Electric utilities and residential solar systems

Abstract

The long-run incremental cost (LRIC) of providing electricity for solar heating and hot water systems is estimated for three utilities using a utility capacity expansion model and compared to the cost of providing electricity to electric-only systems. All investment, fuel and operating costs are accounted for. Hot water systems and combined heating and hot water systems are analyzed separately. It is found that the LRIC for solar backup is no more than the LRIC of electricity used for purely electric heating and hot water devices and also no more than the incremental cost of normal load growth. For the three utilities studied, there appears to be little basis for rate distinctions between solar devices using electric backup and electric-only heating and hot water devices. Off-peak storage heating and hot water devices have a much lower LRIC than the standard systems; again, there appears to be no basis for distinguishing between solar and electric off-peak devices. Compared to average cost pricing, incremental cost pricing offers considerable benefits to customers using solar and electric heat and hot water, especially if a separate lower rate is adopted for off-peak storage devices; these benefits can amount to several hundred dollars per year. Substantial savings in the use of oil and gas fuels can be achieved if residences using these fuels convert to solar systems, savings not necessarily achievable by a shift, instead, to electric systems