Electricity Rate Structures Can Be Used to Promote Customer-Sited PV: A Lesson From California

Transcription

1 Electricity Rate Structures Can Be Used to Promote Customer-Sited PV: A Lesson From California Solar 2002 June 19, 2002 Dr. Thomas Hoff Clean Power Research clean power.com Christy Herig NREL

2 Introduction PV cost-effectiveness is driven by incentives, electricity rates, and solar resource Policy makers can influence incentives and electricity rates The combination of residential rate structures (implemented as a result of the California energy crisis) and incentives have been effective in promoting customer-sited PV systems

3 History: Break-even Price in San Jose, California Break-even price is the price that a customer can pay for a PV system and have a $0 net cost in the first year Incentive History $15,000 $3.00/W $4.50/W New Rates 15% Credit $12,500 Price ($/kw AC) $10,000 $7,500 $5,000 Break-even price (w/o incentives) $2,500 $0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02

4 History: Actual Price in California Actual Price = cost of all systems < 5 kw divided by quantity installed during the quarter. Data source: California Energy Commission buy down data Incentive History $15,000 $3.00/W $4.50/W New Rates 15% Credit Price ($/kw AC) $12,500 $10,000 $7,500 $5,000 Actual Price (for systems < 5 kw) Break-even price (w/o incentives) $2,500 $0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02

5 History: Installation of Systems Less Than 5 kw in California Installations increased when actual price was less than break-even price (total of 4.7 MW are shown in figure) Incentive History $15,000 $3.00/W $4.50/W New Rates 15% Credit 3.0 Price ($/kwac) $12,500 $10,000 $7,500 $5,000 $2,500 Actual Price (for systems < 5 kw) Break-even price (w/o incentives) Quantity Installed (2,000 systems < 5 kw) Quantity Installed (MW per Qtr.) $0 Jan-98 Jan-99 Jan-00 Jan-01 Jan

6 Definitions Tiered rate structure is a rate structure where the marginal cost of electricity depends upon the amount of electricity consumed Break-even price is the price that a customer can pay for a PV system and have a $0 net cost in the first year Net cash flow is customer s net cost/net savings in the first year after taking into account incentives, tax credits, loan payment, utility bill savings, and tax effects Clean Power Estimator is the tool used to perform analysis

7 Assumptions Customers Residential customers in San Jose, CA or Los Angeles, CA Rates are PG&E E-1 Area X (San Jose) and LADWP R-1 (L.A.) Electricity consumption w/o PV equals 1,200 kwh per month System 1 kw AC PV system (CEC rating) Financed with 30-year, 7% loan w/ tax deductible interest Incentives CEC buy down (San Jose) LADWP s full incentive, including manufacturing credit (L.A.) 15% state tax credit (San Jose & L.A.) Cost Calculated for the break-even price calculations $9,000/kW AC for the net cash flow calculations

8 Incentives The economic incentives buy down the initial cost of the PV system Incentive Source Date $3.00/Watt AC California Energy Commission March 20, 1998 Increased to California Energy Commission May 16, 2001 $4.50/Watt AC 15% Tax Credit State of California October 8, 2001 Dates were supplied by Sandy Miller, California Energy Commission

9 PG&E Rate Structures Three tiers were added to PG&E residential rate structures in June 2001 $0.30 $0.25 Price ($/kwh) $0.20 $0.15 $0.10 $0.05 $ ,200 Monthly Consumption (kwh) PG&E Before 6/01 PG&E After 6/01

10 Break-Even Price: Effect of Incentives Incentives would have more than doubled the break-even cost of PV using PG&E rates prior to June 2001 $15,000 Break-even PV Price ($/kw AC ) $12,500 $10,000 $7,500 $5,000 $2,500 $0 None $3.00/W $4.50/W $4.50/W, 15% Credit PG&E Before 6/01

11 Break-Even Price: Effect of Rate Structures PG&E s rate structure change in June 2001 has a greater economic effect from a customer s perspective than offering a $3,000/kW incentive with the old rates $15,000 Break-even PV Price ($/kw AC ) $12,500 $10,000 $7,500 $5,000 $2,500 $0 None $3.00/W $4.50/W $4.50/W, 15% Credit PG&E Before 6/01 PG&E After 6/01

12 PG&E Rate Structure Compared to LADWP Rate Structure LADWP has a flat rate structure $0.30 $0.25 Price ($/kwh) $0.20 $0.15 $0.10 $0.05 $ ,200 Monthly Consumption (kwh) PG&E Before 6/01 PG&E After 6/01 LADWP

13 Break-Even Price: Effect of Rate Structures (cont.) PV is more cost-effective for PG&E customers with a $3,000/kW incentive than LADWP customers with a $6,000/kW incentive $15,000 Break-even PV Price ($/kw AC ) $12,500 $10,000 $7,500 $5,000 $2,500 $0 None $3.00/W $4.50/W $4.50/W, $6.00/W, 15% Credit 15% Credit PG&E Before 6/01 PG&E After 6/01 LADWP

14 Net Cash Flow Effect is the same when evaluating PV from a net cash flow perspective (assumes $9,000/kW AC system cost) rather than a break-even cost perspective $20 Cash Flow ($/month in first year) $10 $0 ($10) ($20) ($30) None $3.00/W $4.50/W $4.50/W, $6.00/W, 15% Credit 15% Credit PG&E Before 6/01 PG&E After 6/01 LADWP

15 Tiered rate structures are the status quo in some countries Example: Every utility in Japan has tiered rate structures for residential customers $0.25 Price ($/kwh) $0.20 $0.15 $0.10 $0.05 $0.00 Exchange rate = 123 Yen per $ HOKKAIDO HOKURIKU TOHOKU CHUBU KANSAI CHUGOKU SHIKOKU KYUSHU OKINAWA TOKYO Monthly Consumption (kwh) Data Source: BP Solar s Japanese Clean Power Estimator

16 Several successful PV locations have tiered rate structures $0.30 $0.25 Price ($/kwh) $0.20 $0.15 $0.10 $0.05 $0.00 Exchange rate = 123 Yen per $ Exchange rate = 1.06 EUR per $ USA (PG&E, CA) Japan (Okinawa) Italy (whole country) ,200 Monthly Consumption (kwh) Data Source: BP Solar s Japanese and Italian Clean Power Estimators

17 Policy Implications PV (and other customer-sited technologies) can be promoted by converting flat rate structures to tiered rates in a revenue-neutral way Price ($/kwh) $0.20 $0.15 $0.10 $0.05 The average customer has a bill of $120 per month under both rate structures Tiered Rate Flat Rate $ ,200 Monthly Consumption (kwh) Average customer uses 1,200 kwh/month

18 Conclusions Tiered rate structures, combined with incentive programs, can be an effective policy tool in promoting PV (and other customer-sited technologies such as energy efficiency) Tiered rate structures could eliminate the need for a low income program Tiered rate structures are the status quo in some countries (e.g., Japan) Tiered rate structures can be designed to be revenue neutral