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Trevor House is a Business Analyst Intern at Aurora Solar. His interests include energy, business, sports, politics, and the outdoors.


Trevor House

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Trevor House is a Business Analyst Intern at Aurora Solar. His interests include energy, business, sports, politics, and the outdoors.

Recent Posts

How Solar Customers Save Money: A Beginner’s Guide to Net Energy Metering

Posted by Trevor House on Oct 4, 2017 12:09:00 AM

Lower electric bills are one of the biggest selling points of installing a solar PV system. But how exactly does adding solar provide these savings? For customers early in the process of evaluating a solar purchase, the specific dynamics aren’t always clear.

As a solar professional, being able to give potential customers a concrete understanding of the process by which a solar installation will put more money in their pockets each month can help make this big investment much less daunting.

In the U.S., net energy metering (also called net metering or NEM) policies are the primary mechanism driving savings for solar customers who wish to remain connected to the electric grid—as most solar customers do, so that they can rely on the services of their local utility when needed.

In this article, we break down how solar saves customers money by explaining how solar installations interact with the electric grid and how this relates to net energy metering as a means to allow solar customers to lower their electricity bills.

States with net metering policies Figure 1. States with net energy metering policies. Net metering is the dominant mechanism for compensating U.S. solar customers for the energy their systems produce.

What is the Grid and How Does It Relate to Solar Installations?

While most people have a general familiarity with the electric grid—often referred to simply as “the grid”—as the source of power for their homes and businesses, few people have a strong understanding of how it works. The grid is a network of power plants and transmission lines that work together to deliver electricity to consumers across the U.S.

Because electricity is always in demand, the grid is constantly operating, and grid operators carefully manage energy output to meet demand; energy that flows into the grid must be immediately consumed. It is a complicated system that is vital to the operation of countless services we depend on.


The Electric GridFigure 2. A graphical representation of the electric grid.

For a typical home without a solar installation, all of the electricity needed to meet occupants’ demands is drawn from the grid. When solar panels are installed, the relationship between the customer’s home and the grid changes because energy can now flow in two directions. The solar array acts as a small power plant that provides an additional source of energy for the home and the grid.

When the household consumes energy at the same time that their solar panels are producing it, they can use that energy directly in place of what they would draw from the grid. This results in lower energy consumption through the utility company and thus a lower electric bill. This is the part of solar savings that most people intuitively understand—but there’s more to how a solar installation saves customers money.

Graphic showing the flow of electricity between a solar installation and the grid, for a home with net metering Figure 3. An illustration of how homes with solar panels interact with the grid. When the system produces excess energy, it is sent to the grid (green arrows); when solar production is not enough to meet the household's needs, energy is drawn from the grid (red arrows).

Unlike a traditional power plant which can be turned on and off as needed, the amount of energy produced by a solar array changes depending on factors like the time of day and the weather. This variability means that there will be times when the installation produces more or less energy than the occupants are consuming. This is a key reason why most solar customers still rely on the grid even after installing solar.

How Net Energy Metering Reduces Solar Customers' Energy Bills

When a customer’s solar panels do not produce enough energy to match their needs, the grid provides the additional energy needed. On the contrary, when solar panels produce more energy than the household is using, the excess energy is fed back onto the grid. This two-way relationship between a customer’s solar panels and the grid is central to net energy metering (NEM), the primary way U.S. solar customers save money on their utility bills.

We know that solar panels can directly save customers money by decreasing the energy they buy from the grid, but what happens when the system is producing a lot of energy when they don’t need it—like on a hot summer day when they’re away on vacation?

Net energy metering answers this question by putting a value on the excess energy solar customers send back to the grid when their system produces more energy than they need. Under net metering, excess electricity generated by the solar installation is valued at the same retail rate customers would pay the utility for it1, which allows them to cancel out the cost of electricity they purchase from their utility at other times.

One way to visualize this process is that when the system produces excess energy the building’s energy meter runs backward so customers pay only for their net energy consumption. Coupled with the direct decrease in energy consumption from the grid, net metering compensation often allows solar customers to pay nearly nothing for electricity.

Because solar customers are paid at the retail rate for the extra energy they produce, they may wonder whether installing a very large solar system could provide a source of income rather than just savings. However, almost all net metering policies are structured so that customers are only compensated at the retail rate for solar energy up to the total amount of energy they consume over the course of the year. Any energy production beyond that is compensated at a much lower rate (this is called the utility’s Net Surplus Compensation policy). This is why solar designers typically recommend a system that produces slightly less energy than the total amount the customer needs.

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Going solar is a big decision, so providing prospective customers with a concrete understanding of how it will put more money in their pockets is an essential first step in communicating the value of your solar design—in addition to quantifying how much solar energy the system will produce and exactly what their savings will be (both of which are easy to calculate if you use Aurora).

We hope this article has provided a useful reference for communicating to prospective customers how going solar can significantly reduce or eliminate their cost of electricity. Check out other articles in our Solar Finance 101 series for more information on the financial considerations of a solar purchase.

[Note: In this article, we are only discussing “grid-tied” solar installations, in which the homeowner remains connected to the electric grid, as opposed to an “off-grid” solar installation, which would not be eligible for net metering.]

1This is generally the case, though some utilities are implementing changes that reduce how much they compensate solar customers for the energy they produce. These changes include fees and other charges that cannot be offset by solar, or reductions in the value paid for solar energy compared to energy purchased from the grid. One example is California’s NEM 2.0 policy changes. It is important to confirm the details of how solar energy is compensated with the customer’s utility company. We discuss other factors that add complexity to net metering on the Aurora Blog in our “The Hidden Factors that Affect Solar Savings” series. See Part 1 and Part 2.


About Solar Finance 101

How Solar Customers Save Money: A Beginner’s Guide to Net Energy Metering is Part 1 of Solar Finance 101, a five-article series that serves as an introductory primer on the financial considerations of solar installations:

Article 1: How Solar Customers Save Money: A Beginner’s Guide to Net Energy Metering

Article 2: Your Solar Finance Primer: What to Know About the Top Four Solar Financing Options

Article 3: Evaluating Solar Financing Options: Factors for Your Customer to Consider

Article 4: Financial Incentives for Installing Solar: A Beginner’s Guide

Article 5: Quantifying Value of a Solar Installation: Some Helpful Metrics

Topics: Solar Finance 101

Evaluating Solar Financing Options: Factors for Your Customer to Consider

Posted by Trevor House on Oct 4, 2017 12:03:00 AM

In addition to understanding what financing options exist to help customers pay for a solar installation (as discussed in the previous article in this series), it is important to understand how these options compare side by side. In this article, we walk you through some important considerations to bear in mind when evaluating the various financing options.

The chart in Figure 1 below may be a helpful reference when evaluating which financing method best fits the situation and priorities of a prospective solar customer. The considerations illustrated in the chart are discussed in greater detail below.

Comparison Chart-revisedFigure 1. A comparison of the differences between the four most common solar financing options. Note that these considerations are presented from the perspective of the homeowner (for instance, incentives for systems financed with a lease or loan may be available to the third-party system owner, but typically would not be available to the homeowner.)

Upfront Payment Requirements

Solar loans, PPAs, and leases often allow homeowners to install solar with little to no payment upfront. However, should the homeowner decide to pay a small portion of the cost upfront, it may be possible for them to obtain more favorable terms and interest rates for their loan or lease. With cash financing, the entire cost of the system is paid upfront.

Maintenance Responsibility

Generally, solar installations require very little maintenance, as solar panels are durable and weather-resistant. Nonetheless, if a homeowner finances their system with cash or a loan, they are responsible for any maintenance should the installation be damaged. This is not the case for the majority of PPAs and leases, in which the third-party provider is responsible for maintenance or repairs. However, in some of these agreements, the homeowner may still be responsible for specific maintenance costs like inverter replacement.

Incentives

Homeowners that finance their solar installation with loans or cash are eligible for several federal, state, and local incentives for going solar (discussed in greater detail in Part 4 of this series, Financial Incentives for Installing Solar), such as the federal Investment Tax Credit, which allows system owners to deduct 30% of the cost of the solar installation from the amount they owe in federal taxes. These incentives apply only to the owner of the installation and thus are not available to customers who finance their installations with leases or PPAs.

Credit Score Requirement

While there is obviously no credit score requirement when paying for a solar installation in cash, a credit score within a certain range may be necessary to qualify for loans, leases, and PPAs. Generally, a FICO credit score in the high 600s (out of 850) gives a borrower a good chance of being accepted for these financing options. For those with a lower credit score, some states offer special loans or financing options, including on-bill financing, which attaches the payment of the loan to the borrower’s electric bill. 

Monthly Payment Considerations

One benefit of paying for a solar installation upfront with cash is the absence of monthly payments. From day one, 100% of the energy produced by the system is free for the homeowner, no strings attached. This is not the case for loans, leases, and PPAs.

With loan financing, minimum monthly payments are required to pay off the solar loan. While this monthly minimum payment is often fixed, homeowners can choose to pay more than the minimum in order to pay off the loan sooner and reduce what they pay in interest charges. Like loans, solar leases have predetermined, fixed monthly charges; these charges continue for the duration of the contract. Depending on the agreement, the homeowner may have the opportunity to purchase their solar installation at some point during the lease or after it expires.

Unlike the fixed monthly payments of loans and leases, the monthly charge under a PPA will depend on the number of kWh the installation produces over the month. Although these financing options all require monthly payments, the amount paid per month will typically be less than what the homeowner currently pays for electricity, allowing the homeowner to see savings immediately.

Total Savings

A customer's total savings over the lifetime of their solar installation depend on many factors, including how utility rates change over time and, for solar loans, their interest rate. However, as discussed in Part 2 of this series Your Solar Finance Primer, typically cash financing maximizes lifetime savings compared to solar loans, leases, and PPAs, as customers avoid interest charges and monthly payments while gaining access to free electricity produced by their installation.

Similarly, the total savings from a loan will likely be greater than from leases or PPAs, because homeowners benefit from free energy produced by their system after the loan is paid off. With leases and PPAs, homeowners are required to pay monthly for the entire term of the agreement. However, these options can still make financial sense because the payment is typically lower than what the customer would pay for the same amount of energy from their utility.

Processing Time

Solar leases and PPAs are typically processed quickly, often in a single meeting with the third-party financier. Solar loans, on the other hand, generally take several weeks to be approved as they involve additional financial evaluation to determine a homeowner’s creditworthiness and the interest rate the financing institution is willing to offer. Because there is no borrowing involved in cash financing, processing time is avoided entirely.

Availability

While loans are widely available from banks and solar lending institutions, PPAs and leases are less common. Only 26 states have clearly authorized the use of PPAs, and the legality of leases also varies across the country. Obviously, the availability of cash depends on individual circumstance. As addressed above, credit score can also affect the accessibility of some financing options, especially for those with scores below 650.

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We hope that this discussion of the differences between financing options will help you guide your customers toward an understanding of which financing option will best meet their needs!


For those interested in a deeper exploration of solar financing options, here are some additional resources you may find helpful:

Topics: Solar Finance 101

Financial Incentives for Installing Solar: A Beginner’s Guide

Posted by Trevor House on Oct 4, 2017 12:02:00 AM

While the initial price tag of a solar installation may seem high, it's important to communicate to your customers that the total cost may be significantly lower after applying available credits and rebates. The federal government and many states have enacted policies to reduce the cost of solar installations in order to incentivize investment in solar energy.

In this article, we present an overview of common incentives and how they work so you know what benefits may be available to customers in your state. It is important to note that these policies benefit customers who purchase their solar installation and are not available to customers who finance their system with leases or PPAs.

Federal Incentives

Federal Investment Tax Credit

Perhaps the most well-known solar incentive, the Investment Tax Credit (ITC) is a U.S. federal policy that gives homeowners and businesses a tax credit worth 30% of the solar installation cost. This allows homeowners to subtract 30% of the cost of their solar installation from what they owe in federal taxes (their tax liability). For instance, if a solar installation costs $10,000 and the homeowner owes $5,000 in taxes, the homeowner would be eligible to deduct 30% of the cost of the solar installation ($3,000) from their taxes, allowing them to pay only $2,000 in taxes that year.

If the value of the tax credit exceeds the owner's tax liability, the excess amount can be applied to taxes owed the following year. Referring back to the example above, if instead of owing $5,000 in taxes the homeowner only owed $2,000, the $3,000 deducted from their taxes would be rolled over to the following year, allowing them to pay nothing in taxes the first year, and then save $1,000 in taxes the following year. It is important to note that the ITC can only be rolled over to the following year and no further.

Chart of the Investment Tax Credit value over time Figure 1. Chart illustrating how the value of the Investment Tax Credit (ITC) will drop down over time.

The ITC was previously scheduled to expire in 2016 but was extended and will be phased out over the next 6 years. In 2020, the ITC will drop to 26% of the system cost, and then to 22% in 2021. Starting January 1st of 2022, the credit for new residential installations will drop to zero, while the commercial and utility credit will drop to a permanent 10%. For homeowners who plan to install solar and have the income tax liability necessary to take advantage of the ITC, it may be advantageous to invest in solar sooner rather than later before this incentive is phased-out.

Modified Accelerated Cost Recovery System (MACRS)

For commercial customers, the federal government allows business owners to depreciate the cost of their solar installation over a period of years through the Modified Accelerated Cost Recovery System (MACRS) . While the name may sound complex, the concept is relatively simple. Depreciation refers to the reduction in value over time of an asset associated with an investment project, particularly due to wear and tear. For tax and accounting purposes, companies can depreciate their long-term assets, like solar installations, over time. In the case of MACRS, businesses can depreciate the value of their solar project over a shorter period of time.

MACRS allows businesses to deduct the cost of their solar installation from their taxable income over a period of 5 years. This helps save the business money and allows them to recover the cost of the solar installation faster.

Additionally, Congress has authorized something called “bonus depreciation” for the first year. This “bonus” allows the business to deduct 50% of the system cost from their taxable income in the first year, and then continue to depreciate under normal MACRS.

One important caveat to be aware of with MACRS is that if the ITC was claimed on the solar installation, the total value that can be depreciated must be reduced by one-half the value of the 30% ITC (so a business could only claim 85% of the cost of the system).

State and Local Incentives

Many states, counties, and municipalities offer additional incentives to residents who install solar, though the available incentives differ widely by location. Below we explain the most common policies used by states and local governments to incentivize solar.

To determine if your state offers incentives like these, the DSIRE database is an excellent starting point. The Department of Energy also offers a database of financial incentives for clean energy projects, which can be filtered by state, the type of clean energy, and what types of customers are eligible.

Solar Renewable Energy Credits (SRECs)

Many states use a policy called a Renewable Portfolio Standard mandating that utilities generate a certain percentage of their total electricity through renewable energy. A Solar Renewable Energy Credit (SREC) is a tradable credit generated by solar installations that utilities can purchase to meet this percentage. For every 1,000 kWh of electricity generated by a solar installation, one SREC is generated, which the homeowner can sell in their state SREC market.

The average 5kW installation typically generates between five and eight SRECs per year. How much these SRECs are worth depends on the market price in the customer's state (which fluctuates over time). For example, between March 2018 and February 2019 the price of an SREC in Washington, D.C.’s market ranged between $420 and $290. In markets with high SREC prices, solar customers can generate hundreds or even thousands of dollars in additional income. Talk about an incentive!

Graphic showing how Standard Renewable Energy Credits (SRECs) Work Figure 2. How SRECs generate income for solar system owners.

SRECs are a type of Performance Based Incentive (PBI)—a category of incentives that depend upon the performance of the solar system. Other examples include Feed-In-Tariffs and certain rebates that reimburse solar customers based on the amount of energy their installation sends back to the grid.

Tax Credits and Rebates

In addition to the federal income tax credit available under the ITC, many states offer credits and rebates on state taxes for installing solar that can save customers hundreds or thousands of dollars. These incentives may be fixed amounts based on the number of taxpayers or people in the household or may reimburse the homeowner based on the amount of energy produced by the installation (another type of Performance Based Incentive). For example, Montana residents are eligible for a tax credit of $500 per taxpayer living in a household that installs solar, up to $1000.

Tax Exemptions

Many states exempt the value of a solar project from property or sales taxes. A total of 38 states offer property tax exemptions for solar installations. Thus, while the customer benefits from an increase in the value of their property by installing solar, their property taxes will not increase. Additionally, 29 states offer sales tax exemptions for solar PV components and/or installation labor which reduces the upfront cost. These incentives make solar energy more affordable for both companies and homeowners.

Taking the time to understand the incentives available to your customers is essential for any solar professional, as these options can reduce customers' costs significantly without eating into your margins. We hope that this discussion of the most common incentives helps you educate prospective clients about of the programs available to help them go solar!


About Solar Finance 101

Financial Incentives for Installing Solar: A Beginner’s Guide is Part 4 of Solar Finance 101, a five-article series that serves as an introductory primer on the financial considerations of solar installations:

Article 1: How Solar Customers Save Money: A Beginner’s Guide to Net Energy Metering

Article 2: Your Solar Finance Primer: What to Know About the Top Four Solar Financing Options

Article 3: Evaluating Solar Financing Options: Factors for Your Customer to Consider

Article 4: Financial Incentives for Installing Solar: A Beginner’s Guide

Article 5: Quantifying Value of a Solar Installation: Some Helpful Metrics

Topics: Solar Finance 101

Quantifying the Value of a Solar Installation: Some Helpful Metrics

Posted by Trevor House on Oct 4, 2017 12:01:00 AM

When communicating with prospective clients about installing solar, it's likely that they will have questions about the value of your design relative to other proposals they receive. Being able to provide metrics that communicate what the solar installation will be worth over its lifetime will help them more easily understand the value your company is offering and know that they are making a smart choice. In this article, we have compiled some of the most common metrics for quantifying a solar project's value, how they are calculated, and what purpose they serve.

Discount Rate

The "discount rate" is an important concept to understand when assessing the value of a solar installation. While the discount rate itself doesn’t express the value of a particular solar project, it is used in the calculation of many other financial metrics.

The discount rate provides a way to account for the fact that future earnings are worth less than money in hand today—a concept called the “time value of money.” This is true in part due to inflation, but also because money that you have in the present could generate additional value over time if it were put in a safe investment. Thus, using a discount rate allows one to understand the real value of future earnings from an expense like a solar installation, compared to putting the money in a safe investment.

Net Present Value (NPV)

Net Present Value (NPV) is a common metric to express the value of future income (or savings) from a solar installation. NPV is presented in dollars and is calculated by subtracting the cost of the initial investment from the sum of the total discounted future cash flows over the lifetime of the investment (i.e., the present dollar value of future cash flows, calculated using the discount rate). In solar, this initial investment is the system cost, and future cash flows are the resulting energy savings.

NPV is calculated using the following equation:

Net Present Value (NPV) equation

Where:

  • N is the lifetime of the installation.
  • i is a given year during the lifetime of the installation.
  • Cash Flow is the system cost in year 0 and for years i = 1 through 25 they are the difference in pre-solar and post-solar bills. (The Investment Tax Credit (ITC) is typically applied in year 0.)
  • d is the discount rate.

    This equation is very useful not only in valuing solar installations but also in evaluating the returns of many other investments, including real estate and business ventures.

    Internal Rate of Return (IRR)

    The Internal Rate of Return (IRR) is similar to NPV in that it accounts for discounted future cash flows over the lifetime of the project. However, unlike NPV, the IRR is not measured in dollars. Rather, the IRR is a percent return one can expect to gain (or lose) from an investment and its future cash flows.

    The IRR is calculated by setting the NPV of a project equal to zero, and solving for the discount rate. Because this calculation is rather difficult mathematically, it is often solved by testing different discount rates until the NPV of a project is as close to zero as possible. There are also calculators online that can determine the IRR for you (and if you use Aurora, our financial analysis features will generate this value automatically).

    Dollars per Watt ($/W)

    Dollars per Watt ($/W) is a simple and widely-used calculation to evaluate the value of a solar installation. This metric is calculated by dividing the total installation cost by the capacity of the system. Thus, a 5kW system that costs $11,000 will have a value of $2.2/W ($11,000/5000W). It is important to check if the Investment Tax Credit (discussed in the previous article in this series) is taken into account when calculating the $/W value, as this could impact the estimated value significantly.

    While this is metric may seem simple and straightforward, it is far from a perfect measure of an installation’s value. For one, it does not take into account the time value of money by discounting future cash flows. It also does not take into account the solar installation’s efficiency (what percent of available solar energy it converts to electricity) or how that efficiency will decrease over time as the installation ages (degradation).

    Additionally, qualitative factors, like the level of customer service, attention to detail, or maintenance guarantees your company provides may warrant a higher price for the installation. You may want to communicate that $/Watt does not reflect these factors when discussing the value your company offers. Although $/W is not a comprehensive measure of a solar installation’s value, customers often find it a helpful way to compare prices they receive from different installers.

    Levelized Cost of Energy (LCOE)

    Levelized Cost of Energy (LCOE) is a popular metric to assess the value of an installation. LCOE quantifies the cost of the electricity produced by your solar installation over its lifetime. LCOE, which is presented in $/kWh, is a particularly helpful metric because it allows one to directly compare the price of solar energy to what the local utility would charge. This metric is also useful to look at when comparing between financing options.

    Calculating the LCOE of a solar installation is a complex process involving many factors, including:

  • The cost of the installation minus any tax incentives
  • The efficiency of the solar installation
  • The degradation rate of the solar installation (the rate at which the efficiency decreases)
  • The output of the solar installation (how much energy the installation produces)
  • The lifetime of the installation (a typical installation has a lifetime of 25 years)

    (For more information on LCOE is calculated, check out our blog article on the topic.)

    Because the LCOE is calculated over such a long time span, it can fail to take into account larger economic changes that may occur over the lifetime of the system (say, dramatic changes in fuel costs). Despite this limitation, LCOE is widely used throughout the solar industry, so it is important to have an understanding of how it is calculated and what information it presents.

    Payback Period

    As you might guess, payback period indicates how many years it will take for the installation to recover its cost. This value is found by taking the initial investment (the system cost) and dividing it by the yearly savings it creates. For example, if a system costs $30,000 after tax incentives and saves the customer $5,000 per year on their electric bill, the payback period will be 6 years ($30,000/$5,000).

    This is a simple metric that is useful when selling solar, as many customers want to know how quickly the large upfront investment will “pay for itself.” However, it is important to note that the payback period is another metric that does not take into account the time value of money. Because of this, the period calculated will be slightly shorter than if future cash flows were discounted.

    Aurora's financial analysis features calculate each of these metrics in a matter of seconds. The resulting information, shown below, also includes the projected cash flows over the lifetime of the system.

    Aurora financial analysis for a cash financed solar installation Figure 1. A chart of future cash flows for a cash financed solar installation as presented in Aurora.

    Having an understanding of the different metrics used to quantify the value of a solar installation will increase your credibility as a solar professional. It will also allow you to help clients make informed decisions about whether going solar is right for them, and communicate the value your company can offer.


    About Solar Finance 101

    Quantifying the Value of a Solar Installation: Some Helpful Metrics is Part 5 of Solar Finance 101, a five-article series that serves as an introductory primer on the financial considerations of solar installations:

    Article 1: How Solar Customers Save Money: A Beginner’s Guide to Net Energy Metering

    Article 2: Your Solar Finance Primer: What to Know About the Top Four Solar Financing Options

    Article 3: Evaluating Solar Financing Options: Factors for Your Customer to Consider

    Article 4: Financial Incentives for Installing Solar: A Beginner’s Guide

    Article 5: Quantifying Value of a Solar Installation: Some Helpful Metrics

Topics: Solar Finance 101

Reading Your Electricity Bill: A Beginner’s Guide

Posted by Trevor House on Oct 7, 2016 8:03:00 AM

You might not give your electricity bill much thought—except perhaps to lament how high it is—but electricity bills actually provide a lot of valuable information to inform the process of installing solar.

For solar professionals, these bills are an easy way to quickly understand how much energy a customer uses, which is a key factor in determining what size PV system will meet their needs. They also show how the local utility company calculates a customer’s electricity charges, which can have important design implications.

For homeowners or businesses considering solar, having a deeper understanding of the information contained in electricity bills can offer insights into whether installing solar makes sense, as well as whether switching to another billing plan may increase savings.

In this article, we explain the terms, sections, and calculations in an electricity bill and how these change when a customer installs solar. In the next article in our Solar PV Education 101 series, we explain how this information can be used to size a solar installation.

Rate Plans

As you probably know, an electricity bill is a charge for the electricity a home or business consumes. This consumption is measured in units called kilowatt-hours (kWh) and customers are charged a per-kWh rate. These rates differ across utilities and are calculated differently depending on the customer’s “rate plan.” Rate plans specify the rules for how customers’ bills are calculated and utilities typically offer multiple types.

Common rate plans include fixed rates, time of use (TOU) rates, and tiered rates. While a fixed rate plan charges the same amount for every kWh consumed, under TOU rates and tiered rates the price per kWh changes depending on the time of day (peak vs. off-peak) or the total amount of energy consumed, respectively. (For more in-depth discussions of different utility billing approaches, see our Solar Utility Bill series.)

A customer’s rate plan will determine what is displayed in the different sections of their bill. It also impacts how much a customer pays; depending on their energy consumption patterns, customers may pay more or less for the same amount of energy under different plans.

Utility Bill Sections

An electricity bill is broken down into several different sections, each of which provides important information. While the names and contents of each section often differ depending on the utility, we explain some of the most common sections below:

Account Summary

The Account Summary generally appears on the front and center of the bill. This section provides an overview of the account status, including the previous account balance, any payments made on the previous balance, and the new amount owed for the current billing period. If the customer gets electricity and gas from the same utility, the Account Summary will include charges for both of these services.

Sample account summary from PPL Electric Sample account summary from PPL Electric.

Bill Details

This section shows the number of kWh the customer consumed during the billing period and the rate they pay per kWh. What is shown in this section and how it is formatted will change depending on the utility and rate plan.

Electricity Charges Breakdown

The per-kWh rate shown in the “Bill Details” section is made up of many smaller charges. In addition to covering the cost of the energy consumed, some of these charges are used to maintain and upgrade the electric grid and to fund other state-sponsored energy initiatives. The names and amounts of these electricity charges vary by utility, but generally include a generation, transmission, and distribution charge.

  • Generation Charge: This charge supports the cost of producing the electricity used.
  • Transmission Charge: This charge supports the cost of transmitting electricity from power plants, over high-voltage lines and towers, to the distribution system.
  • Distribution Charge: This charge supports the cost of the lower-voltage system of power lines, poles, substations, and transformers that connects to homes and businesses.

Sample energy charges from MC2 Energy (fixed rate plan) Sample energy charges from PECO Energy Company (fixed rate plan).

If you are interested in your utility’s additional electricity charges, visit their website for further information.

Usage Profile

Many utilities provide a monthly usage profile, showing a customer’s total consumption each month over the past year. This gives a good visual representation of how much energy they consume throughout the year and sometimes even compares the current year’s consumption to that of years past.

Sample usage profile from PECO Energy Company Sample usage profile from PECO Energy Company.

How Electricity Bills Change with Solar

When a homeowner or business in the U.S. installs solar panels, they will typically become a net metering customer. Net metering is a policy used throughout most of the country that credits solar customers for excess energy produced by their solar panels. This changes the way these customers’ bills are calculated. After installing solar, a customer’s bill may include some of the following terms:

  • Minimum Delivery Charge: This is a charge that some utilities require solar customers to pay to support the cost of maintaining and upgrading the grid. This charge ensures that enough funds are available to maintain the grid in the case that solar customers produce enough energy to pay nothing for electricity.

  • Net Usage: This represents the total electricity consumption minus the total amount of electricity sent back to the grid by the solar installation. Net usage may be represented differently for customers on a time of use (TOU) rate plan. This is because the utility separates the day into “peak” and “off peak” hours, and charges different rates for energy used during each time period. In this case, net usage may be split into “Net Peak Usage” and “Net Off-Peak Usage.”

Additionally, the timing of bills may change after installing solar, depending on the utility. Some utilities bill solar customers every month, while others bill on an annual basis. This annual statement is sometimes referred to as a “true-up,” and reconciles the customer’s energy production and consumption in a single statement at the end of a 12-month period.

If you’re new to the solar industry, getting to know the nuances of electricity bills can be a helpful starting point for understanding other aspects of the solar design and sales process—like how to size a solar PV system (which we delve into in the next article in this series). As a utility customer, understanding your electricity bill is an easy way to identify potential savings and can help determine whether installing solar makes sense for you.

About Solar PV Education 101

Reading Your Electricity Bill: A Beginner’s Guide is part of Solar PV Education 101, a six-article series that serves as an introductory primer to the fundamentals of solar PV for beginners.

Article 1: The Beginner's Guide to Solar Energy
Article 2: How a Photovoltaic System Produces Electricity
Article 3: Reading Your Electricity Bill: A Beginner’s Guide
Article 4: How to Size a PV System from an Electricity Bill
Article 5: Shade Losses for PV Systems, and Techniques to Mitigate Them
Article 6: The Basic Principles that Guide PV System Costs

Topics: Solar PV Education 101

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