Solar-Plus-Storage Can Help Ease Rate Design Tensions in Arizona

Posted September 1, 2016

Electrical utilities are watching Arizona as the state pursues the most equitable and effective way to incorporate solar energy resources into the grid. In an attempt to address grid strain, Arizona Public Service (APS) recently made a controversial request, asking state regulators for permission to extend demand charge fees to most residential and small business customers. Some solar advocates have voiced strong opposition to APS's proposal, and utility representatives have returned criticism, resulting in a perceived "us vs. them" nature of the debate over solar costs rate design. However, the deeper reality is that there is an alternative path forward that benefits both parties: solar + storage offers flexibility and control to utilities while bringing clean energy and cost savings to customers across Arizona.

According to the Solar Energy Industries Association (SEIA), Arizona's solar capacity grew by 110 percent in 2015, and is third in the nation with 517 megawatts of total capacity today. At the current growth rate of 1,300 to 1,500 new system installations per month, APS projects that non-solar customers would pay an additional $1 billion collectively over the next 20 years to accommodate the growth of solar. In some ways, Arizona is a victim of its own success, as the state's rapid adoption of residential solar is what led APS to propose the demand charges, which are fees are based on consumers' highest level of consumption during a one-hour period each month.

Demand charges for businesses are common across the U.S., but the proposed APS rates mark the first time a large utility would apply them to residential users. Opponents of the proposal claim that APS's proposed demand charges would lead to unfair monthly bills for all customers and ignore the fact that solar customers conserve power and generate electricity. Observers have also noted that mandatory demand rates could deter future adoption of residential solar and curb its broader positive impacts on the grid: supplemental supply, reduced demand, and-when paired with storage and demand response-enhanced flexibility.

Grid-friendly solar + storage can, at least in part, alleviate the pressures felt by both electrical utilities and the solar industry in Arizona. Today, most utilities cannot control solar usage and solar customers cannot manage their usage for maximum efficiency and savings on electricity bills without a change in technology. Solar + storage offers a solution to both problems by opening up new controls that can serve the interests of both customers and utilities. The root of the problem is that solar panels bring in the most electricity during midday hours, but demand for power is highest around sunset when families are at home and air conditioners, microwaves, televisions and other electronics are in use. Solar inverters combined with batteries solve the supply-demand mismatch by storing energy during peak production and releasing it during peak demand, decreasing the strain on the grid and allowing customers to monitor and manage their peak usage. Some grid-friendly solar + storage systems give homeowners the option to participate in programs that allow utilities to tap into stored solar energy for distribution to the grid in response to spiking demand.

APS's proposal and surrounding controversy represent a growing pain for distributed renewable energy resources and the smart grid. Technological advancements are essential to building a modern grid, and solar + storage is one such technology that is cost effective and available today. Wider adoption of solar + storage with demand response capabilities will give control to utilities and customers when they need it most, gradually lowering electricity rates and building a more resilient grid with each new installation. By focusing on these benefits now and growing the number of solar + systems, utilities and solar customers can start on the path to a brighter energy future in Arizona and beyond.