On The Benefits of Behind-the-Meter Rooftop Solar and Energy Storage: The Importance of Retail Rate Design

We investigate the impact of retail rate design on the investment incentives, avoided utility costs, and cost shifting concerns associated with rooftop solar and rooftop solar plus battery storage systems that are located behind-the-meter. We consider recently proposed changes to California's time-of-use pricing policy for commercial and industrial consumers which shifts on-peak prices from midday hours to the network constrained evening hours. We find that the shift in on-peak hours decreases investment in rooftop solar and has an ambiguous effect on storage investment. We demonstrate that storage reduces utility network costs, but the magnitude of this effect varies critically with the prevailing retail rate structure. Importantly, we show that a shift in the on-peak period to the constrained evening hours does not always elevate the avoided network cost associated with a battery system when demand charges are imposed on a consumer's private maximum demand. We illustrate that this issue can be alleviated by imposing demand charges on consumption that arises in system-constrained hours. We find that cost-shifting concerns are substantially reduced under the proposed rates and tariffs that have a heavy reliance on demand charges. We illustrate that while storage reduces the utility's costs, it can also increase cost-shifting concerns. These findings demonstrate the potential trade-offs between maximizing avoided costs and minimizing cost-shifting concerns under commonly employed retail rate structures.