The marginal cost of electricity used as backup for solar hot water systems: A case study

In this study, a method is developed for estimating the long run marginal cost to electric utilities of providing backup service for solar residential heating and hot water (HHW) systems. This method accounts for all investment, fuel, and operating costs required to provide the added electric service for HHW. From the information produced using this method, the impacts of various rate design philosophies and of government tax and regulatory policies on annual homeowner costs, fuel consumption patterns, environmental pollutants, and the net social cost of providing HHW service can be computed. Also, the differences in these parameters among solar, electric, and conventional HHW systems can be compared.In an initial study, it was found that for one Northeastern utility the estimated marginal cost of electricity for backup to solar hot water (HW) systems was less than that for comparable electric HW systems for the period of the mid to late 1990s. Load management (shifting all electricity use to off-peak periods) substantially reduced marginal costs for both electric and solar systems and essentially eliminated any difference between them. In all cases, the marginal cost was lower than the average cost of all electricity generated for market penetration rates that can realistically be expected to be experienced. The impact on total annual costs to homeowners of various electricity rate schemes and the impacts of Federal tax credits and property tax exemptions were computed. Net changes in resource consumption patterns due to the use of solar systems were estimated.