This Number Helps Explain Why Rooftop Solar Is Becoming More Attractive in Many States

Courtesy of Inside Climate News, a look at state electricity rates, the “15-cent rule,” and what it means for solar:

About 5 percent of U.S. households have rooftop solar, a share that may seem like a lot, but it looks low compared to places like Germany (about 20 percent) and Australia (about 30 percent).

One of the big reasons that the United States lags some of those other countries is that electricity is unusually cheap here, so it makes less sense on a financial basis for someone to buy rooftop solar.

But this is changing.

Utilities across the country have been raising their electricity rates by leaps and bounds, with the approval of state regulators. The rate hikes reflect increases in the utilities’ costs of operation and their desire to show growth in earnings. This is fueling demand for rooftop solar, the technology that many utilities view as competition.

At what point is a customer’s electricity rate high enough to justify rooftop solar on a financial basis? That’s complicated, and depends on policies at the state level and how much sun a place gets. But let’s simplify things and I’ll throw out a number: 15 cents.

This rate, 15 cents per kilowatt-hour, translates to a monthly bill of about $130 for a household with average electricity consumption.

People in the solar business and energy analysts sometimes talk about 15 cents per kilowatt hour as the approximate point at which things change. In states with rates above that level, companies that sell rooftop solar can more easily demonstrate the potential for financial savings to customers.

I spoke with Pavel Molchanov, an energy industry analyst for the financial services company Raymond James, who recently published a research note looking at the rooftop solar market in terms of which states are above and which are below 15 cents per kilowatt hour.

“Utility rates never go down,” he said. “They go up, and then they stabilize and then they go up again. For homeowners who are tired of utility rates going up, rooftop solar is a solution.” 

In 2022, 16 states had residential rates of 15 cents or more, according to the Energy Information Administration.

Hawaii was highest with 43 cents, which is part of a legacy of relying on imported oil to generate power; California was next with 26.2 cents, due to the high costs of providing power in the state, which includes serving rugged terrain and expenses tied to wildfires.

The next eight states are all in the northeast, plus Alaska, all of which have rates of 20 cents or more, and have long had rates greater than the national average.

I want to zero in on the next group, which are fertile ground for rooftop solar to expand: the states whose rates have recently risen above 15 cents.

This includes New Jersey and Pennsylvania, both of which already have a history with the rooftop solar industry due to state policies that led to periods of rapid adoption. It also includes Midwestern states like Michigan, Illinois, Wisconsin and Indiana.

In Illinois, the growth of rooftop solar is getting an assist from the state Climate and Equitable Jobs Act, whose subsidies have helped to expand the market.

At the same time, Indiana regulators have approved utility policies in the last two years that have reduced the financial benefits of solar by revising rules for “net metering,” which determine how much the utility must reimburse solar owners for excess electricity they send back to the grid.

But I don’t want to get too bogged down in a discussion of individual states. Utility rates are rising everywhere and the national average crossed the 15-cent mark for the first time last year, with a rate of 15.1 cents.

It would make sense for rooftop solar prices to increase along with utility rates due to inflation in the costs of some parts and employee pay. And yet, Molchanov expects that solar costs will stay about the same, thanks in part to economies of scale as demand increases.

“The unambiguously good news is that, in this case, the more sustainable solution is also becoming the most cost-effective solution,” he said.

I asked Will Kenworthy, Midwest regulatory director of the advocacy group Vote Solar, if he thinks the “15 cent rule” is a useful way of explaining the market.

“It’s a reasonable proxy, a reasonable rule of thumb,” he said.

But it leaves out some big variables, like the state laws that make Illinois much more hospitable to solar than Indiana, he said.

If you’d like a deeper look at the rooftop solar market, I’d recommend the Lawrence Berkeley National Laboratory’s Tracking the Sun series. One takeaway from the series is that rooftop solar costs can vary a lot, even within the same geographic area, so it’s difficult to generalize about costs.

Also, RMI has a nifty interactive tool that helps consumers to estimate the payback period for rooftop solar down to the county level.

Some fine print: When I said that about 5 percent of the country’s households have rooftop solar, this comes from a 2020 figure from the Energy Information Administration about solar on single-family homes, plus Molchanov’s estimate of the increase that has happened since then. The number I cited for rooftop solar share in Australia comes from its federal government, and the number from Germany comes from a solar trade group there.

Molchanov’s larger point is that the outlook is good for the rooftop solar industry. Utilities should take notice.

“Utilities are fighting a losing battle,” he said. “Rooftop solar will continue to grow. Utilities need to learn to live with this reality.”

This entry was posted on Sunday, October 22nd, 2023 at 5:08 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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About This Blog And Its Author
As potential uses for building and parking lot roofspace continue to grow, unique opportunities to understand and profit from this trend will emerge. Roof Options is committed to tracking the evolving uses of roof estate – spanning solar power, rainwater harvesting, wind power, gardens & farms, “cooling” sites, advertising, apiculture, and telecom transmission platforms – to help unlock the nascent, complex, and expanding roofspace asset class.

Educated at Yale University (Bachelor of Arts - History) and Harvard (Master in Public Policy - International Development), Monty Simus has held a lifelong interest in environmental and conservation issues, primarily as they relate to freshwater scarcity, renewable energy, and national park policy. Working from a water-scarce base in Las Vegas with his wife and son, he is the founder of Water Politics, an organization dedicated to the identification and analysis of geopolitical water issues arising from the world’s growing and vast water deficits, and is also a co-founder of SmartMarkets, an eco-preneurial venture that applies web 2.0 technology and online social networking innovations to motivate energy & water conservation. He previously worked for an independent power producer in Central Asia; co-authored an article appearing in the Summer 2010 issue of the Tulane Environmental Law Journal, titled: “The Water Ethic: The Inexorable Birth Of A Certain Alienable Right”; and authored an article appearing in the inaugural issue of Johns Hopkins University's Global Water Magazine in July 2010 titled: “H2Own: The Water Ethic and an Equitable Market for the Exchange of Individual Water Efficiency Credits.”