Impact of residential PV adoption on Retail Electricity Rates

Abstract

The price of electricity supplied from home rooftop photo voltaic (PV) solar cells has fallen below the retail price of grid electricity in some areas. A number of residential households have an economic incentive to install rooftop PV systems and reduce their purchases of electricity from the grid. A significant portion of the costs incurred by utility companies are fixed costs which must be recovered even as consumption falls. Electricity rates must increase in order for utility companies to recover fixed costs from shrinking sales bases. Increasing rates will, in turn, result in even more economic incentives for customers to adopt rooftop PV. In this paper, we model this feedback between PV adoption and electricity rates and study its impact on future PV penetration and net-metering costs. We find that the most important parameter that determines whether this feedback has an effect is the fraction of customers who adopt PV in any year based solely on the money saved by doing so in that year, independent of the uncertainties of future years. These uncertainties include possible changes in rate structures such as the introduction of connection charges, the possibility of PV prices dropping significantly in the future, possible changes in tax incentives, and confidence in the reliability and maintainability of PV.