Customer-economics of residential photovoltaic systems (Part 1): The impact of high renewable energy penetrations on electricity bill savings with net metering

Residential photovoltaic (PV) systems in the US are often compensated at the customer's underlying retail electricity rate through net metering. Given the uncertainty in future retail rates and the inherent links between rates and the customer–economics of behind-the-meter PV, there is growing interest in understanding how potential changes in rates may impact the value of bill savings from PV. In this article, we first use a production cost and capacity expansion model to project California hourly wholesale electricity market prices under two potential electricity market scenarios, including a reference and a 33% renewables scenario. Second, based on the wholesale electricity market prices generated by the model, we develop retail rates (i.e., flat, time-of-use, and real-time pricing) for each future scenario based on standard retail rate design principles. Finally, based on these retail rates, the bill savings from PV is estimated for 226 California residential customers under two types of net metering, for each scenario. We find that high renewable penetrations can drive substantial changes in residential retail rates and that these changes, together with variations in retail rate structures and PV compensation mechanisms, interact to place substantial uncertainty on the future value of bill savings from residential PV.     

The impact of retail rate structures on the economics of commercial photovoltaic systems in California

This article examines the impact of retail electricity rate design on the economic value of grid-connected photovoltaic (PV) systems, focusing on commercial customers in California. Using 15-min interval building load and PV production data from a sample of 24 actual commercial PV installations, we compare the value of the bill savings across 20 commercial-customer retail electricity rates currently offered in the state. Across all combinations of customers and rates, we find that the annual bill savings from PV, per kWh generated, ranges from $0.05 to $0.24/kWh. This sizable range in rate-reduction value reflects differences in rate structures, revenue requirements, the size of the PV system relative to building load, and customer load shape. The most significant rate design issue for the value of commercial PV is found to be the percentage of total utility bills recovered through demand charges, though a variety of other factors are also found to be of importance. The value of net metering is found to be substantial, but only when energy from commercial PV systems represents a sizable portion of annual customer load. Though the analysis presented here is specific to California, our general results demonstrate the fundamental importance of retail rate design for the customer-economics of grid-connected, customer-sited PV.     

Pricing electricity from residential photovoltaic systems: A comparison of feed-in tariffs,net metering,and net purchase and sale

Three mechanisms are commonly employed to enable households to sell electricity from grid-connected residential solar photovoltaic (PV) systems to utilities or grid companies: feed-in tariffs (FIT), net metering, and net purchase and sale. This study aims to compare these mechanisms with respect to social welfare and to retail electricity rates that include the cost to electric utilities of purchasing residential PV-generated electricity. The study presents a simple microeconomic model that shows, first, that the mechanism that produces the most social welfare is different depending on the amount of reduction in electricity consumption achievable under net metering or net purchase and sale (which are shown to be essentially similar). If the reduction is relatively small, FIT is likely to produce more social welfare than net metering/net purchase and sale; if the reduction is large, the opposite is the case. Second, the model shows that the mechanism that yields the lowest electricity rate is not definite, and differs depending on the homogeneity of households: when households are more homogeneous, the electricity rate under net metering/net purchase and sale is more likely to be higher than that under FIT.     

Residential PV capacity estimation and power disaggregation using net metering measurements

As the intermittency and uncertainty of photovoltaic (PV) power generation poses considerable challenges to the power system operation, accurate PV generation estimates are critical for the distribution operation, maintenance, and demand response program implementation because of the increasing usage of distributed PVs. Currently, most residential PVs are installed behind the meter, with only the net load available to the utilities. Therefore, a method for disaggregating the residential PV generation from the net load data is needed to enhance the grid-edge observability. In this study, an unsupervised PV capacity estimation method based on net metering data is proposed, for estimating the PV capacity in the customer’s premise based on the distribution characteristics of nocturnal and diurnal net load extremes. Then, the PV generation disaggregation method is presented. Based on the analysis of the correlation between the nocturnal and diurnal actual loads and the correlation between the PV capacity and their actual PV generation, the PV generation of customers is estimated by applying linear fitting of multiple typical solar exemplars and then disaggregating them into hourly-resolution power profiles. Finally, the anomalies of disaggregated PV power are calibrated and corrected using the estimated capacity. Experiment results on a real-world hourly dataset involving 260 customers show that the proposed PV capacity estimation method achieves good accuracy because of the advantages of robustness and low complexity. Compared with the state- of-the-art PV disaggregation algorithm, the proposed method exhibits a reduction of over 15% for the mean absolute percentage error and over 20% for the root mean square error.     

Consumer switching in retail electricity markets: Is price all that matters?

We model consumer switching in retail electricity markets in New Zealand to identify important determinants of switching and estimate willingness to pay (WTP) for six non-price attributes of electricity services, namely, call waiting time, length of fixed rate contract, renewable energy, loyalty rewards, supplier ownership, and supplier type. The results provide important insights into residential consumer switching, which inform policy and enable suppliers to differentiate their products. The analysis is based on 2688 choice responses generated using an online choice experiment administered to a sample of 224 residential bill-payers. A latent class model is used to distinguish important determinants of switching and preference heterogeneity. We find that non-price attributes of electricity services are significant determinants of consumer switching. Three latent classes with distinct preferences for the attributes are identified. The first class (40%) is mainly concerned about power bills and would switch supplier to save at least NZ$125 per year in power bills, ceteris paribus. This value mainly captures the status quo effect or preference for incumbent traditional suppliers. The second class (46%) exhibits no status quo preference, values all attributes, and particularly dislikes entrants from other sectors. These suppliers must charge NZ$135 per year less than traditional suppliers for a 50% chance of attracting customers. The third class (14%) consists of captive and loyal customers who are unlikely to switch supplier for any realistic power bill savings.     

Impact of fuel-dependent electricity retail charges on the value of net-metered PV applications in vertically integrated systems

Retail electricity charges inevitably influence the financial rationale of using net-metered photovoltaic (PV) applications since their structure as well as their level may vary significantly over the life-cycle of a customer-sited PV generation system. This subsequently introduces a further uncertainty for a ratepayer considering a net-metered PV investment. To thoroughly comprehend this uncertainty, the paper employs a top-down approach – in vertically integrated environments – to model the volatility of partially hedged electricity charges and its subsequent impact on the value of bill savings from net-metered PV systems. Besides the utility's pricing strategy and rate structures, particular emphasis is given in modeling the fossil fuel mix component that introduces a significant source of uncertainty on electricity charges and thus on the value of bill savings of net-metered, customer-sited, PV applications.     

Using energy scenarios to explore alternative energy pathways in California

This paper develops and analyzes four energy scenarios for California that are both exploratory and quantitative. The business-as-usual scenario represents a pathway guided by outcomes and expectations emerging from California's energy crisis. Three alternative scenarios represent contexts where clean energy plays a greater role in California's energy system: Split Public is driven by local and individual activities; Golden State gives importance to integrated state planning; Patriotic Energy represents a national drive to increase energy independence. Future energy consumption, composition of electricity generation, energy diversity, and greenhouse gas emissions are analyzed for each scenario through 2035. Energy savings, renewable energy, and transportation activities are identified as promising opportunities for achieving alternative energy pathways in California. A combined approach that brings together individual and community activities with state and national policies leads to the largest energy savings, increases in energy diversity, and reductions in greenhouse gas emissions. Critical challenges in California's energy pathway over the next decades identified by the scenario analysis include dominance of the transportation sector, dependence on fossil fuels, emissions of greenhouse gases, accounting for electricity imports, and diversity of the electricity sector. The paper concludes with a set of policy lessons revealed from the California energy scenarios.     

The effect of current and prospective policies on photovoltaic system economics: An application to the US Midwest

This study models fundamental features of current and prospective policies encouraging adoption of residential photovoltaic (PV) systems. A key finding is that time-of-day (ToD) pricing can enhance or worsen the economics of PV systems. Moreover, increased responsiveness of electricity demand to its price diminishes the effectiveness of ToD pricing in the absence of net metering, but does not affect it otherwise. An application to plausible conditions in the State of Indiana, USA, shows that current policies are unlikely to trigger adoption by a risk-neutral forward-looking residential customer. However, adoption of PV systems can be induced if the Federal Tax Credit is increased to cover 48% of capital cost (instead of the current 30%), which could imply a cost to the Federal Government of about $0.95/kW of installed capacity depending on the panel’s size. We demonstrate that implementation of ToD pricing can trigger adoption under a range of on- and off-peak price combinations. But our analysis also shows that the cost-effectiveness of ToD pricing is enhanced at higher ratios of on-peak to off-peak prices.     

Residential implementation of critical-peak pricing of electricity

This paper investigates how critical-peak pricing (CPP) affects households with different usage and income levels, with the goal of informing policy makers who are considering the implementation of CPP tariffs in the residential sector. Using a subset of data from the California Statewide Pricing Pilot of 2003–04, average load change during summer events, annual percent bill change, and post-experiment satisfaction ratings are calculated across six customer segments, categorized by historical usage and income levels. Findings show that high-use customers respond significantly more in kW reduction than do low-use customers, while low-use customers save significantly more in percentage reduction of annual electricity bills than do high-use customers—results that challenge the strategy of targeting only high-use customers for CPP tariffs. Across income levels, average load and bill changes were statistically indistinguishable, as were satisfaction rates—results that are compatible with a strategy of full-scale implementation of CPP rates in the residential sector. Finally, the high-use customers earning less than $50,000 annually were the most likely of the groups to see bill increases—about 5% saw bill increases of 10% or more—suggesting that any residential CPP implementation might consider targeting this customer group for increased energy efficiency efforts.     

Feed-in tariff structure development for photovoltaic electricity and the associated benefits for the Kingdom of Bahrain

In this study, the feed-in tariff (FIT) scheme was considered to facilitate an effective introduction of renewable energy in the Kingdom of Bahrain. An economic model was developed for the estimation of feasible FIT rates for photovoltaic (PV) electricity on a residential scale. The calculations of FIT rates were based mainly on the local solar radiation, the cost of a grid-connected PV system, the operation and maintenance cost, and the provided financial support. The net present value and internal rate of return methods were selected for model evaluation with the guide of simple payback period to determine the cost of energy and feasible FIT rates under several scenarios involving different capital rebate percentages, loan down payment percentages, and PV system costs. Moreover, to capitalise on the FIT benefits, its impact on the stakeholders beyond the households was investigated in terms of natural gas savings, emissions cutback, job creation, and PV-electricity contribution towards the energy demand growth. The study recommended the introduction of the FIT scheme in the Kingdom of Bahrain due to its considerable benefits through a setup where each household would purchase the PV system through a loan, with the government and the electricity customers sharing the FIT cost.     

Feed-in tariffs for photovoltaics: Learning by doing in Germany?

This paper examines the potential effects of Germany’s feed-in tariff policy for small roof-top solar PV systems installed between 2009 and 2030. Employing a partial equilibrium approach, we evaluate the policy by weighing the benefits from induced learning and avoided environmental externalities against the social costs of promoting residential PV. We use a dynamic optimization model that maximizes social welfare by accounting for learning-by-doing, technology diffusion, and yield-dependent demand. We find a wide range of effects on welfare, from net social costs of 2014 million € under a “business as usual” scenario to 7586 million € of net benefits under the positive prospects of PV’s development. Whereas the “business as usual” scenario underestimates actual price reductions, the positive scenario mirrors recent price developments and feed-in tariffs in the German residential PV market.     

Did residential electricity rates fall after retail competition? A dynamic panel analysis

A key selling point for the restructuring of electricity markets was the promise of lower prices. There is not much consensus in earlier studies on the effects of electricity deregulation in the U.S., particularly for residential customers. Part of the reason for not finding a consistent link with deregulation and lower prices was that the removal of transitional price caps led to higher prices. In addition, the timing of the removal of price caps coincided with rising fuel prices, which were passed on to consumers in a competitive market. Using a dynamic panel model, we analyze the effect of participation rates, fuel costs, market size, a rate cap and switch to competition for 16 states and the District of Columbia. We find that an increase in participation rates, price controls, a larger market, and high shares of hydro in electricity generation lower retail prices, while increases in natural gas and coal prices increase rates. We also find that retail competition makes the market more efficient by lowering the markup of retail prices over wholesale costs. The effects of a competitive retail electricity market are mixed across states, but generally appear to lower prices in states with high participation rates.     

Technical and economic performance of residential solar water heating in the United States

This paper examines the regional, technical, and economic performance of residential rooftop solar water heating (SWH) technology in the U.S. It focuses on the application of SWH to consumers in the U.S. currently using electricity for water heating, which currently uses over 120 billion kWh per year. The variation in electrical energy savings due to water heating use, inlet water temperature and solar resource is estimated and applied to determine the regional “break-even” cost of SWH where the life-cycle cost of SWH is equal the life-cycle energy savings. For a typical residential consumer, a SWH system will reduce water heating energy demand by 50–85%, or a savings of 1600–2600 kWh per year. For the largest 1000 electric utilities serving residential customers in the United States as of 2008, this corresponds to an annual electric bill savings range of about $100 to over $300, reflecting the large range in residential electricity prices. This range in electricity prices, along with a variety of incentives programs corresponds to a break-even cost of SWH in the United States varying by more than a factor of five (from less than $2250/system to over $10,000/system excluding Hawaii and Alaska), despite a much smaller variation in the amount of energy saved by the systems (a factor of approximately one and a half). We also consider the relationships between collector area and technical performance, SWH price and solar fraction (percent of daily energy requirements supplied by the SWH system) and examine the key drivers behind break-even costs.     

Accelerating residential PV expansion: demand analysis for competitive electricity markets

This article quantifies the potential market for grid-connected, residential photovoltaic (PV) electricity integrated into new homes built in the US. It complements an earlier supply-side analysis by the authors that demonstrates the potential to reduce PV module prices below $1.5/W_p by scaling up existing thin-film technology in 100 MW_p/yr manufacturing facilities. The present article demonstrates that, at that price, PV modules may be cost effective in 125,000 new home installations per year (0.5 GW_p/yr). While this market is large enough to support multiple scaled up thin-film PV factories, inefficient energy pricing and demand-side market failures will inhibit prospective PV consumers without strong public policy support. Net metering rules, already implemented in many states to encourage PV market launch, represent a crude but reasonable surrogate for efficient electricity pricing mechanisms that may ultimately emerge to internalize the externality benefits of PV. These public benefits include reduced air pollution damages (estimated costs of damage to human health from fossil fuel power plants are presented in Appendix A), deferral of transmission and distribution capital expenditures, reduced exposure to fossil fuel price risks, and increased electricity system reliability for end users. Thus, net metering for PV ought to be implemented as broadly as possible and sustained until efficient pricing is in place. Complementary PV “buydowns” (e.g., a renewable portfolio standard with a specific PV requirement) are needed to jumpstart regional PV markets.     

Semi-transparent PV: Thermal performance, power generation, daylight modelling and energy saving potential in a residential application

In this research, semi-transparent PV is proposed as top light material for residential application. Using the results of field measurements, essential parameters pertaining to the power generation, thermal and optical characteristics of semi-transparent PV panels are understood. Calculation models presenting the above characteristics are developed and validated. The validated models are incorporated into Energy Plus to carry out overall energy consumption analyses in five climate regions in Japan to assess the energy saving potential of the semi-transparent PV panels. With appropriate optimization measures, the semi-transparent PV top light with 50% radiation transmission rate contributes to a maximum of 5.3% reduction in heating and cooling energy consumption compared with a standard BiPV roof. The effect of daylighting in lighting energy saving is subtle as most of the residential lighting demand occur during night-time. In the aspect of total energy consumption, net energy savings in the range of 3.0–8.7% are achieved for the 50% radiation transmission semi-transparent PV top light case relative to the base case of BiPV roof, where reduction in heating and cooling energy demand contributes most to the total energy saving.     

Regulatory and ratemaking approaches to mitigate financial impacts of net-metered PV on utilities and ratepayers

The financial interests of U.S. utilities are poorly aligned with customer-sited solar photovoltaics (PV) under traditional regulation. Customer-sited PV, especially under a net-metering arrangement, may result in revenue erosion and lost earnings opportunities for utility shareholders as well as increases in average retail rates for utility ratepayers. Regulators are considering alternative regulatory and ratemaking approaches to mitigate these financial impacts. We performed a scoping analysis using a financial model to quantify the efficacy of mitigation approaches in reducing financial impacts of customer-sited PV on utility shareholders and ratepayers. We find that impacts can be mitigated through various incremental changes to utility regulatory and business models, though the efficacy varies considerably depending on design and particular utility circumstances. Based on this analysis, we discuss tradeoffs policymakers should consider, which ultimately might need to be resolved within broader policy contexts.     

Quantifying residential PV economics in the US––payback vs cash flow determination of fair energy value

Payback is often used as a measure of profitability by prospective PV owners. Contrasting this measure with another financial gauge––life-cycle cash flow––the paper discusses why payback may not be the most appropriate measure for residential PV applications and why it may hide sound financial opportunities for those deciding to invest in a PV system.In parallel, the paper addresses another aspect of economic feasibility: the value of energy produced. For residential applications, this value is currently set at residential net-metered retail rates. We present preliminary evidence that a higher value, reflective of the local effective capacity of PV ought to be claimed for residential PV applications.     

Evaluating the limits of solar photovoltaics (PV) in traditional electric power systems

In this work, we examine some of the limits to large-scale deployment of solar photovoltaics (PV) in traditional electric power systems. Specifically, we evaluate the ability of PV to provide a large fraction (up to 50%) of a utility system's energy by comparing hourly output of a simulated large PV system to the amount of electricity actually usable. The simulations use hourly recorded solar insolation and load data for Texas in the year 2000 and consider the constraints of traditional electricity generation plants to reduce output and accommodate intermittent PV generation. We find that under high penetration levels and existing grid-operation procedures and rules, the system will have excess PV generation during certain periods of the year. Several metrics are developed to examine this excess PV generation and resulting costs as a function of PV penetration at different levels of system flexibility. The limited flexibility of base load generators produces increasingly large amounts of unusable PV generation when PV provides perhaps 10–20% of a system's energy. Measures to increase PV penetration beyond this range will be discussed and quantified in a follow-up analysis.     

An economic analysis comparison of stationary and dual-axis tracking grid-connected photovoltaic systems in the US Upper Midwest

This paper presents an economic analysis of stationary and dual-axis tracking photovoltaic (PV) systems installed in the US Upper Midwest in terms of life-cycle costs, payback period, internal rate of return, and the incremental cost of solar energy. The first-year performance and energy savings were experimentally found along with documented initial cost. Future PV performance, savings, and operating and maintenance costs were estimated over 25-year assumed life. Under the given assumptions and discount rates, the life-cycle savings were found to be negative. Neither system was found to have payback periods less than the assumed system life. The lifetime average incremental costs of energy generated by the stationary and dual-axis tracking systems were estimated to be $0.31 and $0.37 per kWh generated, respectively. Economic analyses of different scenarios, each having a unique set of assumptions for costs and metering, showed a potential for economic feasibility under certain conditions when compared to alternative investments with assumed yields.