Tariffs Can Be Structured to Encourage Photovoltaic Energy

The solar power market is growing at a quickening pace, fueled by an array of national and local initiatives and policies aimed at improving the value proposition of customer-sited photovoltaic (PV) systems. Though these policies take many forms, they commonly include up-front capital cost rebates or ongoing production incentives, supplemented by net metering requirements to ensure that customer-sited PV systems offset the full retail rate of the customer-hosts. Somewhat less recognized is the role of retail rate design, beyond net metering, on the customer-economics of grid-connected PV. Over the life of a PV system, utility bill savings represent a substantial portion of the overall economic value received by the customer. At the same time, the design of retail electricity rates, particularly for commercial and industrial customers, can vary quite substantially. Understanding how specific differences in rate design affect the value of customer-sited PV is therefore essential to supporting the continued growth of this market

The Impact of Retail Rate Structures on the Economics ofCustomer-Sited PV: A Study of Commercial Installations inCalifornia

We analyze the impact of retail rate design on the economics of grid-connected commercial photovoltaic (PV) systems in California. The analysis is based on 15-minute interval building load and PV production data for 24 commercial PV installations in California, spanning a diverse set of building load shapes and geographic locations. We derive the annual bill savings per kWh generated for each PV system, under each of 21 distinct retail rates currently offered by the five largest utilities in California. We identify and explain variation in the value of bill savings attributable to differences in the structure of demand and energy charges across rates, as well as variation attributable to other factors, such as the size of the PV system relative to building load, the specific shape of the PV production profile, and the customer load profile. We also identify the optimal rate for each customer, among those rates offered as alternatives to one another, and show how the decision is driven in large measure by the size of the PV system relative to building load. The findings reported here may be of value to regulators and utilities responsible for designing retail rates, as well as to customers and PV retailers who have a need to estimate the prospective bill savings of PV systems

Retail Choice Experiments: Comparing Early-Adopter Experience

This paper reviews the experience with retail choice of non-residential electricity customers during the period from early 1998 through the first few months of 2000. Key findings include: (1) customers in California received a significantly smaller discount from utility tariffs than customers in other competitive markets; (2) this sample of large commercial/industrial customers believed they were benefiting significantly more from commodity savings from contracts with retail electricity service providers (RESP) than from value-added services; and, (3) market rules appear to be critical to customer experiences with retail competition, yet the relationship between market rules and market development is inadequately understood

Electricity Restructuring and Value-Added services: Beyond the hype

This paper presents the results of a series of interviews that were conducted with non-residential electricity service customers who have chosen to take service from as retail electric service provider (RESP). The interviews explored customr attitudes towards and experiences with the process of purchasing electricity and, in some cases, value-added services in the competitive market

Accounting for fuel price risk: Using forward natural gas prices instead of gas price forecasts to compare renewable to natural gas-fired generation

Against the backdrop of increasingly volatile natural gas prices, renewable energy resources, which by their nature are immune to natural gas fuel price risk, provide a real economic benefit. Unlike many contracts for natural gas-fired generation, renewable generation is typically sold under fixed-price contracts. Assuming that electricity consumers value long-term price stability, a utility or other retail electricity supplier that is looking to expand its resource portfolio (or a policymaker interested in evaluating different resource options) should therefore compare the cost of fixed-price renewable generation to the hedged or guaranteed cost of new natural gas-fired generation, rather than to projected costs based on uncertain gas price forecasts. To do otherwise would be to compare apples to oranges: by their nature, renewable resources carry no natural gas fuel price risk, and if the market values that attribute, then the most appropriate comparison is to the hedged cost of natural gas-fired generation. Nonetheless, utilities and others often compare the costs of renewable to gas-fired generation using as their fuel price input long-term gas price forecasts that are inherently uncertain, rather than long-term natural gas forward prices that can actually be locked in. This practice raises the critical question of how these two price streams compare. If they are similar, then one might conclude that forecast-based modeling and planning exercises are in fact approximating an apples-to-apples comparison, and no further consideration is necessary. If, however, natural gas forward prices systematically differ from price forecasts, then the use of such forecasts in planning and modeling exercises will yield results that are biased in favor of either renewable (if forwards < forecasts) or natural gas-fired generation (if forwards > forecasts). In this report we compare the cost of hedging natural gas price risk through traditional gas-based hedging instruments (e.g., futures, swaps, and fixed-price physical supply contracts) to contemporaneous forecasts of spot natural gas prices, with the purpose of identifying any systematic differences between the two. Although our data set is quite limited, we find that over the past three years, forward gas prices for durations of 2-10 years have been considerably higher than most natural gas spot price forecasts, including the reference case forecasts developed by the Energy Information Administration (EIA). This difference is striking, and implies that resource planning and modeling exercises based on these forecasts over the past three years have yielded results that are biased in favor of gas-fired generation (again, presuming that long-term stability is desirable). As discussed later, these findings have important ramifications for resource planners, energy modelers, and policy-makers

Quantifying the value that wind power provides as a hedge against volatile natural gas prices

Advocates of renewable energy have long argued that wind power and other renewable technologies can mitigate fuel price risk within a resource portfolio. Such arguments--made with renewed vigor in the wake of unprecedented natural gas price volatility during the winter of 2000/2001--have mostly been qualitative in nature, however, with few attempts to actually quantify the price stability benefit that wind and other renewables provide. This paper attempts to quantify this benefit by equating it with the cost of achieving price stability through other means, particularly gas-based financial derivatives (futures and swaps). We find that over the past two years, natural gas consumers have had to pay a premium of roughly 0.50 cents/kWh over expected spot prices to lock in natural gas prices for the next 10 years. This incremental cost is potentially large enough to tip the scales away from new investments in natural gasfired generation and in favor of investments in wind power and other renewable technologies