Going solar saves you money on your monthly electrical bill. The amount of your savings varies by size and location of the system. But how does it work financially and administratively with your utility? Currently, two types of policy are widely used: the Value of Solar Tariff and Net Metering. The decision of which one to use can be controversial.
The Value of Photovoltaic Systems to Shoppers and to the Grid
The energy produced by a photovoltaic (PV) solar power system is valuable to the solar customer and to the grid. But how do you assign a number to these values? Some say that using the market rate for electricity, the amount customers currently pay for electricity from the grid, undervalues the extra benefits provided by solar power (reduced pollution, carbon reduction, meeting demand during peak periods.). The other side of this argument is that using the market rate gives an unfair benefit to those that have a solar energy system at the disadvantage of those who don’t have a system. Municipalities generally use one of two policy types to determine how much solar energy is worth, as measured in dollars per kilowatt hour ($/kWh).
The Value of Solar is a rate design policy created to give structure to how much someone with a solar power system is compensated for the energy that their system produces. Sometimes abbreviated to VOST or just VOS, the idea was first developed in a study in Austin, Texas in 2006. Austin and its electrical utility, Austin Energy, adopted the policy in 2012. The driving idea behind the VOST was to decouple solar power from power consumption rates and incentives for using solar power by creating a neutral rate for solar energy.
In 2014, Minnesota implemented the first statewide VOST as a voluntary alternative to the net metering system already in place.
Under a VOST program, a solar power system user still pays for all electricity from the grid, consumed in their home as they did before. Then the utility gives the user a credit for each unit of electricity (expressed in terms of Kilowatt Hours or kWh) produced by the solar energy system whether used onsite or pushed back to the grid.
Save the Most Money With Austin Energy’s Solar Pricing Options
For residential customers of Austin Energy the VOST rate for 2017 is 10.6 cents per unit or kWh of electricity, and the rate is reviewed annually. According to Austin Energy, the VOST is available for those who own and lease their systems.
The VOST and the pricing system for Austin Energy customers interact to influence the size of PV system you need to meet your energy needs and save the most money. In many cases, because of the pricing system that Austin Energy uses, you do not need to install a solar system that meets all of your energy needs to greatly reduce your electricity bill. In the Austin program, any unused credits roll over to the next billing cycle.
In Minnesota investor owned utilities (Alliant, Minnesota Power, Otter Tail Power Company, or Xcel Energy) are eligible to offer their customers VOST but according to John Farrell, the Director of Democratic Energy for the Institute for Local Self Reliance, none of those utilities have chosen to offer VOST to their customers, instead continuing to use the market rate.
VOST recognizes that electricity generated from solar is valuable to the utility and the grid, by taking into account the savings that distributed solar creates by eliminating needs for transportation, environmental protection efforts and new construction. It also is a way to encourage more homeowners and commercial properties to install solar on site by providing a larger economic benefit to solar consumers. While more states and municipalities are considering using VOST the only sample of a working system is Austin, Texas. A recent report from the Solar Electric Power Association and the National Renewable Energy Laboratory says that more analysis of the program itself is needed in addition to further investigation of how the formula for rate calculation is created.
The majority of states have implemented a net metering policy, 44 in total as of December 2014. Solar energy consumers who use net metering see their electric meter spin backwards when their system produces more power than is being used at any given time.
Under a net metering program, a solar energy user consumes the power created by their own system first. If the production of their PV system is not meeting their needs, users can draw additional power from the grid. When the system produces more power than is being used, power is fed back to the grid and the meter runs backwards. Net metering assumes that one kWh of power produced by an on-site solar power system is worth the same amount as one kWh produced by a different source of energy and delivered via the grid.