Executive Summary: U.S. Residential Solar Economic Outlook 2016-2020: Grid Parity, Rate Design and Net Metering Risk Cory Honeyman Senior Analyst, Solar Markets honeyman@gtmresearch.com February 2016
Table of Contents and List of Figures 1. Introduction a. U.S Residential PV Installations, 2006-2015 b. Grid Parity Case Study: DTE Energy c. U.S. PV Installations and Number of States at Grid Parity, 2015-2020E 2. What Does Grid Parity Mean? 3. Which States are at Grid Parity in 2016 and Why? a. Share of Residential Installations, Top 10 States, 2010-2015 b. Number of States at Grid Parity in 2016 c. Connecticut: Net Year 1 Savings by Installed Cost Scenario d. Number of States Grid Parity in 2016: With and Without State Incentives e. Volumetric Charge s Share of Electricity Bill by Utility 4. In Depth: U.S. Residential Solar Market Outlook a. Number States at Grid Parity in 2020 b. National Residential PV Installed Cost Forecast: 2010-2020E c. Number of States at Grid Parity, 2015-2020E d. U.S. Residential Solar Economic and Installation Outlook: 2015-2020E a. Installed Price Forecast: National vs. Regional Average Price Assumptions b. Number of States With Additional State Incentive Funding by Year c. How is Grid Parity Calculated? d. Primary Input Calculations to Grid Parity Modeling e. 2016 Commercial Operation Date: Year 1 Bill Impact From vs. Payback Period by State f. 2016 Grid Parity Metrics in South Carolina: Default vs. Solar- Friendly TOU Rate g. Number of States at Grid Parity in 2016: Business-as-Usual NEM vs. NEM Reform Scenarios i. Scenario: Adding a $10 Monthly Fixed Charge by State ii. Scenario: Adding a $50 Monthly Fixed Charge by State iii. Scenario: Adding a $5/kW/Month Peak Demand Charge iv. Scenario: Adding a $15/kW/Month Peak Demand Charge v. Scenario: Solar PV Export Compensation Reduced by 10% vi. Scenario: Solar PV Export Compensation Reduced by 50% 1
Residential solar in the U.S. has grown by impressive strides over the past decade 6 Cumulative Installations (GWdc) 5 4 3 2 1 More than 90% of cumulative residential PV installations have come online since the beginning of the decade 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 through Q3 Source: GTM Research/SEIA, Q3 2015 U.S. Solar Market Insight Residential PV is the fastest-growing market segment in U.S. solar, expanding by at least 50% over the past three years. Between 2010 and Q3 2015, quarterly capacity additions have increased tenfold. By Q1 2016, the cumulative number of U.S. homeowners with rooftop solar will eclipse the 1-million mark. 2
To date, most analysis of residential solar s growth has focused on the following logic National Residential PV Installed Cost Forecast vs. National Residential Retail Rate Forecast $7 $0.16 Average Installed Cost ($/Wdc) $6 $5 $4 $3 $2 $0.14 $0.12 $0.10 $0.08 $0.06 $0.04 Average Retail Rate ($/kwh) As installation costs continue to decline and retail electricity rates continue to rise, residential solar economics become increasingly attractive in a growing number of states. $1 $0.02 $0 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E $0.00 National Average Residential PV Installed Cost National Average Residential Retail Rate 3
As costs decline and retail rates rise, residential solar economics then reach grid parity What is grid parity? Grid parity is a minimum threshold of economic attractiveness where the levelized cost of energy (LCOE) dips below a customer s electricity bill savings in year 1 of system life. A traditional grid parity analysis compares the LCOE of rooftop solar to a customer s blended retail rate, as reported by the U.S. Energy Information Agency. But in reality, solar savings are rarely equal to retail electricity prices. This comparison fails to account for rate design and net metering, which impact the value of the solar that is consumed by the customer and exported to the grid. This report explores how rate design and net metering reform risk complicate the residential solar economic outlook in ways that can either strengthen or weaken the rooftop solar savings that can be attained by a customer. 4
How does GTM Research model residential solar economics? Annual Gross Solar Savings Cost of Solar Annual Avoided Electricity Costs Annual On-Bill Net Metering Credits Solar Savings Discounted Total Lifecycle Costs Total Energy Output Levelized Cost of Energy GTM Research s Rooftop Solar Savings Model Monthly rate tariff library by state and utility Monthly customer electricity solar savings calculations Hourly and 15-minute interval modeling GTM Research s Rooftop Solar Cost Model Average annual installed cost forecast by region LCOE, payback period and PPA models Additional Resources Customer Load: NREL s OpenEI Database Hourly customer load-profile assumptions PV Production: NREL s PVWatts Hourly state-level PV production assumptions Retail Rate Forecasts: EIA Annual Energy Outlook Retail rate forecasts by ISO/RTO 5
Rate design and NEM matter: A case study on grid parity in Michigan s largest utility $0.175 $0.17 15% $0.170 LCOE = 3% greater than retail rate $0.165 LCOE = 7% greater than year 1 gross solar savings $/kwh $0.160 $0.155 85% $0.150 Volumetric Charges Fixed Charges $0.145 Pre Solar Retail Rate Gross Rooftop Solar Compensation ($/kwh) NEM at Full Retail Rate Rooftop Solar LCOE ($/kwh) 15% of annual electricity costs for a DTE Energy residential customer in 2016 come from fixed charges This means that the LCOE for a 5-kWdc system installed in 2016 is actually 7%, not 3% higher than gross solar savings in year 1 6
Rooftop solar economics are highly sensitive to net metering reforms Michigan in 2016: Year 1 Electricity Costs Without Solar, With Solar Under Current NEM Rules, and With Solar Under Various NEM Reform Scenarios $3,000 $2,500 What if the solar export rate were lowered below the full retail rate, closer to avoided wholesale generation costs? What if rooftop solar customers paid an additional fixed monthly charge? Year 1 Electricity Costs ($) $2,000 $1,500 $1,000 $1,700 $500 $0 No Solar Solar with Current NEM Rules 10% Reduction to Solar Export Rate 25% Reduction to Solar Export Rate 50% Reduction to Solar Export Rate New $10/Month Fixed Charge New $25/Month Fixed Charge New $50/Month Fixed Charge Year 1 Electricity Costs: Rooftop Solar Year 1 Electricity Costs: Utility Bill 7
In 2016, there are now 20 states that have reached grid parity Number of States at Grid Parity in 2016 100% 80% Year 1 Bill Impact from Solar (%) 60% 40% 20% 0% -20% At Grid Parity: 20 states (including Washington, D.C.) -40% -60% CA MA HI NJ AZ VT NM NY DE NH SC DC CT LA MD CO RI UT MN MO PA NV FL IL OR MI GA ME WI KY TX IA AR NC WY AL OH VA TN SD KS IN MS NE MT AK ID WV WA OK ND Note: Grid parity metrics account for all NEM and rate reforms currently in effect for modeled utilities. 8
How do NEM reforms impact the grid parity landscape across each state? Number of States at Grid Parity in 2016: Business-as-Usual NEM vs. NEM Reform Scenarios 25 Number of States at Grid Parity 20 15 10 5 20 0 Business As Usual NEM $10 Monthly Fixed Charge Hike $50 Monthly Fixed Charge Hike $5/kW demand charge $15/kW demand charge 10% Discount to Solar Export Rate 50% Discount to Solar Export Rate 9
What if every state s major utility added a new $50 per month fixed charge? Year 1 Bill Impact From Solar (%) 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% CA MA HI NJ AZ VT NM NY DE NH SC DC CT LA MD CO RI UT MN MO Business As Usual $50 Monthly Fixed Charge Number of residential state markets at grid parity in 2016: Business-as-usual: 20 states $50 per month fixed charge: 2 states 10
U.S. Residential Solar Economic Outlook: Key Takeaways for 2020 and Beyond The future of rate design and net metering rules will shape the residential solar economic outlook in ways that can either strengthen or weaken the rooftop solar savings offered to customers. As retail rates evolve from flat or consumption-based tiered structures to time-of-use, rate design will play an even greater role in shaping residential solar economics by setting price signals that either align with or deviate from peak PV production. In the near term, monthly fixed charges rank as the greatest policy risk that could undercut residential solar economics. But through 2020, incremental cost reductions to rooftop solar, alongside incremental retail rate hikes in most utility service territories, will serve as sufficient tailwinds to expand the number of states that reach grid parity from 20 to 42 states. In the long run, when solar becomes a mainstream power source beyond 2020, regulators and utilities are more likely to align compensation for solar exports more closely to wholesale market pricing, underscoring the need for continued installed cost reductions to counter a policy environment in which rooftop solar compensation is significantly undercut. The future value proposition of rooftop solar will depend on its pairing with other distributed energy resources, namely battery storage, which will enable rooftop solar production to better align with peak electricity price periods and optimize self-consumption to mitigate the risk of net metering reforms that roll back the value of solar exported to the grid. 11
Pricing and purchase options Thank you for reading the executive summary. The full report contains 49 slides that break down the residential solar economic outlook across all 50 U.S. states, plus Washington, DC. The premium version of the report also comes with the complete, underlying dataset in Excel. Pricing: Standard License: $1,995 Premium License: $2,995 Premium License provides company-wide access to the report in PDF format and includes the data behind key charts and figures in Excel. Additionally, this license allows buyers to publicly cite data from the report, pending written approval from GTM Research. For more information or to purchase, click here or contact: Zack Munsell Research Sales Associate zmunsell@gtmresearch.com +1 617 500 0257 12
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