As more consumers add solar panels to their residences, utility companies are considering raising their electricity prices for all their customers to make up for the lost revenue from consumers with solar panels while still maintaining their profitability.
“With solar power systems becoming increasingly affordable, people are motivated to generate their own electricity,” said Dr. Metin Çakanyildirim, professor of operations management in the Naveen Jindal School of Management at The University of Texas at Dallas. “That can lead to a revenue problem for utility companies.”
In a study published in a recent issue of Operations Research, Çakanyildirim and a UT Dallas alum suggest the revenue problem could be addressed by charging solar power adopters a monthly service fee for generating their own electricity.
“A subscription model, if done properly, fixes this problem,” Çakanyildirim said. “By charging a fixed fee, based on a home’s size, to people with solar panels, utility companies can avoid raising their electricity prices across the board.”
Solar power adopters buy electricity from utilities when their systems don’t generate enough power for their needs, but these adopters also are compensated for any extra energy their panels generate at a competitive rate known as a buyback price.
“By charging a fixed fee, based on a home’s size, to people with solar panels, utility companies can avoid raising their electricity prices across the board.”
Dr. Metin Çakanyildirim, professor of operations management in the Naveen Jindal School of Management
Energy buyback relies on utility companies’ resources and infrastructure to deliver the extra electricity to the grid.
Çakanyildirim said the compounded effects of losing revenue due to solar power adopters and the cost of energy buybacks can lead to a “utility death spiral.” The most dire result of this scenario would be a lessening of market options, he said.
“This study acts as a harbinger,” Çakanyildirim said. “A utility’s death spiral into bankruptcy is the doomsday scenario we are trying to avoid.”
Residential electricity prices have increased about 30% in the last decade, according to the U.S. Energy Information Administration. Consumers without the resources to switch to solar energy carry much of that financial burden, Çakanyildirim said.
Providing consumers with reliable and affordable services is a top priority for public utility commissions, which negotiate with power companies to set rates.
The combination of regulators negotiating fair buyback prices with utilities and utilities charging solar power adopters subscription fees could solve the imbalance caused by solar energy’s continued growth in popularity, Çakanyildirim said.
He noted that regulators could play a key role in educating solar power adopters about the necessity and advantages of subscription fees, including keeping overall electricity prices in check.
The researchers’ pricing model has a low barrier to entry, only requiring utilities to update their billing policies.
Fariba Mamaghani PhD’19, currently assistant professor at Tulane University, is the corresponding author of the study.