Adjusting the Levelized Cost of Energy for Different Rates of Compensation for Solar Generation: A Case Study

Abstract

The levelized cost of energy (LCOE) was developed for conventional, non-renewable energy sources, and can be misleading for renewable sources. The intermittent nature of renewable energy resources requires further refining the LCOE definition to prevent overvaluing renewables. Utilities must consider revenues as well as costs in comparing renewables to each other, as well as to conventional, non-renewable fuels. This paper explores the utility net revenues from solar energy — revenues from customer grid purchases net of payments made for solar generation by the customer exported to the utility — under three rate alternatives: Net Metering, Net Purchasing, and Gross Metering. Using individual customer data from Austin Energy for solar customers for the year of 2018, the net revenues to the utility under these three mechanisms were studied for two cases: increasing block rates and flat rates. The results demonstrate that even though the levelized cost of solar adoption is unaffected by the choice of rate, solar adoption by the utility is generally most favorable under gross metering, and least favorable under net metering. Moreover, the outcome can differ on whether the utility uses flat rates or increasing block rates, and on the customer’s level of consumption. This work provides a broader system-level understanding of renewable energy technologies that can be used by engineers, researchers, and government agencies when studying the life-cycle cost of power-generating systems.