How to Prepare for Utility Policy Changes with Solar + Storage
In this 20-minute webcast, we discuss:
- Why are utilities looking to restructure how they charge for energy?
- When are these changes coming?
- What does this mean for rate payers across the U.S.?
- How does storage come into play?
Watch the recorded webcast:
Hello everyone and welcome to Solar Tea Time!
I’m Craig Noxon, VP of Enterprise Sales and we have a very special guest expert for this month, Green Charge’s Director of Market Development and Policy, Juliana Mandell. Our Solar Tea Time today is like a calming chamomile tea, we’re going to allay your worries and discuss what utility policy discussions are out there and how solar + storage might help.
Before we get started, a little housekeeping. I wanted you to all be aware that your line is muted but you can type questions inside of the webcast under the questions tab. We will try to answer questions at the end of the webcast or we will get back to you via email. OK, that’s it for the logistics. Let’s get to the topic of the day, solar + storage.
Juliana, welcome to Solar Tea Time. We appreciate you and Green Charge joining us to discuss upcoming utility policy changes that people are getting wind of. We are curious what you think might be coming down the pike and how solar and storage can help. With that, let’s get to the questions:
How & why are utilities looking to restructure how they charge for energy?
In many ways the trend in utilities looking to restructure how they charge for energy is actually a result of the success of the solar industry across the country. We’ve seen a tremendous uptick in solar installations and of the percentage of our grid electricity now coming solar. This is especially true for clean energy state leaders, like California, with progressive policies promoting solar adoption.
All of this solar generation has led to what grid experts refer to as the “duck curve” in terms of load consumption. Traditionally, electricity demand is at its highest in the middle of the day driving up prices. However, in states like California, so much solar electricity is now being produced in the middle of the day that we see wholesale electricity prices going very low and at times even negative. This trend has shifted peak electricity demand into the evening. In California this trend is so pronounced folks have nicknamed the duck curve “duckzilla”.
Utilities buy electricity at wholesale prices and then sell it to consumers as retail. They want to align their costs by moving peak pricing for consumers into the evening to better reflect when electricity is now actually at its most expensive. In California, regulators have pushed for this change and it has come in the form of restructuring Time Of Use rates. Time of Use rates are shifting the peak hours, when electricity is most expensive from the day into the evening. Instead of paying the highest price for electricity in the middle of the day, it will now be electricity consumption in the evening that will be most expensive.
When are these changes coming?
In California, San Diego Gas and Electric has already received approval to shift their peak Time of Use rate hours from 11AM – 5 PM to 4 PM – 9 PM. SDG&E should release its final rates with these new Time of Use rates going into effect in the next month or two. SCE and PG&E are expected to go live with these Time of Use rates Q2 or Q3 of 2018.
California is the first state to implement these kinds of changes, but other states will need to address similar problems soon. Especially when we look out at RPS targets and other solar industry growth projects in these states. We see that other states aim to achieve similar levels of solar penetration on their gird as present-day California. We also see related conversations about trying to better align wholesale costs with retail rates happening in New York as part of the state’s “Reforming the Energy Vision” or “REV” process. Over the last few years New York has embarked on an ambitious plan to overhaul how their grid works in an effort to make it more clean and resilient while lowering costs. A lot of the big changes are still in the planning stage, but we see movement towards greater transparency to wholesale rates with more dynamic pricing, including incorporating the locational value of energy into the valuation process.
I think greater transparency to wholesale markets and alignment of retail rates to wholesale market dynamics is a trend we should expect to continue to play out across the country over the next few years.
What does this mean for ratepayers looking to install solar across the US?
In states that do adopt these kinds of changes, it can make the value proposition for rooftop solar more complicated. Solar continues to produce electricity in the middle of the day, but now rates will be highest in the evening. As a non-flexible resource, this misalignment can hurt the economics of a project, especially if a commercial entity continues to consume load in the evening. However, solar when combined with storage can help address a lot of these problems.
How does storage come into play?
Storage, when paired with solar, has the ability to transform solar into a flexible resource. Solar energy generated during the day can now be consumed in the evening. Storage can store solar produced during the day and discharge that electricity in the evening to help customers avoid charges during the new evening peak pricing.
Additionally, solar and storage can work together to lower complimentary aspects of a consumer’s utility bill. While solar reduces the energy consumption on a utility bill (kWh), storage can help reduce demand charges and other power costs (kW). We’ve seen instances, in areas with high demand charges, where demand charges make up 50% or more of a customer’s utility bill. Intelligent energy storage software can operate a storage system such that it predicts a site’s peak loads and discharges during those times to reduce demand charge costs, we call this “peak shaving.”
Through load shifting, peak shaving, and additional opportunities to participate in Demand Response and other utility programs the value proposition for solar and storage is beginning to look very attractive in certain markets.
Can you talk about how public policy impacts the economics of solar + storage?
There are a lot of exciting synergies in public policy between solar and storage that consumers can take advantage of at the moment. One of the biggest is the federal solar investment tax credit. When a storage system is built with solar it can also take advantage of the tax credit and reduce costs by 30%. In California there is also the SGIP program, which currently provides a significant incentive to install behind-the-meter storage. Between the ITC and SGIP, in California you can reduce the cost of a storage system by about 50%.
However, it is important to note that both of these incentives are expected to step down and be phased out over the next few years. They are intended to jump start the market, not stick around indefinitely. While we expect storage system costs to continue to decline, that decline may not be as significant as the current available incentives. That’s why I’d encourage those considering energy storage in California to look into the opportunity now before the incentives run out.
You talked about California. Where else can storage make sense?
California is often a first mover in progressive energy policy and is a good bellwether for where the rest of the states are going. We see a number of states watching California and a few with progressive policies for storage coming out soon. We are pretty excited about Massachusetts. The state has traditionally been a clean energy leader and we see that in how they are looking at storage too. The upcoming SMART program – set for Q2 2018- is a successor to SREC II and creates an attractive incentive program for commercial solar and storage. I mentioned the New York REV process, that is a little further from implementation, but still exciting. We are also interested in Hawaii, especially as a kind of laboratory for the future given the rollback of NEM and high prices for electricity on the island grid.
What is needed to understand if storage makes sense for a customer?
First is location. Being located in an area with attractive incentives like California or Massachusetts makes a big difference.
Second is utility bill structure. Storage can provide the most value for customers with high demand charges and TOU rates, especially if those TOU rates are shifting to the evening. We generally look for demand charges at $15/ kW or higher.
Third is energy consumption patterns. Energy storage can provide the most value to customers with “peaky” load consumption patterns. By this I mean spikes in electricity usage, rather than very flat energy usage. If you are unsure of your energy usage patterns an energy storage company can help you read the 15-minute interval data from your utility. In order to do this having a smart meter is very helpful.
Thank you, Juliana, for sharing your insights and helping us better understand what changes might be down the pike and how solar + storage can help.
Well, it’s time to wrap up this month’s Solar Tea Time and to probably get another cup of my pumpkin spice tea.
If anyone would like to talk to REC Solar or Green Charge more about solar + storage, feel free to email us. You can also email us if you have questions that you would like answered in future Solar Tea Times.
On behalf of everyone at REC Solar, Cheers!