The latest volley in the ongoing debate over the economic value of solar policies comes from Maine, where the state’s Public Utilities Commission (PUC) released an independent study finding that the net value of distributed solar is $0.337 per kWh when levelized over the course of twenty-five years. That is significantly more than the state currently offers as offset credit to customers engaged in photovoltaic net metering. The study relied on market data from ISO New England as well as economic estimates from the Environmental Protection Agency (EPA) in reaching its conclusions.
Benefits were split into two categories: societal benefits and avoided market costs. Granted, it is not news that solar power can provide significant public health and environmental benefits through the displacement of energy sources that would otherwise emit SO2, NOX, and CO2. Indeed, Maine’s study concluded that such benefits account for $0.096 of solar’s total kWh value. Other societal benefits considered include reduced market prices resulting from a decrease in overall demand (a benefit the study valued at $0.066/kWh) and avoided fuel price uncertainty (a benefit the study valued at $0.037/kWh).
However, even if broader societal externalities had beed ignored, Maine would still have presented a compelling economic argument for solar in the form of avoided market costs. Rather than relying on a simple comparison between lost utility revenue and the wholesale purchase rates of other energy sources, the study sought to quantify existing market costs that would be avoided for each kWh of solar power produced, treating these avoided capital costs as benefits—money a utility would save. The study also identified as placeholders—but did not attribute values to—other potentially emergent market savings opportunities, such as avoided costs to electricity ratepayers for gas pipelines.
Source: Maine Public Utilities Commission, Maine Distributed Solar Valuation Study (Mar. 1, 2015)
One kWh produced by photovoltaic power is one kWh a utility would not need to procure elsewhere. As such, the study found that distributed solar generation reduces utilities’ need to invest in additional generation and reserve capacity (benefits the study valued at $0.081/kWh and $0.040/kWh, respectively). Similarly, residential solar panels are connected directly to the distribution grid, meaning less spent on transmission from a centralized source (a benefit the study valued at $0.016/kWh). Savings are also to be had from avoided hourly wholesale energy purchases (a benefit the study valued at $0.081/kWh). Taken together, the study found that avoided market costs account for $0.138 of solar’s total kWh value over twenty-five years.
In sum, utilities stand to avoid quite a few costs that would otherwise be passed on to ratepayers—a conclusion that potentially undermines the argument that growth in distributed solar capacity will invariably lead to rate increases as utilities’ fixed costs are borne upon the shoulders of those customers who do not install solar.
Though the PUC study did not endorse a particular solution, it presented a number of possible incentives regulators might put into place, and its findings do suggest that distributed solar remains undervalued in policy discussions focused on costs. As states such as Massachusetts debate changes to their own net metering regimes, the wrinkles and considerations introduced in Maine warrant further attention.