Southern California Utilities New Billing Structure Increases Solar Financial Appeal in S. California

Southern California is endowed with one of the world’s richest solar profiles with nearly 350 days of sunshine annually. Despite its sunny climate, the region lags behind Northern California and other markets in deploying solar energy projects. This is partly due to utility rate structures that have made such endeavors difficult and expensive – until now. Southern California Edison (SCE), one of the nation’s largest electricity utilities, recently introduced a renewable generation tariff that makes solar power a more affordable energy solution.

The new renewable generation tariff - Option R - is designed to help organizations who want renewable energy but had previously found the high cost to be prohibitive. In particular, solar installations will benefit under this new tariff because demand charges have been reduced significantly in favor of consumption-based charges. Solar developers can now design a system that suits an organization’s energy needs while also supporting their bottom-line.

So what are demand and consumption charges and how exactly does Option R work?  When electricity is sold to commercial or institutional accounts, it is measured and billed in 2 ways:

1. Consumption - This measures how many kilowatt hours the facility consumes and this varies based on peak and off-peak hours, with peak hours bearing a higher charge than off-peak hours.  You get billed only for the power you use, based on when you use it.  This is most often the cost structure for residential accounts, and only sometimes for commercial and institutional accounts.

2. Demand - This cost structure, mainly used for commercial or institutional accounts, is based on the maximum amount of power the facility uses during any 15 min period per month.  Demand rates may be very high and can constitute 40% of a bill!

For customers billed based on a demand structure, solar can be highly prohibitive, since a cloudy day yielding little solar power would yield a high demand through the power company, and as a result translate into a high demand charge and a high power bill.  According to Reid Rutherford from Photon Energy Services, this has been a major problem since institutions who have installed solar expecting to save money have sometimes actually seen an increase in their power bill as a result of this cost structure.

Option R is a newly designed option for commercial and institutional companies which increases the consumption rate, but significantly reduces the demand rate from 40% to 10%.  This is a tremendous help for institutions with solar, for who the increase in the consumption rate is not significant since the use of solar during most peak hours would offset this cost.  Option R has been available since October 1st of this year through Southern California Edison and San Diego Gas & Electric.  PG&E, in Northern California, has had an even better A6 rate structure for some time, which only uses consumption for institutional organizations and not demand.

In light of this news, “Now is the time for school districts in Southern California to consider solar power as a financially prudent strategy,” said Reid Rutherford, Photon Energy Services CEO. “By using solar power, schools can save money and make a positive contribution to the environment – it’s a win-win solution.”

Solar developers like Photon work with schools to mount roof-top and parking lot solar installations at no upfront cost to the institution through a power purchase agreement (PPA). The developer will purchase, install and maintain the solar equipment on the school’s facility. The school purchases only the electricity that is generated. Developers can also help schools obtain the highest quality installation at the lowest cost because they can take advantage of federal incentives typically unavailable to schools. “Schools benefit from solar power with no upfront costs and without the worry of maintaining unfamiliar solar machinery,” Rutherford adds.