2 - Utility Tariffs
Solar generates savings by taking advantage of how utilities charge for electricity at different times.
By offsetting energy bills, solar generates value for its customers, either through Net Energy Metering (NEM), and through utility tariff structures favorable to solar. The value of the energy generated over the life of the system is dependent on a policy landscape that is very much in flux, as utilities seek to reform policies and tariffs that promoted the growth of solar in California over the last decade.
The value of PV generated energy is specified by the utility company rate tariff that is in place for the account where the PV system is connected to the utility grid. Utility tariffs are often comprised of charges for energy, transmission, distribution, demand and public good charges. Most utilities have “solar-friendly” tariffs that have increased energy charges during summer months and decreased demand charges. Solar-friendly tariffs increase the value of energy produced by solar PV systems compared to other tariffs.
A utility tariff is a set of rules that define how utilities charge customers for energy. Utility tariffs are often comprised of charges for energy, transmission, distribution, demand and public good charges. Most utilities have “solar-friendly” tariffs that have increased energy charges during summer months and decreased demand charges. Solar-friendly tariffs increase the value of energy produced by solar PV systems compared to other tariffs.
Time-of-Use (TOU) rate structures are utility rates that differ by time of day, day of week and season. TOU rates are structured to follow the utility's cost of producing energy. TOU rates are lowest during night hours when energy usage is low. Rates ramp up in the morning and peak during afternoon hours. TOU rates ramp down later in the evening and return to their lowest tier in the late evening.
TOU rates also typically change with seasons. Winter rates are generally lower and do not have the highest peak tier of pricing. Summer rates are the highest and have the more expensive peak rate. Under all rate schedules, weekends and holidays are typically treated differently and have lower rates than midweek.
Though almost any applicable tariff can be used with a solar PV system, tariffs that have reduced demand charges and increased Time-of-Use (TOU) rates perform better with PV systems. Solar-friendly Option R tariffs (PG&E and SCE) are specifically designed to provide enhanced value for solar PV systems. Solar-friendly tariff are often capped as to the amount of renewable generation systems that can take advantage of the tariffs. In addition, cost and timing of TOU periods can and do change regularly as utilities balance their cost of operation with their customer’s aggregate usage.
Net Energy Metering (NEM)
The most financially efficient way to connect a PV system to the local utility grid and realize energy cost savings is to use Net Energy Metering (NEM). NEM allows an electric utility customer to receive full energy cost credit for power that is generated onsite and fed into the utility grid. With NEM, when a PV system produces more power than is used at the site at any instant, the excess energy is fed back into the utility system grid and the customer is credited for the full cost of the excess electrical energy produced.
Net-metered PV systems are typically designed to take advantage of high energy value during the summer months. Excess energy credit in the summer is offset by energy usage in the winter, when PV systems do not produce as much energy. At the end of a 12-month period, NEM electrical meters are "trued up" - the previous 12 months of energy costs and credits are totaled and a bill is sent to the customer.
Under current NEM regulations in California, electrical utilities do not have to pay for excess bill credit (only excess energy production) at the end of the 12-month NEM period. Thus, a properly sized PV system will nearly zero out the electrical bill over a 12-month period and not significantly overproduce.
RES-BCT for Public Agencies
Through the Renewable Energy Self-Generation Bill Credit Transfer (RES-BCT) tariff, local government entities may generate energy on one meter (Primary Account) and provide a bill credit to other remote meters (Benefiting Accounts) as long as both facilities are owned or operated by the same local government entity. This means that power may be generated from a renewable energy project in one location, and the bill credits may be applied to multiple other accounts in the local government’s jurisdiction.
The RES-BCT tariff has not been widely adopted mainly due to the constraint that only the generation portion of the bill credit transfers to the off-site meters.