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The impact of retail rate structures on the economics of commercial photovoltaic systems in California

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  • Mills, Andrew
  • Wiser, Ryan
  • Barbose, Galen
  • Golove, William

Abstract

This article examines the impact of retail electricity rate design on the economic value of grid-connected photovoltaic (PV) systems, focusing on commercial customers in California. Using 15-min interval building load and PV production data from a sample of 24 actual commercial PV installations, we compare the value of the bill savings across 20 commercial-customer retail electricity rates currently offered in the state. Across all combinations of customers and rates, we find that the annual bill savings from PV, per kWh generated, ranges from $0.05 to $0.24/kWh. This sizable range in rate-reduction value reflects differences in rate structures, revenue requirements, the size of the PV system relative to building load, and customer load shape. The most significant rate design issue for the value of commercial PV is found to be the percentage of total utility bills recovered through demand charges, though a variety of other factors are also found to be of importance. The value of net metering is found to be substantial, but only when energy from commercial PV systems represents a sizable portion of annual customer load. Though the analysis presented here is specific to California, our general results demonstrate the fundamental importance of retail rate design for the customer-economics of grid-connected, customer-sited PV.

Suggested Citation

  • Mills, Andrew & Wiser, Ryan & Barbose, Galen & Golove, William, 2008. "The impact of retail rate structures on the economics of commercial photovoltaic systems in California," Energy Policy, Elsevier, vol. 36(9), pages 3266-3277, September.
    • Handle: RePEc:eee:enepol:v:36:y:2008:i:9:p:3266-3277
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    1. Gaiser, Kyle & Stroeve, Pieter, 2014. "The impact of scheduling appliances and rate structure on bill savings for net-zero energy communities: Application to West Village," Applied Energy, Elsevier, vol. 113(C), pages 1586-1595.
    2. Oliva H., Sebastian, 2017. "Residential energy efficiency and distributed generation - Natural partners or competition?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 76(C), pages 932-940.
    3. Darghouth, Naïm R. & Barbose, Galen & Wiser, Ryan H., 2014. "Customer-economics of residential photovoltaic systems (Part 1): The impact of high renewable energy penetrations on electricity bill savings with net metering," Energy Policy, Elsevier, vol. 67(C), pages 290-300.
    4. Seel, Joachim & Barbose, Galen L. & Wiser, Ryan H., 2014. "An analysis of residential PV system price differences between the United States and Germany," Energy Policy, Elsevier, vol. 69(C), pages 216-226.
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    6. Nyholm, Emil & Odenberger, Mikael & Johnsson, Filip, 2017. "An economic assessment of distributed solar PV generation in Sweden from a consumer perspective – The impact of demand response," Renewable Energy, Elsevier, vol. 108(C), pages 169-178.
    7. Oliva H., Sebastian & MacGill, Iain & Passey, Rob, 2016. "Assessing the short-term revenue impacts of residential PV systems on electricity customers, retailers and network service providers," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 1494-1505.
    8. Rutovitz, Jay & Oliva H., Sebastian & McIntosh, Lawrence & Langham, Ed & Teske, Sven & Atherton, Alison & Kelly, Scott, 2018. "Local network credits and local electricity trading: Results of virtual trials and the policy implications," Energy Policy, Elsevier, vol. 120(C), pages 324-334.
    9. Lu-Miao Li, Peng Zhou, and Wen Wen, 2023. "Distributed Renewable Energy Investment: The Effect of Time-of-Use Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    10. DeBenedictis, A. & Hoff, T.E. & Price, S. & Woo, C.K., 2010. "Statistically adjusted engineering (SAE) modeling of metered roof-top photovoltaic (PV) output: California evidence," Energy, Elsevier, vol. 35(10), pages 4178-4183.
    11. Focacci, Antonio, 2009. "Residential plants investment appraisal subsequent to the new supporting photovoltaic economic mechanism in Italy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(9), pages 2710-2715, December.
    12. Nikolaidis, Alexandros I. & Milidonis, Andreas & Charalambous, Charalambos A., 2015. "Impact of fuel-dependent electricity retail charges on the value of net-metered PV applications in vertically integrated systems," Energy Policy, Elsevier, vol. 79(C), pages 150-160.
    13. Chaianong, Aksornchan & Tongsopit, Sopitsuda & Bangviwat, Athikom & Menke, Christoph, 2019. "Bill saving analysis of rooftop PV customers and policy implications for Thailand," Renewable Energy, Elsevier, vol. 131(C), pages 422-434.
    14. Thakur, Jagruti & Chakraborty, Basab, 2018. "Impact of increased solar penetration on bill savings of net metered residential consumers in India," Energy, Elsevier, vol. 162(C), pages 776-786.
    15. Georgios C. Christoforidis & Ioannis P. Panapakidis & Theofilos A. Papadopoulos & Grigoris K. Papagiannis & Ioannis Koumparou & Maria Hadjipanayi & George E. Georghiou, 2016. "A Model for the Assessment of Different Net-Metering Policies," Energies, MDPI, vol. 9(4), pages 1-24, April.
    16. Chesser, Michael & Hanly, Jim & Cassells, Damien & Apergis, Nicholas, 2018. "The positive feedback cycle in the electricity market: Residential solar PV adoption, electricity demand and prices," Energy Policy, Elsevier, vol. 122(C), pages 36-44.
    17. Darghouth, Naïm R. & Wiser, Ryan H. & Barbose, Galen & Mills, Andrew D., 2016. "Net metering and market feedback loops: Exploring the impact of retail rate design on distributed PV deployment," Applied Energy, Elsevier, vol. 162(C), pages 713-722.
    18. A. Gürhan Kök & Kevin Shang & Şafak Yücel, 2018. "Impact of Electricity Pricing Policies on Renewable Energy Investments and Carbon Emissions," Management Science, INFORMS, vol. 64(1), pages 131-148, January.
    19. Darghouth, Naïm R. & Wiser, Ryan H. & Barbose, Galen, 2016. "Customer economics of residential photovoltaic systems: Sensitivities to changes in wholesale market design and rate structures," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 1459-1469.
    20. Ren, Zhengen & Grozev, George & Higgins, Andrew, 2016. "Modelling impact of PV battery systems on energy consumption and bill savings of Australian houses under alternative tariff structures," Renewable Energy, Elsevier, vol. 89(C), pages 317-330.
    21. Rowlands, Ian H. & Kemery, Briana Paige & Beausoleil-Morrison, Ian, 2011. "Optimal solar-PV tilt angle and azimuth: An Ontario (Canada) case-study," Energy Policy, Elsevier, vol. 39(3), pages 1397-1409, March.
    22. Darghouth, Naïm R. & Barbose, Galen & Zuboy, Jarett & Gagnon, Pieter J. & Mills, Andrew D. & Bird, Lori, 2020. "Demand charge savings from solar PV and energy storage," Energy Policy, Elsevier, vol. 146(C).
    23. Chen, Zhisong & Su, Shong-Iee Ivan, 2014. "Photovoltaic supply chain coordination with strategic consumers in China," Renewable Energy, Elsevier, vol. 68(C), pages 236-244.
    24. Darghouth, Naïm R. & Barbose, Galen & Wiser, Ryan, 2011. "The impact of rate design and net metering on the bill savings from distributed PV for residential customers in California," Energy Policy, Elsevier, vol. 39(9), pages 5243-5253, September.
    25. Jägemann, Cosima & Hagspiel, Simeon & Lindenberger, Dietmar, 2013. "The Economic Inefficiency of Grid Parity: The Case of German Photovoltaics," EWI Working Papers 2013-19, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).

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