WASHINGTON, Feb. 2, 2017 - The effects of distributed solar on retail electricity prices are, and will continue to be, quite small compared to other issues, according to a study by Galen Barbose, a scientist at the Department of Energy’s Lawrence Berkeley National Laboratory (LBNL).
The rapid growth of distributed solar has raised questions about its potential effects on retail electricity prices. Barbose says this has raised concerns from utilities and stakeholders about cost-shifting between solar and non-solar customers.
These concerns have led to a growing number of proposals that seek to reform retail rate structures and net metering rules for distributed solar customers, Barbose says.
The proposals are typically met with “a great deal of contention and often absorb substantial time and administrative resources, potentially at the expense of other issues that may ultimately have greater impact on utility ratepayers,” Barbose notes.
Given “inevitable tradeoffs,” Barbose suggests state regulators might ask: How large could the effect of distributed solar on retail electricity prices conceivably be? And how does that compare to the many other factors that also influence electricity price, and over which state regulators and utilities might also have some control?
For the vast majority of states and utilities, the effects of distributed solar on retail electricity prices will likely remain negligible for the foreseeable future, the study finds.
At current penetration levels (0.4 percent of total U.S. retail electricity sales), distributed solar likely entails no more than a 0.03 cent per kilowatt hour (kWh) long-run increase in U.S. average retail electricity prices, and far smaller than that for most utilities.
Even at projected penetration levels in 2030, Barbose says that distributed solar would likely yield no more than roughly a 0.2 cent/kWh (in 2015 dollars) increase in U.S. average retail electricity prices, and less than a 0.1 cent/kWh increase in most states, where distributed solar penetration is projected to remain below 1 percent of electricity sales.
That is not to say that reforms of net metering rules or retail rate structures for distributed solar customers are unwarranted, Barbose says.
However, he says other objectives, such as economic efficiency, “likely provide a more compelling rationale.”
Barbose suggests that reforms might best be tailored to meeting those objectives, for example through rate structures that accurately signal the long-term marginal cost of producing and delivering electricity.
Where concerns about minimizing retail electricity price remain a priority, other issues may prove more impactful, he says.
Among the issues explored in the study, future electric-utility capital expenditures are expected to have the greatest impact on the trajectory of retail electricity prices.
“That is not to say anything about the potential benefits or prudence of such investments, but clearly this is an area where regulatory oversight can play a crucial role in managing retail electricity price escalation,” Barbose suggests.
Similarly, the study finds that resource planning and procurement processes provide another important point of leverage over future retail electricity prices, where utilities and regulators can manage ratepayers’ exposure to natural gas price risk and the possible costs associated with state or federal carbon regulations.
Regulators and policymakers in states with renewable portfolio standard (RPS) policies also have significant influence over retail electricity prices by developing RPS rules and other supportive policies that ensure renewable electricity supply keeps pace with growing RPS demand, keeping Renewable Energy Credit (REC) prices in check, Barbose says.
For states witnessing especially high levels of distributed solar penetration, experiences with energy efficiency also offer lessons, Barbose notes.
“These experiences suggest that short-term retail price impacts from distributed energy resources may be more acceptable, provided that they yield net savings to ratepayers over the long run, and that adequate opportunities exist for all ratepayers (especially low- and moderate-income customers) to participate,” Barbose says.
As solar costs continue to decline, grid-friendly PV technologies advance, and initiatives to broaden solar access continue, Barbose predicts that issues of cost-shifting from distributed solar will become more similar to those of energy efficiency, and concerns about cost-shifting may “naturally soften, to a degree.”
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