Homeowner - Know the full cost of ownership when installing solar panels on your home
- Aug 12, 2021 12:23 am GMT
Not all of your current charges are going away
From the UAES Electric Rate Series
I love you/I don't like you!
Not to be too general, but it is no secret that some solar electric customers have a love/hate relationship with their power supplier. At night, solar customers love their supplier. The sun goes down, battery storage is used up (or doesn't exist yet), and the power to their homes continues and is supplied by their power supplier.
Then the sun comes up and their solar panels kick in. "What was I thinking? What do I need you, power supplier, for? I can generate my own needs. We should see others."
Credit ReVision Energy
That's not the exact conversation, but sometimes it's not far off. We are not anti-customer solar power generation or solar panels at all. It has a solid place in the power supply portfolio of any power supplier, but there is a cost to both the solar power customer and the power supplier that should be recognized.
The solar panels generate energy (kWh) which the solar customer uses, and any power generated in excess of the customer’s needs is sold back to the power supplier. Unless the solar customer is a standalone microgrid, they still are connected to the power supplier's system through an electric service (i.e., the wires to the home). The electric service is part of the local power supplier’s distribution system that connects all their customers. The following diagram shows the delivery system of electricity, from the power plant to the end-user.
The cost of this connection can be quantified for each customer and billed as a monthly customer fixed charge. That monthly customer connection charge can range from $15 - $50 and is determined as part of an electric cost-of-service study.
(the example is very simplified, as in traditional electric rate design, some of monthly customer fixed costs are included in the cost per kWh charged to customers)
The cost of being connected to the power supplier is called "the available for use charge," i.e., the cost of receiving electric power whenever the customer wants it by "flipping the switch".
Energy cost savings are only part of the equation for solar power customers. The cost of being connected to the power supplier must also be paid by the solar power customer, as they are supplied energy by the power supplier when the customer cannot produce their power (at night or on a cloudy day)
Does the power supplier save money with customer-generated solar power?
The electric cost savings for the solar customer and power supplier come from the power supplier's avoided cost of energy purchases. The supplier buys fewer kWh's because the solar customer generates and uses their kWh. An amount can be assigned to the avoided cost based on market pricing at the point in time when the solar customer generation occurs. Power suppliers pass the avoided cost savings back to solar customers as a credit on the customer's monthly bill. Different customer credit methods include:
- Credit per kWh to the solar customer based on the budgeted cost savings to the power supplier
- Credit per kWh to the solar customer based on the real-time market price for energy at the time the customer generates solar power
How does the customer save money with solar panels?
From the customer's perspective, actual cost savings don't materialize until the solar installation cost has been recovered. This payback period can be calculated as:
(Total cost of solar installation - Credits and rebates)/(Expected solar generation x Expected power supplier credit per kWh) = payback period
This calculation does not include a discount factor for the cost of funds over the payback period. The customer also needs to factor:
- How long do they expect to remain in their home or
- Can the remaining cost of the solar installation be included in the sale of their home if they move before the end of the payback period
Know your motivation to install solar generation
Whether your motivation is to install solar panels on your home for environmental reasons or your motivation is based on cost savings, calculating the cost of ownership is one of the factors that should be part of any decision.
Russ Hissom is the owner of Utility Accounting Education Specialists (UAES), a company that offers online, on-demand, and custom power industry accounting and finance business process courses and thought leadership. You can reach him at firstname.lastname@example.org. The puaes.com website has a wealth of classes, articles, and other online resources that will benefit your utility or electric cooperatives’ accounting and customer ratemaking strategies.
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