Changes to “Time of Use” (TOU) Periods Threaten Value of Commercial Solar in California
by Tom Williard, Sage Renewable Energy Consulting
*Update January 19, 2017: CPUC commissioners have voted to accept the revised Proposed Decision. Commercial solar PV customers have until January 31 to file interconnect applications to be grandfathered on existing Time of Use periods.
*Update January 18, 2017: The CPUC released Revision 2 of their Proposed Decision on Tuesday, January 17 with important changes to eligibility deadlines for grandfathering, including an extended deadline for schools and a new requirement to file interconnect applications by the end of the month, January 31, 2017. These changes are reflected below.
A recent Proposed Decision (PD) by the California Public Utility Commission (CPUC) will have a large impact on the value of energy produced by solar PV systems for both existing and future commercial solar owners.
The ongoing boom in solar and wind projects in California is producing ever-increasing amounts of energy to the grid during the middle of the day. The utilities have successfully persuaded the CPUC to shift the time-of-use peak periods to better match today’s grid loads.
Shifting the peak cost of energy to later in the day has outsized effects on the value of solar projects. Many owners have invested in solar on the assumption that the returns from these systems would endure for the life of the system. However, with these changes the CPUC has signaled that it will not protect rate structures that give these projects much of their value.
These changes, and their impacts, are significant. Sage has modeled that the time-of-use changes will result in a reduction of the value of energy of 20 to 40% for commercial solar owners in PG&E territory. Existing systems and projects that are in the pipeline will be grandfathered at the current time-of-use periods for 10 years, provided they have interconnection applications and final building inspection permits by July 31, 2017. The CPUC granted an extended eligibility for schools, who must have interconnection applications and final building inspection by December 31, 2017. However, all commercial solar PV customers must have filed completed Interconnection Applications by no later than January 31, 2017 to be eligible for TOU grandfathering.
Figure 1-1: Estimated loss of annual savings for a 1.0 MWp commercial solar PV project.
Good News for Battery Storage?
As the value of solar energy decreases, there is an opportunity to address increasing energy costs with battery storage systems. There are several factors making energy storage systems increasingly standardized, valuable and competitive. In the near term, demand charges will be increasing to pay for utility upgrades required to implement smart grids. Longer term, grid services such as demand response, load firming and energy arbitrage will provide added benefit to energy storage systems. The installed cost of energy storage has been falling precipitously over the last several years and this trend is expected to continue, as battery storage becomes an integral component of new renewable energy projects.
Today, battery storage systems are starting to make financial sense in some markets. There are many factors that influence the return on investments in energy storage. A detailed analysis is required to determine whether a customer can benefit financially.
Want to learn more about how to finance your next solar energy project? Read more from our CEO, Arno Aghamalian, in the Washington Post.