Going Solar – Do Your Due Diligence

Part Two of Three – Net Metering Value

A graph of predicted value using different assumptions of solar panel degradation (either none or 0.7% per year) and electric rate inflation (either 3.5% or 2.5% per year). Each case starts with production of 6,000 kWh in year 1 at a value of 15 cents/kWh. Over 25 years, the case assuming no degradation and higher inflation adds up to 26% more total value than the case that assumes degradation and lower inflation. Which is right? Only time will tell. CC BY-SA.

By Jonathan Teller-Ellsburg

It seems that it should be easy enough to convert expected solar production of electricity into the net metering value you receive. As a first approximation, you simply multiply the number of solar kWh expected by your cost of electricity.

However, there are many complications that arise. Among them are the following:

• Assumptions made regarding the future cost of electricity,

• The degradation rate of your solar panels,

• How solar production is valued by the utility, and

• Possible additions or subtractions from regular net metering.

You know what your electric rates are today, but what will they be in the future? Different installers use different assumptions of future electric rate inflation in their proposals. I have seen proposals using anything from 2.5% to 4.5% annual inflation on electric cost/value.

If you know the power of compounded interest, you know that changing this aspect of value projection can have a huge impact on how valuable the solar installation looks. Over the course of 20 years, the difference in overall lifetime projected value between the lower of those two inflation rates and the higher is roughly 25%. If the projection goes out to 30 years, which some installers do, then the increase in overall lifetime projected value from using the higher inflation rate compared to the lower is roughly 40%.

Vermont’s residential electric rates have risen fairly consistently in the past, averaging 3.0% per year in the ten years from 2006 through 2015, though the most recent five years have seen a slowing of the trend.

In New Hampshire, things have been more volatile with some years seeing expensive spikes and other years meaningful reductions in cost. Over the past 10 years the annual average change in residential rates was an increase of 2.1%. Unlike Vermont, New Hampshire’s most recent five year experience has been accelerating rate increases.

There is no one right answer as to the “best” or “correct” inflation rate to assume for future electric costs. However, it is essential that you know what assumption your potential installer is using, and that you compare different proposals with an understanding of the impact of different assumptions on this count. If possible, insist that all the installers giving you proposals use the same assumption for future electric rate of inflation.

All solar panels will decline in productivity over time. How fast they decline is referred to as the degradation rate. Long-term research by the National Renewable Energy Lab has found that the average degradation rate is 0.5% per year.

Any decent quality solar panel will come with a performance warranty guaranteeing that degradation won’t be excessive. Typically, this will be for year-over-year declines of 0.7% or less, and overall 25-year cumulative declines of 20% or less.

Has your potential solar installer built an assumption of solar panel decline into their projection of your system’s long-term electricity production? If not, then they are giving you an inflated projection. Be sure to ask what degradation rate they use in their projections.

I recommend that, if they are not already doing it, you ask them to run the projections using the worst-case degradation allowed under the panel manufacturer’s warranty. If the panels decline more slowly than that, it will be added frosting on your solar cake.

The value of solar electric production depends on your state’s regulations and utility policy. Under plain vanilla net metering, each kWh generated by your solar array will be worth the same dollar value (in the form of savings) as the cost of a kWh that you receive from the utility.

With some utilities, that is exactly what you get. For example, if a kWh from the utility costs a flat 15 cents, then each and every solar kWh your system generates will show up on your bill as a credit of 15 cents.

But it’s not always that simple. Sometimes your rates from the utility vary depending on your overall monthly usage and solar production. This has been the case, for example, with Washington Electric Co-op (WEC) in Vermont. Some of your solar production might be credited at 22 cents per kWh, some at 10 cents, and some at 20 cents, depending on how your overall solar production during the month compares to your overall electric usage in the month.

Or the rate you are credited for solar might depend on whether the solar-generated electricity is used directly within your home or if it flows out to the grid to be used by neighbors. This is the case with the New Hampshire Electric Co-op, where a kWh of solar production from a residential solar array might be worth 12 cents or might be worth 9 cents, depending on who used those particular electrons.

Or the rate you are credited for solar might depend on the time of day of production separately from whether or not you are using the energy directly.

And sometimes you may be charged a fee for grid services that depends on the amount of solar electricity you generate. Again using WEC as an example, there you have a “grid service fee” of 4.8 cents per kWh, but only on solar production above 255 kWh per month.

If your state regulations and utility policies include these kinds of complications, it will be difficult—approaching impossible—for an installer to provide a very accurate prediction of the value you will get from solar, even assuming a known number of solar kWhs being generated. At best, the installer can provide a good-faith rough approximation or range of likely value.

Even so, your installer should be able to explain how they calculated any estimated value and explain the features of your utility’s rate structure that complicate the calculations. I have talked with telephone sales representatives from some of the large, national solar companies, and it was clear that they had no understanding at all of the nuances of rate structures and regulations in Vermont (where I live and work). As a result of their convenient ignorance, they promised me significant value from their solar array that was pure fantasy.

In most of Vermont, net metering has been supplemented by the “solar adder.” With new regulations going into effect in 2017, the solar adder is being eliminated and replaced with two “adjustors,” explanation of which is beyond the scope of this article. (Those who have gone solar in 2016 or earlier are grandfathered to retain their solar adder and avoid the adjustors.)

The key here is that these features can mean bonus credit on the electric bill above and beyond that from plain vanilla net metering. In the case of both the solar adder and the adjustors, the bonus credit (if any) is provided for ten years, and is provided at a fixed value, even if the underlying electric rates change.

And yet, I have seen solar installer proposals that apply an assumed inflation rate to the adder as well as to the underlying electric rates. Further, the projected value shown in these proposals failed to end the solar adder after 10 years, instead including it out for the full 30-year projection used by that installer. In one instance that I have seen, this represented a bogus inflation of the lifetime solar value of over $19,000!

In addition, this proposal also ignored solar panel degradation. Compared to an assumption of panel decline at 0.5% per year, the proposal was inflating projected solar value by an additional $6,250.

The combined exaggeration of solar value in this instance, over $25,000, was a full 37% of the supposed lifetime value being predicted. Talk about caveat emptor!

Jonathan Teller-Elsberg works for Solaflect Energy, a Vermont-based manufacturer and installer of solar trackers. He has a master’s degree in Energy Regulation and Law from Vermont Law School.