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Writer's pictureBrittany Mumma

Understanding Solar Avoided Cost Rates: A Deep Dive into Net Metering and Net Billing

Updated: Jan 2




Comprehending the intricacies of Avoided Cost Rates is crucial for anyone looking to assess the true value of their solar power contributions to the grid. This article delves into the key principles surrounding Avoided Cost Rates, shedding light on their impact on electricity bills, especially in the context of net metering and net billing.


Defining Avoided Cost Rates


Avoided Cost Rates represent the incremental expenses a utility avoids by not generating or purchasing additional power. Enshrined in the Public Utility Regulatory Policies Act of 1978 (PURPA), these rates dictate the minimum compensation an electric utility must pay to independent power producers, such as homeowners with grid-tied solar panels.

Implementation in Net Metering: For net metering customers, avoided cost rates typically come into play at the end of the solar billing cycle. Excess bill credits usually roll over, but after 12 months, any surplus credits are often compensated at avoided-cost rates, commonly referred to as the "true-up statement."





Net Billing vs. Net Metering

The shift to California's Net Billing Tariff (NEM 3.0) signifies a departure from traditional net energy metering. Under NEM 3.0, the value of solar energy sent to the grid is based on avoided cost rates for specific utility customers. However, this change has implications, as seen in the reduced value of solar exports for post-April 15, 2023, installations compared to previous California Public Utilities Commission policies.


Dynamic Avoided Cost Rates

Avoided cost rates are dynamic and vary by location. While there is no federal standard, local utility bodies calculate and report their own avoided costs. These rates are consistently lower than retail energy rates, with averages ranging from $0.02/kWh in Nebraska to $0.06/kWh in Georgia.


Factors Influencing Avoided Cost Rates

Various factors influence avoided cost rates, including the time of day, fuel prices, and operational costs. Time-of-use (TOU) structures, current fuel prices, and grid operational expenses all play pivotal roles in determining the value of avoided cost rates.


Looking Ahead

In summary, understanding the fundamental principles of avoided cost rates is essential for solar system owners. These rates represent the minimum compensation for shared solar energy and are influenced by factors like time of day, fuel prices, and operational costs. In regions where solar exports are compensated at avoided cost rates, incorporating a battery storage system can enhance energy independence and maximize savings. As the landscape of solar policies evolves, staying informed about avoided cost rates is crucial for making informed decisions about solar investments.

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