In states with clear net metering policies, utility companies have to credit home solar owners for every kilowatt-hour (kWh) their systems produce. But in places without net metering, utilities can set their own rules that determine how much those owners will be reimbursed for solar electricity sent to the grid, as well as the monthly fees they charge.
Without net metering, different utility companies can charge different rates, you could end up paying a lot more for basic electrical service after installing solar panels, which means some of the savings from solar are wiped out.
One of the changes described below, demand charges, will be taking effect at the end of 2018 in one of the best states for solar, Massachusetts, with utilities in other states exploring them as well. If you’re considering solar for your home, connect with our partner installers soon to find out how much you can save with solar.
In the face of these facts, the answer is to be smart. One thing to do is advocate for good solar policy in your state, but that’s a long-term solution. You’re up against entrenched monopolies, so you need a pragmatic approach. You can use smart planning and well-designed software and hardware to play the utility companies’ game, and come out ahead anyway.
You can still save money with solar in states without net metering, and we’ll tell you how. But first let’s get to the bottom of how utility companies are making it harder for homeowners to save money with solar.
Why and how utility companies set rates that punish solar owners
Once upon a time, way back in 1979, when people were just starting to install grid-connected solar panels on their homes, some smart and hard-working solar lovers invented net metering, which meant that they could either use the power from the panels or send it on to the grid, and either way they would get credit for every kilowatt-hour the panels made.
This was good, and it was something the utility companies were willing to allow, because solar panels were relatively new, and didn’t pose much of a threat to how utility companies always operated. Fast-forward to the mid/late 2010s and solar is now the fastest growing new source of power across the country.
All this rooftop solar is actually good, because it means that utilities don’t need to plan and build major new power plants and high-voltage transmission lines, saving costs that would be borne by ratepayers, but threatening utility company revenues. That’s right, home solar actually has a net benefit to the grid and even non-solar owners.
The utility companies are now a little worried that they’ll be selling a lot less power to people, so they made up a story about how solar owners aren’t paying their fair share of grid upkeep costs, and got the Public Utilities Commissions in some states to agree to allow them to charge new fees and reduce the compensation for excess solar energy.
Utilities have come up with a few different ways to add charges to solar-owning customers’ bills, which unfortunately have the effect of making solar less attractive to new customers. Luckily, no utility company has been successful in forcing current solar owners to accept new terms (other than a brief but very ill-fated coup in Nevada). Generally, when the utility companies make these changes, people who already have solar are “grandfathered” in under the old rules for a long period of time—usually 20 years or more.
Here are the ways utilities have increased costs for future solar owners:
- Utility strategy 1: Time-of-use billing
- Utility strategy 2: Non-bypassable charges
- Utility strategy 3: Demand and grid-access charges
- Utility strategy 4: Increasing minimum monthly bills
Utility strategy 1: Time-of-use billing
Time-of-use (ToU) billing is a kind of billing arrangement that charges customers more for electricity they use during “peak” times, usually between 4 and 9 pm, when people come home from work and fire up the TV, microwave, dishwasher, treadmill, and other electrical appliances.
The first thing to know is that ToU rates are available to people without solar panels on their homes, because everyone is affected by how much energy is used during certain parts of the day. The second thing to know is that solar owners can particularly benefit from ToU rates, especially if their panels face west (toward the afternoon sun), but lose out if their panels are facing
Electricity works on supply and demand like anything else, and during peak times, utilities have to pay high prices to get extra power to serve their customers. But most customers pay a flat rate for electricity, because it’s easier that way. ToU rate plans were invented to allow customers who don’t use a lot of electricity during peak times to save money on electricity, but they can also be useful in forcing customers to use less of the expensive electricity or carry more of the cost for peak power when they don’t.
How ToU billing is used to charge solar owners more
In 2016, California faced the end of net metering, and had to come up with a successor. So the Public Utilities Commission worked with state’s utilities and solar companies to come up with a compromise. What they decided on was NEM 2.0, under which any solar customers who installed after the original net metering program would have to subscribe under ToU rates.
That means people can still save money with solar, but the best place to put the panels is no longer a south-facing roof, which gets more sun during midday, but a west/southwest facing roof, which gets more sun late in the afternoon. Any solar owners with south- or east-facing roofs will suffer because their systems won’t be producing a lot of kWh during peak times.
On the other hand, having a west- or southwest-facing roof can help homeowners save more money by earning them credit for kWh at peak times, and it has the additional benefit of reducing the utility companies’ need to buy that electricity from wholesalers at super-high rates. But no solar system will be generating a lot of electricity at 8 pm, no matter the direction it faces.
Utility strategy 2: Non-bypassable charges
You may not know this, but your per-kWh electricity charge isn’t a single price until it hits your bill. The actual charge is “bundled”—made up of micro-charges, often fractions of a penny, which go to pay for the generation, transmission, and distribution of that electricity to you, and also public-assistance, maintenance, decommissioning, and other programs approved by your state’s Public Utilities Commission (PUC).
Under California’s NEM 2.0, the utilities convinced the PUC to pass a rule that said customers with solar installations had to pay those micro-charges that aren’t specifically related to providing power, even for the kWh their systems feed back to the grid. So the public-assistance and maintenance charges become “Non-bypassable.”
Take a look at this rate sheet breakdown from Southern California Edison, with the non-bypassable charges highlighted in orange:
So those tiny charges for Public Purpose Programs, Nuclear Decommissioning, and Competition Transition (whatever that is), which amount to about 1.8 cents of the total price of a kWh, aren’t reimbursed to solar owners when their systems are feeding electricity into the grid.
For individual California solar owners, this might amount to about 20 cents a day in additional charges under NEM 2.0. Maybe $75 a year. Not that big of a deal, but it helps utilities erode away a bit of the savings home solar is famous for.
Utility strategy 3: Demand and grid-access charges
Similar to ToU billing, Demand Charges are a way to charge customers more for using more electricity during peak times. What’s different here is that a demand charge is a charge that covers a whole month, determined by the maximum number of kilowatts (kW) a customer needs during peak hours on any one day.
With a demand charge, people who use a lot of electricity at once pay a high monthly fee based on that need. So the person who turns on the clothes washer, TV, air conditioning and electric range all at once will pay much higher than the person who uses only one or two of those appliances at a time.
Again, demand charges can be combated with solar panels that face west or southwest, because producing more energy during peak times means lowering your maximum usage. But there isn’t much usable sun at 9 pm, and some utility companies (see below) calculate the demand charge based on morning peak (say, 5-9 a.m.) as well.
Grid-access charges, on the other hand, are additional fees added to your electricity bill based on the size of a solar system. For example, Arizona Public Service offers solar rate plans with a monthly grid-access charge of $.93/kW of solar. So a 5-kW system would lead to a charge of $4.65 on top of your other monthly charges. It’s another $60 hit in the payback of a home solar system.
Utility strategy 4: Increasing minimum monthly bills
Perhaps the most transparent attack on home solar power, an increase to the minimum monthly bill of solar owners can make solar much less financially viable. In this case, the utility makes claims the home solar owners avoid their “fair share” of gird upkeep costs, and if the PUC buys it, they can institute a high monthly minimum charge on the customers’ bill.
Let’s be clear that the image above is just an example that shows monthly charges, and PG&E has not increased those charges for new home solar customers. But our example below of the Salt River Project (SRP) shows how the new solar rates are subject to increased monthly charges of $32.44, vs. $20 for the standard rate plan.
Another example of increasing monthly bills just happened in El Paso, Texas, where the local electric utility will charge new solar owners a minimum monthly bill of $30, which can’t be wiped out by their savings from solar. That’s $360 per year that customers could have saved before.
Example time: How Arizona utilities are leading the way in making it harder to see solar payback
Unfortunately, the concerns we outlined above are far from theoretical. In Arizona, the difference in utility companies has a huge effect on the returns of home solar systems, on a block-by-block basis.
Yes, the Grand Canyon state has ample amounts of sunlight, and homeowners there can incur huge air-conditioning bills, which is why home solar took off there earlier than most places. Arizona also used to offer full net metering and very favorable incentives that helped homeowners go solar and save money on their electric bills.
The incentives slowly dried up as more people claimed them, but the real trouble started in 2017, after a late-2016 vote by the Arizona Corporation Commission (ACC) to end net metering and allow utilities to submit rate schedules that include the bad stuff mentioned above (demand charges, increased minimum bills, etc.).
We’re not saying that changes in policy have made solar a bad deal in Arizona, but look for yourself at the differences in the financial returns of a solar system depending on which of the state’s two biggest electrical suppliers serves you:
Home solar under the Salt River Project
The Salt River Project (SRP) serves a little over a million customers in the area surrounding Phoenix, with an additional huge area to the east of the metro area. Here’s a map:
The map shows the huge SRP service territory in blue, but look closer and you can see small pockets of yellow throughout, most of which are served by APS, and one of which (Mesa) is served by a municipal utility. So depending which block you happen to live on, you might have neighbors across the street who are served by a completely different utility company. This matters when those companies have vastly different rate plans for home solar owners.
In 2017, The Salt River Project petitioned the ACC to add a rate schedule called the “Customer Generation Price Plan” for all new solar subscribers that relied on ToU billing and demand charges. The new rates also included an increased monthly fixed charge, which the utility explained was implemented because the per-kWh energy charges under the new plan were greatly reduced.
They weren’t lying about that—the per-kWh rates are less than half of the standard plan—but with all the other moving parts added to the Customer Generation Price Plan, figuring out how to save money with solar on your roof becomes a plate-spinning balancing act that it takes some serious math to make work.
The difference between SRP’s Customer Generation Plan and Net Metering
With net metering it’s pretty easy to tell what your savings from a solar installation will be. You simply take the price you pay per-kWh for electricity, multiply that by the number of kWh you expect your panels to generate, and subtract that number from your average annual electric bills.
Here’s a simplified version of how that looks for year 1 of net metering:
The table above uses simplified guesses for how much electricity the home will use (13,550 kWh per year is the average for AZ homes), but the numbers are pretty close to real life.
The system would generate about $1,500 in electricity savings per year, and pay off its initial cost of $15,120 (after federal solar tax credit) in about 11 years. Not too bad, although states with higher electricity prices offer lower payback times.
Now let’s look at how SRP’s Customer Generation Plan (CGP) works:
First, the plan operates on ToU billing, so you get charged more for kWh you use during peak times. The CGP Peak hours are 1-8 PM on weekdays during the Summer and Summer-Peak portions of the year (May through October), and 5-9 AM/5-9 PM during Winter (November through April). To be fair, the CGP electricity prices are pretty low compared to the ordinary ToU plan (non-ToU plan rates are around $.11/kWh). Take a look:
Solar panels generate more electricity in the summer than they do in the winter, and the peak times shift, so to determine how much you’ll save with solar, you have to figure out how many solar kWh will be generated during peak times and off-peak times, on a monthly basis.
Low per-kWh prices may sound nice, but SRP makes up for that by increasing the monthly service charge from $20 to $32.44, and introducing a demand charge based on your highest half-hour demand (measured in kilowatts) during peak times. Here are the current costs of SRP’s demand charges:
If you want avoid huge demand charges, you have the choice to either turn off all your appliances as the sun goes down and generation from your solar panels decreases, until after peak time is over. We estimate the average home will see demand charges of $27.86 in the winter months, $38.72 during the summer months, and $46.59 in the Summer-Peak months. You can estimate your own demand charges using SRP’s demand calculator.
So to bring it all together, to calculate your solar savings under SRP’s Customer Generation Plan, you have to know:
- Your hourly expected kWh production from solar, for the entire year
- Your monthly maximum half-hourly on-peak usage estimate, including any reduction from solar
- Your monthly demand charge, calculated from above
- The difference between your basic monthly service charge and the service charge of the plan you’d be replacing
It would (and does) take a very advanced computer program to sort out all those variables, and, being that we’re all human and fallible, we might deviate from that exacting plan, which could change monthly demand charges pretty drastically. Say you had guests over for dinner one night in October, and you turned on some music, kept the A/C going a little more than you would otherwise do, opened your refrigerator more often than normal, and cooked dinner on an electric range and in an electric oven. You would skyrocket your peak demand, and subject yourself to a huge monthly demand charge based on a single night of fun-having!
Our final estimate for home solar under SRP:
Given the demand charges we estimate above, the increased monthly service charges, and our estimates for on- and off-peak solar production, the CGP can save the average homeowner around $765 per year over SRP’s standard rate plan.
That amount is about half of the $1,500 we estimated under net metering, and it comes with an additional caveat: the CGP rates are locked in for 10 years, so you can expect your savings to stay about the same for at least that long, after which they’ll switch to whatever the current rates are.
That 10-year sunset (no pun intended) adds an additional element of uncertainty to going solar, because you never know how SRP will alter the deal by the time your 10-year contract is up. You could (and probably will) end up saving a bit more after year 10, but it’s a crapshoot.
So that’s SRP. But it’s far more likely that if you’re an Arizona resident, you’re served by APS. So what if you lived in one of the yellow sections in the map above?
How to save with home solar in an area served by Arizona Public Service (APS)
APS is the state’s largest utility company by a mile. It serves over 4 million of Arizona’s 7-plus million people, in the most heavily populated areas in the state. Everything in white in the map below:
APS took a little longer than SRP to come up with new solar rates that the ACC would approve. They finally did so as of August, 2017, and now any new solar customer in APS territory will have to choose from 1 of 4 plans that each have their own special ways to charge you based on on- and off-peak hours, grid access fees, and demand charges.
Let’s look at the simplest of them: the Saver Choice plan.
Charges under APS’s Saver Choice Plan
The Saver Choice plan includes ToU billing with on-peak hours of 3-8 PM, Monday through Friday, when electricity costs $.24314/kWh during the summer (May-October) and $.23068 during the winter (November-April). The super-off-peak energy charge is $.03200/kWh from 10 AM to 3 PM during the winter billing cycles. All other times have electricity at $.10873/kWh.
There is no demand charge with the plan, but there is a grid-access charge of $.93/kW of installed solar. So our example 7.2-kW system for a standard AZ home would earn you a $6.696 monthly charge on your bill.
Finally, there is a fixed price of $.129/kWh paid for any solar energy you send to the grid.
Solar savings estimate for APS’S Saver Choice Plan
To figure out how much you can save with home solar in APS territory, you have to calculate how many solar kWh your system will be generating, on a monthly and hourly basis, subtract out how much you can use to power your home during peak and off-peak times, subtract those kWh at their applicable on- or off-peak rates, multiply the rest of the solar kWh by the solar buyback rate of $.129/kWh, multiply the energy you need to draw from the grid by the applicable on- or off-peak rates, calculate your grid access charge, and compare all those numbers to what you’d be paying under APS’s standard rate plan.
Deep breath. Imagine someplace peaceful.
Let’s compare: Our example 13,550-kWh per year household qualifies for APS standard plan called “large residential service, with a monthly charge of about $20 per month and a per-kWh price of $.13412. The homeowner pays about $2,060 per year for electricity on this plan.
For our estimates of the Saver Choice plan with a home solar installation, we estimated the following:
- The home will use about 60% of its electricity during peak hours, and 40% off-peak
- The solar system will offset about 30% of the peak usage, with an additional 50% of that amount being sold at the solar buyback rate
- The solar system will offset about 70% of off-peak usage, with an additional 33% of that amount being solar at the buyback rate
- The homeowner can expect to save an average of about $94 per month, or $1,130 per year
Those numbers compare very favorably to the $765/year estimate of savings with SRP, but still not as good as the $1,500 the homeowner would have saved under net metering. Like the SRP rates, those APS numbers are locked in for 10 years when you sign up for a solar system.
A detailed review of the solar rate plans offered by APS can be found at the Arizona Solar Center website.
What home solar owners can do to fight increased charges
Short of turning off every electrical appliance during peak hours, there are a few things homeowners can do to protect themselves from demand rates and ToU billing pitfalls. We’ve already mentioned facing panels west and conserving energy, but the smart money is in technologies that automatically manage how much power your home draws from the grid at any one time.
The answer lies in 2 concepts—demand management and energy storage. And here’s a secret: the utility company isn’t necessarily opposed to you reducing your peak usage, and they’re sometimes willing to help.
Demand management is a sophisticated way of making sure your most power-hungry appliances never turn on at the same time during peak hours. Software monitors your energy usage, and does things like turn the air conditioner off when the refrigerator needs to kick on, and cycle to pool pump so it’s never on when other appliances are running.
There is at least one company involved in supplying a demand management solution in SRP territory now. It’s not a perfect solution, because you’ll still see demand charges for usage during peak hours when the sun isn’t shining, but it can be a boon for people who otherwise want to stay comfortable while avoiding high charges.
SRP is also offering a limited-time $250 rebate for homeowners who install solar with a demand-management system.
If, on the other hand, you want to completely eliminate demand charges, you’d need a solar system with a battery to store energy. an energy storage system can charge a battery when your system is producing lots of electricity, and discharge the battery after the sun goes down, to ensure you’re never using on-peak electricity from the utility company.
Energy storage can be expensive, but compared to a demand charge, it might just be more economical. So if you’re a person who wants solar in Arizona, or any other place without net metering, you may be looking at a home battery pretty soon.
Last modified: June 4, 2018