Homeowners purchasing rooftop solar and electric vehicles (EV) are embracing innovation and self-sufficiency in energy production, distribution and — in some cases — storage. Though only a fraction of residential utility customers across the country are adopting these practices, this new behavior creates a shared energy economy and has the potential to affect all electricity utilities.

Residential customers who install rooftop solar and drive EVs are causing utilities to consider new electric rate structures that reflect the utility’s cost to provide service to customers. Progressive utilities are preparing to implement rate and infrastructure changes that will adjust to fit electricity demand, increase current periods of underutilized capacity and fairly price electricity across the entire customer base year-round.

Solar Energy, Electric Vehicles and Battery Storage Adoption

Around the world, installations of photovoltaic (PV) cells for the collection of solar energy continue to surge. During the past 10 years, solar has enjoyed an annual growth rate of more than 65 percent. In 2016 alone, solar energy represented almost 40 percent of new electricity generation capacity, surpassing all other fuel types for the first time.

While much of this solar adoption has occurred through large-scale utility investments, residential rooftop solar PV installations continue to support overall growth. The top 10 solar states alone have almost 7.2 million residential solar installations.

EV adoption is enjoying a similar surge. In 2016, almost 160,000 electric vehicles were sold in the United States. While this represents only a small portion of the country’s overall vehicle market, EV sale growth continues to be strong, with a 37 percent increase in 2016. In addition, car manufacturers continue to expand their EV product lines, with around 30 consumer models now available.

It is estimated that 40 percent to 50 percent of residential rooftop solar PV users also drive an EV. Adding an at-home battery energy storage system (BESS) takes homeowners one step closer to energy self-sufficiency by storing solar-generated energy to use for EV charging when it’s convenient and cost-effective.

While the combination of solar power generation, electric vehicles and a backup BESS can be a win for some homeowners, it is this power generation and usage model that will ultimately affect utilities that aren’t prepared.

Redesigning Utility Rate Structures

As both solar and EV use expands for utilities’ residential customers, utilities are being forced to reconsider their standard rate design models, which traditionally include a fixed monthly customer charge and flat energy charge billed on dollars per kWh basis.

Net metering, once considered an acceptable rate design solution for the limited number of residential and commercial customers with rooftop solar PV, is not a long-term viable solution for utilities with high levels of rooftop solar PV penetration. This is because it can create large cost shifts to customers without solar. This has already been experienced by utilities in states with high levels of rooftop solar PV penetration, such as California, Arizona and Nevada.

Flat energy rates that do not change throughout the day have long been the industry norm primarily due to limitations in utilities’ metering and billing infrastructure. Flat energy rates have been combined, in some cases, with an inclining block rate (IBR) structure that charges customers higher rates for greater levels of usage to encourage conservation. These flat energy rates and IBR structures unfortunately do not accurately reflect how a utility incurs its cost. For example, customers who charge their EVs overnight only cause the utility to incur additional fuel and energy costs.

New types of time variant rate structures are required to fairly support solar and EV growth without unfairly burdening the rest of the utility’s customers. Typically, utility rates for larger commercial and industrial customers reflect fixed infrastructure costs and variable energy costs. For the vast majority of utilities, residential rate schedules do not reflect an accurate mix between the utilities’ fixed and variable costs. Several solutions exist to fairly and efficiently accommodate customer loads and generation.

  • Demand Charges for Customers with Solar and Batteries
    The demand charge, historically reserved for commercial and industrial customers, is a dollars-per-kilowatt month charge based on the highest instantaneous use during the month. When implemented for residential customers, demand charges are added to other utility bill charges while the volumetric energy charge is reduced providing a similar level of revenue that an energy only rate schedule would provide.

    Introducing a demand charge into residential rate schedules can increase a homeowner’s awareness of their energy use and, in turn, help reduce peak demand on the system. For utilities, a residential demand charge structure provides a more reliable way to capture revenues from customers who place high loads on the electric system but may not have a high levels of net energy use, such as a customer with rooftop solar.

    For customers that have a demand charge in their rate schedule, a BESS can become more economically viable. By charging the BESS late at night or during times of surplus solar energy production and then discharging the battery during peak periods, a customer’s load will be leveled and their monthly demand charge reduced.

  • Time of Use Rates for Customers with EVs and Batteries
    Utilities have traditionally billed residential customers a flat energy rate for energy use at all hours of the day. This approach does not reflect the reality of electricity demands on the system or the cost of hourly energy for the utility. It has, however, provided residential customers a reliable and simple electricity bill.

    Time of use (TOU) energy rates are becoming a more common rate mechanism among utilities. While definitions vary, this model uses high-peak periods on weekdays, typically between the hours of 2 p.m. and 8 p.m. Other time periods during the day are consider low-peak or off-peak periods. The price structure can also change depending on the time of year or season.

    TOU rates offer an option to utilities for charging higher rates for high-demand, peak periods and lower rates during late night low-demand periods. This approach better aligns the utility rate structure with the actual cost of service on a time basis and encourages customers to avoid using electricity during peak times, thereby saving both themselves and the utility money.

    For customers with solar, TOU energy rates can also enable a BESS to become more economically viable by allowing solar energy to be generated and stored in a BESS during off-peak times and discharged during higher priced, peak periods.

 Modern Metering Fits the Bill

As part of investing in a modern grid, utilities must upgrade their infrastructure to cope with new energy use and generation patterns and to improve customer service.

An average EV driver requires approximately 13 kWh of electricity per day to recharge. This is in addition to normal household use. While new rate structures can help capture the cost for the daily surge to charge, utilities must also evaluate generation capacity, upgrades and distribution system circuits to manage cross-utilized technologies and distributed energy resources (DER).

Demand rate and TOU energy rate structures that better align with utilities’ costs require smart meters to improve communication between customer use data and the utility. Comprehensive assessments are needed to determine the most appropriate metering technology, meter deployment, installation, maintenance and monitoring solutions. Once assessments are completed, utilities may need to make large capital investments to support new advanced metering and rate structures.

Modernizing billing systems and operational infrastructure improvements are required to implement these changes. Distribution-level resource planning and proper evaluation of grid DERs can shore up the business case for investment and detail the many potential benefits.

Leveling load curves

Powering Best Practices

The next wave of electricity generation, use and storage is upon us and, not surprisingly, is being driven by consumers. As communities embrace at-home solar energy production and EVs, utilities must prepare, adapt and improve operating models and rate models to meet needs and recover revenue in a fair and equitable manner.

By adopting more innovative rate structures and investing in infrastructure assets, utilities will be prepared to manage electricity use, improve energy reliability and deliver value to residential customers.

 

Utilities are rethinking how they charge for electricity, and new technologies and generation methods are changing their planning strategies. Learn how.

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Adam Young is project manager at Burns & McDonnell. He has more than 15 years of experience in utility consulting, working in distributed generation development, financial modeling, cost of service analysis and electric rate design.