Future Deployment Of Distributed Solar Hinges On Electricity Rate Design


Future distributed solar photovoltaic deployment levels are highly sensitive to retail electricity rate design, according to a newly released report by researchers from the U.S. Department of Energy's Lawrence Berkeley National Laboratory.

The study also explores the feedback effects between retail electricity rates and PV deployment and suggests that increased solar deployment can lead to changes in PV compensation levels that either accelerate or dampen further deployment.

The report was motivated by the fact that rapid growth of net-metered solar PV has provoked concerns about the financial impacts of that growth on utilities and ratepayers. To address these concerns, an increasing number of states are exploring changes to net-metering rules, retail rate structures or both.

Berkeley Lab researchers examined PV deployment levels under broad adoption of time-of-use rates, purely volumetric rates, feed-in tariffs and avoided cost-based rates. According to the study, most of these scenarios lead to deployment levels lower than under a continuation of net metering and current rate designs.

There are two potential feedback effects between solar deployment and retail electricity rates reported in the study. One sort of feedback occurs if increased solar deployment leads to under-recovery of utility fixed costs, creating a need to increase retail electricity prices and thereby accelerating solar deployment. A second – and opposing – feedback occurs when increased solar deployment causes a shift in the timing of peak electricity pricing, which tends to dampen solar adoption by customers on time-of-use rates.

‘Our study shows that – at least on a national basis – these two feedback effects largely counteract one another,’ says the Berkeley Lab's Ryan Wiser, a co-author of the report. ‘As such, current discussions that focus largely on the fixed-cost recovery feedback miss an important and opposing feedback mechanism that can, in many circumstances, moderate the issue of concern.’

In the shorter term, up to about 2030, the study finds that PV deployment is greater than in the reference scenario – a result of the higher average compensation for PV under time-varying rates, which boost PV deployment. However, as regional PV levels increase and the energy and capacity value of PV drops, the compensation for net-metered PV generation under time-varying rates also falls, leading to lower PV deployment levels. Therefore, proposals to move toward time-varying rates may boost PV deployment in the shorter term but may actually reduce PV deployment in the longer term.

‘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,’ says Galen Barbose, a co-author of the report.

The report, ‘Net Metering and Market Feedback Loops: Exploring the Impact of Retail Rate Design on Distributed PV Deployment,’ is available here.

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