By Kimberly Ja, Incentives & Solar Modeling Analyst

There are many reasons for consumers to be interested in solar as an alternative to utility-supplied electricity. Strategic deployment of solar distributed generation provides increased independence from the grid, environmental benefits, and reduced cost of energy. The last category involves more than offsetting a consumer’s current costs of electricity. The solar advantage regarding reduction of electricity costs is best recognized after understanding utility electric rate volatility and the probability of rates increasing.

Investor owned utilities (IOUs) are subject to rate of return regulation, meaning their rates require approval by the respective state public utility commission (PUC). In order for a regulated utility to change its base rates, which are designed to recoup infrastructure costs plus a fair return on capital, it must file a rate case with the PUC– something the utility is usually required to do every few years. In the past few months, several utilities have announced their intentions to file rate cases seeking increases beginning 2014. Major IOUs among them include PG&E (18.8%), Consolidated Edison (3.3%), and Georgia Power (6.1%). For customers of other utility types such as municipal utilities and cooperatives, rate changes generally require approval from their boards of directors.

Utility rates are expected to rise as utilities strive to meet growing demand and provide energy, securely and reliably, despite aging infrastructure. Aside from expanding infrastructure to reach distant energy resources and new load sites, parts of the existing grid have been in operation for a century or more, making the need for extensive modernization inevitable. A hot topic among utilities is upgrading the grid with smart grid technology which would allow the grid to be monitored on a more granular level, be controlled remotely, and self- detect, isolate, and respond to power disturbances sooner. A further call for investment in infrastructure is to reinforce the grid to better withstand natural disasters.  For example, northeastern utilities are citing Hurricane Sandy and other superstorms in the past few years as the reasons for their latest rate increase requests, and are planning extensive modifications such as moving key distribution lines underground. Utilities will need additional revenue for these initiatives which will likely be obtained by increasing electricity rates charged to customers.

Though the cost of electricity is likely to increase, the distribution of increases across rate schedules and specific billing components is not uniform. Increases can be levied onto fixed customer charges, demand charges, and/or energy charges. There are also different energy and demand charge rates according to season and utility-defined peak/non-peak times, creating further bill complexity. Careful analysis of billing components and a customer’s usage pattern is required to quantify potential bill reductions and identify if solar is a solution. The effectiveness of solar as a hedge against rising electricity prices lies in offsetting energy charges. Solar performs best in peak hours, which usually coincide with the highest energy charge rate of the day since energy is more costly to the utility during those periods. Net metering policies also allow customers to apply credits received for surplus energy produced by the system to other hours of the customer’s energy usage. Over the system’s 25 year-or-more lifetime, the savings off utility bills is substantial, and more than recovers the system’s capital and occasional maintenance costs.

Alta Energy’s property-specific modeling and bill analyses use the utility customer’s rate schedule and consumption patterns to help each customer identify the impact of solar on electricity bills, as well as other financial metrics such as payback period. Other financing methods may also be utilized, including leasing or power purchase agreements which avoid the upfront capital cost of solar systems. Armed with this information, taking advantage of solar to offset current charges and hedge against future rate increases is a clear and meaningful way for the customer to protect his or her wallet—and receive more than one green benefit to boot.

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