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Bill Savings from Net Metered Residential Solar Photovoltaic Systems Differ Dramatically

A Lawrence Berkeley National Laboratory (Berkeley Lab) study found that the financial savings of residential customers with solar photovoltaic (PV) power systems varied significantly under the net metering rates currently offered by California's two largest electric utilities. The report focuses on California, as it is the largest PV market in the United States.

Solar panels on a two story white house.

The study shows that the bill savings per kilowatt-hour (kWh) generated by a PV system varies by a factor of four to five for residential customers of Pacific Gas & Electric (PG&E) within the study sample, and by a factor of two to three for the Southern California Edison (SCE) residential customers in the sample.

Net metering is a billing arrangement that allows customers with on-site PV systems to offset their monthly consumption with PV generation, regardless of whether or not the electricity demand coincides with the time their systems are generating power. In conjunction with other policy support mechanisms, net metering has been instrumental in jump-starting the market for distributed PV in California and elsewhere in the United States. However, alternative compensation methods are under consideration in some jurisdictions.

"One purpose of this study," says report co-author Ryan Wiser with Berkeley Lab's Environmental Energy Technologies Division, "is to help policymakers and others that seek to support the development of residential distributed PV in California understand the bill savings benefits of PV under net metering, and how those savings compare to other possible compensation mechanisms."

The study acknowledges that this is only one issue that policymakers consider when developing policies related to distributed PV, so the report does not attempt to provide a comprehensive cost-effectiveness evaluation of net metering policies or to evaluate the cost of net metering to utility ratepayers who chose to not install PV.

The study is based on a sample of over 200 residential customers located in the service territories of PG&E and SCE. Depending on the size of the PV system, the median PG&E customer in the sample is found to receive bill savings of $0.19 to $0.25 per kWh generated by the PV system, and the median SCE customers receives bill savings of $0.19 to $0.24 per kWh. However, many customers receive savings substantially lower or higher than these figures.

Rate Structures Are Key

According to the report, variation in the value of bill savings across customers is primarily the result of the particular residential retail electricity rate structures offered. As report co-author Galen Barbose explains, "The residential rates currently offered by PG&E and SCE have inclining usage tiers, whereby customers that consume more energy each month pay a higher price. Consequently, high-usage residential customers receive relatively high-value bill savings from net metered PV systems." This is particularly true for PG&E customers; among the highest-usage PG&E customers in the study's sample, the bill saving value ranges from $0.31 to $0.49 per kWh.

The study notes that the inclining price structure of PG&E's and SCE's residential electricity tariffs is much more pronounced than residential rates offered by other utilities. The specific results of the study therefore do not necessarily apply to other utilities and states, but they nonetheless demonstrate the sensitivity of bill savings from net metered PV to the underlying rate structure.

Under Some Net Metering Alternatives, Savings Would Be Lower

The study also compares the bill savings that residential customers with PV receive under net metering to the bill savings that they might receive under several hypothetical alternative compensation mechanisms. "In general, these comparisons show that net metering provides greater bill savings—in some cases, by a significant amount," says Naïm Darghouth, the lead author of the report.

Electric meter

One of the alternatives examined is a feed-in tariff under which all PV generation is compensated at prices based on California's Market Price Referent (MPR)—a price established by the California Public Utilities Commission that is intended to represent the long-run market price of electricity. The value of bill savings received under such an MPR-based feed-in tariff ranges from $0.12 to $0.13 per kWh for most customers. Depending on the PV system size, this equates to a 40 to 54 percent reduction in bill savings relative to net metering for the median PG&E customer in the study sample, and a 32 to 45 percent reduction for the median SCE customer. For high-usage customers, who receive the greatest bill savings under net metering, the reduction in bill savings under the MPR-based feed-in tariff would be substantially greater than these median values.

Another potential compensation mechanism to net metering would allow customers to offset up to 100 percent of their consumption within each hour, but any hourly excess PV generation would be compensated at MPR-based prices, rather than being credited against consumption in other hours. Under this payment system, customers are found to generally experience lower energy bill savings relative to net metering, but the difference is significantly less than under the full MPR-based feed-in tariff. Depending on PV system size, the median PG&E customer would see a 6 to 12 percent reduction in bill savings, and the median SCE customer would see a 6 to 10 percent reduction.

—Galen Barbose

For more information, contact:

  • Galen Barbose
  • (510) 495-2593

The report, The Impact of Rate Design and Net Metering on the Bill Savings from Distributed PV for Residential Customers in California, was written by Naïm Darghouth, Galen Barbose, and Ryan Wiser, and it may be downloaded from the Electricity Markets and Policy web site.

The research was supported by funding from the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (Solar Energy Technologies Program) and the Office of Electricity Delivery and Energy Reliability (Permitting, Siting, and Analysis Division).

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