If Electric Utilities are Using Solar, too, Why are Utility Prices Always Increasing?
Western-state utilities now have a very inexpensive way to 'buy low' and 'sell high.' They're entering into Power Purchase Agreement (PPAs) similar to those often offered homeowners. The difference? They buy in bulk, as in whole 200-acree fields (or larger), for their panels. Hence, most are paying, depending on location, less than $.02/kWh. You may recognize this moniker of electric energy. It's the same one shown on your bill, but you're likely paying north of $.15/kWh in the sunny locations where these utilities operate, or, in the case for Californians, north of $.35/kWh (depending on the time of day).
The difference between the wholesale cost of electricity (like the prices of these solar PPAs) and the retail price that you pay is due to several factors, not just the cost of generating electricity. Here's a breakdown of some of the primary reasons:
- Transmission and Distribution: A significant portion of the retail price of electricity is attributed to the transmission and distribution of that electricity. Building, maintaining, and operating the grid infrastructure (power lines, substations, transformers, etc.) is expensive.
- Operational Costs: Utilities have operational costs, including salaries, maintenance of facilities and infrastructure, customer service, billing systems, and more.
- Peak Load and Capacity: Solar and wind resources, while cheap, are intermittent. Utilities need to maintain and operate backup generation resources (like natural gas peaker plants) to provide electricity during periods of low renewable generation. The costs associated with these backup resources need to be factored into the retail price.
- Return on Investment: Utilities, especially investor-owned utilities, are for-profit entities. They invest billions in infrastructure, and they seek a return on this investment. Regulatory bodies often set allowed rates of return, but this return is a factor in the retail price.
- Renewable Integration Costs: As the grid incorporates more renewable energy, there are costs associated with integrating these resources. This includes technology for grid balancing, energy storage, advanced metering infrastructure, and other grid modernization efforts to handle the variable nature of renewables.
- Other Utility Programs: Some part of the cost might go towards demand-side management programs, energy efficiency incentives, or other programs that the utility operates to promote a more stable and efficient grid.
- Taxes and Regulatory Fees: Utilities are often subject to various taxes and fees, which are passed on to consumers.
- Decommissioning and Cleanup: In places where older forms of energy (like coal) are being phased out, there can be costs associated with decommissioning old plants and environmental cleanup. These costs might be factored into the rates.
- Future Investments: Utilities need to continually invest in the grid to accommodate growth, replace aging infrastructure, and integrate new technologies. A portion of the current rate can be seen as funding for these future investments.
So, there's of course a huge analysis to their fixed and variable cost structure, and that's what utilities (and their lobbyists) debate with their local Public Utilities Commissions. And, from the analysis, a 'fair' price to us consumers is derived. Cost plus pricing at its finest. So, how can we win?
Well, you as a consumer may pay two or three times this cost per watt in a PPA for rooftop solar for whole-home solar, and yet, you'll still likely save money and be able to avoid utility price increases in the future. Or, you can employ hybrid appliances, like solar-powered air conditioners or hybrid electric vehicle chargers, that don't need net metering and use grid power when it's cloudy or nighttime. In both cases, you won't have the concomitant overhead listed above piled on top of the utilities' cost/watt. And, in both cases, you're now eligible to get 30% back on the solar portion, and potentially 30% back on the appliance portion, via the Inflation Reduction Act. It may seem a bit illogical that you can pay less for solar than your local utility, but, in effect you will, since the solar panel’s energy needs to just flow from your roof to your home, and not go through the grid and its bureaucracy.