SMUD solar
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Energy + Environmental Economics (E3) – an energy consulting firm commissioned by utility Sacramento Municipal Utility District (SMUD) to study the value of solar in its service territory – released an independent study that evaluated the true value of solar in the Sacramento area.

The study, which SMUD will use for future solar pricing structures attempted to place a value on these scenarios:

  • Solar only
  • Solar plus customer-managed storage
  • Solar plus utility-managed storage
  • Societal benefits of solar

The study found that the value of solar is 7 cents per kilowatt-hour (kWh) in 2020 and steadily declines through 2030, as additional solar hits the market. SMUD currently pays its solar customers retail rates for their solar generation – 12 cents per kWh on average – creating a cost shift to non-solar customers in the amount of $25 to $41 million (€21.1-34.6 million) annually. This amounts to $26 to $45 per customer, per year and disproportionately impacts low-income customers. That will continue to grow exponentially to $94 million or $92 per customer, per year by 2030 if not addressed.

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“Our goal is to deliver the cleanest energy at the most cost-effective rate to our customers,” said SMUD CEO and General Manager Arlen Orchard. “To do that, we must find a solution that is fair and equitable to both our rooftop and non-solar customers. We will continue conversations with a broad range of stakeholders in the coming months as we work toward a comprehensive solution that’s fair to all of our customers.” 

E3 came up with the following:

  • The value of rooftop solar in 2020 is 3-7 cents per kWh, depending upon how you calculate the benefits of rooftop solar. The value drops significantly by 2030 to 3-4 cents per kWh because of the expected growth of solar in California
  • SMUD pays retail rates of 12 cents per kWh, on average, for rooftop solar generation, creating a cost shift that is passed on to non-solar customers in the amount of $25 to $41 million in 2020 or $26 to $45 per customer per year. That cost-shift grows to $94 million in 2030 or $92 per customer per year. This cost-shift is reflected in customers’ bills.
  • Value of rooftop solar increases with energy storage. Value is highest when the utility can optimize the storage to the benefit of all SMUD customers.   
  • Declining value of solar over the next decade is due to substantial new utility-scale and rooftop solar being installed over the next decade. 

In an attempt to right-size its rates for both solar and non-solar customers, SMUD will consider options for a new rooftop solar rate that fairly compensates our rooftop solar customers for the benefits of their systems. As part of this process, SMUD will ensure there are substantial opportunities for stakeholders and customers to provide input on this important issue. 

Background information

SMUD was required to keep Net Energy Metering (NEM) in place until it reached a 180MW cap, which it reached in 2017. Under NEM, rooftop solar customers are compensated via bill credits for any excess generation they produce. The bill credits are equal to the retail rate the customer pays to purchase electricity.

Since 2017, SMUD has been re-evaluating and this study will be used to re-set rates, it said. The utility says it has already helped grow the rooftop solar industry in Sacramento, having spent $250 million to support customer-owned solar units resulting in 216 MW of rooftop solar on the grid. Further, SMUD plans to invest $1.5 billion in new utility-scale solar farms through 2040, much of it in the Sacramento region. This will help SMUD reach its carbon reduction goals, as quickly as possible and at about 25% of the cost of rooftop solar. 

Opponents disagree

Solar advocates have long argued that rooftop solar customers are simply reducing their demand for grid electricity and using less electricity (because they generate their own), which is no different than being energy efficient. They add that by producing electricity at the edge of the grid, they reduce strain on transmission lines since physics dictates that any excess energy they produce flows within their neighborhood. Further, if they are essentially selling their energy to their neighbors, who are paying retail rates for energy to the utility, why shouldn’t rooftop solar owners also receive that retail rate?

This article was first published on Renewable Energy World, where it will be updated with industry comments as they come in.

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