Growth in the residential solar market continues apace. In the United States, residential solar PV installations last quarter were up 11 percent over the previous quarter:
The figure illustrates this impressive growth rate (in dark blue). However, this is growth on a very small base. By my crude calculations, less than half a percent of American households currently have solar panels on their roof.
In those states where residential solar is starting to take hold, there are mounting concerns that rate structures currently in place to support residential PV will result in adopters bearing less than their fair share of system costs. If increasing levels of distributed solar generation puts additional pressure on grid equipment and aging infrastructure, these concerns loom even larger.
A new EI working paper takes a close look at how increasing levels of distributed solar generation can impact power system costs. For me, this paper raises a timely question: should we be paying more attention to where distributed generation gets distributed?
Bill savings for the adopters
Before diving into the details, let’s first review the basic issues.
If you have invested in putting solar panels on your roof, chances are the solar electricity you generate is valued at retail rates one way or another. This is thanks to net metering policies adopted in most states. If you consume the electricity you generate, you avoid purchasing electricity from your utility. If you do not use all the electricity that your solar panel is generating (it is estimated that almost half of electricity generated by net metering customers in California is exported), you can export the extra power to the grid and count it against consumption within the same billing period.
As we’ve discussed before on this blog, the marginal retail price can significantly exceed the direct energy costs of producing a kilowatt-hour centrally. On the one hand, many of the costs that are reflected in retail prices (e.g. metering, billing, and infrastructure costs) are not avoided when you put solar panels on your roof. On the other hand, solar PV generates benefits that are not fully reflected in market prices.
So what is the right price for distributed solar generation? Past blog posts have touched on some elements of this value-of-solar calculation that fall squarely in the purview of economists. But there are other important elements that push outside the boundaries of economics. This week, we venture into the engineering-meets-economics world of distribution system costs.
I am no an engineer, but I am fortunately married to one, who is a co-author of the new EI working paper. Much to the chagrin of my kids (who’d rather be talking Frozen or fire trucks), I have been steering the family dinner table conversation towards this paper which looks at how distributed solar affects the electricity distribution system. The findings should be of interest to energy economists and engineers alike (but not so much three and five year olds it turns out).
The distribution system meets distributed generation
A quick summary of what I’ve learned at my dinner table.
If you install solar panels on your roof, this will impact how power flows through the distribution system that delivers power from high voltage transmission networks to the people in your neighborhood. The cartoon below helps to fix ideas.
Some of these impacts can reduce costs. For example, less electricity flowing into your neighborhood during peak times can reduce pressure on aging infrastructure (e.g. distribution lines, service transformers) and defer the need to invest in distribution system upgrades. That’s good. But increased PV penetration can also increase the need for investment in hardware such as voltage regulation because distribution systems are not designed to handle power flowing from customers back to the substation. Not good.
The cartoon above shows a single “feeder” (a collection of distribution lines that carry power from the high voltage transmission system to customers). Using detailed data on all 3,000 feeders operated by the largest utility in California, PG&E, Duncan and coauthors simulate how increased solar PV penetration on each feeder would impact the need for system capacity upgrades, expenditures on voltage management, etc.
On average, they find that the levelized value of deferred investment in distribution system upgrades (avoided costs) is small: around half a cent per kWh. This is in line with rough estimates found in other reports that use highly aggregated data.
But the advantage of disaggregated data is that they can look beyond the average. It turns out that this economically insignificant average value obscures tremendous variation in feeder-specific capacity values. Capacity values are zero across a large majority of feeders where no capacity upgrades are anticipated over the next ten years. But for approximately ten percent of feeders, the picture looks quite different.
The figure below focuses on the 298 feeders where capacity upgrades are anticipated in the next ten years under a business-as-usual scenario. This represents about 20 percent of the total capacity, or approximately 1 million customers.
The figure shows that estimated capacity values exceed $60/kW-year (or $33/MWh using their discounting and electricity production assumptions) for approximately 30 feeders (this assumes a solar PV penetration rate of 7.5 percent). This is almost on par with the energy value. The median capacity value in this select group exceeds $20/kW-year ($11 per MWh).
Although there has been much hand wringing over the potential for voltage regulation problems, the authors find that these problems are actually relatively small. Using PG&E’s current budget for repairing voltage regulating equipment, they estimated that even in extremely aggressive scenarios for PV deployment, the total costs to ratepayers would be less than half a million dollars a year.
On average, this study finds that the average (distribution system related) net benefits of distributed solar PV are not very significant. However, looking beyond the average, the value of deferred investments in distribution system infrastructure associated with a given level of distributed generation depends significantly on how these resources are distributed on the system. In other words, the net costs of future distributed generation could be significantly reduced if these resources are targeted to areas where they can generate the largest benefits.
There is precedent for targeting energy efficiency to defer investments in transmission and distribution system upgrades… why not solar PV? If the next generation of distributed solar incentive programs and resource planning protocols reflect the impacts that these resources could have on different parts of the distribution system, the next generation of distributed resources can be more efficiently distributed.
 To estimate the number of systems, I divide GTM research estimates of installed residential PV capacity in 2014 by the state-specific average residential system size (as reported in Tracking the Sun, 2014). I then divide this by the US Census estimate of the number of US households in 2014. Thanks to Naim Dargouth and Snuller Price for the solar PV numbers!