Customer-economics of residential photovoltaic systems (Part 1): The impact of high renewable energy penetrations on electricity bill savings with net metering

Abstract

Residential photovoltaic (PV) systems in the US are often compensated at the customer's underlying retail electricity rate through net metering. Given the uncertainty in future retail rates and the inherent links between rates and the customer–economics of behind-the-meter PV, there is growing interest in understanding how potential changes in rates may impact the value of bill savings from PV. In this article, we first use a production cost and capacity expansion model to project California hourly wholesale electricity market prices under two potential electricity market scenarios, including a reference and a 33% renewables scenario. Second, based on the wholesale electricity market prices generated by the model, we develop retail rates (i.e., flat, time-of-use, and real-time pricing) for each future scenario based on standard retail rate design principles. Finally, based on these retail rates, the bill savings from PV is estimated for 226 California residential customers under two types of net metering, for each scenario. We find that high renewable penetrations can drive substantial changes in residential retail rates and that these changes, together with variations in retail rate structures and PV compensation mechanisms, interact to place substantial uncertainty on the future value of bill savings from residential PV.