How Much Will My Utility Bill Go Down with Solar?

Consumers often ask how much they can expect to save from solar photovoltaic (PV) panels installed on their rooftops or on their land. The answer depends on three key factors:

1. How does the local utility credit the solar host with the electricity produced by their solar panels?

2. How much solar electricity is produced by the host’s PV panels?

3. What percentage of the host’s energy consumption is offset by the solar production?

How does the host receive credit for their solar electricity?

In Europe utilities will generally purchase solar production from producers at a price per kilowatt known as the “feed-in tariff” or FIT. In order to encourage consumers to invest in solar energy the FIT has often been set at a level that exceeds the consumer’s debt repayment and in some cases provides a healthy profit.

By contrast, with a handful of exceptions such as Vermont, most US states and utilities have adopted a different approach to rewarding consumers for their solar power. The prevailing US mechanism is known as “net metering.”

In net metering, utilities credit the solar host meter with any excess electricity produced by their solar panels beyond that which the host itself consumes. The credit is often set out on the customer’s bill in the form of a volumetric or financial credit.

Volumetric Net Metering. In the case of volumetric net metering, the utility will credit the solar host with the amount of excess production.

Suppose, for example, the host uses an average of 50 kilowatts (kW) of peak power on a typical sunny July afternoon. The host uses an average of 20 kW during the 16 off-peak hours. Suppose, further, that the PV panels produce 70 kW during the four middle peak hours, 50 during the balance of the peak hours, and nothing during the off-peak hours.

During the four peak hours in the middle of the afternoon the first 50 kW will be consumed by the host and the utility will measure an additional 20 kW that is fed into the grid. During the balance of the peak hours no excess will be produced. And during the off-peak hours, some 320 kW will be consumed.

Volumetric credits are calculated during the entire course of the month. For simplicity, let’s look at the calculations for a single day. In our example, 80 kW have been produced and measured by the utility. These kW were not used by the host and were fed into the utility’s grid. Meantime, some 320 kW were consumed during the off-peak period. When the utility calculates the host’s consumption it will credit the 80 kW excess peak production against the 320 kW of off-peak consumption. The host’s bill will reflect a net of 240 kW consumption and its bill will be calculated as the product of 240 kW times the utility tariff.

Volumetric credits generally do not distinguish between peak and off-peak power. Of course, peak power is more valuable than off-peak. Nevertheless, in our example the utility is receiving from the host 80 kW of more valuable peak power and using it to offset, on a kW for kW basis, the volume of off-peak power for which the host is billed.

In volumetric net metering the amount of the solar production can never exceed the total volume of solar consumed. Any excess produced by the panels above the host’s consumption will be forfeited to the utility.

Financial Net Metering. In financial net metering the utility assigns a value to the excess power generated, usually the utility tariff rate applicable to the host’s class (e.g., large commercial, residential, etc.). This rate – which could be higher for peak power – reduces the host’s bill, not just its volume. Accordingly, a host could produce more energy than it actually consumes, using the financial credits to offset not only the cost of electricity but also its distribution costs and demand costs. These costs are sometimes higher than the value of the electricity itself.

How much solar electricity is produced by the PV panels?

In order to calculate the amount of savings we must examine a second factor, namely, the amount of solar electricity produced by the PV panels. This, in turn, will depend upon the number of panels installed on a given rooftop or land area.

PV panels are composed of silicon wafers that are laminated between glass sheets and arranged in such a way as to maximize the amount of electricity their produce. Each wafer produces a different amount of electricity depending upon its efficiency and engineering. Each year the efficiency of the silicon wafers has been increasing by approximately .5-1%. Accordingly, the newest panels will produce more electricity than older panels.

Panels are of different dimensions although a standard size has emerged that is approximately 3 feet by 5 feet or 15 square feet. The production of panels differs, depending on the number of silicon wafers included and the age of the panels. Panels today generally produce 305 watts; as recently as two years ago the largest panels produced no more than 245 watts, some 25% less.

The number or panels that can be installed – and by extension the amount of electricity that can be produced – will depend upon the area of rooftop or land available for installation. To determine the total number of panels one cannot simply take the total available square feet of area and divide by 15: A number of factors may require that certain setbacks be observed. Engineers take into account a number of factors including:

  • Weight and roof capacity;
  • Risk of wind shear;
  • Drainage (particularly in the case of land subject to subsidence);
  • Shadows from nearby trees, flagpoles, or other objects; and
  • Air rights and risk of future building development.

What percentage of the utility bill can be offset?

Based on the method of net metering and the amount of solar electricity produced we can finally calculate the amount of savings.

Consumers contemplating solar projects must look at their historic utility bills. These bills include both peak and off-peak consumption. Both must be taken into account, irrespective of whether the utility provides time of use billing.

The actual result will depend on a number of factors:

  • Some are specific to the solar PV installation itself such as insolation (amount of sunlight), angle of rooftop, number of panels, efficiency of panels, etc.
  • Other relevant factors include those which relate to the consumer’s bills: Balance of usage between off-peak and peak and amount of demand charges.
  • Finally, the savings will turn on the utility’s regulatory structure: volumetric or financial offsets, specific utility rate classes, and the allocation to rate classes of of distribution and demand charges.

In the final analysis, solar hosts can expect a solar project to reduce their utility bills no more than 25-60%.