Latest trends in Residential Solar Rates
Trends in residential solar rates are evolving as solar adoption increases. Traditional net metering, where utilities pay solar customers the retail rate for excess energy sent back to the grid, has been criticized for being inequitable to non-solar customers, who, in some cases, subsidize solar users. In response, utilities are moving toward more dynamic and flexible rate designs.
This article highlights four recent rate trends among electric cooperatives and utilities.
Time-of-Use Rates match rates paid to overall timing of value
One approach gaining traction is time-of-use (TOU) pricing, which pays solar customers higher rates for electricity produced during peak demand, when the grid is strained, and lower rates during off-peak periods. This encourages customers to shift energy production and usage to align with the grid’s needs, easing strain and facilitating solar integration.
Value of solar attempts to match solar production to grid stabilization
Another trend is value-of-solar tariffs (VOST), which compensate solar producers based on the calculated value of solar energy to the grid. VOST rates often consider factors like avoided fuel costs, reduced transmission losses, and the market value of renewable energy credits for carbon reduction. By tying compensation to the utility’s specific benefits, VOST addresses some of the inequities present in net metering.
Solar-plus-storage incentives are also emerging, where utilities offer higher rates or rebates to solar customers who pair their systems with energy storage. By storing excess energy and releasing it during peak demand, customers help reduce the utility’s need for additional power purchases.
Avoided costs of power purchased can be measured in real-time
Another method compensates solar-generated energy at the utility’s avoided cost of purchase. This valuation is often measured by the hourly clearing rate in a utility’s market. This method is a measure of true-value in real-time, as avoided purchases equals value that will be distributed to all rate-payers.
Monitoring the Future of Solar Rates
In all cases, it is essential that solar customers pay the fixed costs associated with connecting to the utility or cooperative. Failure to do so shifts the burden of these costs onto non-solar customers, effectively creating a subsidy for solar users. As measurement methods become more refined and real-time pricing becomes more available, solar rate structures will continue to evolve. Sound ratemaking principles call for equitable customer rates and minimizing cross-subsidies between rate classes.
How I Can Assist
If you are seeking to determine the cost to serve solar customers and enhance your rates in these areas, I can help. Feel free to contact me with any questions, or we can schedule an appointment to discuss your needs in more detail.
Thank you for reading this article. Please send me any suggestions for other topics. I am always looking for ways to address current issues and serve as a resource for utilities and electric cooperatives.
About Russ Hissom – Article Author
Russ Hissom, CPA is a principal of Utility Accounting & Rates Specialists a firm that provides power and utilities rate, expert witness, and consulting services, and online/on-demand courses on accounting, rates, FERC/RUS construction accounting, financial analysis, and business process improvement services. Russ was a partner in a national accounting and consulting firm for 20 years. He works with electric investor-owned and public power utilities, electric cooperatives, broadband providers, and gas, water, and wastewater utilities. His goal is to share industry best practices to help your business perform effectively and efficiently and meet the challenges of the changing power and utilities industry. Â
Find out more about Utility Accounting & Rates Specialists here, or you can reach Russ at russ.hissom@utilityeducation.com.
The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists. You should seek formal advice on this topic from your accounting or legal advisor.
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