Zero lost profit principle for solar compensation and its impact on bill savings

Mahelet Fikru ()

Applied Energy, 2022, vol. 326, issue C, No S0306261922012545

Abstract: Several utilities and regulators are replacing net metering, the status quo policy that credits solar owners the retail electric price for each kilowatt-hour of excess solar power. So far avoided costs, the value of solar, and buy-all, sell-all models are implemented in place of net metering. This study proposes a zero lost profit principle for the design of solar compensation policies and evaluates impacts on electricity bill savings relative to other principles. A zero lost profit principle is defined as a solar compensation rate that leaves the utility indifferent between serving a solar and a non-solar household. Using constant average cost and extra-normal utility profit assumptions, we find that the zero lost profit principle (gross and net) does not lead to significant reductions in electricity bill savings. However, a net purchasing model based on the avoided cost principle leads to a 23% reduction in monthly bill savings relative to net metering. The framework proposed in this study provides utilities and regulators with additional principles for evaluating alternative solar compensation policies.

Keywords: Net metering; Electric rate design; Prosumers; Photovoltaic; The value of solar (search for similar items in EconPapers)
JEL-codes: Q4 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1016/j.apenergy.2022.119997

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