Association for Public Policy Analysis & Management

The substantial increase in deployment of customer-sited solar photovoltaics (PV) in the U.S. in the last five years has been driven by a combination of steeply declining costs to the customer and supportive policies to compensate PV generation. In most U.S. states, the availability of net-metering implies that electricity bill savings are dependent on the customer’s underlying retail rates, as PV generation is effectively compensated in full at those rates. This has elicited concerns that the non-recovery of fixed utility costs from PV system owners may lead to increased retail rate levels, leading a feedback cycle of rising deployment and rate levels. However, increasing aggregate levels of PV could offset this effect, at least partially; if shifting temporal wholesale electricity prices are reflected in retail rates, this could lead to decreases in customer bill savings from PV, and hence adoption levels. In this paper, we examine U.S. deployment impacts of these two feedback dynamics through 2050, including variability within residential and commercial customer segments, and across states. Our results indicate that the aggregate feedback effects at a national level are modest, although their magnitude and direction vary by customer segment and by state. We also model aggregate deployment trends under various rate designs and net-metering rules, when accounting for feedback dynamics.  Our results demonstrate that future adoption of distributed PV is highly sensitive to retail rate structures; whereas flat rates with net metering would lead to higher deployment levels, moving towards time-varying rates, rates with higher monthly fixed customer charges, or compensation at levels lower than the full retail rate can dramatically erode aggregate customer adoption of PV.