The expansion of distributed PV in the United States is causing tension in the electric utility industry, as current business models and regulations are sub-optimal for managing significant levels of customer-owned distributed PV. This report explores the following question: What state-level utility policies can most appropriately value grid-connected distributed PV generation in a way that is equitable to all stakeholders?
We performed a review of secondary literature as well as primary interviews with electric industry experts with the focus of analyzing two primary pricing inefficiencies common in electricity rates: the allocation of fixed costs for the electric grid into volumetric rates, and the valuation of solar PV. The final segment of supporting research is the team’s original economic modeling analysis, which consists of two models: A utility rate model which uses generalized cost components and features of a prototypical regulated utility to estimate the potential economic impact of distributed PV generation on electricity rates; a solar project model which estimates the impact of different utility fixed-cost charges and compensation rates on distributed PV project economics. Based on the above research, we offer three recommendations for state-level policymakers to value grid-connected distributed PV generation in an equitable manner. The foundation of our recommendations is that electricity service components must be priced separately; each customer should be aware of his or her fixed cost obligations. Secondly, we recommend a shift away from pushing the majority of a residential customer’s bill onto per kWh charges, and separate the pricing of having access to the grid from the use of electricity, similar to pricing structures used in the telecommunications industry. Lastly, the pricing of kWh sold onto the grid from distributed PV systems should be the result of a comprehensive evaluation of the value provided to the grid.