ANALYSIS OF POTENTIAL POLICY CHANGES ON THE FINANCIAL VIABILITY OF RESIDENTIAL SOLAR PANELS IN NORTH CAROLINA. Jordan Kern, Ph.D.

Transcription

1 ANALYSIS OF POTENTIAL POLICY CHANGES ON THE FINANCIAL VIABILITY OF RESIDENTIAL SOLAR PANELS IN NORTH CAROLINA Jordan Kern, Ph.D. Post-doctoral Research Associate University of North Carolina at Chapel Hill, Institute for the Environment 100 Europa Dr., Suite 490 Campus Box 1105, Chapel Hill, NC 27517

2 INTRODUCTION What is net metering? Net metering is a term used to describe the dynamic exchange of electricity and money between retail electricity customers (e.g., households or businesses) with solar panels and electric power service providers (utilities). For most retail electricity customers, the flow of electricity goes in one direction (from the utility to the customer) while the flow of money goes in another (from the customer to the utility). Under net metering, solar power is allowed to flow from the customer back to the grid and, in principle, some money also flows from the utility to the customers producing this solar power. Key aspects of net metering arrangements vary on a state-by-state basis, as well as on a utility-by-utility basis. These can include: The size of solar panel system allowable The circumstances under which utilities will purchase solar power from customers The rate in dollars per kilo-watt hour ($/kwh) at which customers are compensated for solar power In general, most solar power produced by residential customers with solar panels is used to replace electricity that would otherwise have to be purchased from a utility. The only electricity that flows back onto the grid (i.e., from the customer to the utility) is that which is in excess of the customer s electricity demand. Whether a household with solar panels is importing or exporting electricity from the grid may shift on an hourly basis throughout the day, but in many states (including North Carolina) the net exchange of money and electricity is aggregated on a monthly time step to sync with current billing cycles. Utilities and other stakeholders in a number of states in the U.S. are currently seeking to reduce net metering rates, or the amount that distributed solar customers are compensated for excess solar generation that eclipses these customers monthly demand. The current debate over what constitutes a fair net metering rate is part of a much larger discussion regarding the growing roles of distributed generation, energy efficiency and demand response mechanisms in the electric power sector. It also highlights concerns on the part of some electric power utilities that distributed generation in particular has the potential to critically disrupt the conventional utility model by obviating the need for many large centrally controlled thermal power plants before these assets costs can be recouped. Recent developments in North Carolina It is beyond the scope of this short analysis to deal in detail with the broader, more complex issues at stake in this area. Rather, the goal here is to evaluate the impacts of potential changes to

3 the current solar net metering rate in North Carolina on the financial viability of residential solar panels and, by extension, on the customers who own them. This analysis is performed specifically in order to address public communications made recently by both Duke Energy and the North Carolina Sustainable Energy Association (NCSEA). In January and July of 2014, officials from Duke Energy expressed interest in reducing the current net metering rates for solar customers to align more closely with their avoided energy cost (the marginal reduction in the utility s fuel and O&M costs achieved by using customer generated solar power to help meet demand). 1,2 The current net metering rate in North Carolina is set equal to the volumetric retail energy charges that customers pay; 3,4 in its public statements, Duke Energy has said it would like to generally reduce this rate by approximately $ /kWh. Although Duke Energy has not made an official request of the North Carolina Utilities Commission (NCUC) to reduce the current net metering rate, NCSEA filed a motion with the NCUC requesting that the current net metering rate remain fixed at the current levels for the next 10 years. In this motion, the NCSEA stated concerns that uncertainty regarding the future net metering rate is discouraging potential customers from purchasing solar panels and having a detrimental impact on residential solar providers in the state. 5 In what follows, three potential solar policy changes are evaluated for their impact on the financial viability (i.e., the investment value) of residential solar panels in North Carolina: A $0.06/kWh reduction in the net metering rate Loss of the state investment tax credit Unlimited monthly roll-over of net metering credits Results indicate that, although a reduction in the current net metering rate by $.06/kWh does reduce the net present value (NPV) of solar installations, in no case does it impact whether purchasing residential solar panels is a good financial investment (has a net present value (NPV) > 0). Rather, the potential loss of the state investment tax credit poses a much greater immediate threat to the viability of residential solar panels. Results also show that the current June 1 net metering credit reset policy is more detrimental to the investment value of solar panels than a net metering rate reduction would be. Because of this policy, on average, the rate at which Duke Energy currently compensates certain residential solar customers is likely to already be well below the official net metering rate.

4 METHODS System Advisory Model This analysis makes use of a publically available model from the National Renewable Energy Laboratory called the System Advisory Model (SAM). 6 SAM enables users to input solar project specifications including: Location of house Size (generating capacity) of solar panel installation System costs and financing options State and federal incentives Utility rates Customer electricity usage Outputs from the model on the household level include simulated solar power generation and customer electricity usage on an hourly basis. This information is then used to calculate cash flows over the lifetime of the solar panels (25 years) and estimate a project s net present value. In this analysis, time series of solar power generation and customer electricity usage are exported from the SAM model to Excel files, which are then read by Matlab scripts that calculate monthly energy savings for the project. Calculating electricity bill savings in Matlab allows the details of Duke Energy s many available rate structures and net metering rider to be easily implemented, and it in enhances analytical flexibility in evaluating potential policy changes. Monthly electricity bill savings are then used to calculate annual net cash flows, which are determined as a function of: Project down payment (20% of up front project cost) Loan amortization Investment tax incentives and project rebates Electricity bill savings Project Specifications Primary determinants of monthly electricity bill savings for customers with solar panels are system size (generating capacity of solar panels) and customer electricity usage. In general, the amount of excess electricity eligible to be sold back to Duke Energy each month is equal to the positive difference between solar production and electricity consumption, such that Excess Electricity = max (Solar production Electricity Consumption, 0) Monthly solar production is primarily a function of system size and time of year (the most productive months for producing solar power are in the spring and fall) (Figure 1). Electricity consumption also varies throughout the year, and it can vary considerably on a customer-to-

5 customer basis (Figure 2). Larger, less energy efficient houses use more electricity than smaller, more energy efficient houses. Figure 1. Modeled solar output from and 7kW solar panels in Raleigh, NC (System Advisory Model). Figure 2. Monthly electricity usage profiles for an average home in Atlanta, GA and an energy efficient home in Durham, NC.

6 In this analysis four different combinations of solar panel generating capacity and electricity usage are evaluated: Energy efficient home, solar system home, solar system Energy efficient home, 7kW solar system home, 7kW solar system Most installed solar power capacity in North Carolina is made up by large (>500kW) industrial/wholesale solar projects. Only 2% of total installed solar capacity is made up by small (<20kW) residential and commercial systems. Of this group of smaller residential and commercial installations, more than 90% are smaller than 7kW, and 55% are smaller than (the average system size in this category is 4.2kW) (Figure 3). Thus, a system represents a typical residential installation, and 7kW represents a significantly larger than average residential system. 7,8 The electricity usage profile for an energy efficient home was taken from historical bill information for a small weatherized house in Durham, NC; data for an average home is provided by the SAM model for a house in Atlanta, Georgia. Figure 3. Number of North Carolina customers with solar panels in each system size (kw) range. Different combinations of system size ( vs. 7kW) and household electricity use (average vs. efficient) are associated with different amounts of excess solar generation produced each

7 month. For example, a 7kW system installed on an energy efficient home will produce much more excess electricity over the course of a year than a system installed on an average home (Figure 4). This means that the amount of excess electricity susceptible to a reduction in the net metering rate can likewise vary from case to case, depending on system size and electricity usage profile. Figure 4. Excess solar generation produced for different combinations of system size and household electricity usage. Rate Structures Duke Energy Carolinas (DEC) and Duke Energy Progress (DEP) offer a number of different rate structures for net metering customers. DEC offers a flat rate or a time-of-use rate, with the latter differentiating between energy charges for peak and off-peak electricity. DEP offers a flat rate and three different time-of-use rates: Time-of-use Time-of-use (D) Time-of-use (E) These vary in their volumetric energy charges and whether they include charges corresponding to customers peak monthly demand. The time-of-use (D) rate structure can be used in conjunction with DEP s SunSense program, which offers customers additional rebates on

8 the purchase of solar panels and monthly capacity payments for the first years of project operation. Monthly electricity bill savings, which are an important component of the investment value of a solar panel system, are calculated as the difference between a customer s electricity bill with and without a solar panel in place. Electricity bill savings can be significantly impacted by both a customer s choice of rate structure. For the purposes of evaluating the investment value of solar panels for different customers, it is assumed in this analysis that prior to acquiring a solar system, prospective customers purchase electricity from DEC or DEP using a flat rate. Electricity bill savings with a solar panel system are thus calculated as the reduction in bills relative to a flat rate structure without a solar system in place. Policy Changes a. Reduction in net metering rate The primary purpose of this analysis is to evaluate the impact of a reduction in the current net metering rates on the financial viability of residential solar panels. In its public statements on this issue, Duke Energy has expressed an interest in reducing the current rates by approximately $ kWh. The current net metering rate paid to solar customers depends on rate structure. For example, time-of-use solar customers in the DEP territory are reimbursed at more than $0.20/kWh for excess peak electricity, while excess off-peak electricity is valued at about $0.06/kWh. In a flat rate structure in the DEC territory, solar customers are reimbursed at about $.09/kWh for excess electricity, no matter what time of day it is produced. The potential net metering change considered here is a $0.06/kWh reduction applied uniformly across all rate structures. Thus, the rate for peak electricity under a DEP time-of-use structure would drop to about $0.14/kWh and the rate for off-peak electricity under the same structure would drop to $0/kWh. Under a flat rate in the DEC territory, the net metering rate would decrease from $0.09/kWh to $0.03/kWh. b. Expiration of state investment tax credit Currently buyers of solar panels in North Carolina may be eligible for both a federal and state investment tax credit, which collectively return more than 50% of the upfront cost of the solar panels to the buyer. The state tax credit is scheduled to expire at the end of 2015 and the federal tax credit is scheduled to expire at the end of Expiration of tax credits would not impact the monthly electricity bill savings realized by owning solar panels, but it would significantly impact the cash flows (and, by extension, the investment value) of the project. This analysis evaluates the impact of expiration of the state investment tax credit on the investment value of solar panels.

9 c. June 1 credit reset policy It is important to note that excess generation produced by customers with solar panels in North Carolina is not directly sold to Duke Energy. Excess generation produced in one month is valued at the net metering rate as a balance credit, which can be used to reduce electricity bills in a future month. These credits can accumulate on a month-to-month basis. For example, if a net metering customer with a flat rate structure produces 25kWh more than she consumes in February, March, and April, then 75kWh of net metering credits are available for offsetting her electricity bill in May, should she incur a positive energy charge. However, a current stipulation made by the net metering riders for both the DEC and DEP territories is that all net metering credits are reset to zero on June 1 of every year. In the example above, if the customer used 15kWh of her 75kWh of energy charge credits to offset her electric bill in May, at the end of the month she would have 60kWh of credits remaining. The current net metering rules would invalidate these credits at the end of May and give the customer 0kWh of credits heading into June. Of particular interest in this analysis is estimating the number (and monetized value) of net metering credits lost as a direct result of this June 1 credit reset policy over the lifetime of a solar panel system, as well as investigating the financial impacts of a hypothetical policy change that would eliminate this reset date and allows credits to roll-over indefinitely. What constitutes a good financial investment? In order to determine the impacts of potential solar policy changes on the viability of residential solar panels in North Carolina, the purchase of solar panels, associated tax credits, and the corresponding stream of electricity bill savings experienced over the lifetime of the panels are treated here as a single financial investment. Specifically, annual cash flows discounted at a real rate of 4% are used to determine a net present value (NPV) for each project. These NPVs (along with the initial down payment amounts) are translated into an equivalent bond coupon (interest) rate. For example, a solar panel system that requires a 20% down payment of $3005 that has a 25- year NPV of $1000 has the exact same NPV as an initial $3005 investment in a bond earning 6.39% nominal interest on an annual basis. In this analysis, projects that are as categorized as good financial investments are ones that have a NPV > 0. A positive NPV also translates more or less to an equivalent bond coupon rate that exceeds the real discount rate of 4%. It should be acknowledged that this analysis categorization of solar panel systems as good vs. bad investments for customers is made based on these financial metrics alone. There are other economic benefits involved in owning solar panels, and some of these may be firmly tied to customers personal preferences. This analysis should not be viewed as a recommendation to purchase solar systems listed as good investments (or likewise, to avoid buying panels that do

10 not meet this criteria). Financial performance metrics are included in this analysis strictly to facilitate evaluation of the impact of potential solar policy changes on the investment value of panels. RESULTS Are solar panels a good investment under the status quo? In the right circumstances, solar panels appear to be a very good financial investment for retail customers in North Carolina under the current net metering framework. In the best case scenarios, the purchase of solar panels has an investment value similar to the purchase of bonds with coupon (nominal interest) rates of 9-13%. In terms of the size of the system ( vs. 7kW), results of this analysis strongly suggest that a system or smaller is far more likely to yield a positive NPV (and thus be considered a good financial investment) than a 7kW system. Controlling for household electricity usage, the larger the system, the more excess solar power generated. Duke Energy does not purchase excess solar power directly from customers; rather, it reimburses customers with credits that can be used to pay-down future bills. The current policy of resetting customers credit balance every June 1 can result in substantial amounts of solar production being lost (used by Duke Energy without compensation) over the 25-year lifetime of the panels. This is particularly severe for 7kW systems, which can forfeit between 20-40% of their total lifetime solar production without compensation. Solar panels also appear to be a better financial investment on a household with average electricity usage than on an energy efficient house. Controlling for system size, solar panels on an energy efficient house produce more excess solar power. As noted above, greater excess solar power means more credits that can potentially be lost to the June 1 reset without compensation. It is important to note that choosing the right system size ( vs. 7kW) appears to be far more important to achieving a positive NPV than a household s particular electricity usage profile. Choice of rate structure is also important in determining a solar installation s NPV. In the Duke Energy Carolinas territory, a flat rate structure (controlling for system size and household electricity use) yields the greatest investment value. In the Duke Energy Progress territory, a time-of-use (D) rate structure yields the greatest investment value, because under this rate customers are currently eligible for the SunSense program. Participation in the SunSense program, which is not available under other rate structures, entitles customers to a $500/kW capacity rebate after the purchase of solar panels, as well as a $4.50/kW monthly capacity credit for the first 5 years.

11 Detailed financial results for each solar installation explored here and for each Duke Energy territory and rate structure can be found in Tables A1-A6 of the Appendix. Figure 5. Range of NPV values found under status quo net metering policy. A positive value signals a good financial investment. What happens if the net metering rate is reduced? One of the primary goals of this analysis is to determine how a $.06/kWh reduction in the current net metering rate would impact the investment value of solar panels in North Carolina. Results show that this reduction would decrease the NPV values associated with every installation type considered. The size of this decrease varies with installation type and rate structure. The mean decrease is $100 in present value dollars (or, expressed as a percentage of NPV values under the status quo, about 10%). In no case does a $0.06/kWh reduction in the net metering rate change whether a particular solar installation is considered a good financial investment. In general, it makes good investments slightly less attractive, and can bad investments slightly worse, but a reduction in the net metering rate is not shown to cause a big enough loss to cause a positive NPV to become negative. It is worth noting that for the optimal installations found for each Duke Energy territory

12 (, average home, using a flat rate in DEC and time-of-use rate (D) in DEP) the percentage decreases in NPV as a result of a reduction in the net metering rate are between 1-3% relative to the status quo. Figure 6. Range of decreases in NPV associated with a $.06/kWh reduction in the net metering rate. What happens if the state investment tax credit expires? Compared to a reduction in the net metering rate, expiration of the state investment tax credit poses a much greater immediate threat to financial viability of residential solar panels in North Carolina. Loss of the state investment tax credit causes a decrease in NPV of roughly $3790 for systems and $6640 for 7kW systems. These substantial decreases in value are more than enough to make solar installations a poor financial investment (NPV <0) in all but one case: a system installed on an average home under DEP s time-of-use (D) rate structure with participation in the SunSense program, assuming the current capacity rebate of $500/kW.

13 Figure 7. Comparison of average NPV losses from a reduction in the net metering rate (left) and expiration of the state investment tax credit (right). How is Duke Energy s June 1 credit reset policy impacting the value of solar panels? In order to quantify the impact that the June 1 credit reset policy has on the investment value of solar panels, the NPV of installations under the status quo are compared to the NPV of installations under an unlimited credit rollover policy. Results suggest that the current credit reset policy reduces the NPV of solar installations in in most (but not all) cases, and occasionally by a significant amount. Nonetheless, the current credit reset policy is in no case responsible for causing the NPV of an installation to become negative (i.e., it is not responsible for changing good financial investments into a poor ones). The average loss in NPV for each installation type is shown in Figure 8. Detailed information regarding the financial impacts of the current credit reset policy is listed in Tables A1-A12 in the Appendix. In general, a system on an average house experiences very little impact from the credit reset policy. This installation results in the least amount of credits produced over the 25-year panel lifetime, as well as the smallest percentage of total credits lost on June 1 (Figure 9) (an average of 22%). It is worth noting that for the financially optimal installations found for each

14 Duke Energy territory (both systems), the percentage of credits lost are lower (6% for DEC flat rate; 16% for DEP time-of-use (D) with SunSense). Figure 8. reductions in NPV caused by the June 1 credit reset policy.

15 Figure 9. Percentage of total net metering credits lost to the June 1 reset. The effects of the credit reset policy are more pronounced for a system installed at an energy-efficient home, because this installation results in more excess solar power and, as a consequence, more credits. In this case, the average percentage of total credits that is lost over the 25-year lifetime is 63%. This suggests that even without a $0.06/kWh reduction in the current net metering rates, the rate paid by Duke Energy on average for excess solar power from some of these customers could be less than 1/3 the official net metering rate. For 7kW systems, the credit reset policy has a mixed impact. Since these installations produce substantial more excess solar power, between 20-40% of total system output can end up as a credit. Close to 100% of these credits are eventually lost for 7kW systems; however, the majority (and sometimes all) of these losses occur because excess solar power is produced in nearly every month of every year. In other words, customers with 7kW systems rarely (if ever) experience a positive energy charge that could be offset using credits. Even if the June 1 credit reset policy were abolished and customers with 7kW systems were permitted to roll-over net metering credits in perpetuity, the majority of these credits would accumulate without ever being used to offset a future electricity bill. In effect, producing excess solar power in every month, even if credits are permitted to roll-over in perpetuity, can cause substantial amounts of excess solar power to become valueless for the customer, just as if they were invalidated by an annual credit reset.

16 For 7kW systems, the actual financial impacts of the credit reset policy depend mostly on household energy usage. For an average home with a 7kW system, the credit reset policy lowers NPV by an average of about $900. For an efficient home with the same size system, there is typically no decrease in NPV. An efficient home with a 7kW system produces excess solar power in every month of every year; even without the June 1 credit reset policy, these credits roll-over in perpetuity and are never used to offset the customer s monthly electricity bill. CONCLUSIONS Under the status quo, solar panel systems can yield a very good financial investment, regardless of household energy usage. The optimal (in terms of NPV) installations identified for each Duke Energy territory are both systems installed at average homes, with a flat rate structure in DEC and a time-of-use (D) rate structure in DEP (including participation in the SunSense program). Given the electricity usage profiles examined here, larger 7kW systems are significantly less likely to have a positive NPV. No compensation is received for a significant amount of solar power output from these systems. As a result, annual electricity bill savings with a 7kW system fall too far below the substantially higher loan amortization payments associated with a larger system. Looking forward, expiration of the state investment tax credit at the end of 2015 appears to pose the greatest, most immediate threat to the financial viability of residential solar panels in NC. For all but one installation considered, expiration of the state investment tax credit is associated with an NPV < 0 (i.e., a poor financial investment). If the state investment tax credit is not renewed, it could require substantial reductions in the hardware and financing costs of residential solar panels to make them a good financial investment for homeowners. As such, one might expect solar businesses to experience a boom over the next year, despite the possibility of a net metering rate reduction. Compared to the potential expiration of the state investment tax credit, a $0.06/kWh reduction in the current net metering rate would have far less of an impact on systems NPV, and in no case is such a reduction shown to cause an installation initially considered to be a good investment to become a poor one. Results also show that, in general, the current June 1 credit reset policy currently exerts a greater financial toll on the viability of residential solar panels than a potential $.06/kWh reduction in the net metering rate. It is important to recognize that this credit reset policy reduces the average rate at which Duke Energy compensates customers for excess solar power. In some cases it is possible that the average rate that Duke Energy pays for excess solar is already on par with net metering rates that would result by $.06/kWh reduction. The net metering debate playing out in North Carolina is a complex issue, and it is part of a much larger discussion about renewable energy integration. It is spurring recognition of the

17 potential need for changes in electric utility billing procedures that better reflect customers true costs of electricity and the economic value of solar power, that enable renewable generation resources to develop, and provide for the continued financial stability of utilities. It remains unclear what a fair net metering rate is for solar customers in North Carolina, and as a result of the growth of solar in the state and the changes occurring across the larger electric power industry, it may be difficult to identify a rate that is fair both today and 5-10 years from now. Regardless, it is clear that the policy issue at hand with the greatest potential to impact prospective solar customers (and impede the growth of the solar industry in the near term) is the expiration of tax incentives. REFERENCES North Carolina Utilities Commission, Docket No. E-100, SUB 83; NCSEA s Motion for disclosure and equitable relief Duke Energy Carolinas Integrated Resource Plan (Annual Report). September 1, Duke Energy Progress Integrated Resource Plan (Annual Report). September 1, 2014.

18 APPENDIX Tables A1-A12 provide financial results for each of the four solar panel installations considered: Energy efficient home, solar system home, solar system Energy efficient home, 7kW solar system home, 7kW solar system Information for each installation is listed for four different policy cases: Base status quo net metering policy NEM Reduction a $0.06/kWh reduction in the net metering rate Base w/credit Rollover no reduction in the net metering rate and unlimited rollover of net metering credits Base w/ No SITC status quo net metering policy without North Carolina s investment tax credit For a time-of-use (D) rate structure in the Duke Energy Progress territory (Table A5), information is also presented regarding the proposed reduction in the SunSense purchase rebate (Duke Energy is planning to reduce the rebate from $500/kW of installed capacity to $250/kW). Tables A1-A6 list financial information including: 20% down payment amount; average annual electricity bill savings; net present value (NPV); the equivalent bond coupon (interest) rate assuming the same up-front cost and NPV; the spread (positive difference) of the equivalent coupon rate over the real discount rate (4%); and whether the installation is considered here as a good financial decision (NPV>0). Tables A7-A12 list information related to the financial impacts of the current June 1 net metering credit reset policy. Each of these tables lists the number of credits (in kwh and as a percentage of total credits produced) that are lost over the 25-year system lifetime, as well as their net present value. These tables also show the effect of an unlimited credit rollover policy. Note that for the 7kW systems, some lost credit values are marked by an asterisk. These values represent the ending credit balances at the end of the 25-year period. Although ending credit balances are not technically lost, no monetary compensation is received for them. Assumptions inherent in this analysis are as follows: Inflation rate 2%/year Nominal discount rate 6.08% Real discount rate 4% Electricity rate increase 1.7%/year 80% Debt financing Loan rate 4.5%

19 7kW 7kW Table A1. Financial information for Duke Energy Carolinas flat rate structure. A system installed at either type of home is a good financial investment unless the state investment tax credit (SITC) is removed. Initial Down Payment ($) Electric Bill Savings ($/year) NPV ($) Equivalent Bond Coupon Rate (%) Spread Above Real Discount Rate (%) Good Financial Investment? Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base No NEM Reduction No Base w/ Credit Rollover No Base w/ No SITC n/a n/a No

20 7kW 7kW Table A2. Financial information for Duke Energy Carolinas time-of-use rate structure. A system installed at either type of home is a good financial investment unless the state investment tax credit (SITC) is removed. Initial Down Payment ($) Electric Bill Savings ($/year) NPV ($) Equivalent Bond Coupon Rate (%) Spread Above Real Discount Rate (%) Good Financial Investment? Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base No NEM Reduction No Base w/ Credit Rollover No Base w/ No SITC n/a n/a No Base n/a n/a No NEM Reduction n/a n/a No Base w/ Credit Rollover n/a n/a No Base w/ No SITC n/a n/a No

21 7kW 7kW Table A3. Financial information for Duke Energy Progress flat rate structure. A system installed at either type of home is a good financial investment unless the state investment tax credit (SITC) is removed. Initial Down Payment ($) Electric Bill Savings ($/year) NPV ($) Equivalent Bond Coupon Rate (%) Spread Above Real Discount Rate (%) Good Financial Investment? Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base No NEM Reduction No Base w/ Credit Rollover No Base w/ No SITC n/a n/a No

22 7kW 7kW Table A4. Financial information for Duke Energy Progress time-of-use rate structure. A system installed at either type of home is a good financial investment unless the state investment tax credit (SITC) is removed. Initial Down Payment ($) Electric Bill Savings ($/year) NPV ($) Equivalent Bond Coupon Rate (%) Spread Over Real Discount Rate (%) Good Financial Investment? Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base No NEM Reduction No Base w/ Credit Rollover No Base w/ No SITC n/a n/a No

23 7kW 7kW Table A5. Financial information for Duke Energy Progress time-of-use (D) rate structure (SunSense). A system installed at either type of home is a good financial investment unless the state investment tax credit (SITC) is removed. Initial Down Payment ($) Electric Bill Savings ($/year) NPV ($) Equivalent Bond Coupon Rate (%) Spread Over Real Discount Rate (%) Good Financial Investment? Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ Rebate Reduction Yes Base w/ No SITC Yes Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ Rebate Reduction Yes Base w/ No SITC No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ Rebate Reduction Yes Base w/ No SITC n/a n/a No Base No NEM Reduction No Base w/ Credit Rollover No Base w/ Rebate Reduction No Base w/ No SITC n/a n/a No

24 7kW 7kW Table A6. Financial information for Duke Energy Progress time-of-use (E) rate structure. A system installed at either type of home is a good financial investment unless the state investment tax credit (SITC) is removed. Initial Down Payment ($) Electric Bill Savings ($/year) NPV ($) Equivalent Bond Coupon Rate (%) Spread Over Real Discount Rate (%) Good Financial Investment? Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No Base Yes NEM Reduction Yes Base w/ Credit Rollover Yes Base w/ No SITC n/a n/a No

25 7kW 7kW Table A7. Impacts of June 1 credit reset policy for Duke Energy Carolinas flat rate structure. Total Solar Output (MWh) Excess Solar Output (Energy Credits) (MWh) (% of Total Solar Output) Credits Lost on June 1 (MWh) (% of Total Credits) Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % *39.8 *67% Base % % NEM Reduction % % Base w/ Credit Rollover % *89.76 *98%

26 7kW 7kW Table A8. Impacts of June 1 credit reset policy for Duke Energy Carolinas time-of-use structure. Excess Solar Output (Energy Credits) Credits Lost on June 1 Total Solar Output (MWh) (MWh) (% of Total Solar Output) (MWh) (% of Total Credits) Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % *36.46 *65% Base % % NEM Reduction % % Base w/ Credit Rollover % *91.24 *100%

27 7kW 7kW Table A9. Impacts of June 1 credit reset policy for Duke Energy Progress flat rate structure. Total Solar Output (MWh) Excess Solar Output (Energy Credits) (MWh) (% of Total Solar Output) Credits Lost on June 1 (MWh) (% of Total Credits) Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % *36.46 *67% Base % % NEM Reduction % % Base w/ Credit Rollover % *91.24 *100%

28 7kW 7kW Table A10. Impacts of June 1 credit reset policy for Duke Energy Progress time-of-use rate structure. Excess Solar Output (Energy Credits) Credits Lost on June 1 Total Solar Output (MWh) (MWh) (% of Total Solar Output) (MWh) (% of Total Credits) Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % *36.53 *59% Base % % NEM Reduction % % Base w/ Credit Rollover % *91.29 *97%

29 7kW 7kW Table A11. Impacts of June 1 credit reset policy for Duke Energy Progress time-of-use (D) rate structure (SunSense). Excess Solar Output (Energy Credits) Credits Lost on June 1 Total Solar Output (MWh) (MWh) (% of Total Solar Output) (MWh) (% of Total Credits) Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % *37.98 *64% Base % % NEM Reduction % % Base w/ Credit Rollover % *91.24 *99%

30 7kW 7kW Table A12. Impacts of June 1 credit reset policy for Duke Energy Progress time-of-use (E) rate structure. Excess Solar Output (Energy Credits) Credits Lost on June 1 Total Solar Output (MWh) (MWh) (% of Total Solar Output) (MWh) (% of Total Credits) Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % % Base % % NEM Reduction % % Base w/ Credit Rollover % *41.52 *70% Base % % NEM Reduction % % Base w/ Credit Rollover % *91.24 *99%