The Impact of Retail Rate Structures on the Economics of Commercial - - PowerPoint PPT Presentation

Energy Analysis Department

The Impact of Retail Rate Structures

• n the Economics of Commercial

Photovoltaic Systems in California

Ryan Wiser, Andrew Mills, Galen Barbose, and William Golove

Lawrence Berkeley National Laboratory July 2007

Energy Analysis Department

Presentation Outline Presentation Outline

• 1. Motivation and Scope
• 2. Data and Methodology
• 3. Results

a) Variation in Bill Savings for Commercial PV Systems in California b) The Effects of Specific Differences in Rate Design and Customer Characteristics c) The Value of Offering Optional “PV-Friendly” Rates d) The Value of Net Metering

• 4. Policy Implications and Future Work

Energy Analysis Department

Motivation and Scope Motivation and Scope

• Motivation: To create a self-sustaining market, grid-connected PV

may have to be competitive with retail electricity rates; discussion

• f retail rate issues for PV has tended to focus more on net

metering than on other elements of rate design

• Objective: Evaluate the impact of retail rate design on the

customer-economics of grid-connected PV, focusing on commercial customers in California

• Intended Audience:
• Regulators/policymakers who have a responsibility to design tariffs,

and want to make those tariffs attractive to PV

• End-use customers, PV retailers, and consultants who need to

estimate the potential bill savings from PV installations

Energy Analysis Department

Utility Bill Savings from PV Are Affected Utility Bill Savings from PV Are Affected by a Host of Factors by a Host of Factors

Rate design issues

• Size of demand charges relative to energy charges
• Type of demand charge
• Type of energy charge
• Time-of-day (TOD) period definition for demand charges
• Time-of-use (TOU) price spread between peak/off-peak for energy charges
• Availability of multiple optional rates, and availability of net metering

Other issues

• Revenue requirements of the utility and rate class
• Size of PV system relative to building load
• Customer load shape
• PV production profile

Energy Analysis Department

Research Questions Research Questions

• 1. What is the overall variation in bill savings among

commercial PV systems in California?

• 2. How much of the variation is attributable to

differences in rate design, and which issues are most critical?

• 3. To what extent do optional “PV-friendly” rates

provide value for commercial PV systems?

• 4. What is the value of net metering, as currently
• ffered in California?

Energy Analysis Department

Data and Methodology Data and Methodology

• We compute utility bill savings across 20 current commercial rates
• ffered by the state’s five largest electric utilities (PG&E, SCE,

SDG&E, LADWP, and SMUD)

• Using data from a diverse sample of 24 actual commercial PV

installations in California:

• One year of contemporaneous 15-minute interval customer load and

PV production for each site

• We compare bill savings in terms of the reduction in the annual

utility bill per kWh of PV electricity produced ($/kWh)

• We scale PV data to calculate the value of PV at specific PV

penetration levels for each site

• PV Penetration Level = annual PV production as a percentage of

gross building load

• Focus on results at 2% and 75% PV penetration, as representative

boundary cases

Energy Analysis Department

Rate Schedules Analyzed Rate Schedules Analyzed

Rates Evaluated in Analysis Facility Charge Demand Charge A-2, A Flat Annual, Fixed Monthly, Seasonal A-2, B / A-3, C TOU Annual, Fixed TOD, Seasonal A-1 Seasonal

• A-6

TOU

• A-10

Seasonal

• Monthly, Seasonal

A-10 TOU TOU

• Monthly, Seasonal

E-19 TOU Monthly, Fixed TOD, Seasonal E-20 TOU Monthly, Fixed TOD, Seasonal GS-2, Non-TOU Seasonal Monthly, Fixed Monthly, Seasonal GS-2, TOU Option A TOU Monthly, Fixed

• GS-2, TOU Option B

TOU Monthly, Fixed Monthly, Seasonal TOU-GS-3 Option A TOU Monthly, Fixed

• TOU-GS-3 Option B

TOU Monthly, Fixed TOD, Seasonal TOU-8 TOU Monthly, Fixed TOD, Seasonal AL-TOU TOU Monthly, Fixed TOD, Seasonal A-6 TOU TOU Monthly, Fixed TOD, Seasonal GS-Demand Seasonal Annual, Fixed

• GS-TOU3

TOU Annual, Fixed TOD, Seasonal GS-TOU2 TOU Annual, Fixed TOD, Seasonal GS-TOU1 TOU Annual, Fixed

• Utility

Rate Name Energy Charge Type Demand Charge Type SMUD LADWP PG&E SCE SDG&E

Energy Charges ($/kWh)

• Flat
• Seasonal
• Time-of-use (TOU)

Demand Charges ($/kW)

• Annual: Maximum demand

in previous twelve months

• Monthly: Maximum monthly

demand

• Time-of-day (TOD):

Maximum monthly demand during specific TOD periods

• Any of the above may be

based on $/kW rates that are fixed or that vary seasonally

Illustrative Example of 15 Illustrative Example of 15-

• Minute Demand

Minute Demand Data, at 2 Levels of PV Penetration Data, at 2 Levels of PV Penetration

• 5000
• 4000
• 3000
• 2000
• 1000

1000 2000 3000 7/19 12:00 AM 7/20 12:00 AM 7/21 12:00 AM 7/22 12:00 AM Date (Summer 2005) Customer Demand (kW) Gross Net (2% Penetration) Net (75% Penetration)

Annual utility bill before PV: Calculated from gross demand Annual utility bill with PV: Calculated from net demand Value of PV: Difference in bills per unit of energy produced by PV

Energy Analysis Department

Research Questions Research Questions

• 1. What is the overall variation in the value of bill savings

among commercial PV systems in California?

• Based on each utility’s net metering rules
• Assuming that customers remain on the same rate before and after

installation of PV 2. How much of the variation is attributable to differences in rate design, and which issues are most critical? 3. To what extent do optional “PV-friendly” rates provide value for commercial PV systems? 4. What is the value of net metering, as currently offered in California?

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0.00-0.02 0.02-0.04 0.04-0.06 0.06-0.08 0.08-0.10 0.10-0.12 0.12-0.14 0.14-0.16 0.16-0.18 0.18-0.20 0.20-0.22 0.22-0.24 >0.24 Value of PV - No Rate Switching ($/kWh) Frequency (%) 2% Solar 75% Solar n = 480

The Rate The Rate-

• Reduction Value of PV Varies

Reduction Value of PV Varies by a Factor of Four by a Factor of Four

• Value of PV

ranges from $0.05/kWh to $0.24/kWh

• Median value

drops from $0.143/kWh at 2% PV penetration to $0.115/kWh at 75% penetration Figure shows the distribution in the rate-reduction value of PV across all combinations of customers and rate schedules Range in values reflects differences in: (1) rate structure, (2) revenue requirements, (3) customer load shape, and (4) PV production profile

Energy Analysis Department

The Rate The Rate-

• Reduction Value of PV Varies

Reduction Value of PV Varies Widely Across Rates Widely Across Rates

Range of median values represents differences due to rates:

$0.10-$0.18/kWh (2%) $0.06-$0.18/kWh (75%)

Drop off from 2% to 75% is much more pronounced for some rates than others Percentile band is much larger for some rates than

• thers

(Median and 10th/90th percentiles)

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25

A-2, A A-2, B/ A-3, C A-1 A-6 A-10 A-10 TOU E-19 E-20 GS-2, TOU Option A GS-2, TOU Option B GS-2, Non-TOU TOU-GS-3 Option A TOU-GS-3 Option B TOU-8 A-6 TOU AL-TOU GS - Demand GS-TOU3 GS-TOU2 GS-TOU1 LADWP PG&E SCE SDG&E SMUD

Value of PV - No Rate Switching ($/kWh) 2% Solar 75% Solar

Energy Analysis Department

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25 A-2, A A-2, B/ A-3, C A-1 A-6 A-10 A-10 TOU E-19 E-20 GS-2, TOU Option A GS-2, TOU Option B GS-2, Non-TOU TOU-GS-3 Option A TOU-GS-3 Option B TOU-8 A-6 TOU AL-TOU GS - Demand GS-TOU3 GS-TOU2 GS-TOU1 LADWP PG&E SCE SDG&E SMUD Value of PV - No Rate Switching ($/kWh)

Demand Component Energy Component

Demand Charge Savings Can be Substantial, Demand Charge Savings Can be Substantial, at Low Levels of PV Penetration at Low Levels of PV Penetration

2% PV Penetration

• For some rates,

>50% of the value

• f PV can come

from reduction in demand charges at 2% PV penetration

• Demand charge

reductions are highly customer- specific, however, as indicated by wide percentile bands

(Median and 10th/90th percentiles)

Energy Analysis Department

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25 A-2, A A-2, B/ A-3, C A-1 A-6 A-10 A-10 TOU E-19 E-20 GS-2, TOU Option A GS-2, TOU Option B GS-2, Non-TOU TOU-GS-3 Option A TOU-GS-3 Option B TOU-8 A-6 TOU AL-TOU GS - Demand GS-TOU3 GS-TOU2 GS-TOU1 LADWP PG&E SCE SDG&E SMUD Value of PV - No Rate Switching ($/kWh)

Demand Component Energy Component

Demand Charge Savings Decline at Higher Demand Charge Savings Decline at Higher PV Penetration Levels, on a $/kWh Basis PV Penetration Levels, on a $/kWh Basis

• Rates with high

demand charges become significantly less attractive at high PV penetration

• In comparison,

energy charge savings vary little across PV penetration levels

• r customers

75% PV Penetration

(Median and 10th/90th percentiles)

Energy Analysis Department

Research Questions Research Questions

1. What is the overall variation in the value of bill savings among commercial PV systems in California?

• 2. How much of the variation is attributable to

differences in rate design, and which factors are most critical?

• To what extent do optional “PV-friendly” rates provide value for

commercial PV systems?

• What is the value of net metering, as currently offered in

California?

Energy Analysis Department

Normalizing for Differences in Revenue Normalizing for Differences in Revenue Requirements Reveals Impact of Rate Structure Requirements Reveals Impact of Rate Structure

• Shows that

differences in rate structure are far more important at high PV penetration levels

• At low PV

penetration levels, customer-specific issues predominate, as indicated by wide percentile bands

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25

A-2, A A-2, B/ A-3, C A-1 A-6 A-10 A-10 TOU E-19 E-20 GS-2, TOU Option A GS-2, TOU Option B GS-2, Non-TOU TOU-GS-3 Option A TOU-GS-3 Option B TOU-8 A-6 TOU AL-TOU GS - Demand GS-TOU3 GS-TOU2 GS-TOU1 LADWP PG&E SCE SDG&E SMUD

Normalized Value of PV - No Rate Switching ($/kWh) 2% Solar 75% Solar

(Median and 10th/90th percentiles)

The figure shows the value of PV for each rate, when normalized based on the average cost of electricity prior to PV installation

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25 A-1 (PG&E) A-6 (PG&E) GS-TOU1 (SMUD) TOU-GS-3 Option A (SCE) GS-2, TOU Option A (SCE) GS-TOU2 (SMUD) A-10 (PG&E) A-10 TOU (PG&E) GS-TOU3 (SMUD) GS - Demand (SMUD) A-6 TOU (SDG&E) AL-TOU (SDG&E) TOU-GS-3 Option B (SCE) GS-2, TOU Option B (SCE) GS-2, Non-TOU (SCE) TOU-8 (SCE) E-20 (PG&E) E-19 (PG&E) A-2, B/ A-3, C (LADWP) A-2, A (LADWP) Normalized Value of PV - No Rate Switching ($/kWh) 0% 50% 100% 150% Demand Weight (%) 2% Solar 75% Solar Demand Weight (%)

Rates with Low Demand Charges Are Rates with Low Demand Charges Are More Valuable at High PV Penetration More Valuable at High PV Penetration

(Median and 10th/90th percentiles)

Demand Weight: Cost of demand charges prior to PV installation as a percentage of the total average cost of electricity on each rate

Demand Reduction Depends on PV Demand Reduction Depends on PV Penetration and Definition of Demand Penetration and Definition of Demand

0% 20% 40% 60% 80% 100% 2% 10% 25% 50% 75% 100% PV Penetration (%) Effective Capacity (%) 0% 20% 40% 60% 80% 100% 2% 10% 25% 50% 75% 100% PV Penetration (%) Effective Capacity (%) 0% 20% 40% 60% 80% 100% 2% 10% 25% 50% 75% 100 PV Penetration (%) Effective Capacity (%) LADWP (1-5 p.m.) PG&E (12-6 p.m.) SMUD (2-8 p.m.) %

Reduction in Maximum Annual Demand Reduction in Maximum Monthly Demand Reduction in Maximum Monthly Demand in Summer Peak TOD Period

Effective Capacity: Demand reduction as a percentage of maximum PV output

• Demand reductions are largest and least

variable when focusing Summer Peak TOD

• Wide percentile bands indicate that

differences in load shape and/or PV profile across the 24 customers have large effect

Differences in Temporal PV Production Differences in Temporal PV Production Profiles Have Modest Impact on PV Value Profiles Have Modest Impact on PV Value

PG&E Rate A-10 $0.000 $0.005 $0.010 $0.015 $0.020 Inverted Flat Afternoon Peak - 1 Afternoon Peak - 2 Afternoon Peak - 3 Range between 10th & 90th Percentile of Normalized Value of Demand Charge Savings ($/kWh) 2% Solar 75% Solar PG&E Rate E-20 $0.000 $0.005 $0.010 $0.015 $0.020 Inverted Flat Afternoon Peak - 1 Afternoon Peak - 2 Afternoon Peak - 3 Range between 10th & 90th Percentile of Normalized Value of Demand Charge Savings ($/kWh) 2% Solar 75% Solar

• The figures show the range between the 10th and 90th percentile values for each

load profile

• We compare two rates with different types of demand charges
• The effect of differences in PV production profile is < $0.01/kWh
• The implication is that variation in the value of PV across customers is due

primarily to differences in load profiles

To isolate the impact of differences in PV production profiles, we match each of the 24 PV datasets with five representative load profiles

Demand Charge Savings Are Much Lower for Demand Charge Savings Are Much Lower for Facilities With Flat or Inverted Load Profiles Facilities With Flat or Inverted Load Profiles

Rates with Non-TOD Demand Charges only

• $0.02

$0.00 $0.02 $0.04 $0.06 $0.08 Inverted Flat Afternoon Peak - 1 Afternoon Peak - 2 Afternoon Peak - 3 Normalized Value of Demand Charge Savings ($/kWh) 2% Solar 75% Solar

n=9

Rates with TOD Demand Charges

• $0.02

$0.00 $0.02 $0.04 $0.06 $0.08 Inverted Flat Afternoon Peak - 1 Afternoon Peak - 2 Afternoon Peak - 3 Normalized Value of Demand Charge Savings ($/kWh) 2% Solar 75% Solar

n=9

• Customers with afternoon peaks can generate significant demand charge savings

across all types of demand charges

• Customers with inverted or flat load profiles can earn modest demand charge

savings if TOD-based demand charges are used

(Median and 10th/90th percentiles)

The figures compare demand charge savings for five representative customers across rates with and without TOD-based demand charges

Energy Analysis Department

TOU Energy Rates with a Large Peak to TOU Energy Rates with a Large Peak to Off Off-

• Peak Price Spread Offer More Value

Peak Price Spread Offer More Value

$0.08 $0.09 $0.10 $0.11 $0.12 $0.13 A-2, A (LADWP) GS - Demand (SMUD) GS-2, Non-TOU (SCE) A-10 (PG&E) A-1 (PG&E) A-2, B/ A-3, C (LADWP) GS-2, TOU Option B (SCE) TOU-8 (SCE) TOU-GS-3 Option B (SCE) A-10 TOU (PG&E) E-19 (PG&E) E-20 (PG&E) GS-TOU1 (SMUD) A-6 TOU (SDG&E) AL-TOU (SDG&E) GS-TOU2 (SMUD) GS-TOU3 (SMUD) A-6 (PG&E) GS-2, TOU Option A (SCE) TOU-GS-3 Option A (SCE) Flat Seasonal TOU Normalized Value of Energy Charge Savings ($/kWh) 0.00 1.00 2.00 3.00 4.00 5.00 TOU Price Ratio Normalized Value of Energy Charge Savings TOU Price Ratio (Summer Peak to Winter Off-Peak)

• TOU energy rates

heavily weighted toward the summer peak period provide ~20% greater savings on energy charges than flat rates

• This effect

(~$0.02/kWh) is relatively small compared to the

• verall variation in

the value of PV across rates

(Median and 10th/90th percentiles)

Energy Analysis Department

Summary: What Drives Differences in Summary: What Drives Differences in the Value of PV? the Value of PV?

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25 2% PV Penetration 75% PV Penetration Modeled Value of PV Over the Range of Inputs ($/kWh) Summer Peak TOD Charges Load Shape TOU Price Spread Demand Weight Cost of Electricity Modeled Range of Value of PV

We fit the value of PV for each customer/rate combination to a multiple linear regression model, to compare the impact of each of the issues examined

• Figure disaggregates
• verall variation in the

value of PV into individual factors

• The average cost of

electricity of each rate has the largest impact

• Depending on PV

penetration, the second most-important factor is either load shape or demand weight

Energy Analysis Department

Research Questions Research Questions

1. What is the overall variation in the value of bill savings among commercial PV systems in California? 2. How much of the variation is attributable to differences in rate design, and which issues are most critical?

• 3. To what extent do optional “PV-friendly” rates

provide value for commercial PV systems?

4. What is the value of net metering, as currently offered in California?

Energy Analysis Department

Rate Switching Analysis Rate Switching Analysis

• Multiple rate options are

available within many customer size classes (see figure)

• Within each class, we

determine which rate is least cost for each of the 24 load/PV production dataset pairs, both before and after the PV system

200 400 600 800 1000 1200 1400 Customer Demand (MW) GS-TOU1 GS-TOU2 GS-TOU3 GS - Demand A-6 TOU AL-TOU TOU-8 TOU-GS-3, Option B TOU-GS-3, Option A GS-2, Non-TOU GS-2, Option B GS-2, Option A E-20 E-19 A-10 TOU A-10 A-6 A-1 A-3, C A-2, B A-2, A SMUD (secondary) SDG&E (primary) SCE (secondary) PG&E (secondary) LADWP (primary)

Energy Energy-

• Focused Rates Are Advantageous

Focused Rates Are Advantageous at Higher PV Penetration Levels at Higher PV Penetration Levels

0% 20% 40% 60% 80% 100% 0% 25% 50% 75% 100% PV Penetration (%) Percent of Customers for which Rate is Optimal

PG&E A-6 (<200 kW class) PG&E A-6 (200-500 kW class) SCE GS-2, TOU Option A (20-200 kW class) SCE TOU-GS-3 Option A (200-500 kW class)

. n=24

At low levels of PV penetration, customer load characteristics determine the optimal rate; at high levels of PV penetration, nearly all customers would switch to a rate with minimal demand charges

Energy-focused rates, with no or limited demand charges

The Rate The Rate-

• Reduction Value of PV with

Reduction Value of PV with Rate Switching Rate Switching

• The figure arguably

represents the most accurate picture of the value of PV for commercial PV systems in CA

• Variation across

rate classes is somewhat smaller than across individual rates, but still significant We calculate the Value of PV for each “rate class” when customers choose the least cost rate option before and after PV

$0.00 $0.05 $0.10 $0.15 $0.20 $0.25

<100 KW >100 kW <200 KW 200-500 kW 500-1000 kW >1000 kW 20-200 kW 200-500 kW >500 kW <500 kW >500 kW 20-300 kW 300-500 kW 500-1000 kW >1000 kW LADWP PG&E SCE SDG&E SMUD

Value of PV - Optimal Rate ($/kWh) 2% Solar 75% Solar

(Median and 10th/90th percentiles)

Energy Analysis Department

Energy Analysis Department

Research Questions Research Questions

• 1. What is the overall variation in the value of bill savings among

commercial PV systems in California?

• 2. How much of the variation is attributable to differences in rate

design, and which issues are most critical?

• 3. To what extent do optional “PV-friendly” rates provide value for

commercial PV systems?

• 4. What is the value of net metering, as currently
• ffered in California?

Energy Analysis Department

Assessing the Value of Net Metering Assessing the Value of Net Metering

• We calculate the loss in the value of bill savings for each

customer/rate combination, if net metering were replaced with an alternative compensation structure:

• In each 15-minute interval, customer is compensated for PV
• utput in excess of load at a flat “sell back” rate
• No difference from net metering in intervals when PV output is

less than customer demand

• Estimate reduction in bill savings at “sell back” rates ranging

from $0.00/kWh to $0.09/kWh

• Note that this is not the same as a “feed-in” tariff, which

would be considerably more straightforward to analyze

The Loss of Net Metering Could Greatly The Loss of Net Metering Could Greatly Reduce the Value of PV for Large PV Systems Reduce the Value of PV for Large PV Systems

• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 2% 10% 25% 50% 75% 100% PV Penetration (%) Loss of Value of PV (%) $0.00/kWh $0.05/kWh $0.07/kWh $0.09/kWh

(Median and 10th/90th percentiles)

• At PV penetration of

25% or less, net metering provides little value compared to the alternative considered

• At higher PV

penetration, net metering is much more valuable, but is highly sensitive to the sell- back price

The figure shows the percentage reduction in bill savings if net metering were eliminated, in terms of the median and percentile values across all combinations of customers and rates

Energy Analysis Department

Energy Analysis Department

The Impact of the Loss Net Metering Depends The Impact of the Loss Net Metering Depends

• n Rate Structure and Load Shape
• n Rate Structure and Load Shape
• 5%

0% 5% 10% 15% 20% 25% 30% 35% 40% 2% 10% 25% 50% 75% 100 PV Penetration (%) Loss of Value of PV (%) Inverted Flat Afternoon Peak - 1 Afternoon Peak - 2 Afternoon Peak - 3

• 5%

0% 5% 10% 15% 20% 25% 30% 35% 40% 2% 10% 25% 50% 75% 100% PV Penetration (%) Loss of Value of PV (%)

PG&E: A-6 PG&E: A-10 PG&E: E-20

The potential economic loss from eliminating net metering is greatest for customers on energy-focused rates, like PG&E’s A-6 rate

Graphs assume excess is sold to utility at $0.07/kWh (Median and 10th/90th percentiles)

Customers with inverted or flat load profiles depend more on net metering than customers with afternoon peak load shapes

Energy Analysis Department

Key Findings on Rate Design Key Findings on Rate Design

• Commercial PV systems can generate significant demand charge

savings, depending on...

• PV penetration level: the value of demand charge reductions declines

dramatically with increasing PV penetration

• Customer load shape: customers with loads that peak in the afternoon

earn much greater demand charge savings than those with flat or inverted load shapes

• Demand charge design: TOD-based demand charges are more favorable

to PV under a broad range of customer load shapes than those based on monthly or annual peak customer demand

• TOU-based energy charges with a high spread between peak

and off-peak prices offer greater value (~20% on average) than rates with seasonal or flat energy charges

• Differences in temporal PV production profiles have a modest

impact on PV value

Energy Analysis Department

Key Implications for Policymakers Key Implications for Policymakers

• Rate design is fundamental to the economics of

commercial PV

• TOU-based, energy-focused rates can provide

substantial value to PV

• Offering customers a variety of rate options would

be of value to PV

• Eliminating net metering can significantly degrade

the economics of PV systems that serve a large percentage of building load

Energy Analysis Department

Future Extensions of Analysis Future Extensions of Analysis

• Can publicly available, hourly simulated PV production data

replace actual 15-minute interval PV production data and still accurately estimate demand charge savings?

• What are the impacts of rate structures available in other

states? What effect do standby and backup charges have on the value of commercial PV?

• Based on actual PV system data, what is the impact of retail

rate structures on the economics of residential PV?

• What is the impact of customer-sited PV on the grid and how

well are the benefits of PV reflected in retail rate structures?

Energy Analysis Department

For more information... For more information...

Download the report:

http://eetd.lbl.gov/ea/ems/re-pubs.html

Contact the authors:

Ryan Wiser, 510-486-5474, RHWiser@lbl.gov Andrew Mills, 510-486-4059, ADMills@lbl.gov Galen Barbose, 510-495-2593, GLBarbose@lbl.gov