WHAT DO EDISON'S NEW RATES MEAN FOR RESIDENTIAL SOLAR?
Unless you have been in the market for solar during the past few months, you may not know that Southern California Edison has completely flipped the Southern California solar industry on its head. Two major changes took place. First, they moved the “peak time period” from the middle of the day to the late afternoon. Second, they made electricity less expensive from 8 AM to 4 PM, the time when solar is generating almost all of its power. Either of these changes alone would have been a jolt to the solar industry. Together, they created the largest seismic event the solar industry has ever seen.
Starting July 1, 2017, if you went solar in Edison territory, you were required to go on a time-of-use rate plan as part of their net metering successor program, NEM 2.0. This ended up working well for solar customers because Edison rates were higher from noon to 6 PM. Homeowners with solar were credited more for the excess power they generated during the time when solar operates at full strength. Then at night, when homeowners need power from the grid, it was less expensive. While every situation is different, most homeowners with solar still did very well in this new dynamic. They were selling high and buying low. Unfortunately for Edison, this was unsustainable.
We talk about Edison because it is the utility that services the majority of FreeVolt clients, but it can be grouped with Pacific Gas and Electric and San Diego Gas and Electric. As California’s major investor-owned utilities, these are the Big Three. When one of them does something, they all do it. Everything they do must go through the California Public Utilities Commission, which regulates them. Last summer they successfully lobbied the CPUC for changes to the rate structure that would greatly affect solar.
The problem is that there is too much power on the grid during the daytime, with a lot of that power coming from solar. There are some days when they can’t even use (sell) all the power available. Then as the sun goes down and the solar systems go offline, demand for power goes up across the grid as families returning home start flipping switches and commercial customers flood parking lots, sports fields, and sales lots with bright light. Edison would have to fire up its power plants to meet this demand. This phenomenon was called the “duck curve,” until it became so extreme that it is now known as the “dragon curve.” Edison and their partners had to make a change.
The change came in two parts.
First, Edison adjusted the peak periods for time-of-use rate plans. Instead of noon to 6 PM or 2 PM to 8 PM, they more accurately aligned the designated peak periods with actual peak consumption. Depending on which plan a homeowner chooses, the peak period is now either 4 PM to 9 PM or 5 PM to 8 PM. Homeowners with solar can take advantage of peak rates for only an hour or two before their solar stops producing. Then they’re stuck buying power at a higher rate for a couple of hours. That’s not the worst part.
The second punch that Edison and the others threw at solar customers was to make daytime power cheaper across the grid than that used late at night. When power had been more expensive during the mid-morning time period, the excess credit generated by the home solar system offset the cost of power used at night. Now, solar homeowners are selling low and buying high. In some cases, they are paying four times as much for the power they buy at night compared to what they receive for the power they generate during the day. This new plan may severely compromise the financial benefits homeowners can expect from going solar.
So, what can the solar industry do? Is solar dead in Edison territory?
First of all, this should pretty much end any discussion of whether it is better to lease or buy. Does it make sense to have a recurring monthly payment that never ends, and THEN have a significant bill to Edison at the end of the year? Probably not.
But it still makes sense to purchase a system. Without changing anything in system design, configuration, or pricing, an owned solar system will still significantly lower your annual obligation to Edison. Until now, buying a system usually meant that you would break even in five to seven years. Factoring Edison’s new rates, that payback period shifts to seven to ten years.
While definitely better than leasing, this just isn’t good enough for most people. So, the industry has some ideas on how to work within the new rates to improve the advantages to the solar customer.
First, some companies are choosing to oversize the systems that they sell. They reason that if more power is generated during the day, the homeowner can compile enough credits to offset the increased cost of power during the evening. Edison does limit the system size (based on historical usage), and the added initial cost must be considered, but increasing the system by just ten percent will still provide some relief from dependence on Edison’s rates.
Second, some companies are facing more panels west where possible. With more panels facing west, solar systems can generate power later into the afternoon and evening. Since Edison pays more for excess power generated from 4 PM to 9 PM, that power will be more valuable and therefore offset more of the cost incurred in the nighttime hours. That may help a little, but even with a lot of panels facing west, systems might generate for an hour or two longer than if they were facing south, which generates more power overall.
The problem with these two remedies is that they are not only limited in effectiveness but are also temporary. They don’t account for what Edison might do next, because we can’t know what will happen after 2020. Will they change the peak times again? Will they raise rates so high that they can’t possibly be overcome? Will they eliminate net metering altogether?
The third solution that solar companies offer is also the most stable, and, honestly, it’s what Edison is trying to incentivize. Adding energy storage to a solar system makes more sense than ever. Battery technology has gotten much better, and federal and state incentives bring the cost down and make it manageable. With the right energy storage system, you are not only maximizing your investment in this new world that Edison has created, but you are also protecting yourself against whatever is coming next. Not all batteries are the same, so you should make sure that your solar representative clearly explains the advantages and shortcomings of any potential energy storage investment.
The most important takeaway from all of this is that solar in Southern California Edison territory has changed. It will never be what it was under the original net metering program or even under its successor, NEM 2.0. Companies that claim they can wipe out your bill with solar alone are either not telling the truth or are not aware of what these changes mean.
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