Zero lost profit principle for solar compensation and its impact on bill savings

Abstract

Several utilities and regulators are replacing net metering, the status quo policy that credits solar owners the retail electric price for each kilowatt-hour of excess solar power. So far avoided costs, the value of solar, and buy-all, sell-all models are implemented in place of net metering. This study proposes a zero lost profit principle for the design of solar compensation policies and evaluates impacts on electricity bill savings relative to other principles. A zero lost profit principle is defined as a solar compensation rate that leaves the utility indifferent between serving a solar and a non-solar household. Using constant average cost and extra-normal utility profit assumptions, we find that the zero lost profit principle (gross and net) does not lead to significant reductions in electricity bill savings. However, a net purchasing model based on the avoided cost principle leads to a 23% reduction in monthly bill savings relative to net metering. The framework proposed in this study provides utilities and regulators with additional principles for evaluating alternative solar compensation policies.