PV System Values: Transforming the PV Industry

PV systems can have more values than are currently being captured if the business model enables the utility to obtain more of the benefits. This article is about obtaining greater values from PV systems, such as energy storage, power factor correction, voltage support, frequency response, and other ancillary services. The proposed business model enables the control and capture of these utility services by means of utility inverter ownership.


Part I of this article series discussed how PV and electrical storage research projects funded by the California Energy Commission ten years ago had challenges regarding using the stored energy, the dispatch signal, the security of the signal and who owned the signal. That experience, combined with a mistake this past January by the Sacramento Municipal Utility District (SMUD) helped to develop this new business model concept for the PV industry.  This model divides the ownership of the PV system, where the utility can own the inverter and thus be able to control the many high value functions inverters can now provide to the electric grid. 

Figure 1: Old ownership and new ownership business models.

Photo 1 below shows a concentrating PV system coupled with energy storage. By having the utility own the gear on the left side of this photo, the stored energy can be controlled and managed by the utility (again, see Part I of this article series for energy storage specifics).

Photo 1: Sumitomo Electric concentrating PV with redox flow battery (1 MW x 5 hours) with an energy management system. (Source of photo, copyright Sumitomo Electric Industries, Ltd.)

In January, SMUD bid on a Solar Shares project in which they would provide two inverters that SMUD had mistakenly overstocked.  This sparked the idea that SMUD could own just the inverter on PV projects. The idea of inverter ownership provides the paradigm in which new values can be captured and enables cost reduction opportunities for utilities with large portfolios of PV generation. If the utility “owns” the inverter coupled to electrical storage, the signal for dispatching stored energy, the ownership of the signal and the security of the signal would be easier to manage. Other values discussed in this article can be obtained from added inverter functionality if the utility owns the inverter. Utilities should test this concept by developing project bids where they supply and own the inverters for PV projects.

Reactive Value

Power factor correction (also known as reactive power or kVAR) is now a high value-added function in large PV inverters. At the recent Solar Power International conference I investigated inverter manufacturing companies providing such functionality including Solectria, Advanced Energy (AE) and Gamesa Electric. Power factor correction can have enormous values by reducing customer billing costs as well as supporting utility operations. In one recent PV project evaluation for a southwest Colorado hospital, low power factors amounted to 50% of the utility bill. Increasing the power factor at a hospital can save lots of money, which can be better spent providing better health care. Power factors can be corrected by capacitor banks, but the ability of an inverter on a PV system to perform this functionality is more cost effective than an additional piece of dedicated expensive gear.

Power factor correction involves controlling kVAR and the real power by adjusting the output current phase angle and the amplitude. The best analogies I’ve seen can be made by using a mug of beer, the actual beer fluid being the power in kW, and the foam being the kVAR, the kVA being the amount of work the utility needs to provide in the form of the mug volume (see Figure 2). With beer, by reducing the foam, more beer can be provided and consumed; reducing kVAR, the kW more closely matches the kVA which means a better power factor.

Figure 2: Reducing kVAR is like reducing the foam on the mug of beer.

A more conventional (and confusing) representation of power factor is the power triangle as shown in Figure 3. By reducing the kVAR, the angle of the triangle, as well as the kVA (the apparent power) is reduced. Benefits to the utility from distributed power factor correction (reactive power correction) include but are not limited to increasing available grid capacities, reducing grid losses, and decreasing grid congestion.

Figure 3: Conventional representation of power factor correction.

The point of this power factor discussion is that greater customer and/or utility values can be provided by PV inverters. Similarly voltage support, frequency response and other ancillary values can be provided by PV inverters that support grid operations.

Advantages and Disadvantages

Utilities owning the inverters and Independent Power Producers owning the PV direct current (DC) subsystem present many challenges. In discussions with the Department of Energy (DOE) and SMUD very valid resistance to the business model have been presented. Issues associated with payment for direct current energy and the issues around curtailment or inverter availability, reliability, replacement, and maintenance, while surmountable, introduce risk compared to the benefits describe around enhanced controllability.



  • Simplifies control and smart management of the grid by the utility where the variable PV generation source is located.
  • Fits utility model of managing the electricity distribution system, adding inverters to wires, transformers, and switching equipment for operation and maintenance.
  • Enables utilities to: dispatch energy storage; power factor correction; voltage support; frequency response; and capture other ancillary values.


  • A risky part of the PV business (inverter performance durability, and liability) would be shifted to the responsibility of the utility. Utilities are risk averse and will not want the financial risk associated with owning the smart grid gear.
  • Tax and possibly other incentive values would be reduced (example, removing the inverter portion of the system costs from the Investment Tax Credit would actually increase net system costs to a non profit utility). New funding mechanisms and third party ownership (but not the control) of the inverters would need to be explored and institutionalized.
  • New institutional models at the utility would need to be developed (direct current bidding rules and direct current power purchase agreements, new direct current payment structure, curtailment payment agreement if inverter problems arise, determination of specific lines of responsibility between direct current and alternating current systems, etc.).

Feasibility assessments of the concept can now begin.  The feasibility assessment would start with the advantages and disadvantages above, expand them as feasibility progresses, and add numbers wherever possible.

Who Should Care?

Inverter manufacturers should care. Inverter companies should love the idea of being the sole source for a utilities large scale inverter needs. Inverter companies should be very eager for this new business model to be established. Can you imagine if Satcon or Advanced Energy Industries obtained a sales contract to supply a utility with 300 MW of inverters that satisfied all the utilities’ Renewable Portfolio Standard (RPS) requirements?

Direct current optimizer manufactures should care. The PV industry would need to evolve into supplying direct current optimized to the utility owned inverter. This has already been enabled by the availability of DC optimizers from companies like eIQ Energy, Tigo Energy and Ampt. There would be many industry ramification to institutionalize this new ownership business model including metering the max power provided from the direct current PV system at the point of the alternating current inverters. The High Definition PV Alliance was recently established to help maintain an open standard around lower cost and higher performance from PV systems and can possibly help to address some of the industry challenges for this business model. 

Public Utility Commissions should care.Public Utility Commissions in charge of Renewable Portfolio Standards should be interested in this ownership model because it potentially reduces costs and increases grid values from increasing penetration levels of PV capacity.

The Government should care. The Department of Defense (DOD) is currently bidding the $7 BILLION Renewable and Alternative Energy Power Production, Multiple Award Task Order Contract (MATOC). This bid focuses solely on energy through power purchase agreements and unfortunately does not capitalize on greater values available from PV systems discussed in these articles. Ideally future government request for proposals can capture the highest values inherently available from PV systems. 

Utilities should care. Utilities are tasked to safely and reliably supply electricity. By owning the inverter a utility would now control and institutionally understand the operations and grid effects of the PV coupled gear, as they do with all the other conventional utility gear on the system. In addition, utilities could easily warehouse spare inverters for any that need to be changed, as they currently do for transformers. By doing this, standardization, availability of replacements, and economies of scale from bulk purchases would reduce the overall costs of a utilities’ portfolio of PV projects.  A utility would benefit from a direct relationship with the suppliers of inverters, obtaining electrical balance of systems equipment that specifically suits their smarter grid requirements.

A utility owned inverter doesn’t seem too different from a utility owned transformer. 

Calling All Transformers

If you are interested in helping to transform the PV industry with utility owned equipment that can help capture greater values from PV systems, then we can begin by not calling the gear “inverters” and start calling them “transformers”. Transformers are already embedded in the utility language, acceptable as owned by utilities, contractual language for insurance purposes already includes “transformers”, thus reducing the perceived utility risk. Public Utilities Commission’s implementing rules for Investor Owned Utilities already rate-base “transformers” for utilities as business as usual gear. We need to stop calling these things inverters, because the utilities can’t necessarily rate base inverters. They can rate base transformers, which is what this gear does, transformers direct current from PV systems into more useful energy solutions.

Bringing utilities closer to the values from energy storage, power factor correction, voltage support, frequency response and other ancillary values will help to increase the market for grid tied PV systems. 

Thanks for all the previous comments to Part 1 of this article regarding energy storage with PV systems. Please provide any additional comments you may have on this new business model discussion in the section provided below. Thanks in advance.

Acknowledgements: Thanks for all the help in developing these articles, to all the people acknowledged in Part I as well as representatives of Swinerton Renewable Energy, KACO, Solectria, Gamesa, AE, FSEC, DOE, CEC, SMUD and Tom Konrad . In particular, acknowledgement needs to go to the soon-to-be-retiring-from-SMUD Mike Deangelis. Mike’s career at NREL, the California Energy Commission and SMUD has enormously supported the renewable energy industry over many decades. I have personally benefitted from Mike’s constant encouragement, without which these articles might not have been presented. 

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Joseph McCabe is an international solar industry expert with over 20 years in the business. He is a Solar Energy Society Fellow, a Professional Engineer, and is a recognized expert in developing new business models for the industry including Community Solar Gardens and Utility Owned Inverters. McCabe has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration. Joe can be reached at energyideas {at} gmail {dot} com. More at http://mccabe.iamyou.us/

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