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Solar Utility Bill | Solar design tips, sales advice, and industry insights from the premier solar design software platform

What do the prices of movie tickets to Hollywood’s latest blockbuster and the cost of electricity in California have in common? First, in most theaters, you will find that ticket prices change based on the time of day you want to see your show. This is similar to electricity rates in California (and other areas), where the cost of energy varies based on the time of day it is consumed (an approach known as time of use rates — or TOU rates).

Second, even for a specific time (take a matinee for example), movie tickets often cost less for different types of consumers. Students and seniors pay less for their tickets than others do. We see a similar phenomenon in California where for a given time period, consumers who use less than a baseline amount of energy, will pay less than those who use more than the baseline amount of energy, even if it is for the exact same time of day. The illustration below shows how California’s Pacific Gas and Electric (PG&E) utility varies the cost of energy based on time of day and cumulative consumption.

In this article, we focus on the first of these energy rate factors, where the cost of energy varies according to the time of day it is consumed. In other articles, we look at how rates vary based on level of energy consumption, how utility rate changes affect the returns for solar customers, and how you can optimize your designs to maximize savings under different rate types.

Figure 1: A diagram of a PG&E time of use rate (E-TOU option A) during the summertime. Source: www.pge.com.

## What Are Time of Use Rates (TOU Rates)?

Time of use rates are a type of electricity rate used by some utilities for billing customers. Under a TOU rate, customers pay different prices per kilowatt hour (kWh) of electricity that they use, depending on when they use it. Pricing varies by time of day, and can also vary based on the day of the week (weekend or weekday) and the time of year.

TOU rates are characterized by different prices between “peak hours” and “off-peak” hours; some rates also have other intermediate price periods as well.

TOU rates can apply to both residential and commercial customers. The exact details of a customer’s TOU rate will depend on the specific rate plan offered by their electric utility.

### What Are Peak Hours?

Electricity costs more during certain designated “peak hours” for customers on a time of use rate plan. These hours are typically selected to coincide with the times when the demand for electricity is greatest (often in the afternoon/evenings and the summertime). For example, California utility San Diego Gas & Electric (SDG&E) has peak hours from 4 - 9 pm.

One reason for peak pricing is because utilities must have additional energy generation resources available to meet the needs of the grid during limited times when energy demand is highest. By pricing electricity higher during times that typically have the highest demand, TOU rates are intended to provide price signals that encourage customers to shift their energy usage to other periods.

### What Are Off-Peak Hours?

Off-peak hours are the hours under a time of use rate plan when electricity is less expensive. For customers that can shift some of their energy-using activities—like running the washing machine or charging an electric vehicle—to these off-peak hours, the savings can be significant. We’ll look at an example of this in the case study below.

## How Common Are TOU Rates? Where Are They Used?

California is among the first states to make this type of utility rate structure mandatory for customers. In 2019 and 2020 most residential customers will be transitioned to TOU plans. All commercial, industrial, agricultural customers are already required to be on one.

California is not alone, however. In 2014, the Massachusetts Department of Public Utilities adopted default time of use rates for residential customers which went into effect in 2015. The Tennessee Valley Authority, the nation’s largest federally-owned electric utility which serves nine million customers in Tennessee and other southern states, has also explored transitioning to TOU rates.

Time-variable rate programs are already offered on a voluntary basis in nearly every state. In early 2019, Ahmad Faruqui, Principal at the Brattle Group, told Utility Dive that “About half of U.S. investor-owned utilities have optional time varying rates for residential customers," and that new programs are being tested or talked about in at least ten states.

Although participation in voluntary TOU programs has been low to date, as many states consider efforts to modernize the electrical grid and reduce peak energy consumption, TOU rates (and other related time-based rate structures) may become increasingly prevalent. There are multiple approaches that utilities take when it comes to time-varying energy costs, but TOU rates are one of the most common.

## Understanding TOU Rates in Practice: A Case Study

Let’s take a look at a case study of two households to get a more complete picture of the impact of a time of use rate plan. Using the modeling tools in Aurora’s solar design and sales software, we can better understand how TOU rates affect customers’ bills.

That’s because, with the input of the customer’s bill amount or kWh energy usage, Aurora’s Consumption Profile tool can model the customer’s energy consumption patterns throughout the day and year (their “load profile”) based on the characteristics of the home and weather data (pulled automatically from local weather stations).

 Note: Aurora’s consumption profile is just one of many tools we offer to help solar contractors get a complete picture of their customers’ energy usage and design the optimal PV system with ease.

In this example, we’ll take a look at a time of use rate from PG&E: E-TOU A, a residential plan.1  In Figure 1, you can see that the cost of energy is higher between 3pm - 8pm on weekdays than during any other time. During a weekday in summertime, as of March 1, 2017, rates range from $.317/kWh, to$.393/kWh. That is almost a 25% variation between the lowest and highest cost energy!

Household A lives in Bakersfield, CA. We used Aurora to model the customer’s load profile based on typical hourly summertime energy consumption for a house in Bakersfield. According to U.S. Climate Data, Bakersfield temperatures range between 64 and 97 degrees in the summertime. Consequently, Aurora by default generated a load profile where air conditioning was a large portion of Household A’s energy consumption (see Figure 2). Unfortunately for this household, about 43% of their summertime energy consumption occurs during the time when electricity is most expensive (peak hours).

Figure 2: A load profile for a house (“Household A”) in Bakersfield, CA generated automatically in Aurora.

Now let’s consider Household B, also located in Bakersfield, CA. In this case, instead of using Aurora to automatically generate a typical load profile, we obtained actual measured interval data (Green Button data) for a house in Bakersfield from PG&E. We uploaded this into Aurora, which generated the load profile below.

This homeowner has an electric vehicle (a Tesla) which they drive about 20 miles per day and charge at night (off-peak hours). Because of their usage patterns,  only about 10% of their energy consumption occurs during the 3pm - 8pm peak hours.

Figure 3: Load profile for a house (“Household B”) in Bakersfield, CA generated in Aurora, based on uploaded interval (Green Button) data.

If you’ve been following along, your intuition would suggest that for the same energy consumption, Household A should have a higher electricity bill than Household B, because they are consuming more energy during peak hours. Before we evaluate the financial implications of time of use rates, here’s a quick recap the two households’ information:

Household A Household B
Location Bakersfield, CA Bakersfield, CA
Utility Rate PG&E, E-TOU A - Residential TOU Region W PG&E, E-TOU A - Residential TOU Region W
Energy Consumption (July) 1,873 kWh 1,873 kWh
% of weekday consumption during peak hours (3pm-8pm) 43% 10%

Running Aurora’s utility bill calculator, we find that Household A (high peak consumption) had a bill of $591 for the month of July. We find that Household B (low peak consumption) had a July bill of$561. So despite consuming the exact same amount of electricity, Household A’s bill was about 5.5% higher in July than Household B.

Figure 4: Household A’s July electric bill is $591. Figure 5: Household B’s July electric bill is$561.

Does this make sense? Mathematically, we can get a rough estimate of how much of a difference TOU rates should make in electricity bills with a simple formula:

TOU Bill Difference = (DaysTOU/7) * (ConsumptionpeakA- ConsumptionpeakB) * (URpeak - URoffpeak) / URoffpeak

Equation 1: Rough estimate of the TOU effect on energy bills.

Let's plug some numbers into Equation 1.

Term Definition Value
Days TOU Days of the week that TOU values apply 5*
Consumption_peakA Energy consumption (kWh) during peak hours for household A 43%
Consumption_peakB Energy consumption (kWh) during peak hours for household B 10%
UtilityRate_peak Peak period utility rate ** $.393/kWh UtilityRate_offpeak Off peak period utility rate**$.317/kWh

*TOU rates in this region only apply to weekdays
** For simplicity we are assuming that this is for the above baseline energy consumption

TOU Bill Difference = (5/7) * (43%-10%) * (.393- .317) / .317= 5.64%

You can see our quick estimate came pretty close to the actual difference between Household A’s (high peak consumption) and Household B’s (low peak consumption) energy bills. (In this related article, we extend this case study to consider how increasing the total amount of energy consumed affects energy bills.)

Key Takeaways:

• Like the prices of movie tickets, under time of use rates, the cost of electricity varies based on the time when you use it.
• California tends to be a bellwether for the U.S. solar energy market; TOU  rates are already available on a voluntary basis in almost all states and utilities are increasingly considering their expansion as a means to reduce peak energy demands, so it is a good idea to understand how they work.
• For solar customers in TOU areas, understanding these rates is particularly important because TOU rates affect solar savings. Modeling software can help contractors provide accurate savings estimates for customers.
• You can use the following simple formula to calculate how much of an impact the difference between high-cost electricity and low-cost electricity has on a homeowner’s bill:
• TOU Bill Difference = (DaysTOU/7) * (ConsumptionpeakA- ConsumptionpeakB) * (URpeak - URoffpeak)/URoffpeak*

Editor's Note: This article was originally published on March 21, 2017. It was updated in October 2019 for freshness, accuracy, and comprehensiveness.

1 Note that this case study uses the version of the PG&E E-TOU A rate plan that was in effect as of March 1, 2017. While energy charges under this rate have changed, the peak and off-peak time periods remain the same at the time this article was updated in October 2019. (The current TOU-A rate plan can be found here).

Cover photo credit: NREL/DOE.

Topics: Solar Utility Bill

Accurate information about how much electricity a prospective solar customer is using—and when—is essential to creating an accurate solar design and quote to close the sale. It’s also key to building the case for why solar can help them. But getting this data is often one of the first barriers you’ll confront in the solar sales process.

To increase the likelihood of getting the data you need in a timely fashion, it’s good to give the customer a few different options for how they can provide their utility bill information. (It also helps to be familiar with the utility’s bill format and how energy usage data can be accessed—as we discuss here.)

Elliot Goldstein encountered this challenge often in his time at a leading residential solar company where he managed an inside sales team that sold to 16 U.S. states.

In the process, he learned a lot about how to efficiently get the utility bill data needed to create an accurate solar quote. We sat down with Goldstein, currently a member of the sales team here at Aurora, to learn some best practices for effectively overcoming this solar sales barrier.

Whether you’re new to selling solar or looking to improve your process, we hope these recommendations help you work more efficiently when it comes to getting electricity usage data from your solar leads.

## Approaches for Obtaining Utility Bill Data from Solar Leads

There are a number of different ways and formats to collect the utility bill data you need, depending on how tech-savvy the prospective customer is and what’s available from their utility company.

In general, it’s better to get a copy (or picture) of the customer’s actual bill or bills when possible, as this will provide more information than just their total kilowatt hour consumption or bill amount in a recent month. It will also allow you to ensure the accuracy of the information.

However, you’ll likely need to be flexible depending on what the customer is most comfortable with or can do easily. Here are a few options:

### 1. Download a Copy of the Bill from Their Utility Website

One of the best options for getting the customer’s electricity usage data is to have them login to their utility account online, download their electricity bill, and email it to you.

You quickly get the information you need in a convenient format, and the customer may be more easily able to provide multiple months of utility data since all of their bills can be found in their account. This is a great option for customers that are relatively tech-savvy and already manage their utility accounts online.

You’ll want to be prepared to walk the customer through this process if they would find it helpful. As we discussed in a previous article, for this reason it’s important to be familiar with the utility company’s website and where to find the information you need.

Goldstein cautions that forgotten passwords are a common barrier to this approach. “Small things, like having a process in place so you’re prepared to walk them through resetting their password, can help streamline the process.”

Another option for customers that are comfortable accessing their utility account online, is to walk them through the process of downloading interval data if their utility company offers it.

Interval data, which indicates how much electricity the customer used in different (usually 1-hour or 15-minute) intervals throughout each day in the month. It is typically offered in XML or CSV format.  For contractors that use UtilityAPI, a service that provides a fast way of requesting customer utility bills interval data, you can download the resulting data and easily upload it into your Aurora solar design software.

For solar contractors that use solar software that accepts interval data, this offers advantages for solar design compared to just getting copies of past bills. You’ll be better able to understand the customer’s load profile, which is particularly important for customers in areas with time of use rates. With this data, you may be able to design a better solar installation for their needs.

Again, as discussed in our previous article on this topic, you’ll need to be familiar enough with the utility company to know if this is something they offer, as well as where and how this data can be accessed.

### 3) Take a Picture or Make a Copy

Another great option is to have the prospect take a picture or their electricity bill and send it to you. This can be particularly good if they are less tech-savvy or having trouble remembering their login to their online account, but have a paper copy of their bill on hand. Scanning or copying it also works, depending on what’s easiest for the individual.

As Goldstein explains, “If you can have them take a picture of the bill with their smartphone and text or email it to you, that's often a good practice if they’re not as comfortable going on the website.”

You’ll want to ensure that they send pictures of all pages of the bill to make sure you’re not missing important information. And again, if you can get pictures of multiple months’ bills, that’s even better.

### 4) Authorize the Utility to Share Information Directly

Finally, in some cases, it’s possible to get the information you need for a great solar design directly from the customer’s utility. Where available, this is an excellent option since it doesn’t involve much time on the part of the customer. Plus, you can be confident you’re getting the right information since you’re getting it straight from the utility.

Typically, the customer will have to authorize the company to share that data on their behalf so you should be prepared to walk them through that process, which may involve submitting a form. Your company may also need to register with the utility as an authorized third party that can access this information.

If the utility company has one, you may be able to call a solar hotline to get their monthly kilowatt hours. Alternatively, some utility companies will share interval data (how much energy the customer used at specific, e.g. 1-hour, intervals throughout the billing period). This can be incredibly valuable in building an accurate load profile for the customer. You may also be able to access it through other third party companies that specialize in making this kind of data accessible.

PG&E in California allows customers to release their electricity usage data to third parties, which can be very useful for solar contractors.

## Build Efficient Processes to Get Utility Data Early

Whatever method the customer finds most convenient for sharing their data, it’s a good idea for your solar company to put in place processes to facilitate getting this information early so it can be taken into account in the solar quote you provide.

Exactly what that looks like will depend on your company’s structure and workflow. This might involve the salesperson making a pre-qualification call to confirm the interest of a particular lead and get electricity bill data as a first step before a formal consultation. Or, if your company has a dedicated role that helps qualify solar leads or book appointments, that person might take the lead on getting bill information at that stage.

Does your company also offer other services, like roofing, energy efficiency, or HVAC? If a customer expresses interest in getting solar in the course of getting other services, perhaps it makes sense to coach those team members to ask for the electricity bill at that point, so you can streamline the follow up process.

Electricity usage and utility bill data is a crucial first step to giving a solar lead an accurate solar quote and an appropriate solar design. While getting this information is a common initial barrier in the solar sales process, giving your prospect convenient options and putting in place an efficient process can help considerably. Following up quickly is crucial in closing solar sales so find the strategy that works best for them and you!

Has your company found other ways to efficiently get prospective customers bill data? Share your tips and tricks in the comments below!

Topics: Solar Utility Bill, Solar Sales

Utility bill information is a prerequisite for building an accurate solar design and quote for a prospective customer. If at all possible, you want to have this information before you meet with the customer so that you can have an accurate and compelling proposal and be able to sell more effectively.

As a solar contractor, you’ll likely need to walk the customer through the information they need to provide, so it’s important that you’re well versed in the data available from the customer’s electric utility company.

That includes knowing what the company’s bills look like and how to read them, how to navigate the utility’s website to access billing information, and what types of utility rates the company offers. This will help avoid getting inaccurate numbers or having to go back to the customer for additional information because you didn’t get what you needed the first time.

In today’s article, we explore some key things to make sure you know about the customer’s utility bill and the practices of their utility company to ensure you’re getting the bill data you need. In a subsequent article, we highlight different options and formats for getting customers’ utility bill data—since getting that information is a common initial barrier in the solar sales process.

## Where Can You Find the Customer’s Total Monthly kWh Usage?

Once you get your prospective solar customers’ electricity bill, you need to know what you're looking at. A critical piece of data you’ll be looking for is how many kilowatt hours the customer used in a given month and where this data is located on the bill. This is key because it will enable you to appropriately size the PV system for the customer’s needs and accurately estimate how much the customer will save with your solar design.

Often finding the total kilowatt hour consumption is straightforward, but other times it may require a little more work. Aurora Solar team member Elliot Goldstein encountered this firsthand in his prior role as Sales Team Lead for a leading residential solar company that sold to 16 U.S.

He explains, “Some utilities give you a 30 day historical average. You’ll then need to multiply that to get a monthly total. Others, like LADWP, give you the total kilowatt hour usage for every two months. So you literally need to divide in two. It really depends on the utility; you need to be familiar with the billing practices of the customer’s specific utility to avoid being tripped up by these kinds of nuances.”

## Does the Electricity Bill Include Historical Data? If So, Where?

Many, though not all, electricity bills include historical data showing how much electricity the customer has used in past months throughout the year. This is highly valuable data as it allows you to more accurately model the customer’s energy consumption. If your customer’s utility doesn’t include historical data, you may want to consider asking for their energy usage in more than one month.

 Software like Aurora, which accepts a variety of utility data formats and offers tools for estimating energy consumption in months you don’t have data for, can make your work easier. But like all modeling tools, the data you enter must be accurate in order to get accurate results. And the more months of data you can include, the more finely tuned your results will be.

It would be easy to overlook the historical electricity usage data (circled) on this sample bill from National Grid in Massachusetts. Being well versed with where to find what you need on the customer’s bill will help you get them the most accurate solar proposal.

## Is the Bill Only for Electricity or Are Other Utilities Included?

Another key thing to know is whether the utility company that serves this particular customer only provides them with electricity or whether they provide other services like gas, water, and sewer. If those services are listed on the same utility bill, that’s important to know and be able to point out to your customer to ensure you’re getting accurate information.

Many people don’t pay much attention to the specifics of their utility bill. If, for instance, they gave you their total charges for the month but that amount also included natural gas charges, your estimations of their electricity consumption and the size of PV system they need could be very off.

This is also a reason why it’s better to get a copy (or picture) of the customer’s actual bill, where possible, as it allows you to verify the accuracy of the information they’re providing.

An example utility bill from Fort Collins Utilities that includes both electricity and water charges.

## What Types of Rates Does the Utility Commonly Offer? Is the Customer on a Tiered or Time of Use Rate?

Another thing that can trip you up if you’re new to the industry is atypical electricity rates like tiered rates, which charge different prices for energy depending on how much the customer has used, or time of use rates, which charge different rates per kWh depending on the time of day it is used.

If you were to assume that they paid the same price for every kWh and attempt to work backwards from their bill cost when they are actually on one of these variable price plans you’d wind up with inaccurate energy consumption data.

Again, getting the actual electricity bill from the customer, rather than just a total number is helpful. If that’s not forthcoming, you’ll want to at least get confirmation of what rate plan they are on to avoid any incorrect assumptions.

An example electricity bill from Sacramento Municipal Utility (SMUD) for a customer on a time of use rate (indicated in sections 4 and 6).

In addition to understanding what information can be found on the bills of the particular utility company and what types of rates are common, you’ll want to be familiar with how to navigate the website to download one’s bill and energy consumption data.

You’ll want to know how things look from the customer’s end and how they can view their account so that you can walk them through downloading the necessary information if needed.

### Does the Utility Have a Solar Hotline? Can the Customer Authorize Third Parties to Access Their Energy Usage Data?

Another good thing to know is whether the utility has a solar or renewable energy hotline or whether it has an option that allows the customer to authorize them to release electricity usage data to you or another third-party entity directly.

Some utilities—like PG&E in California, or Alliant Energy in Iowa and Wisconsin—provide phone numbers that can be called to access historical energy consumption data for a customer.

“For example,” says Goldstein, “PG&E has a specific solar hotline. You can call this number with the account number of your homeowner and the line will read off their kilowatt hour usage over the last year.”

Alliant Energy provides a hotline for electricity usage data of solar customers and an option for customers to authorize the release of their data.

Similarly, a number of utilities allow customers to grant permission for the release of their data to you, or other parties, directly. This can be especially valuable as you may be able to get more detailed data about how much energy they use at specific intervals throughout the day (“interval data” often referred to as Green Button Data). Additionally, some companies, like Utility API, specialize in providing customer’s energy consumption data for utilities that support this kind of data release.

An example of how customers of Southern California Edison can authorize the utility to release their data to third parties, such as solar contractors. This kind of direct access can make your life easier since you don’t need to wait on the customer to send you the data—though you will need them to grant you access.

If you’re using a solar design software like Aurora that allows you to upload interval data, this will enable to you to get a much deeper understanding of the customer’s actual energy usage. This allows for the most accurate model of their pre- and post-solar utility bills.

Understanding these nuances of your customer’s utility company, its website, bills, and billing practices is an essential first step to ensure you get the right data from the customer and can design an accurate and compelling solar proposal.

It can be challenging to know all of these variations if your solar company covers a large area with many different utilities; in that case you may want to consider having different staff specialize in different utilities or have a designated person whose job it is to stay up to speed on this information.

Of course, knowing what data you’re looking for and where the customer can find that information is just the first step. It’s also good to have processes in place to make it as easy as possible to get that information from the customer, including providing a few different options. In a subsequent article, we’ll highlight different ways customers can provide you with the energy consumption data you need.

### Examining the Impact of Utility Rate Trends on Solar Savings and Design Best Practices

Net energy metering (NEM) policies have played a crucial role in making residential solar installations a good investment for homeowners in the United States. However, as installed solar capacity has increased, many utility companies have introduced changes to their NEM programs that reduce the value of distributed solar.

Using Aurora's proprietary solar financial analysis tools, we conducted a large parametric study that analyzed over 45 million scenarios to determine how these new programs impact solar customers’ savings across the United States. The study analyzes the financial impacts of specific billing mechanisms, as well as the cumulative impacts of different combinations of these mechanisms as implemented by utilities in different states. The policies evaluated slightly diminish the financial value of installed solar but also promote larger system designs in certain circumstances.

Please note: When you click the link, a pop-up should appear allowing you to enter your contact information to download the report. If this does not occur it may be a result of a pop-up blocker. In this case, we recommend opening this page in the Incognito or Privacy Mode of your browser, which will prevent any conflicts with your cache, cookies, or any browser extensions.

Net energy metering (NEM) policies play a crucial role in making residential solar installations a good investment for homeowners in the United States, so it’s important that solar contractors have a clear understanding of them. This is particularly true now, as many electric utilities have begun introducing changes to their NEM programs that reduce the value of distributed solar.

We’ve previously written about changes to net energy metering policies but we’ve been hard at work conducting research to determine exactly how different policy changes affect customers’ utility bills and solar savings. In fact, we’ve recently completed an extensive study with over 30 pages of detailed analysis on the financial and design implications of NEM changes around the country!

In this article, we are excited to explain how some of the common utility revisions to net metering impact solar customers’ savings and bills. In a subsequent article, we delve into how some of these policies result in new solar design best practices in order to maximize your customers’ solar savings.

### Standard Net Metering

Standard net metering rules have a straightforward theme - every kilowatt-hour (kWh) of excess solar energy sold to the grid is valued the same as every kWh of energy purchased from the grid to use in the house. Tiered and time-of-use rates complicate the math slightly but, for any given hour, a solar homeowner who exports 10 kWh would receive the same dollar amount of credits as they would have been charged by the utility if they had consumed that amount of energy from the grid.

However, the closure of initial net metering programs, whether due to the utility reaching a specified installation capacity limit or as a result of a legislative change, has brought about a variety of new policies that chip away at some of the traditional net metering rules. These include:

#### Non-Bypassable Charges

California’s NEM 2.0 program features non-bypassable charges, a portion of the electric rate that customers with solar pay for but cannot offset with solar energy production. These charges both add to the customer’s bill by virtue of being non-bypassable and slightly devalue their exported solar energy.

#### Percentage Reduction of Exported Value

Some utilities such as NV Energy have instituted a percentage-based reduction in the value of solar energy exported to the grid. Under these policies, customers lose a percentage of their credit for excess energy. For example, under a 10% reduction, if the rate schedule specified $0.20/kWh electricity price, then the customer would receive only$0.18/kWh exported to the grid. The exact percentage reduction depends on the terms in place when they interconnect to the grid.

#### Flat Export Rates

Rather than tying the value of exported kWh to the retail electric rate, some utilities have implemented a flat export schedule similar to a Feed-In-Tariff (FIT) or Buy-All, Sell-All policy. The difference between FIT compensation schemes and NEM with a flat export rate is that customers on flat export rates net up their energy first (offsetting regular-rate usage from the grid) before exporting their excess energy, rather than selling all energy to the grid at a flat rate.

#### Not All PV Production Is Reduced in Value

If we look at an overlay graph of household energy consumption and PV production, there are three distinct regions:

Consumption from Grid
Consumption from PV
Excess PV Production

Customers are charged for the kWh area in blue and receive no charge for the kWh area in green. The kWh area in yellow indicates excess PV production that is exported to the grid, and the hourly rules listed above only change the credit rate for the yellow region. Customers who can align their production and consumption levels will be less impacted by the rate changes. We’ve found that anywhere from 20% to 60% of the energy produced by a PV system is in excess of concurrent consumption.

#### House Size Matters

Households with larger energy consumption and a larger PV array have production and consumption curves with similar characteristics to smaller buildings, simply scaled up. However, this means that the number of kWh exported under reduced credit rate is higher for higher-consuming locations. As a result, if a household consumes 18,000 kWh per year and offsets 90% of their energy from solar, they will lose more credits to these new policies than a household that consumes 9,000 kWh per year with a PV system that offsets 90% of their energy.

#### Credit Expiration

While NEM customers can typically take excess production credits from summer months and apply them to energy charges in winter months, most NEM programs stipulate that credits earned from excess production can’t be carried over indefinitely. A few examples of these rules are as follows:

PacifiCorp in Utah has the most common setup, where customers pay each month for any net energy consumption and excess NEM credits are expired once a year at the end of a specified month—March in this case. Other utilities stipulate other times of the year which are less advantageous; December expiration means that customers might have to pay a bill in January and February, and an expiration in October would mean that the customer has to pay most of their bills for the entire winter season.

Some Investor-Owned Utilities, such as Pacific Gas & Electric in California, stipulate that excess credits are expired at the anniversary of when their PV system received permission to operate (PTO), or every 12 months. These NEM customers are billed only once per year (paying only for their net consumption after all credits are applied), however, so the end result is similar to customers who have indefinite credit holding.

Other utilities don’t let customers carry credits from one month to the next at all, and instead pay for excess any kWh credits remaining at the end of the month at a much lower, close-to-wholesale rate (this is typically called net surplus compensation). The rate is usually based on the utility’s generation costs and is about a third or less of the overall electric rate.

Here’s a visual example of how the different credit expiration rules play out given the provided charges and credits built up over a year, ignoring fixed and minimum charges. (It should be noted that these examples represent PV systems the Northern Hemisphere; in the Southern Hemisphere the same principles apply but the months in which systems produce more or less energy will be different due to differences in seasons.)

The net value of all the charges and credits amounts to $10 over the whole year, which is the lowest a solar customer could pay. The customer with an annual billing cycle pays only$10, since their excess credits can be applied to all other months.

The customer with credits expiring in December can build up a surplus set of credits from April to August when their PV system is likely to be receiving more sun and producing excess energy, and then use these credits to offset their energy use in September through December when their PV system is likely to be producing less. However, they lose their credits at the end of December, so they still have to pay for electricity charges in January, February, and March, which amount to $90. The customer with credits expiring in February gets to use their surplus credits in January and February as well, which cuts their bill paid down to$20, almost as good as the customer with the annual billing cycle.

If a customer doesn’t have credit carryover, they end up paying for net usage in any month that they build up charges, amounting to $195 in our example. As a solar contractor, it is important to be wary of the NEM rules in the customer’s local area to ensure that you accurately portray customers’ solar savings. Software like Aurora, which has tools for modeling utility rates and conducting financial analysis, makes this easy. ### Additional Resources for Understanding These Rate Changes In today’s article, we’ve covered some of the key ways that NEM programs are being revised and what they mean for solar customer’s bills. In a subsequent article, we’ll delve into the new solar design rules-of-thumb that we have identified to maximize customers’ solar savings under different NEM policy types. We’ll also investigate how future updates could impact some of the trends we’ve found. In the meantime, if you’re looking to deepen your expertise in this area, you can check out the full findings of Aurora’s extensive research on this topic (we analyzed over 45 million scenarios!) in our white paper. We also invite you to tune in to our upcoming webinar on June 27 (link below!) where we will discuss these new policies, who they impact, and new PV design considerations from these policies. Topics: Solar Utility Bill The promise of lower utility bills is typically a driving factor for individuals and businesses considering installing solar. Since the amount solar will save a customer depends heavily on local utility rates and solar compensation (e.g., net metering) policies, as a solar contractor, you need to have a solid understanding of both. You also need reliable systems to accurately assess customers’ solar savings. Time of use rates–which charge different prices for electricity depending on the time of day–add additional complexity to determining solar savings and finding the best solar design for the customer. This is because, for net metered solar customers, the value of the energy their PV system produces also varies depending on the time it is sent to the grid. However, time of use rates are becoming more common, particularly in areas with high levels of installed solar. For instance, in California, all commercial, industrial, and agricultural customers are already required to be on a time of use (TOU) rate plan and residential customers will be transitioned to these rates starting in 2019. Under these conditions, how can solar contractors design PV systems that maximize their customers’ solar savings? There are several strategies that can help you design the best PV system for your customer’s TOU rate. Applying them can translate into measurable differences in solar savings, which can help make your solar proposals more competitive. ## 1. Start with integrated system design and financial analysis tools One of the first considerations for finding the best design for TOU rates is to make sure you’re using software tools that will let you easily and accurately determine how different design choices will impact the financial returns of your project. The structure of TOU rates can vary widely, with important differences in the time periods when different pricing applies. TOU rates can be very favorable for solar customers if peak price hours coincide with when PV systems produce the most, as was historically the case in California. In other cases, like when peak price hours occur in the evening, TOU rates can reduce solar savings. This is the case for new, later TOU rates being rolled out in California (a depiction of this change for a San Diego Gas and Electric rate is shown in Figure 1 below). Figure 1. An example of different TOU rate structures. The chart on the left reflects SDG&E’s DR-SES rate, a special time of use rate for solar customers, prior to changes implemented December 1, 2017. On the right is the newer version of the same rate which went into effect December 1, 2017; peak hours were shifted to the evening. To get an accurate understanding of your customer’s savings, your financial modeling tools must take into account how much the PV system will produce at different times, combined with the exact structure of your customer’s TOU rate. Beyond that, integrated solar design and financial analysis software can make a big difference in your ability to explore a variety of options to maximize your customer’s savings. This will allow you to quickly see how system design changes or alternative utility rates (discussed below) affect project economics. Figure 2. An example of a time of use rate in Aurora Solar’s database. Each number represents a different price tier; you can see how energy prices vary by time of day, as well as seasonally. Aurora has an extensive rate database–over 3,000 utilities and over 17,000 utility rates around the world, plus the option to add new ones. Combined with Aurora’s solar design and financial analysis tools, this facilitates informed TOU design decisions. ## 2. Get smart about post-solar rate choices A second key consideration for saving your customer the most money with their solar installation is to familiarize yourself with all of their utility rate choices and assess the financial implications of different rates. In some cases, the solar customer only has one potential rate that they are eligible for–but other times (as for some PG&E customers) there are multiple options. Choosing the best rate can significantly improve the economics of the project. If your customer has a choice between rates make sure to explore the financial implications of different options. In a case study of a solar design for a medium-sized office building in PG&E territory in California (illustrated below), we found that choosing a different post-solar rate resulted in over$42,000 in additional savings over the lifetime of the project.

In addition to the fact that increased savings can make your proposal more compelling for the customer, this kind of expertise can distinguish your company in the sales process.

Figure 3. A case study of a solar design for a medium-sized office building in PG&E territory in California where there were multiple post-solar rate options. In this case, choosing the E-19 TOU rate resulted in over $42,000 more savings for the customer over the lifetime of the project and a multiple percentage point increase in the Internal Rate of Return (IRR) compared to the A-10 TOU rate. ## 3. Explore alternative azimuths for your PV design Finally, solar designers can also experiment with different azimuths (or orientations) for their solar design in order to adjust the timing of some of the array’s production. For example, if a system is facing west, it may produce less overall but have more production later in the day. In cases where peak hours are late in the day, there may be times when this makes sense. Figure 4. An example of the production profiles (the distribution of energy production at different times of the day) of PV systems with different azimuths. Again, using an integrated program for solar design and financial analysis makes assessing the merit of these kinds of design changes a lot easier–because you’ll more easily be able to compare the value of the solar energy produced, overall system production, and other financial metrics like payback period. The rise of solar energy and other broader changes in the electricity grid are spurring the exploration of new rate structures by utilities around the country. While time of use rates may not have arrived in your area yet, they are likely to be a more common phenomenon in the future. Getting smart about how to maximize your customers' savings under time of use rates can help you stay ahead of the curve. Topics: Solar Utility Bill Think time of use rates don’t affect you? Think again! While the shift to a time of use rate structure may not have happened in your area, as solar development grows around the country, more and more utilities are adopting this approach as part of their energy payment structure. That means it’s time to get smart about how you approach solar sales conversations when time of use rates apply. Customers on time of use rates are charged different prices for their electricity depending on when they use it, with higher prices during times when there is higher demand. (Typically, for net metered solar customers, this means the value of the energy their PV system produces also varies depending on the time it is sent to the grid.) In California, all commercial, industrial, and agricultural customers are already required to be on a time of use plan. And starting in 2019, all residential customers will be defaulted to time of use rates unless they actively choose a different rate. But time of use rates are not just a California phenomenon. A review of Aurora’s extensive database of current rate plans around the country revealed nearly 2,000 different time of use rate plans across the country for different types of customers. While California has the most pervasive application of time of use, we found multiple utilities in almost every state in the country with some kind of time of use rate structure. Whether time of use rates are already common in your area or you want to be prepared for future developments, it’s a good idea to learn how to adapt your solar sales conversations to account for time of use rate structures. In today’s article, we discuss five tactics that can help solar contractors effectively address time of use rates in solar sales conversations. ## 1. Make sure your prospect understands time of use rates. First, it’s important to ensure that your customer understands what time of use (TOU) rates are and how they impact their bill. For many customers, making sense of the different parts of their electric bill can be complicated–so an unfamiliar billing structure like TOU seem daunting to understand. TOU rates don’t have to be confusing, however. When you explain them to a homeowner look for opportunities to relate them to something they already understand. They’re probably already familiar with time-dependent pricing in other contexts, like parking rates coinciding with a big event. In Aurora’s primer on how TOU rates work, we liken them to movie ticket pricing. Moviegoers pay less for a matinee show when there is lower attendance, just as TOU customers pay less at times when during periods when there is typically less energy demand. Explore different analogies to see what explanation resonates best with your customers. Relating TOU rates to other time-variable pricing customers may already be familiar with–like movie tickets–can help make them easier to understand. The key point to emphasize is that the price the utility charges for each kilowatt-hour (kWh) of energy consumed will now vary according to the time of day it is consumed. Each TOU rate designates different periods of the day when different rates apply; there will be specified peak demand times where the rate will be higher than during the off-peak demand times. ## 2. Set yourself apart with TOU expertise. Giving your customer insights into how TOU rates can affect them given their usage can help you distinguish yourself from the competition. Insight selling, the ability “to leverage a deep understanding of customers to establish trust and rapport,” positions you as a source of value for them during the initial selling process and beyond. Demonstrating a comprehensive knowledge of your customer’s specific TOU program and how it applies to their unique situation will go a long way towards establishing yourself as the trusted advisor during the sales process. For example, you’ll want to be able to explain to your customer exactly when different electricity prices apply. You should also know if their rate structure varies depending on the season or day of the week (many TOU rates have different schedules for winter and summer or between weekends and weekdays). An example of a time of use rate structure from California utility PG&E (E-TOU rates option A during the summertime). As you can see, this rate structure applies for the summer season, while another structure applies in other months. Source: PG&E. (Relatedly, you’ll also want to be prepared to explain how their net metering credits are treated under their particular utility rate and state policies–and these policies are often in flux, so stay up to date! For example, under California’s NEM 2.0 policy, credits from solar energy can only offset part of their energy charges–regardless of the value of that energy based on the TOU period when it was produced.) ## 3. Offer insight on what to expect given their energy usage patterns. A customer’s bill on a TOU rate is highly dependent on when they consume energy throughout the day, but many customers may not have a clear picture of how their energy consumption varies at different times. Another powerful way you can add value for the customer and demonstrate your company’s expertise is to give them a better understanding of their current energy usage patterns. Aurora provides a number of ways you can do this. Aurora offers multiple ways to model your customer's energy load profile. Sharing that load profile with customers can offer valuable insight into their current energy consumption patterns and how TOU rates may affect them. First, if your customer’s utility company provides green button (i.e., interval) data for customers–which provides a granular view of how much energy they consumed during every 15-minute interval in the billing period–you can upload that data into Aurora. Aurora will then construct a load profile for the customer based on their actual usage at specific times throughout the day. An hourly load profile showing the actual amount of energy a customer used at different times of day during the summer months, constructed with Green Button data uploaded into Aurora. Second, even if green button data isn’t available, Aurora can model customers’ hourly load profiles based on their electricity bill(s) or monthly kWh consumption. Aurora extrapolates a load profile for residential customers by taking into account local weather data, as well as building characteristics–like whether they have air conditioning, electric heat, or energy-efficient lighting. (For commercial customers Aurora develops load profiles based on the typical usage for that building type.) This can be a great way of helping your customer understand how they currently use electricity. (And, paired with data on how much energy their solar PV system will produce at different times this also allows you to show how much solar will help them save, as we discuss below.) An example of an estimated residential load profile created in Aurora. The different colors represent energy consumption from different building characteristics, like air conditioning and lighting. You could also offer insight into future energy decisions that might coincide with their solar purchase. For instance, if your customer is considering buying an electric vehicle to go along with their new solar installation, you could use Aurora’s energy consumption tools to show how their load profile would change (you could even enter the specific EV model). ## 4. Use financial analysis tools that clearly show the impacts of TOU rates. Perhaps the most important element of selling a solar installation in an area with TOU rates is to be able to clearly show how your customer’s solar savings will be impacted by their particular utility rate. Aurora's financial analysis tools make it easy to show prospective customers how much they'll save by installing solar. Make it clear to your customer that, under TOU rates, the value a solar design provides depends on more than just how much total energy it produces. They have to consider the value of that energy based on when it’s produced. Aurora’s performance simulation tool calculates how much a particular solar design will produce at different times of the day and year. Aurora also has a database of over 3,000 of utilities and over 17,000 utility rates around the world (and if your particular rate isn’t present, you can easily add a new one). The customer’s specific utility rate is taken into account in Aurora’s financial analyses, allowing you to accurately calculate their pre- and post-solar bills. If a TOU rate is selected, Aurora will take into account the customer’s net usage at different times (based on the system’s energy production and the customer’s energy usage) to determine their post-solar utility bills. Plus, if there are multiple utility rates that the customer could qualify for after installing solar, you could run analyses to show them which would save them the most. If TOU rates are optional in your area, you can advise them on whether opting-in makes sense. ## 5. Highlight how your design is better. It’s one thing to talk about the difference a design can make and another to show it (show, don’t tell). You can experiment with different solar designs and analyze how much they save the customer to find the best option given their rate. This will allow you to show your prospect why the design you propose saves them more. Design changes can have a big impact. For instance, in a rigorous study of over 600 solar projects designed in Aurora and over 900,000 design variations, Aurora researchers demonstrated that adjustments to the orientation (west-facing because panels receive more late afternoon sun, which coincides with peak energy prices under many TOU rates) and size (larger systems mean better net present value) can help improve the financial returns of systems on a TOU rate structure. With Aurora solar design and sales software, you can model a variety of designs for your customer and see which offers the best savings given their utility rate. This is particularly helpful for customers on TOU rates who may save more with a design that produces more energy during hours with peak pricing. Given the steady growth of solar and the accompanying adoption of time of use rates, it’s wise to prepare yourself for a post-TOU solar market. The better you are at explaining TOU rates in your sales conversations, the easier it will be for customers to see the value your proposed solar installation will provide. And although TOU rates can be complex, for the solar salesperson who is prepared, they can present an opportunity to demonstrate expertise and stand apart from the competition. Topics: Solar Utility Bill Net metering (also called Net Energy Metering or NEM)—which allows solar customers to sell excess solar energy back to the grid to reduce their bills—is a crucial policy for going solar in the U.S. Without it, solar adoption would not be as widespread as it is today. However, in some areas, the proliferation of distributed solar has lead to an excess of solar energy being sent to the grid in the middle of the day, which is changing the economics of energy production. As utilities and grid operators grapple with distributed grid, they are introducing a number of changes and reductions to the availability of net metering. In today’s article, we explain the variety of ways that net metering is changing around the U.S. so you can accurately predict your customers’ savings and explain how billing from their local utility will work after they install solar. # How Traditional Net Metering Works Under traditional net metering, customers are only billed for their net consumption over a billing cycle, meaning that any energy they consume from the utility can later be offset by energy production from their solar installation. As a result, even though a customer’s solar installation only makes power for them during the day, they can use excess energy production during the day to cancel out their nighttime usage and drop their electric bill down to nearly zero. In this most basic form of net metering, the electricity sold to the grid is valued at an equal rate to electricity bought from the grid. Second, the utility bill is entirely comprised of energy charges; the amount the customer is billed for is directly connected to their energy usage alone and, importantly, those charges can be offset by solar production. In this scenario, there are no fixed energy charges (charges which cannot be offset, and which may or may not correspond to the amount of energy used). Finally, credits from excess solar generation can be applied to future months indefinitely. # How Is Solar Net Metering Changing? Changes to net metering policies fall into three general categories: 1) changes to how long excess generation credits can be carried forward and applied to future energy charges, 2) the application of fixed energy charges which cannot be offset with solar energy credits, and 3) changes to the value of electricity sold to the grid from a solar installation compared to the value of electricity bought from the grid. Credit Expiration: • Some utilities specify annual credit expiration. The billing year may end on a specific date or be based on when the system was installed. During the one year billing period, a customer’s excess generation credits can be applied to future months. At the end of a customer’s annual period, any excess credits are lost. Customers may receive a small compensation based on the wholesale rate of electricity for their excess generation. • A handful of jurisdictions have taken further steps, with monthly credit expiration. Customers in these programs lose excess credits at the end of each month and receive wholesale compensation. Fixed Charges: • Most utilities have fixed or minimum bills for customers. These are tabulated separately from energy charges and in many cases can’t be offset by excess solar production. • Some utilities, including the three largest in California, specify a portion of the electricity rate as non-bypassable. This means that the customer is always charged for a portion of the energy they buy from the grid, regardless of whether they produce enough solar energy to offset it at a future time. Value of Electricity: • Some utilities specify a reduced value for electricity sold to the grid, devaluing the energy production from the PV system. This is usually specified as a percentage reduction - the utility might credit the customer only 85% of the value of an equivalent amount of kWh bought from the grid. • Some utilities specify a lower, fixed value for electricity sold to the grid; this means that regardless of the customer’s current tier or the time of use (TOU) period, the customer receives a specified fixed rate for their exports. In the next section we discuss each of these utility bill schemes in greater depth. # Net Metering Credit Expiration ## Annual Credit Expiration and Net Surplus Compensation Annual credit expiration rules are common but weren’t a component of original net metering policies. In pure net metering, a customer can pass excess kWh or dollar credits to future months indefinitely—but with an annual credit expiration or “true-up,” any excess credits are expired annually. Customers usually receive some sort of compensation for excess electricity generated, often called “Net Surplus Compensation,” which reflects the cost savings for the utility company for those kWh. This is usually a small compensation, around$0.03 - $0.05 per kWh. Most utilities have a credit expiration time at the end of December or March. When credits are expired in March that means the customer can build up a “bank” of credits during the summer months when PV systems produce more energy. As a result of annual credit expiration, most installers will typically aim to just offset the customer’s bill; any excess production beyond that would result in little benefit to the customer. ## Monthly Credit Expiration A more extreme version of credit expiration involves netting out and compensating excess kWh at the wholesale rate on a monthly basis. This is substantially less favorable to the customer, since they can’t bank excess credits during the summer to apply to winter months. # Fixed Charges ## Minimum and Fixed Bills Fixed and minimum utility bills are a common portion of many utility rates. Simply put, a customer may have a fixed charge added on top of their charges for electricity. Alternatively, if their charges are below a certain level, they still have to pay a minimum connection amount (minimum bill). Many net metering policies specify that fixed charges and minimum charges can’t be offset with excess solar PV production or with excess production credits from previous months. This means that many solar customers will still have a$10-$20 monthly charge from the utility even if they have no electric charge or even receive credits. ## Non-bypassable Charges Non-bypassable charges, introduced in California’s NEM 2.0 policies, are a portion of the utility rate that is designated as irreversible. When a customer purchases electricity from the grid, some of it is designated as an energy charge, which can be offset by future energy credits, and another portion is set aside as non-bypassable meaning that those charges can’t be reversed. These charges can pile up; solar customers with non-bypassable charges will see monthly bills often ranging from$10-$35 higher than they otherwise would have. # Reduced Rates for Solar Energy Production ## Reduced Value Exports This variation of net metering reduces the dollar value of electricity sold to the grid by the customer. This means that if a customer sells solar energy to the grid, they only receive 90%, 80%, or as low as 60% of what they pay the utility for the same amount of electricity. Most utilities that have a reduced-export policy phase it in over different tiers, based on when the customer signs up or has an approved application. Tiers fill up once a certain amount of distributed generation capacity has been added to the grid. • New York’s VDER compensates solar production at roughly 100%, 95%, and 90% of the retail value of electricity across its 3 tiers. • Nevada’s NMR-405 policy has four tiers at 95%, 88%, 81%, and 75% of the retail value respectively. • Massachusetts has a harder cap; once the first cap is reached, future projects receive 60% of the regular credit value. Many of these rates are also tied to a 20-year limit for this credit policy. ## Flat Export Rates Net metering with a flat export rule is another adjustment that typically reduces the value of electricity exported to the grid. In this case, when the customer buys energy from the grid the price of electricity is based on their regular rate schedule, including time of use and tiered policies. Under these rate structures the cost of electricity from the utility varies depending on when it is consumed or how much total energy the customer uses, respectively. However, when these solar customers sell energy to the grid, the price they are paid for that electricity is set at a specified, non-variable rate depending on their net metering policy. • PacifiCorp in Utah specifies a flat rate for customers. The rate for purchasing electricity is a tiered rate that varies based on the customer’s usage level, but is around$0.09/kWh for residential customers and $0.06/kWh for commercial customers. The residential rate is close to the lower tier of the regular retail rate, but is lower than the second tier. • Some utilities only offer the avoided cost rate of electricity, perhaps$0.03-$0.05/kWh. ## Zero Export Zero export rules are the most extreme revision, or in this case elimination, of net metering policies. • Zero-export rules, or self-consumption rules, dictate that a customer cannot export electricity to the grid. The inverter shuts down the system when there is no more load to support. This is usually found in areas with high levels of distributed solar, such as Hawaii and Australia, where additional solar production may cause grid stability issues. • Zero-export policies incentivise the usage of smaller systems and energy storage solutions. It should be noted that changes in each of these categories may be mixed and matched depending on the utility. For instance, a particular utility rate might include both annual credit expiration and reduced export rates. As solar and other forms of distributed renewable energy become a larger share of the electricity production in the U.S., these variations of net energy metering are likely to become more common. Further, as utilities continue to explore approaches to cover their operating costs and the costs of maintaining the electric grid, additional new rate structures for solar customers may emerge. However, understanding these core changes will give you a strong foundation for interpreting new utility billing options that your solar customers may encounter. For easy reference, get your free copy of our complete guide to net metering variations infographic (shown below)! Topics: Solar Utility Bill In the last few months, utility rate changes have gone into effect with important implications for current and prospective solar customers in the San Diego area. San Diego Gas & Electric’s new rates became active on December 1, 2017 (right on the heels of standard rate increases implemented on November 1). The most notable of these changes are SDG&E’s new hours for peak pricing in time of use (TOU) rate schedules: 4pm - 9pm, adjusted from previous peak hours of 11am - 6pm. This is significant for solar customers because it shifts the peak cost of electricity from the middle of the day, when many solar customers are exporting energy to the grid, to the afternoon and evening when PV systems are shutting down for the night. This will cut bill savings from installing solar—but by how much? In today’s article, we explain what’s new under these rate changes, and dig into what this means for solar savings. Using hundreds of SDG&E territory solar projects designed in Aurora, we analyzed the financial implications of these changes and identified the key takeaways that San Diego area solar contractors and their customers need to know. Even if you aren’t in SDG&E territory, getting a sense of these time of use schedule changes may be a good idea. With the highest levels of solar capacity in the U.S., California is grappling with grid management challenges that other states may eventually face as they approach higher levels of solar. Because solar installations produce energy during daylight hours but not in the evening as people are coming home, there is high demand for energy in evening hours. (This phenomenon is known as the duck curve , because of the duck-like shape exhibited in graphs of net electricity load, as illustrated in Figure 1 below). As a result of changes in energy consumption and production patterns as more solar is added to the grid, utilities like SDG&E are implementing changes to time of use rates to price electricity higher when there is higher demand. Figure 1. The increasing duck curve in California, from 2012 to 2017, as more solar has been added to the electric grid. Source: U.S. Energy Information Administration. What’s Changing Under SDG&E’s New TOU Rates? • These changes are the first implementation of SDG&E’s General Rate Case Phase 2 (a process with the California Public Utilities Commission to determine adjusted rate schedules for different classes of customers). • The new TOU periods reflect changing trends in the times when there is the greatest electricity demand on the grid. Specifically: • The higher “Summer Season” rates now run from June to October rather than May to October • Peak TOU Pricing is now from 4pm - 9pm • The following residential electric rates have revised TOU periods: • TOU-DR • DR-SES • EV-TOU • EV-TOU-2 • The following commercial electric rates have revised TOU periods: • A-TOU • TOU-A • AL-TOU • A6-TOU • DG-R • OL-TOU • For existing solar customers: residential customers can keep their existing time of use schedule (e.g., summer peak hours of 11am - 6pm for DR-SES) for five years after permission to connect, and commercial customers can keep their rates for ten years; however, the cost of electricity in different time periods is changing (see below). To more clearly understand the financial implications of these changes, let’s look at the case of summer rates under DR-SES, the special TOU rate for solar energy systems. In the original rate schedule (Figure 2 below), peak hours were from 11am - 6pm, and the cost of electricity during peak hours was a little more than twice semi-peak pricing. Figure 2. Time of use periods and corresponding electricity prices under SDG&E’s DR-SES rate (a special time of use rate for solar customers) prior to changes implemented December 1, 2017. (Note that$/kWh rates are rounded to the nearest cent.)

Under the new changes, both new solar customers and existing, grandfathered customers are affected. The DR-SES for new customers keeps a similar price difference between peak and semi-peak hours, although the peak hours are shifted later in the day when less PV production occurs (see Figure 3 below).

Figure 3. Revised time of use periods and corresponding electricity prices under SDG&E’s DR-SES rate, effective December 1, 2017 for systems permitted after March 2017. (Note that $/kWh rates are rounded to the nearest cent.) For grandfathered customers, the hours for each time period remain the same, but the cost of energy during these time periods has changed (see Figure 4 below). SDG&E has slashed peak pricing, meaning customers get less for exports. SDG&E has also increased semi-peak pricing to just a few fractions of a cent less than peak pricing, meaning customers have to pay more for electricity imported. Figure 4. Updated electricity prices for existing SDGE&E solar customers who retain their existing time of use periods under the DR-SES rate as a result of grandfathering policies. (Note that$/kWh rates are rounded to the nearest cent.)

How Are Solar Savings Impacted by These Changes?

In order to examine how the proposed rate changes impact the utility bills of existing solar customers, we looked at ~200 solar projects designed in Aurora that used customer’s green button data and a reasonably sized PV system.

Using Aurora’s solar financial analysis features, we assessed how customers bills would change under the new utility rate structures (a similar methodology to our analysis of NEM 2.0 policies).

### Impact on Savings for New Solar Customers

Let’s first look at the impact of the delayed peak hours for new systems that are not eligible to be grandfathered in under the old time of use schedule:

Figure 5: Annual bill increases for solar customers on SDG&E’s DR-SES rate as a result of new time of use rates implemented December 1, 2017 (based on financial analysis of real solar designs created in Aurora). The average bill increase is shown for different ranges of net energy consumption.

Figure 5 shows the average annual bill difference for solar customers with different energy offset levels (each bar represents a certain range of net energy consumption). Systems on the left tend to produce more power than they consume, while systems on the right offset less of the owners’ energy consumption.

What this shows is that new systems designed to meet or exceed the customer’s energy usage will continue to have similar bill savings under the new DR-SES rates. However, designs that don’t entirely meet the customer’s energy needs may be a harder sell, since the bill savings could be $100 to$500 less per year.

While that does sound bad, it isn’t going to make it impossible to sell a PV system to a homeowner even if you can’t fit enough solar to fully offset their energy consumption. Of the proposed systems that would see a reduction of $250 or more in utility bill savings, the pre-solar utility bills were typically at least$2,500 per year; this means that these PV systems' returns are decreased by about 10% or less. So, even with these less favorable utility rates, a new solar customer will still see at least 90% of the savings that a customer who signed up a year ago will be getting.

### Impact on Savings for Existing Solar Customers

Existing customers who received permission to operate (PTO) before July 31, 2017 are allowed to keep their existing TOU periods for five years after their PTO date. After five years, they will be transitioned to the prevailing TOU schedule. However, the utility may change the relative value of energy in each TOU period, as they have done in this case.

Existing SDG&E customers on DR-SES will now have almost identical electrical rates of $0.429/kWh during peak and semi-peak periods (semi-peak is 0.014 cents/kWh less), rather than$0.26 for semi-peak and $0.53 for peak hours. This means that DR-SES customers will receive less money for exported energy in the middle of the day, and pay more in the “shoulder hours” for any imports. We analyzed the same 200 systems, comparing their bills under the existing DR-SES to the new DR-SES for grandfathered systems. Here’s what we found: Figure 6: Annual bill increases for existing solar customers on SDG&E’s DR-SES rate, who retain the same time of use hours, but with new electricity prices for each time period, effective December 1, 2017. The average bill increase is shown for different ranges of net energy consumption. Once again, customers using less than 500 kWh / year with solar should see no change in their bill, and likely won’t see much of a change at the end of their five-year grandfathering period. However, customers with larger amounts of consumption will see their bill increase by about$120 for every 1000 kWh of net consumption. For many of these homes, that amount is small compared with their pre-solar utility bills.

There are also a few notable sites that have a high annual net energy consumption but would not see a change in their utility bill. Most of these are relatively small systems that only offset 40-60% of their annual energy usage with solar. The reason that these don’t have very large bill increases is because the amount of net exports they have during the day tends to be low, so they aren’t hit as hard by the decrease in credits for export during peak hours.

Although these time of use rate changes are not favorable for solar customers, it is good to know that the impacts will be minimal for systems that offset all of a customer’s electricity usage. Where possible, this means that San Diego area solar contractors should design systems that offset as much of a customer’s energy load as possible in order to maximize their solar savings. One benefit of using Aurora is that you can easily analyze the financial impact of different solar designs based on the customer’s utility rate so you can be sure you’re offering prospective customers the best option.

With utilities increasingly exploring rate changes for solar customers, these SDG&E changes may offer insights relevant to customers in other regions as well. Keep following the Aurora Blog (or subscribe for weekly updates!) to stay in the loop on other significant utility actions.

Is there another rate change you want to understand better? Let us know in the comments below!

Key Takeaways

• The new rates won’t drastically change the returns for systems that offset all of the customer’s energy usage.
• New solar customers whose energy consumption is not fully offset by the solar system will see a 5 - 10% reduction in their bill savings. Solar will still have a positive financial impact but systems will take longer to pay off.

#### Quantifying the Financial Impact of PG&E A-6 Rate Changes

To put this in perspective, let’s compare the customer’s bills under A-10 and A-6 rates. As you can see in Table 3, installing solar initially saves the customer 61% of their original bill, even on a rate with demand charges. However, the customer would save an additional 15% if they were still eligible to switch to PG&E’s A-6 rate without demand charges, saving a total of 76% compared to their pre-solar bills under their original rate.

Table 3: Utility bills under rate A-10 before and after installing solar, and under the A-6 rate after installing solar.

Clearly, demand charges have a significant impact on the financial returns from installing solar. And, as you can see, PG&E’s decision to limit eligibility for the A-6 rate , had substantial negative impacts on project returns for commercial solar customers.

As the proportion of renewable energy on the grid increases, we can likely expect more utility rate changes like this around the country. This is because demand charges are one of a variety of billing approaches intended to provide price signals to encourage customers to reduce peak demand. Already, a number of utilities are experimenting with changes that apply demand charges to residential customers . While it is hard to predict exactly what changes your local utility will make, if you’re thinking of installing solar, it may make sense to do it as soon as possible so you can take advantage of current rates.

#### Key Takeaways

• Demand charges can comprise a significant proportion of electricity bills for commercial customers.
• Solar installations do not consistently reduce demand charges, because the timing of high demand periods may not coincide with when solar panels are producing energy.
• PG&E’s A-6 rate for commercial customers does not include demand charges. Prior to changes that went into effect in April 2017, which lowered the maximum level of demand for eligible A-6 customers from 500 kW to 75 kW, this rate was an appealing option for commercial customers who installed solar.
• In our case study, we find that switching from the A-10 rate to the A-6 rate, as customers could do prior to April 2017, results in an additional 15% savings from solar.

1Notes on methodology:
We designed a hypothetical solar installation for the building (shown in Figure 1) using Aurora’s software. We used sample Green Button Data for this type of commercial customer provided by PG&E to develop a load profile, and then used Aurora’s energy performance simulation and financial analysis features to assess the impact of solar on the customer’s bills under each scenario.

Topics: Solar Utility Bill

Net Energy Metering (NEM) has become the standard policy in the United States for compensating solar customers for the energy they contribute to the grid—and it’s a key reason for the dramatic growth of solar energy, particularly in California.

Starting this year, a new approach to net metering is being rolled out across California, commonly known as NEM 2.0.

As California continues to set new records for solar energy, it is also developing new policies for how to accommodate higher levels of renewables on the grid. Starting this year1, a new approach to net metering is being rolled out across California, commonly known as NEM 2.0.

Here at Aurora, we’ve been hard at work on an extensive study of the financial impacts of NEM 2.0. In today's article, we delve into how California’s NEM 2.0 policy works and what it means for a solar customer’s bill. Our white paper covers the topic in much more depth, including offering insight into design changes you can make to maximize solar savings under NEM 2.0.

#### Background

Under NEM policies, each kilowatt hour (kWh) a solar customer produces is valued at the same market rate as kilowatt hours the customer purchases from the utility. This means a solar customer can produce excess energy during the day, receive a credit for sending it to the grid, and then use that credit to pay for energy they purchase at night.

Valuing electricity sold to the grid at the market rate has been a huge boon for solar.

Formally known as the “NEM Successor Tariff”, NEM 2.0 is a policy created by the California Public Utility Commission which provides a framework for extending the capacity for solar PV projects connected the grid in California. While existing net metering customers may remain on their current “NEM 1.0” policy for 20 years, all new solar customers who wish to take advantage of net metering will be enrolled in NEM 2.0.2

#### NEM 2.0 — What’s changing?

NEM 2.0 brings a few big changes:

1. A small portion of the electricity charges that a NEM 2.0 customer incurs for buying electricity can not be reversed by future production.
2. A NEM 2.0 customer is compensated at a slightly lower rate for the energy they sell to the grid.
3. All new NEM customers must enroll in a TOU rate if one is available.

#### How are NBCs billed?

For a NEM 2.0 customer, energy charges and NBCs are tabulated separately. When they buy from the grid, they are billed at the energy rate plus the NBC rate, but when they export to the grid they are compensated at only the energy rate. For residential NEM 2.0 customers, NBCs are assessed on the hourly net energy consumption.

One way of understanding the difference in how NEM 2.0 customers are billed compared to NEM 1.0 customers is to think of a customer’s energy bill as a bucket of charges that fills over time as they consume energy from the grid. For solar customers with net metering you can think of this bucket as having a drain; when they feed excess solar energy onto the grid, they offset some their charges and the billable amount decreases.

For NEM 2.0 customers, although the cost of energy they consume from the grid is the same, it is split into two buckets of charges: energy charges and NBCs. The energy charge bucket still has a drain, allowing them to offset their charges with solar energy production. The NBC bucket, however, does not. For each kilowatt hour of energy they consume, 2-3 cents of charges are added to the NBC bucket and these charges can’t be offset. At the end of the billing period, the NEM 2.0 customer’s total bill will be the sum of the charges in both buckets.

When NEM 2.0 customers buy from the grid, they are billed at the sum of the energy rate and the NBC rate, but when they export to the grid they are only compensated at the energy rate.

Figure 1: Graphical representation of the differences between NEM 1.0 and NEM 2.0, where the customer’s bill is represented by buckets of charges. Credit: Aurora (www.aurorasolar.com).

#### By the Numbers: NEM 1.0 vs. NEM 2.0

To explore this scenario in greater detail, let’s put values to these customers’ bills.

For this example, let’s assume that the electric rate is $0.284/kWh and that the NBCs total up to$0.023/kWh (for the sake of simplicity, we won’t consider Time of Use rates in this example).

Let’s say a NEM 1.0 customer purchases 100 kWh of electricity in week 1 and then exports 110 kWh of electricity the next week. After week 1, they have an accumulated energy charge of $28.40. Their credits in week 2 are worth$31.24, which offsets the $28.40 charge leaving a$2.84 credit that they can apply to future consumption.

The NEM 2.0 customer does the same thing: they have a net consumption of 100 kWh in week 1, and a net production of 110 kWh in week 2. In week 1, they end up with energy charges of $26.10 and NBC charges of$2.30. The total charge is no different than the NEM 1.0 customer.

In week 2, the NEM 2.0 customer exports 110 kWh, but they are only compensated at the energy charge rate, so they have a $28.71 credit. This offsets the$26.10 giving them an energy credit of $2.61 that can be applied to future energy charges, but they also have a$2.30 NBC charge that they can not offset.

Week 1 Energy Charge Week 1 NBCs Week 1 Total Charge Week 2 Energy Credits Excess Credits After Offsetting Charges
NEM 1.0 $28.40 N/A$28.40 $31.24$2.84 (free to offset future bills)
NEM 2.0 $26.10$2.30 $28.40$28.71 $2.61 (these credits can’t offset NBCs) Over the course of the year a customer can accrue substantial NBCs, averaging around 150 dollars annually. #### Why It Matters A strong understanding of how NEM 2.0 operates will allow you to accurately communicate the savings your customers will see from solar—and address any concerns or misconceptions. Even if you don’t operate in California, it’s a good idea to keep tabs on California’s NEM 2.0 policy. Having reached higher levels of renewable energy than other states, California is pioneering policy approaches that may inform how other states address solar compensation in the future. Understanding non-bypassable charges and the billing changes discussed in today’s article will give you a good sense of the changes going into effect. In forthcoming articles, we’re excited to share insights on the real-world impacts of NEM 2.0 and what factors can be controlled for to maximize savings—based on extensive data from real solar projects throughout the state. Stay tuned! #### NEM 2.0 Key Takeaways • NEM 2.0 extends the capacity for solar PV projects connected the grid in California; without NEM 2.0, new customers would not be able to get market-rate compensation for energy sent to the grid. • The main change from NEM 1.0 to NEM 2.0 is that a small portion of the electric bill cannot be reversed by excess production. This component of the total rate is referred to as “non-bypassable charges.” • NEM 2.0, NEM 1.0, and non-NEM customers on the same rate schedule pay the same amount for electricity consumed from the grid. • NEM 2.0 customers receive slightly less compensation than NEM 1.0 customers for energy exported to the grid. • NEM 2.0 preserves most of the value of exporting energy to the grid while maintaining revenue for state programs. • Existing NEM 1.0 customers remain on NEM 1.0 for 20 years. 1The California Investor-Owned Utilities are still in the process of implementing NEM 2.0 to the full extent described in CPUC Resolution E-4792. There are currently slight variations between the utilities. 2This is because California’s original NEM policy set a cap on the amount of renewables that could be installed on the grid at 5% of the peak load in a utility region. Topics: Solar Utility Bill There are many variations in the ways that utilities bill solar customers with net metering—as we discussed in our earlier article on the differences between monthly and yearly billing. One factor that can have a big impact on solar savings is the month when your customer's billing cycle ends. Figure 1: Aurora’s financial analysis features allow users to model monthly energy bills based on billing cycles with different end months. #### When the Billing Cycle Ends Solar customers with net metering accumulate bill credits when their installations produce more energy than they can use. These credits can be used to reduce the customer’s electricity bill in other months when they don’t produce enough energy to offset their energy consumption. It’s common for utilities to only allow customers to rollover their credits for one year (though there are some exceptions, which we’ll discuss in a future installment of this series). The end of the billing cycle is the month that the billing year ends—when excess credits stop rolling over. At this point, customers who have excess credits are typically compensated for them at the wholesale rate of electricity, which is much lower than the retail rate at which they are compensated during the regular billing cycle. Because solar customers will have different amounts of excess credit at different times of the year, the month when the billing cycle ends can have a big impact on savings. #### Case Study To understand the impact of ending the billing cycle in different months, let’s look at a solar customer’s bills. We used Aurora’s solar design software to accurately model the energy consumption, solar production, and pre- and post-solar utility bills of a house in the San Francisco Bay Area of California. Figure 2 shows a customer’s pre- and post-solar bills if their billing cycle ends in December. Table 1 shows the amounts of the customer’s monthly bills, energy consumption and production, and solar savings. In this example, the customer’s total annual savings from solar are$2,730 (as shown in Table 1).

Figure 2: Pre- and post-solar bills if the customer's billing cycle ends in December, modeled in Aurora based on PG&E Rate: E-1, Baseline Region P.

Table 1: Pre- and post-solar energy consumption, production, and utility bills if the customer's billing cycle ends in December.

By the time the end of the billing cycle arrives in December, this customer has used up almost all of the credits they accrued in the months that their solar system produced more energy than they consumed (April－September). This is ideal, because most of the value of these excess credits is lost at the end of the billing cycle since the customer is not paid for them at a retail rate.

But what if the billing cycle ends when the customer has a lot of bill credits remaining? Figure 3 and Table 2 show what the customer’s bills would look like if the billing cycle ended in September, after the customer has accrued a lot of excess production credits over the summer.

Figure 3: Customer’s pre- and post-solar bills if their billing cycle ends in September.

Table 2: Pre- and post-solar energy consumption, production, and utility bills if the customer's billing cycle ends in September.

If the billing cycle ends in September, the customer’s savings from solar will be significantly lower: $2,402, compared to an annual savings of$2,730 if the billing cycle ends in December. The customer saves 12% less per year, a loss of $328 annually. As this example illustrates, it is advantageous if the billing cycle ends after a period when solar energy production is low (e.g., winter months) so that excess credits can be used up. It is ideal for solar customers if the billing cycle ends after a period when solar energy production is low. Different utilities end the billing cycle in different months. For example, for customers of Rocky Mountain Power in Utah the billing cycle ends in March, and for customers of Duke Energy in North Carolina and South Carolina it ends in June. Others, like Long Island Power Authority in New York and the major California utilities, end the billing cycle at the one-year anniversary of when a customer installed solar. Where this is the case, customers considering solar should think carefully about the timing of the installation. It is also important to note that some utilities allow customers to make a one-time change to the month when their billing cycle ends. These utilities include National Grid Generation in New York, Public Service Electric & Gas Company in New Jersey, and Long Island Power Authority. In these cases, customers should carefully assess their monthly consumption and production patterns to determine the end of billing cycle that will be most beneficial. Some utilities end the billing cycle at the one-year anniversary of when a customer installed solar; others allow customers to make a one-time change to the month when their billing cycle ends. The end-of-billing-cycle month that is most financially advantageous for a particular customer will depend on the monthly variations in their energy consumption and the energy production of the solar installation. (Both of these factors can be analyzed in Aurora, using our consumption profile tool and NREL-validated performance simulation engine. Aurora’s financial analysis features allow you to model the impact of different scenarios on a project’s finances, as we have done here.) The end of the billing cycle can have a noticeable impact on the savings a customer obtains from solar. This must be taken into account to accurately estimate the financial return a solar project will provide. The local utility’s policies regarding changes to the billing cycle end date should also be carefully explored. #### Key Takeaways • There is a lot of variation in how net metered solar customers are billed across different utilities. It is important to understand these differences because they affect the financial return from solar. • One key variation that can have a significant impact on savings from solar is the month in which the billing cycle ends, which determines when credits from excess energy production stop rolling over. • Customers will see greater savings if the billing cycle ends at a time when they have less excess credit built up, because at the end of the billing cycle customers are typically compensated for excess production at a below-retail rate. Topics: Solar Utility Bill There are many variations in the ways that different utilities bill solar customers with net metering. These subtleties can make it complicated to determine exactly how installing solar will affect a customer’s bills. In this series, we will explore elements of billing that commonly vary between utilities and examine the practical impacts of these factors on solar customers’ bills. Today, we look at how monthly billing compares to annual billing in terms of solar customers’ experiences and savings. As a solar installer, understanding utility bill nuances will enable you to better communicate what customers can expect after installing solar and help you find them extra savings #### Monthly or Annual Billing? One of the major ways billing for solar customers varies between utilities is how often customers are billed for their energy consumption. Under net metering policies, solar customers are credited for the energy they produce and charged for any energy supplied by the utility—effectively paying only for their net energy consumption (and any additional fees applied by the utility). If their solar system produced more energy than they consumed, they receive a credit for their excess generation which will carry over to future months. Most U.S. utilities reconcile solar customers’ energy consumption and production on a monthly basis. However, some utilities, particularly in California, have an annual billing cycle in which net metered customers are billed for their energy usage only once a year. Figure 1: Aurora allows users to conduct financial analysis based on monthly or annual billing approaches. Settings for a customer with annual billing are shown. Under an annual billing approach, the utility tracks customers’ energy consumption and production throughout the course of the year. Customers receive monthly statements tracking this data but do not have to pay monthly for energy consumption. However, they may have to pay some monthly fees to remain connected to the grid, as is the case for customers of major California utilities. At the end of the year, they receive their annual bill, often called the “True-up” statement, for any energy consumption that was not offset by their solar energy production. One benefit of annual billing is that credit from excess energy production can offset consumption from earlier months in the year. With monthly billing, on the other hand, excess credit produced can only be applied to later months. For example, credit accumulated in summer months would not reduce bills paid in early spring. Let’s take a look at what a solar customer’s bills look like under these two approaches. Figure 2 below shows pre- and post-solar utility bills for a customer with annual billing. Figure 3 shows that customer’s monthly energy consumption and production, and Table 1 shows how Aurora presents energy consumption, production, and bill amounts for customers with annual billing. With annual billing, credits from months in which energy production exceeded consumption (April through October) can be applied to any other months in which they consumed more than they produced (January, February, November, and December) because the utility considers the customer’s energy production or consumption over the entire year. As you can see in Figure 2, this means that solar will cancel out all of the customer’s bills except for$10 in fixed fees (which we’ll discuss in greater detail in a future blog article).

Figure 2: Customer’s pre- and post-solar bills under an annual billing approach (PG&E Rate: E-1, Baseline Region P).

Figure 3: Customer’s energy consumption and production.

Table 1: Customer’s pre- and post-solar energy consumption, production, and utility bills under an annual billing approach (PG&E Rate: E-1, Baseline Region P). For customers with annual billing, Aurora shows the annual savings rather than monthly bill savings, since the customer does not pay on a monthly basis.

Now, let’s consider what bills would look like for the same customer if their utility has monthly billing. For the purposes of this exercise, we kept the same exact utility rate, but we switched the billing schedule from annual to monthly.

Figure 4: Aurora financial analysis settings for a customer with monthly billing.

Figure 5 below shows the customer’s bills under a monthly billing approach, and Table 2 shows the amounts of the customer’s monthly bills, energy consumption, and production. Although the customer’s energy consumption and production (shown in Figure 3) remains the same, the amount they pay the utility increases in the early months of the year.

Figure 5: Customer’s pre- and post-solar bills under a monthly billing approach.

Table 2: Customer’s pre- and post-solar energy consumption, production, and utility bills under a monthly billing approach. For customers with monthly billing, Aurora shows the savings each month as well as the total annual savings.

As Figure 5 and Table 2 illustrate, under monthly billing the customer will have higher bills in January and February because they receive those bills before they accrue credit for excess energy production.

With monthly billing, the customer’s total annual savings from solar will be $2,899 compared to an annual savings of$2,951 if they had annual billing. In this case, annual billing saves the customer an additional $52 per year with the exact same solar installation. Most utilities do not allow customers to choose between monthly or annual billing as they offer only one option. In these cases, knowing what option the local utility offers allows one to accurately assess how much a customer can save with solar. Sacramento Municipal Utility District is one of the few utilities that does allow customers to choose between these options. For solar customers who do have a choice, annual billing is likely to be the most financially advantageous. Whether utilities bill monthly or annually is just one of the common differences in billing for solar customers. There are many other variations, including what time of year the billing cycle ends, how much net metered customers are compensated for their excess energy, and how long credits can carry over (some utilities allow credits to roll forward indefinitely). Fortunately, Aurora allows you to easily navigate these different options. We will analyze additional billing nuances in future segments of this series. #### Key Takeaways • There is a lot of variation in how net metered solar customers are billed across different utilities. It is important to understand these differences because they affect the financial return from solar. • Utilities may bill customers on a monthly or annual basis. With annual billing, solar customers pay once a year for their net energy consumption instead of every month. • One advantage of annual billing is that credit from excess energy production can be used to cancel out consumption from any month in the year, whereas under monthly billing credits can only roll forward. The price of movie tickets and the cost of electricity might have more in common than you think. In an earlier article, we explored how the price you pay for electricity may vary depending on the time of day—just like the cost of matinee movie tickets compared to tickets for a Friday night show. In today’s article, we will explore another curiosity of electricity pricing: how different rates apply to different customers. Just as movie theaters have different prices for adults, students, and seniors, utility companies also vary energy prices for different classes of customers. We see this in the differences between residential and commercial utility rates, and in rates that vary based on a customer’s level of demand. But there’s more! Utilities also charge different prices for energy depending on how much energy a customer consumes. This practice, known as tiered pricing, has important implications for solar customers—both in terms of design considerations for solar installations and for understanding expected savings. We will examine how this rate structure works so you can make sense of how it impacts the finances of going solar. #### What Are Tiered Rates? Tiered rates are a common utility rate structure that can apply to either residential or commercial customers. At their most basic, tiered rates are defined by having multiple tiers with different prices per unit of energy; the tier that a customer is billed under is determined by the amount of energy they have consumed during the billing period. For the purposes of this article, we’ll be examining a type of tiered rate called an inverted block rate. Inverted block rates, which serve to discourage excessive energy consumption, are prevalent today. Under this rate structure, the price of energy increases the more energy a customer consumes. (Historically, another form of tiered rates, called declining block rates, was most common. This pricing approach actually sought to encourage energy consumption by reducing the amount a customer paid for energy the more that they consumed.) Figure 1: An example of tiered electricity rates in which the price of energy increases at higher levels of energy consumption (an inverted block rate approach). To get a better sense of how this rate structure works, let's consider a hypothetical utility: Tier Usage Cost ($ per kWh)
Tier 1 up to 650 kWh 0.0543
Tier 2 next 350 kWh 0.0989
Tier 3 over 1000 kWh 0.1423

Table 1. A hypothetical tiered rate schedule (an inverted block rate).

The first 650 kilowatt hours (kWh) that a customer consumes is priced at the “Tier 1” rate, which is the cheapest at $0.0543 per kilowatt hour (kWh). If a customer’s consumption exceeds 650 kWh, subsequent energy consumed would be priced at the higher “Tier 2” rate of$ 0.0989/kWh. From there, if they exceeded 1000 kWh of consumption, they would be charged the “Tier 3” rate of $0.1423. Not all utilities have tiered rates, and among those that do, the number of rate tiers, as well as the level of consumption and the cost of electricity under each tier, varies by utility. Some utilities also have different rate tiers depending on the season. (California’s tiered pricing is a bit different than most other places because the level of consumption covered under Tier 1 varies for different customers. Depending on where they live, their heating source, and the season, customers are assigned a Baseline Allowance, and the tiers are defined as percentages of that baseline.) #### How Do Tiered Rates Impact the Finances of Adopting Solar? One of the most important impacts of installing solar for utility customers who have tiered billing is that the solar energy produced by the system can offset consumption at the more expensive top tiers. This is because under net metering policies—the prevailing method in the U.S. for compensating solar system owners for the energy they produce—each kWh that the solar system produces is credited against the customer’s utility bill at the retail rate. By offsetting the customer’s consumption enough that the remaining energy the customer purchases from the utility is billed at a lower tier (or tiers), the bill savings from solar can be proportionally greater than the amount of energy consumption that is offset. Because of this, some solar customers choose smaller solar installations that offset only their energy consumption at higher tiers, which saves money on system costs. To see the impact of tiered rates in action, let's consider the case of a residential customer on the utility rate discussed above (Table 1), whose average monthly energy consumption is 1,220 kWh. Table 2 shows the customer’s bill for energy consumption and how it is calculated. At this level of energy consumption, their final 220 kWh is billed at Tier 3 rates and they have a monthly bill of about$101.

(Note that this a simplified example which considers only the consumption charges on customers’ bills; utility bills typically include additional charges like fixed fees and transmission and distribution charges.)

Tier Cost ($per kWh) Usage (kWh) Cost ($ per kWh)
Tier 1 0.0543 650 $35.30 Tier 2 0.0989 350$34.62
Tier 3 0.1423 220 $31.31 Total: 1,220$101.22

Table 2. An example of how a customer's bill would be calculated under the hypothetical tiered rate from Table 1.

Now, let’s consider what this customer’s bills would look like if they installed a solar system that produces an average of 900kWh/month. (Solar installations’ energy production varies significantly in different months. For the sake of simplicity, in this example we are just considering the customer’s average monthly energy consumption and production.) The 900 kWh from the solar array offset the majority of the customer’s consumption, leaving only 320 kWh that need to be purchased from the utility.

Tier Cost ($per kWh) Usage (kWh) Cost ($ per kWh)
Tier 1 0.0543 320 $17.38 Tier 2 0.0989 0$0.00
Tier 3 0.1423 0 $0.00 Total: 320$17.38

Table 3: Post-Solar Bill for the Same Customer with a Solar Installation that Produces an Average of 900 kWh per Month.

2. Demand: the maximum amount of power (kW) drawn for any given time interval (typically 15 minutes) during the billing period, multiplied by the relevant demand charge ($/kW). As a solar professional, if you want to accurately communicate the value that a solar installation will provide to a commercial customer, it is critical to understand demand charges and how they affect your client’s utility bill. A sample utility bill depicting demand charges (highlighted in yellow). #### How Do Demand Charges Work? Demand (measured in kW) is a measure of how much power a customer uses at a given time. Utilities apply demand charges based on the maximum amount of power that a customer used in any interval (typically 15 minutes) during the billing cycle. Demand charges usually apply to commercial and industrial customers, who tend to have higher peak loads (i.e. peak power demand) than residential customers. Most utility rates specify the maximum power demand a customer is allowed to have: exceeding the maximum power demand for consecutive months can result in being moved to a different rate with higher demand charges. Utilities apply demand charges based on the maximum amount of power that a customer used in any interval (typically 15 minutes) during the billing cycle. To determine the demand charge for a given month, the maximum power demand is multiplied by the demand charge rate of the prevailing utility rate. While the exact billing approach varies by utility, some rate structures include multiple types of demand charges, with higher charges during hours of peak demand, and lower charges during “partial-peak” or “off-peak” hours (Time of Use Rates). For customers whose utility rates include them, demand charges can contribute significantly to monthly electric bills. Let us consider an example of how demand charges are calculated. The basic formula to calculate demand is: X kW of demand * Y$/kW = $Monthly Demand Charge If the utility rate sets demand charges at$9.91 per kW, and the customer has a peak demand of 500kW for the month (reflecting the 15-minute interval in which they consumed power at their highest rate), the demand charge would be calculated as:

500 kW * $9.91 =$4,955

More complicated rate structures may include different demand rates during different times (for instance peak and off-peak hours). For example, a utility might define on-peak hours as 6 a.m. to 10 a.m. and 6 p.m. to 10 p.m. from November through March, and from noon to 9 p.m. from April through October. The peak rate for demand is $7.13 per kW and the off-peak demand rate is$4.94 per kW. In January, the customer’s maximum demand during peak hours was 500kW. Their maximum demand during off-peak hours was 150kW.

Their demand charges would be calculated as:

On-peak Demand: 500kW * $7.13 =$3,565
Off-peak Demand: 150kW * $4.94 =$741
Total Demand Charges for January = \$4,306

An example of a (different) commercial customer’s monthly energy consumption (orange) and bills (blue) based on sample Green Button Data imported into Aurora; the portion of the bill comprised of demand charges is shown in light blue.

#### How Does Solar Affect Demand Charges?

The impact of solar is relatively straightforward when it comes to consumption charges: by producing electricity from a solar installation, a commercial customer can reduce the amount of energy they must buy from the utility and thereby reduce utility bills.

Unfortunately, when it comes to demand charges, solar does not provide consistent cost savings. Because solar energy production varies based on weather conditions and time of day, periods of high solar power will not always coincide with the times when a building has its highest power demand. This means that solar customers cannot count on their solar systems to reduce demand charges. A chance rainstorm at a time when the facility happens to use energy at its highest rate during the month would result in a demand charge as high as it would have been before installing solar.

Despite this, it is important to understand this element of the customer’s bill in order to understand what portion of the customer’s costs solar can offset. We’ll explore the financial impact of demand charges for commercial solar customers in greater depth in a future blog post.

#### Why Do Utilities Apply Demand Charges?

Demand charges exist to incentivize customers to spread their energy usage over time. This is because utilities must maintain enough generation and distribution capacity to meet the needs of all customers during the points in time when the most energy is drawn from the grid (such as a hot day when most customers are using air conditioning). This means that a large amount of expensive equipment, such as power plants, must be kept on standby for these rare peak demand periods. Through demand charges, customers that draw a lot of power over short periods of time contribute more to the costs of building and maintaining the necessary infrastructure needed for peak times.

Demand charges were first introduced in the early 1900s by Samuel Insull, a colleague of Thomas Edison and an influential figure in the expansion of electricity access in the US. They have remained a common approach for commercial electricity billing since then.

Discussing a proposal to apply demand charges to residential customers in Illinois in 2015, in comments to Midwest Energy News , Fidel Marquez, a senior vice president with ComEd, summarized the utility rationale for demand charges as a way to “correct inequities that can result in low-usage customers subsidizing high-usage customers.” He also noted that “the costs of delivering electricity are driven by the demand that customers place on the system whenever they need it, and ComEd builds and maintains its delivery system — poles, wires and transformers — to handle everyone’s maximum demand for power.”

However, there are diverse perspectives on the efficacy of demand charges as a means to reduce peak demand on the grid and some pro-solar groups argue that demand charges are harmful to the value proposition for solar.

Irrespective of the reasons for demand charges and how effective they are, they are not going away so it is important to have a strong grasp of how they work. Understanding demand charges allows solar installers and customers to accurately assess what portion of a monthly bill can be offset with solar and provides a starting point for exploring additional options for reducing peak demand.

#### Key Takeaways

• Demand charges are fees applied to the electric bills of commercial and industrial customers based on the highest amount of power drawn during any (typically 15-minute) interval during the billing period.
• Demand charges can comprise a significant proportion of commercial customers’ bills.
• In the example from the introduction, we can expect that the aerospace research facility will have a higher monthly bill than the factory, although both have the same monthly energy consumption. The aerospace research facility will have significantly higher demand charges because its peak demand is much higher.
• Solar can save both institutions money by reducing their energy consumption, but it will not reduce as much of the aerospace research facility’s bill because solar cannot consistently reduce demand charges.

An energy load profile, or consumption profile, is essential to determining the value that a solar installation will provide—and thus to effectively selling solar to potential customers. We discuss what an energy load profile is, why it influences financial returns for solar, and how to model one.

When communicating the value of a solar installation to a potential customer, showing them accurate financial returns is extremely important. In order to accurately forecast the financial return of a solar system, you need to know exactly how much energy the customer uses.

In certain parts of the world, the process of determining a solar project’s financial return is simple and separate from the customer’s energy consumption. Many countries use Feed in Tariffs which pay the owners of solar systems a set amount for each unit of energy produced.

But in the US, the majority of residential solar installations are on a Net Energy Metering regime, which means that their utility bill is adjusted based on the energy the solar installation produces. Another way of looking at it is that their utility meter turns forward when energy is used, and backward when excess solar energy is sent to the grid.

This structure is further complicated by the fact that in many cases — especially for commercial customers—the price of energy differs based on when you use it (these are called Time of Use Rates). Utilities also charge customers different rates for electricity based on how much they use (Tiered Rates).

Figure 1: An example of Time of Use rates, showing higher energy prices at times of higher energy demand.

#### Why Do You Need a Load Profile?

Because of these variations in the cost of energy at different times and different levels of consumption, just knowing a potential solar customer’s bill before they install solar is not enough to enable an accurate assessment of how much money they could save with solar. You also have to know when the customer was using electricity, and how much electricity they were using. You need to know this for every hour of the day, and every day of the year. This information makes up their energy load profile.

Figure 2: An example of an estimated energy load profile in summer for a residential house in Stanford, California with air conditioning, electric heat, and LED lighting.

Once you have this data showing energy consumption for each time of the day, you will need to determine how much energy your PV system will produce for those same hours and days of the year (which Aurora’s industry-leading performance simulation engine can determine for you). By subtracting the amount of energy produced by the solar installation from the amount of energy consumed by the household, you can determine how much, and when, the customer will actually need to purchase from the utility.

This time-varying consumption profile will form the backbone of the financial analysis of the value your solar design will provide. Being able to show a customer the detail behind this analysis will help them understand—and be confident in—the financial savings solar can provide.

#### How Is an Energy Load Profile Determined?

Determining a customer’s energy use across each hour and day of the year and organizing it in an easily interpretable format is not easy. That is why Aurora developed its interactive Consumption Profile tool.

One of the best ways to determine a customer’s load profile is to upload their “Green Button data.” Green Button data is a way that utilities provide customers with detailed information documenting their energy consumption at set (typically 15-minute) intervals throughout the day. Green Button data provides the customer’s actual load profile for a period of time in the past (for however long you have data). If you have Green Button data, Aurora’s Consumption Profile tool imports and sorts it for you with the click of a button.

If you don’t have Green Button data, our tool can quickly and easily estimate a load profile with the entry of some additional details. While it is possible to manually estimate a load profile, it is a challenging and time consuming process—and without a deep knowledge of the process there is a lot of potential for mistakes. With Aurora’s Consumption Profile tool you can automate this process, increasing accuracy and saving a considerable amount of time.

To understand the variables that go into estimating an energy load profile, let’s review some of the different factors that influence a customer’s energy consumption at different times.

#### What Variables Affect a Load Profile?

There are a wide number of factors that affect how much energy a home uses and when that energy is consumed. Without Green Button data, a load profile must be estimated based on the building’s characteristics. In order to create an energy load profile that is accurate—and thus provide accurate financial analysis to your customers—it is essential that all of these factors be taken into account in a systematic way.

A utility bill from the client is an important starting point in developing an energy load profile, because it can provide the first data points for how much energy they are using, and what rate they are billed at by their utility. In Aurora, you can enter data from one month’s bill (bill amount or total amount of energy used), or as many months as you have from the customer, and Aurora will use that to extrapolate estimated energy use for other months.

Figure 3: Aurora’s Consumption Profile tool uses bill amount or total energy consumption for one month, or as many months as you have data for, to estimate energy consumption throughout the year. This is supplemented by additional information about the building for increased accuracy (as we will discuss below).

The location of the building is one important factor because the local climate will influence the demand for heat or air conditioning at the site, and the amount of daylight at different times of the year will impact demand for electric lighting. Whether the building has air conditioning, and what type of heat it has (electric or other) will influence how much much energy the customer uses at different times of the year.

Take for example the case depicted in Figure 2 below, which shows the different estimated consumption profiles for the same house in Stanford, California with gas or other non-electric heat (top) versus if it has electric heat (bottom). The orange section in the image on the right shows the proportion of electricity consumption that heating comprises. As you would expect, electric heat contributes significantly to electricity consumption.

Figure 4: Estimated annual load profile for the same house in Stanford, California with gas or other non-electric heat (left), or with electric heat (right).

Other factors that impact an energy load profile include the type of lighting (incandescent, fluorescent, or LED) and type of hot water heating. Additionally, two less common factors that have a very big impact on energy consumption are whether the customer has a pool (pools use a surprising amount of energy, partially because of the energy needed to pump and filter the water) and whether they have an electric vehicle.

Figures 5 – 7 illustrate the impacts of some of these factors on load profile. Figure 5 compares the load profiles of incandescent lighting versus more efficient LED lighting (top and bottom respectively), and Figures 6 and 7 show the impacts of an electric vehicle and pool respectively on load profile if the house has LED lighting.

Figure 5: Estimated annual load profile for the same house in Stanford, California with incandescent lighting (top), or with more efficient LED lighting (bottom).

Figure 6: The load profile of the same house with an electric vehicle with no air conditioning, non-electric heat, and LED lighting.

Figure 7: The load profile of the same house with a pool, with no air conditioning, non-electric heat, and LED lighting.

As you can see, a home’s load profile can vary significantly depending on the characteristics of the home. As a result, when estimating a load profile it is important to enter as much information as possible to maximize accuracy, or use Green Button data. It should be noted that an estimated load profile cannot account for future changes in the homeowner’s behavior—like upgrading to more energy-efficient appliances or setting the air conditioning to a lower temperature—that may affect how much energy they use. However, it can provide a strong, data-backed estimate based on their current behaviors and home energy demands.

Aurora has made it easier to ensure that your estimated energy load profile reflects actual consumption patterns, by incorporating robust data about how different home characteristics (air conditioning, lighting, electric vehicles, etc.) typically affect energy consumption at different times of the day. This typical load profile is then tailored to account for average local weather patterns and the home’s total monthly energy consumption (based on their utility bill).

With an accurate energy load profile, you can precisely assess the financial benefits that adopting solar will provide to a homeowner.

#### Key takeaways

• An energy load profile shows how much energy a building uses at each time of day across each day of the year.
• Financial savings are a major motivator for many people who consider going solar. With an accurate energy load profile, you will be able to quantify the real savings that your solar design will provide to a customer.
• A customer’s consumption profile can be obtained using their Green Button data (a log of their energy consumption over specific, typically 15-minute, intervals).
• If you do not have Green Button data, you can create an estimated load profile with electricity bills and information about the characteristics of the site (whether they have air conditioning, what type of heat and lighting they have, etc.).
• Aurora’s load profile tool automates this process, making the development of a load profile faster and more accurate.

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There are many benefits of installing a solar system–but a major one for many people is that generating your own solar energy can save you money on your utility bills. In order to understand the cost savings that your solar project will provide over time, it is critical to understand the policies that determine how much your solar energy is worth.

There are a variety of different approaches that governments and utilities use to compensate the owners of renewable energy systems for the energy they produce, but two of the most widely used mechanisms are net energy metering (NEM) and feed-in tariffs (FITs). In today's article we provide an overview of each.

Feed-in tariffs are a compensation scheme which offers guaranteed cash payments to producers of renewable energy, based on an established rate per kWh. The rate of compensation established under FITs is often higher than the retail rate, and the payments are typically guaranteed through a long-term contract. For example, in the UK, a solar installation with a capacity between 10kW and 50kW installed before March 31, 2017 will be compensated at a rate of 3.89 pence per kWh for a period of twenty years.

Under net energy metering , solar system owners are credited at the retail rate for the excess solar energy that they feed onto the grid, while being charged normally for the electricity they draw from the grid. For these customers, it is as if their electricity meters run backwards when their solar system is producing more energy than they need, so they pay only for the net electricity they consume over the course of the year. In contrast, with a feed-in tariff, compensation for the energy produced is independent of your energy consumption.

## Feed-In Tariffs (FITs)

FITs are a popular policy tool designed to encourage the investment in renewable energy technologies (including, but not limited to, solar) by guaranteeing that the owner will be compensated at a set rate – often above the retail rate – for the energy produced. Globally, feed-in tariffs (FITs) are the most widely used renewable energy policy for driving accelerating renewable energy deployment.

FITs rose to prominence in the late 1990s as a mechanism for encouraging the rapid deployment of renewable energy sources, and have been used to great success in many international markets, including in the European Union, and later China and Japan. (The use of FITs in the U.S., however, has been limited to a small number of states.) By guaranteeing that developers of new renewable technologies will have a market for the resulting energy and can count on being compensated at a rate that reflects the generation costs, feed-in tariffs have helped renewable sources like solar achieve economies of scale. Payments are guaranteed through long-term contracts ranging from 10-25 years.

Currently, only seven U.S. states have solar feed-in tariff programs. Information source: Database of State Incentives for Renewable Energy.

FITs compensate project owners for the energy produced based on a set rate established by policy makers, which is typically higher than the prevailing retail rate (a major difference between net metering and feed-in tariffs). Different renewable energy sources may be compensated at different rates, depending on how expensive they are to deploy–with technologies like solar and wind typically being compensated at a lower rate than less developed technologies like tidal power. This approach reflects the fact that feed-in tariffs are designed to help emerging industries achieve economies of scale. Feed-in tariffs are usually designed so that rates scale down over time to encourage technological cost reductions.

## Net Energy Metering (NEM)

As UtilityDive explains, “U.S. policymakers... never got comfortable with the economics behind the FIT model, preferring to set initial solar supports at or near the retail rate of electricity.” Enter net energy metering (NEM), a policy in which utilities compensate producers of renewable energy at the retail rate for any excess production that flows back to the grid, allowing them to offset the cost of energy they draw from the grid at times when their system is not producing enough to cover their needs.

In the U.S., net energy metering is the dominant approach for compensating producers of solar energy. As of July 2016, 41 states have mandatory net metering policies, and an additional two states have voluntary net metering programs through utilities. Cory Honeyman, Senior Solar Analyst at GTM Research, reports that “The overwhelming majority of DG solar that has come online to date [in the U.S.] has come from projects taking advantage of net metering, not Feed-In Tariffs.”

Forty-one U.S. states (as well as the District of Columbia) have mandatory net metering policies for certain utilities. Two additional states have utilities that offer net metering programs, though they are not mandated by state policy. Source: Database of State Incentives for Renewable Energy.

Compared to FITs, NEM requires less active management from policy makers because the rate of compensation follows the retail rate for energy. Honeyman notes “The good thing about net metering is that it does not require re-adjustments… [With feed-in tariffs] it is difficult to set the step downs in the level of the tariff in a measured way that doesn’t either crater the market or drive demand too fast.” Also unlike FITs, NEM programs typically use bill credits, rather than cash, to compensate system owners.

Another way of thinking about how net metering works in practice for system owners is that it enables them to use the energy their system produces as needed, rather than when it is being produced. Since the energy produced by your solar system varies based on time of day and weather conditions–and the times when you use the most energy often will not coincide with when your system is producing the most – net metering is a convenient way to even things out.

A forecasted daily load profile for a house in central California, broken down by the source of energy demand, as created by Aurora’s solar design software.

In some states, like California, the retail rate for energy varies throughout the day, with higher rates at times when there is higher demand, typically in the afternoon and evening (an approach known as time of use, or TOU, rates). These policies can work hand-in-hand with net metering and affect the value of the solar energy you produce. For instance, owners of solar installations that sell excess energy back to the grid during the day, when demand from businesses is high, may be compensated at a higher rate.

While participation in time of use rate programs remains low around the US, most states offer voluntary time of use rates. Whether you live somewhere where TOU rates are mandatory or are considering opting into a voluntary program (which could save solar system owners money), it is important to understand how much energy you’ll be producing and consuming at different times throughout the day to accurately estimate the finances of your solar installation. Aurora’s solar design software automatically predicts how your production and consumption will vary throughout the day, and the compensation strategy used in your area, when estimating the value of the energy your system will produce over time.

## Feed-In Tariffs or Net Energy Metering? Looking to the Future

NEM and FITs have both played important roles in the development of the solar industry globally. Looking to the future, policies for compensating producers of clean, renewable energies like solar are likely to adapt. In the U.S., there has been debate over net metering policies, with some stakeholders arguing that compensating solar energy producers at the retail rate does not ensure that they pay for the costs of maintaining the electrical grid. Around the country, states are beginning to explore a variety of new ways of compensating solar producers to reflect these concerns, such as California’s NEM 2.0 policy. No matter what compensation approach prevails, having a solid grounding in NEM and FITs will provide you with a strong base for understanding policy changes to come.

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## Sizing a PV System from an Electricity Bill

An electricity bill typically reveals information about a residential or commercial customer’s total monthly energy consumption (as we discussed in the previous article in this series, Reading Your Electricity Bill: A Beginner’s Guide). From this value alone, it is possible to approximate the required size of a PV system that offsets monthly energy usage.

Take a hypothetical monthly energy consumption of 500 kilowatt-hours, which is on the lower end for a household in California. Assuming there are 30 days in a month, an average daily energy use value can be reached by dividing the monthly use by 30.

$$\text{Daily Energy Use} = \frac{\text{Monthly Energy Use}}{\text{Days in Month}} = \frac{500 \mathrm{kWh/mo}}{30 \mathrm{days/mo}} = 16.7 kWh/day$$

Next, insolation values are needed. As mentioned in The Beginner’s Guide to Solar Energy, insolation values are reported in kWh/m2-day. Since a “full-sun’s” worth of incoming solar energy is approximated as 1 kW/m2, insolation values reported in kWh/m2-day approximate the hours of full-sun equivalent that a location receives over the course of a day.

Figure1. Visualization of how total solar insolation received over the course of a day (left) can be represented by number of full-sun hours (right). Source: pveducation.org

For a Palo Alto home, the average daily irradiance value is 5.2 kWh/m2-day. By dividing the daily energy usage by hours a day of full sun, the power output required by the PV system is calculated.

$$\text{Power Output} = \frac{\text{Daily Energy Use}}{\text{Daily hours of full sun}} = \frac{16.7 \mathrm{kWh/day}}{5.2 \mathrm{hours/day}} = 3.21 \mathrm{kW}$$

Figure 2. The Palo Alto home used for this PV system sizing exercise. Source: Aurora Solar

This would be the size of the PV system required, if our system was 100% efficient. However, that is not the case because all PV systems have a corresponding derating factor that takes into account the inefficiencies of the overall system, such as soiling of the panels and imperfect electrical connections.

According to the National Renewable Energy Laboratory’s PVWatts calculator, a typical derate factor is 0.84. For the sake of this calculation, we assume the derate factor be 80%, or 0.8. In order to determine the size of the PV system, divide the required power output by the derate factor.

$$\text{PV System Size} = \frac{\text{Power Output}}{\text{Derate Factor}} = \frac{3.21 \mathrm{kW}}{0.8} = 4.01\mathrm{kW}$$

From this analysis, the approximate size of a PV system required to completely offset the average monthly energy usage of a 500 kWh/month home in Palo Alto would be about 4 kW.

## Comparing the PV Size Estimation to a Simulated Result

Since this is a rough estimate, how does it compare against an actual, comprehensive design for a home with the same characteristics?

Using the same conditions as above, a PV system design software found that the required system size to be 4 kW, which is almost identical to the answer from the estimation conducted above.

Although the answers are very close, it’s important to note that this may not always be the case. For instance, when there is shading on the panels, a significant reduction in power output can occur. Although a shading term is included when calculating a derate factor, it can fail to accurately capture the effect that shading has on a PV system’s power output. Therefore, expect the results to be less close when modeling a location with shading.

### About Solar PV Education 101

How to Size a PV System from an Electricity Bill is part of Solar PV Education 101, a six-article series that serves as an introductory primer on the fundamentals of solar PV for beginners.