Smart Energy Technologies & Energy Storage
Aim/Objective: Utilities in different regions of the country have launched pilot programs involving utility ownership of rooftop solar PV. By rate-basing these assets, utilities are hoping to find new profit opportunities, while also providing value to all customers. But what potential does this model hold for broader and full-scale adoption? To answer that question requires a more-complete understanding of the impacts on utility shareholders and ratepayers, and the drivers thereof. This presentation seeks to explore those dynamics through a financial analysis of a hypothetical utility-owned rooftop solar program.
Methods: This analysis relies on a pro-forma utility financial model to estimate changes in two key metrics—shareholder earnings and non-participant bills—resulting from the implementation of a utility-owned rooftop solar program. The model accounts for the effects of rooftop solar on utility revenue requirements, including deferred capital expenditures, and simulates general rate cases that occur periodically over the analysis timeframe. We measure the effects of a utility-owned rooftop solar program relative to two different baselines: one with no residential solar and one in which residential solar is instead owned by the site-host or a third-party financier. We also explore these effects under a wide range of assumptions in order to test the sensitivity of the results to varying regulatory and market conditions and variations in program design.
Results: Under our base assumptions—in which residential solar penetration ramps up to 8% of total residential electricity demand—the utility-owned rooftop solar program increases shareholder earnings by roughly 2% relative to no-PV (on a 20-year net-present-value basis); this compares to a 4% drop in earnings from host-owned or third-party owned (TPO) solar. Non-participant bills are roughly 2% higher under both PV scenarios, compared to no-PV. These results, however, are highly sensitive to a number of parameters, including the installed cost of rooftop solar, underlying retail rate design, and whether solar is installed on a stand-alone basis or in conjunction with customer-sited batter storage. Of particular note is that shareholder earnings fall, relative to no-PV, when battery storage is paired with the rooftop solar, as a result of the much greater deferral of traditional utility capital investments.
Conclusion: Whether shareholders and ratepayers are better off with utility-owned rooftop PV, and by how much, depends in part on whether it is additional to or substitutes for host-owned/TPO PV. In general, it is almost always a “win” for shareholders in terms of increased earnings. Utility-owned rooftop solar tends to increase non-participant bills relative to no PV, but is something of a “wash” compared to host-owned/TPO PV, at least under our core case. That said, the analysis does reveal some limited potential for utility-owned PV to mitigate the ratepayer impacts of rooftop solar, under specific conditions.