New Berkeley Lab study quantifies residential customer bill impacts of energy efficiency, distributed solar PV, and building electrification investments under current and emerging time-based retail electricity rate designs
Building energy technologies and distributed generation, including energy efficiency (EE), distributed solar PV (DPV), and building electrification, are critical to meeting state, utility, and U.S. decarbonization and greenhouse gas (GHG) goals. Under current electricity rate designs and declining capital cost trends, adoption and deployment of EE and DPV have substantially increased, as well as growing interest in building electrification to reduce fossil fuel consumption and take advantage of increasing amounts of power sector renewable energy. There is also increasing regulatory and utility support for time-based retail electricity rate designs that vary prices by hour to better reflect the time-dependent nature of system costs and encourage more economically efficient consumption. Rate design may play an important role in determining the customer economics of adopting these technologies, but it is unclear whether – and to what extent – current rate design trends support or impede progress toward these goals.
We are pleased to release a new study from Lawrence Berkeley National Laboratory, titled “Building efficiency, electrification, and distributed solar PV bill savings under time-based retail rate designs.” The study calculates changes in customer electricity and energy bills across nearly 40,000 simulated building profiles in four regionally representative utility service territories under flat and time-based rates. These profiles reflect variation in residential building characteristics (e.g., vintage, appliance saturation), climates, and occupant behavior. The study also analyzes heterogeneity across DPV system orientations and EE technology portfolios that vary equipment, lighting, and envelope upgrades.
Key findings
Across differences in EE and DPV investments, regions, rates, and building characteristics, the study finds that the vast majority of customers experience a change in bill savings smaller than 2% of their total bill, and almost no customers experience a reduction in bill savings greater than 6% of their bill. We find no consistent directional relationship between EE and DPV customer bill savings under flat and time-based rate designs: in some cases, time-based rates increase bill savings relative to flat rates, while they decrease bill savings in other cases.
Comparing the EE and DPV bill savings to social avoided costs, we find that time-based rates may also increase or decrease the economic efficiency of customer incentives to invest in EE and DPV. The differences in the ratios of bill savings to social avoided costs are more pronounced across utilities than across rates within utilities and can largely be explained by the average volumetric rate levels. The impact of the temporal variation in volumetric rates is small relative to this average rate impact.
We also examined changes in building electrification customer energy bills under time-invariant rates (i.e., existing default “flat” rates) and found they vary noticeably across utilities. For some utilities, the substantial energy savings from replacing older equipment with much higher efficiency heat pumps reduce energy bills for all customers despite slightly higher electricity prices than fossil fuel prices. For other utilities, installing building electrification technologies increases median customer energy bills because of the substantially higher price of electricity compared to fossil fuel prices. Even in these cases, we find that the efficiency gains are large enough to save nearly half of the customers money. Time-based rates also increase median electrification bill savings across all analyzed regions and rates. However, the changes are consistently smaller than 10% of customers’ total bills.
Based on the study results, we discuss strategies and options to align retail electricity rates with the socially optimal deployment of EE, DPV, and building electrification, with important implications for regulators and utilities. As a notable example, our findings indicate that adjusting the average retail volumetric rate level in relation to other customer charges, such as fixed fees, may be more impactful for achieving the optimal deployment than changing the temporal variation in volumetric rates. The study also discusses areas for future research that increase our understanding of the effects of changes in retail rate design on customer economics for investments in EE, DPV, and building electrification.
We thank the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Solar Energy Technologies Office for their support of this work.