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Open Access Publications from the University of California

Customer economics of residential photovoltaic systems: Sensitivities to changes in wholesale market design and rate structures


The customer economics of U.S. residential photovoltaics (PV) often depend on retail electricity rates, because most utilities compensate customer-sited PV generation via net metering. The future bill savings from net metering are uncertain and dependent on retail rate structures, wholesale market design, and renewable penetration levels, among other factors. We explore the impact of the following assumptions on the bill savings from residential PV: a wholesale electricity market design with a price cap (as opposed to an energy-only market); a retail rate with a fixed customer charge (as opposed to a fully volumetric rate); and increasing-block pricing (as opposed to a non-varying flat rate). A wholesale price cap can dampen the expected bill-savings erosion due to moving from a low to a high renewables scenario for customers with time-varying rates and net metering. Moving from a fully volumetric rate to a two-part tariff rate with a fixed customer charge could severely Erode the bill savings under net metering, because PV generation could only displace the (reduced) volumetric portion of the rate. Finally, increasing-block pricing might have an even greater impact on the bill savings from behind-the-meter PV than the other uncertainties explored in this paper.

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