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Rooftop solar is booming. But it may be more vulnerable than you think.

"Oops, forgot to plug this one in!"
"Oops, forgot to plug this one in!"
(Shutterstock)

Rooftop solar is booming in the US. It grew 76 percent last year, and many expect that growth to accelerate. But a new bit of analysis from the Lawrence Berkeley National Laboratory suggests that the growth trajectory of residential solar is more precarious than that, highly dependent upon current policies.

Rooftop solar's rise has been driven by two policies

Right now, rooftop solar benefits from two bits of policy. First, there's "net metering," whereby rooftop solar producers are paid the full retail rate for the electricity they produce. And second, there's flat-rate pricing, whereby customers pay the same per-kWh rate for power no matter when they use it. (We'll come back to why that helps solar.)

The rise of rooftop solar is freaking out utilities. Their worry is that customers who generate their own power (potentially zeroing out their power bill) effectively opt out of paying the "fixed costs" facing utilities: power poles and lines, transformers, and other grid infrastructure. As those fixed costs are spread over a smaller customer base, they rise, thus increasing the incentive for customers to defect to solar. This is the much-ballyhooed "death spiral."

The LBNL study — which models the effect of various policies on distributed solar deployment — does contain one bit of good news for utilities: The death spiral isn't inevitable.

The study does agree that the fixed-costs effect utilities worry about is real. But that effect is almost perfectly offset, at the national level, by a second effect.

You see, not all electricity customers pay flat-rate prices. Some, especially bigger commercial customers, pay time-of-use pricing, which varies throughout the day, reflecting the fact that power is more valuable in some hours than in others.

Time-of-use pricing helps distributed solar at first. It makes electricity produced during hours of peak use — which is when solar panels produce most of their power — more valuable, boosting the incentive to install solar. But as rooftop solar penetration rises, time-of-use pricing begins to have the opposite effect. As a bunch of solar floods the grid during peak hours, it will have the effect of suppressing peak prices, reducing the incentive for additional solar. (This is one of the economic limitations of variable renewable energy that I wrote about in a previous post.)

When researchers modeled the two effects — the fixed-cost recovery effect and the time-of-use pricing effect — they found that the two balanced out almost perfectly:

(LBNL)

So that's the good news: Utility worries about a death spiral are likely misplaced, since there's already enough time-of-use pricing in the system to self-limit rooftop solar. Utilities can stop freaking out and demanding new fees on solar homeowners.

Changes to either policy could slow rooftop solar deployment

The bad news is that virtually any change to either of the policies rooftop solar now depends on will have the effect of reducing deployment. Relative to the baseline status quo (the current mix of net metering and fixed rates), LBNL modeled seven policy changes:

  • A monthly $10 "fixed charge" to solar customers (the kind of charge many utilities are now fighting for)
  • A monthly $50 fixed charge
  • Shifting all customers to flat, all-volumetric rates
  • Shifting all customers to time-varying rates
  • Paying net-metering customers at avoided-cost rate rather than retail rate
  • Replacing net metering with a low ($0.07/kWh) feed-in tariff
  • Replacing net metering with a high ($0.15/kWh) feed-in tariff

Long story short, almost all changes had the effect of reducing rooftop solar deployment through 2050 relative to the reference scenario, sometimes substantially:

(LBNL)

The only tweaks that increased deployment (slightly) were shifting everyone to flat rates or establishing a feed-in tariff that pays even higher than retail electric rates.

Another way of saying this: Rooftop solar is having a sweet ride, but it is highly vulnerable to shifts in policy. For instance, that $50 fixed fee, if instituted at all utilities, would mean almost 100 GW less installed rooftop solar capacity by 2050. Shifting everyone to time-of-use pricing would reduce deployment by 25 percent. Those are not small numbers.

Time-of-use pricing is both beneficial and inevitable

Rooftop solar advocates may be able to fight off fixed charges — that battle is ongoing. What's more worrisome is distributed solar's vulnerability to time-of-use pricing.

Time-of-use pricing is, all things being equal, a good thing. It better reflects the value of energy and tends to encourage more efficient consumption, smoothing out peaks and valleys in demand. California is the latest state to begin moving in that direction (even as it continues fighting over possible fixed fees).

In the LBNL modeling, moving all customers to time-of-use pricing initially boosts deployment a bit, but over a longer timespan it causes deployment to plateau at a lower level, at a difference of around 35 GW in 2050:

(LBNL)

As I've noted, one way to ameliorate the self-limiting effects of greater solar penetration is energy storage, which can "spread out" rooftop solar power to better capture variable electricity prices. The LBNL study didn't address what effect the burgeoning solar + storage market might have on deployment, which is a pretty big gap, given that last year financial giant Barclays said that "solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade." I'd love to see a similar analysis done on rooftop solar with varying amounts of storage attached.

Anyway, all of this casts the battles over net metering, which are being waged all over the country, in a somewhat harsher light. The stakes for rooftop solar are serious indeed; it badly needs the policies it currently enjoys.

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