid $15,000 in Capacity Reservation Charges. That’s enough to buy a second solar panel system!

    Alabama Power’s charge hike is no surprise

    Alabama has been notoriously slow for adopting solar power, so this vote by the state’s Public Service Commission isn’t surprising. There is no statewide net metering policy in Alabama, no state or utility solar incentives, and Alabama Power offers a less-than-ideal alternative to net metering. 

    The unanimous vote to up the solar tax could have to do with the Public Service Commission members having received large contributions from the mining and utility industries. 

    Commission President Twinkle Andress Cavanaugh has received over $275,000 from mining groups and electric utilities. Jeremey Odon, who has been on the Commission since 2012, has $174,200 in campaign donations from the mining and utility industries. The third Commission member, Chip Beeker, is no different. Beeker has $145,000 from mining and utilities under his belt. 

    That’s over half a million dollars funneled into Alabama’s Public Service Commission from industries that are directly threatened by the growth of solar and other renewable energy sources. So, it comes at no surprise that the PSC would want to keep their donors happy, even if it means killing the solar industry in the process.

    Alabama Power isn’t the only utility trying to kill solar

    The case of Alabama Power isn’t exactly an unusual one. Utilities and officials are constantly trying to derail the solar industry by changing energy policies like slashing net metering benefits, adding extra charges, and cutting back on incentives. 

    Earlier this year, a dark money group tried to kill net metering across the country by filing a petition to the Federal Energy Regulatory Commission (FERC). Luckily, FERC rejected the filing. The Trump Administration has also continuously attempted to undermine the renewable energy industry by imposing tariffs on solar panels and refusing to renew the federal tax credit. 

    However, this war isn't just being waged on the national level. States are seeing battles over solar constantly. 

    Within the last year, Louisiana slashed their net metering policy, Kentucky tried to dramatically decrease how much it compensates solar homeowners, and an Arizona utility attempted to raise their electricity prices for solar system owners, all in the name of preventing ‘cost shifting’ to non-solar homeowners, the same reasoning Alabama Power used to increase their solar charge.

    The problem with cost-shifting

    Cost shifting is a problem that can occur with solar installations. Basically, cost-shifting refers to utilities having to raise their rates for non-solar customers to make up for the fees that solar customers aren’t paying under net metering. 

    However, studies have shown that significant cost-shifting does not occur until about 10% of a state’s electricity comes from solar. Anything below that 10% threshold will have little to no cost-shifting. And considering that only 0.28% of Alabama’s power comes from solar, it’s highly unlikely they’ll see cost-shifting impacts anytime soon. 

    It seems more likely that Alabama Power’s anti-solar agenda has more to do with their own profit margins and bottom line than it does with looking out for ratepayers. Especially since they are willing to increase their electric rates for an almost $1.1 billion expansion of natural gas power plants.

    What does the increased solar tax mean for Alabama’s solar industry?

    Overall, Alabama hasn’t created the greatest atmosphere for solar to thrive in the past. Allowing the state’s largest utility to grossly overcharge solar customers for choosing clean energy will only make it worse. 

    As Alabama resists adopting solar, they prevent job growth, economic investment, and creating a better future for the next generation of Alabamians. 

    However, hope is not lost. There have been precedents set in states like Kansas, where it was ruled illegal by the state’s Supreme Court to charge solar customers more than non-solar customers, and like Arizona, where the US Department of Justice ruled charges that discriminate against solar homeowners is unlawful. 

    These could help environmental groups to fight the Alabama solar tax, and prevent solar policies like this from happening elsewhere. If successful, there is huge potential for there to be a thriving solar industry in Alabama. 

    How much can you save with solar?

    Key takeaways

    • The Alabama Public Service Commission approved Alabama Power’s request to increase their monthly fee to solar customers from $5.00 per kilowatt to $5.42 per kilowatt.
    • The charge, called the ‘solar tax’ by its critics, will cost solar panel owners thousands of dollars over the lifetime of their system.
    • Alabama Power’s solar tax reflects a larger, nationwide movement to try and slow the growth of the solar industry.
    • Similar solar charges have been ruled unlawful in other states, which provides hope for environmental advocacy groups as they try to fight the solar tax.
     - Author of Solar Reviews

    Catherine Lane

    Written Content Manager

    Catherine is the Written Content Manager at SolarReviews. She has been researching and writing about the residential solar industry for four years. Her work has appeared in Solar Today Magazine and Solar Builder Magazine, and has been cited by publications like Forbes and Bloomberg.

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