Solar power is thriving in Arkansas schools — but a new state law may end the growth

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Last September, the board of the Little Rock School District approved the development of a solar power project expected to save the district some $400,000 annually and provide about five megawatts of electricity, a quarter of its total energy needs.

That may sound like a lot. But it is far smaller than the school district’s original plans, which envisioned a 19 megawatt array that would have met all of the LRSD’s annual needs and reduced its power bill by a projected $1.1 million every year, according to the company constructing the project.

The LRSD was forced to scale back its plans — and lose out on an estimated $700,000 in potential annual savings — because of a new state law that makes it infeasible for large, commercial-scale consumers such as school districts to build solar projects larger than five megawatts. Arkansas has made remarkable progress in developing solar energy over the last few years, but renewable energy advocates and solar installation companies are warning that the young industry could crater because of the policy change.

The new law, passed by the state Legislature in 2023, dramatically changes Arkansas’s net metering policy. “Net metering” refers to the practice of allowing owners of solar panels or other renewable energy sources to sell the electricity they produce back to the utility companies that provide most of the power on the electric grid.

Before the change, the Arkansas Public Service Commission, which regulates utilities in the state, allowed businesses and homeowners to sell energy they produced back to power companies at a 1-to-1 ratio. Under 1-to-1 net metering, when a home or business generates one kilowatt hour of electricity it doesn’t use, the power is fed back into the grid and the utility must pay that customer the same retail price as it charges customers for consuming one kilowatt hour of electricity. This incentivizes businesses and homeowners — or other customers, such as school districts — to install solar panels because they can receive back the full value of the excess electricity they produce in credits on their energy bill.

Businesses, local governments and households that begin construction of a solar project by Sept. 30 will maintain the 1-to-1 rate until June 2040. For any solar projects constructed after the end of this month, though, utilities will be able to pay much lower rates to customers, meaning they may receive only a fraction of the full retail value of the energy they produce.

A recent study by the nonprofit Generation180 showed that between 2019 and early 2024, Arkansas saw eightfold growth in solar installations in schools, with 50 school districts installing solar panels. Tish Tablan, a senior program director with Generation 180, said the new state law threatens that growth.

Without 1-to-1 net metering, “there really is no economic incentive to go solar,” Tablan said. “That is the structure by which you as a solar owner get paid for the electricity you are producing.”

Kelsey Bailey, the chief financial officer for the Little Rock School District, said the district will still be able take advantage of the 1-to-1 net metering policy, as it will install mandated utility infrastructure upgrades by the Sept. 30 deadline. But it had to abandon its plans for a much more ambitious project after passage of the new law, which caps new net metering projects at five megawatts.

The LRSD’s solar installation will sit on 35 acres of land in Phillips County. It will be constructed and owned by Entegrity, a Little Rock-based company that has installed many school solar projects in Arkansas over the past few years.

Entegrity is one of several solar installation companies that have benefited from 1-to-1 net metering in recent years, thanks in part to a 2019 law that opened the door to third-party financing of solar projects. It works like this: A company such as Entegrity builds a solar project for a homeowner or business. The electricity generated by the project is fed back into the grid, and the homeowner or business is credited for any power in excess of the amount they use, reducing their monthly power bill. The solar company owns and maintains the system over its lifetime.

“Since 2019, every solar project we found that was installed was through third party ownership. None of those projects would have happened without that policy being in place,” Tablan said. “Third party ownership helps you overcome the upfront cost, and it enables schools to install bigger arrays.”

She cited the Batesville School District’s solar installation as a prime example of how a school installed solar with a third-party provider and dramatically lowered its energy costs. The Batesville district saved over $363,100 in their first year of installing solar and other energy saving renovations, according to its website.

Power companies strike back Schools in Batesville, Little Rock and elsewhere will be grandfathered into the 1-to-1 net metering rate even after Sept. 30, but new solar projects will face a very different landscape.

The new policy created by the Legislature in 2023 is called “net energy billing,” and it will lead to far lower compensation for homes and businesses. Net energy billing will allow utility companies to decide a price for the bill credits that solar customers get now based on “avoided costs,” an industry term for the expenses that a utility like Entergy would incur if it generated or purchased the power itself. Future solar customers can expect to receive compensation closer to the wholesale value of the electricity they are producing, which is considerably less than the retail value solar customers would receive under 1-to-1 net metering.

Power companies such as Entergy, the largest utility in the state, successfully lobbied for the bill over the opposition of such diverse groups as the Arkansas Farm Bureau Federation, environmental groups, solar companies, hospitals and local governments. The utilities argued that 1-to-1 net metering unfairly shifts costs to consumers without solar.

“It is unfair and inappropriate for all other customers to be forced to subsidize net metering facilities through utility rates, nor require customers to pay a premium because those resources cannot be depended on to serve other customers,” a representative of Entergy told the Arkansas Times. Entergy itself is investing in solar generation, the representative said, with 281 megawatts in place now and another 530 megawatts scheduled to come online later this year.

Sponsors of the 2023 legislation, state Sen. Jonathan Dismang (R-Beebe) and state Rep. Lanny Fite (R-Benton) both said the state’s old net metering policy shifted millions of dollars of costs to consumers who did not install solar. But a 2016 study from the Brookings Institute, a national think tank, reviewed evidence of “cost sharing” that utilities allege occur under 1-to-1 net metering and found that “the economic benefits of net metering actually outweigh the costs and impose no significant cost increase for non-solar customers.” Critics of the Arkansas legislation say Entergy and other utilities never produced proof of major cost shifting in hearings before the Public Service Commission.

A spokesperson for the Electric Cooperatives of Arkansas, another large utility that lobbied for the net metering change, said Arkansas has followed several other states in rolling back the 1-to-1 policy.

“The new rate structure brings Arkansas in alignment with market-based rates. Until now, Arkansas has lagged behind the net metering policy of other states, to the detriment of its ratepayers,” the spokesperson said.

Solar advocates point out that utility companies benefit from a weaker net metering policy because it allows them to pay smaller credits back to residential and commercial solar producers.

“Ultimately, Entergy wants the dollars that consumers are putting into their own pockets instead of Entergy’s pockets,” said Nate Bell, a former state representative and Republican-turned-independent who consults for the company Seal Solar on commercial solar projects in the state. “That’s the bottom line, and you can take that and apply it to the co-ops as well.” (Bell is also a freelance contributor to the Arkansas Times.)

The time when most households use the most electricity is at night, Bell said, when people are home from work or school. But solar panels generate power during the day, when it’s sunny.

“The problem with taking away the 1-to-1 net metering is that you can’t generate excess power in the daytime to off-set your nighttime usage. … You aren’t going to be paid or compensated anywhere near what it costs you to make the power,” Bell said.

There is evidence from other states that a less generous net metering policy could slow the pace of solar projects. After Nevada weakened the state’s net metering payments in 2015, residential solar installation permits plunged over 90% in the first quarter of 2016. In 2017, the Nevada Legislature revived the old net metering policy. According to the Solar Energy Industries Association, a national trade association for the solar industry, Nevada has continued to invest in solar in the years since, with the vast majority of solar projects being installed by utility companies.

The Solar Energy Industries Association’s data shows massive increases in residential and commercial solar projects in Arkansas since 2019. The same data also shows utilities like Entergy are making large investments in solar. Over 1,100 megawatts of solar power generating capacity are expected to come online in Arkansas by the end of 2024, according to the U.S. Energy Information Administration.

The net metering debate isn’t just about whether Arkansas will continue to invest in solar energy, but whether consumers should be able to produce their own power. Bell believes utility companies like Entergy have a vested interest in maintaining a monopoly on energy production. Bell said Entergy and the electric co-ops are incentivized to spend as much as possible to improve profits and protect their monopolies.

In its statement to the Arkansas Times, Entergy said its rates are 22% lower than the national average.

Solar takes a hit While utilities like Entergy stand to benefit from the net metering policy change, companies like Entegrity and Seal Solar have the most to lose.

“There is certainly going to be a drastic drop in the amount of projects and the amount of savings that schools and public entities and commercial clients are seeing,” said Parker Higgs, a manager and engineer at Entegrity.

The new state law also makes it harder for businesses and schools to invest in solar if they don’t have the space to install a large array on-site, Higgs said. The legislation requires new solar installations to be built within 100 miles of the net metering customer.

Lauren Waldrip, executive director of the Arkansas Advanced Energy Foundation, agreed with Higgs. According to Waldrip, 1-to-1 net metering insulated independent solar producers from future rate increases utility companies may impose on customers.

“Solar is about 30% of our business, and I do expect that 30% to take a major hit,” Higgs said. “There are a lot of companies beyond Entegrity that are doing this work, and it’s going to be very difficult to continue given this policy.” Many companies may exit the market in the next few years because of lower demand, he said.

Waldrip and Higgs recognize that Arkansas will most likely not return to 1-to-1 net metering. But solar advocates hope the state Legislature will find a better compromise between utility companies and the third party solar industry.

“If we were to say that previous net metering policy was too aggressive and hurtful to the utilities … then this past change in 2023 swung the pendulum to the exact opposite way,” Higgs said. “And now it is too much of a penalty on the consumers and the business industry in Arkansas. I do think there is an opportunity to get that pendulum somewhere back in the middle.”

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