Residential solar in the U.S. has grown by impressive strides over the past decade
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.
To date, most analysis of residential solar's growth has focused on the following logic
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.
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.
How does GTM Research model residential solar economics?
Rate design and NEM matter: A case study on grid parity in Michigan's largest utility
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
Rooftop solar economics are highly sensitive to net metering reforms
In 2016, there are now 20 states that have reached grid parity
How do NEM reforms impact the grid parity landscape across each state?
What if every state's major utility added a new $50 per month fixed charge?
Number of residential state markets at grid parity in 2016:
- Business-as-usual: 20 states
- $50 per month fixed charge: 2 states
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.
Table of Contents
- 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?
- 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 Price
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
- 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%
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