Note To PUC: Changes to Electricity Rate Design Could Dramatically Impact the Future of Solar PV

A new report from the Department of Energy’s Lawrence Berkeley National Laboratory (LBNL) finds that the future growth of distributed generation solar PV is heavily influenced by retail electricity rate design – and that proposed changes to net metering rules and retail rate structures could harm increased adoption of distributed solar.

The report, titled Net Metering and Market Feedback Loops: Exploring the Impact of Retail Rate Design on Distributed PV Deployment, is meant to inform the public and utility regulators about the effects of changes proposed by a growing number of states to their net metering rules and retail rate structures – changes fueled by worry that increased adoption of distributed PV could result in unwelcome financial impacts on utilities and consumers.

Ryan Wiser, one of the report’s authors, said utilities are primarily concerned that solar customers don’t always pay their fair share of fixed infrastructure costs. “Utilities sometimes claim that net-metered solar customers are unfairly subsidized under existing net metering rules, with non-solar customers paying a larger share of the fixed costs of the electric grid,” Wiser said.

Changes to retail rate structures, which were proposed by 24 utilities across 13 states in the first quarter of 2015 alone, would include instituting fixed monthly charges for residential power customers – a move that could have a damaging effect on distributed solar. “A $50 per-month fixed charge for residential customers could reduce long-term PV deployment by 60 percent,” Wiser said.

Some states are also considering net-metering changes that would compensate excess solar generation at a lower-than-retail rate. Wiser said the report shows such changes would “undermine the economic attractiveness for customers of both solar and energy efficiency investments” and could result in further reduced solar deployment.

There are two specific market feedback scenarios discussed in the report that could alternately help and hurt distributed solar adoption. The first scenario states that if utilities increase retail electricity prices too much in order to make up for under-recovery of fixed utility costs, it could result in even more consumers seeking out alternatives, thereby driving a surge in distributed generation solar. The second scenario envisions increased solar deployment causing utilities to shift peak price periods to later in the day, which would have a dampening effect on PV adoption among customers paying on time-of-use structures.

Report results indicate that these two feedback effects may cancel each other out at the national level, resulting in a modest net effect.

Galen Barbose, co-author of the report, said it’s important for decision makers to have a clear understanding of the complex impacts that reforms to rate design and net metering could have not the least of which include slowing down energy and environmental policy objectives, as well as limiting the options for choice-hungry consumers.

Understanding the deployment impacts of potential reforms to rate design and net metering will be critical for regulators and other decision makers as they consider changes to retail rates, given the continued role of PV in advancing energy and environmental policy objectives and customer choice,” Barbose said.

“Solar represents one of the primary solutions to global climate change, whether deployed in distributed or utility-scale applications,” Wiser added. “Continued solar deployment can help facilitate cost reductions, enabling solar to be an even larger part of our long-term energy mix.”

Released today, Net Metering and Market Feedback Loops: Exploring the Impact of Retail Rate Design on Distributed PV Deployment can be found here.

Lead image: Navigating Change. Credit: Shutterstock.

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