Updated: Jun 24
Electricity Rate Structures
Understanding the electricity rates for a house or building in which a solar energy system will be installed is always the first step in system sizing. This is because it gives the solar energy engineer an idea of how the system’s energy production will affect the customer’s electric bill. He will be able to adjust the system size depending on how it will benefit the customer more. The most common types of electricity rate structures are listed below:
Flat or Fixed Rate – the most basic and simple rate structure. The utility charges you for a fixed rate for every kilowatt-hour that you have imported from the grid.
Tiered or Step-Rate – total monthly energy consumption values are grouped into tiers from lowest to highest, each of which is assigned its own rate. The tiers with higher consumption values are assigned higher rates. This rate structure was initially implemented to incentivize the conservation of energy by charging a higher rate for those who consume more. However, there are many utilities that do the opposite; they charge a lower rate once an initial threshold is reached.
Time of Use (TOU) Rate – the basic concept behind this rate structure is to charge the consumer at a higher rate during peak usage times. This is implemented by utilities to control their demand by incentivizing the avoidance of energy consumption during times where energy demand is high. Being under this rate structure requires you to have a specialized meter that can track when you import energy for the appropriate rates to be applied.
Demand Rate – this is composed of a per kWh charge for every kWh of energy consumed plus a demand charge. A demand charge is based on the highest amount of power reached during any 15, 20, 30, or 60-minute average during a billing period. This is implemented to help the utility reduce power demand from consumers. To illustrate this, let’s say that you have a washing machine that uses 5.2kW of power and an oven that uses 4kW. If you use both of these appliances together for one hour straight. Your average power demand becomes 9.2kW for 60 minutes. This is your power demand. If this is your highest(or peak) demand for the same time period (60 minutes) for the whole billing cycle, then you would be charged 9.2kW times the demand charge rate.
Also, take note that the customer’s electricity bill may also contain different types of fixed and varying charges like transmission charge, distribution charge, meter charge, ancillary service charge, and many more. This depends on the country and the customer’s utility provider.
Understanding the customer’s electricity bill allows the solar energy engineer to make more complex, and therefore, more accurate financial calculations. The solar energy engineer may also perform a cost-benefit analysis for various system sizes to see which system size can give the most benefit and the highest return of investment (ROI) relative to the customer’s electricity rate structures and consumption patterns.
Solar energy has a disadvantage of it being an intermittent power supply, which means that it will not produce energy exactly when you need it to. Without batteries, you can’t rely solely on a solar energy system for your energy supply. This is why on-grid residential solar energy systems are used to just reduce your electricity bill. You consume energy from the solar energy system when it is producing power and go back to importing from the grid when the total energy production is not enough or during nighttime.
However, there may also be cases especially during noontime where your system may produce more than your energy demand. Since our electrical grid, along with our meters, were designed only for one-way energy flow (from utility to consumer), exporting energy back to the grid becomes problematic. Normal electric meters do not have the capability to distinguish between exported and imported (consumed) energy, so exported energy will also be read by them as imported energy. Because of this, when your system produces too much energy and exports it to the grid, this will also be “seen” by your electric meter as energy consumption, adding to your electric bill. For larger systems, exporting power to the grid may become even more problematic. This may damage the electric grid itself because it was not initially designed to absorb a large amount of energy from the load or consumer side.
The net metering scheme was made to remove the problem of old meters not being able to distinguish between imported and exported energy and incentivize consumers for their energy exports. The old meter is replaced by a digital bidirectional meter to be able to record the amount of both imported and exported energy. In the US, the consumers only pay for the “net” or total kWh consumed minus the total exported energy. In this case, an on-grid solar energy system can be designed so that its total energy production will be equal to the consumer’s total energy consumption. This will reduce the consumer’s electric bill to 0.
In other countries like Australia, Philippines, and many others, the utility pays the consumer back for their energy exports at a certain feed-in-tariff per kWh which is lower than the retail price of electricity. Sometimes this feed-in-tariff is even less than one half of the retail price. Exporting excess energy to the grid then becomes unadvisable. In these cases, we have to design our system so that the exported energy is reduced to a minimum.
In all cases, an in-depth analysis of the consumption profile is needed before system sizing. These will be discussed in the next sections.
Analyzing Electrical Consumption and Solar/PV Production: Monthly and Hourly
In designing solar energy systems, it would be best to have the customer’s monthly consumption profile for the whole year. This will allow the solar energy engineer to consider the whole year’s scenario in properly sizing the system depending on the customer’s net metering case. The customer’s electrical consumption may change from month to month especially for businesses that are seasonal in nature. Examples of businesses that fall into these categories are businesses that are related to Christmas, Halloween, fireworks, etc.
The solar energy's monthly production can be easily estimated using the monthly irradiance values that we can get from NASA’s Projection of Worldwide Energy Resources or POWER. Using the steps outlined in the chapter on Solar Resource, we can get this data:
We will use the monthly irradiance data from the row with the name SI_EF_TILTED_SURFACE_0. We can multiply these values with the size of our solar energy system, our estimated efficiency and the number of days for that month to get the total energy yield for that specific month. For example, for a 10kW solar energy system with the irradiance data same as those above:
Energy yield for the month = irradiance for that month * system size * estimated efficiency * no. of days
January = 4.27 * 10 * 0.80 * 31 = 1,059 kWh
February = 4.70 * 10 * 0.80 * 28 = 1,053 kWh
March = 5.62 * 10 * 0.80 * 31 = 1,394 kWh
April = 6.09 * 10 * 0.80 * 30 = 1,462 kWh
May = 5.65 * 10 * 0.80 * 31 = 1,401 kWh
June = 4.94 * 10 * 0.80 * 30 = 1,186 kWh
July = 4.58 * 10 * 0.80 * 31 = 1,136 kWh
August = 4.56 * 10 * 0.80 * 31 = 1,131 kWh
September = 4.54 * 10 * 0.80 * 30 = 1,090 kWh
October = 4.25 * 10 * 0.80 * 31 = 1,054 kWh
November = 3.99 * 10 * 0.80 * 30 = 958 kWh
December = 3.83 * 10 * 0.80 * 31 = 950 kWh
We can graph these values to get a picture of the solar energy production throughout the whole year.
Once we have the monthly energy consumption and solar energy production for the whole year, we can put these data on one graph for easier comparison and to get an idea of how much energy from our monthly consumption we can potentially offset using our solar energy system. Take note of the use of the word potentially. This is because we will also need to analyze energy consumption and solar energy production on an hourly level to get an accurate estimate of how much from our monthly consumption (and therefore, also our monthly electric bill) we can offset.
To get an hourly consumption profile, first, we will need to understand the two main components of an hourly consumption profile:
Baseload – the minimum level of demand on an electrical grid throughout the day. It has a constant value. This is caused by appliances that are always on like refrigerators, CCTV systems, etc.
Peak load – as its name suggests, it is the maximum level of demand. This varies throughout the day. This is caused by all other appliances that are used throughout the day.
A reasonably accurate estimate of the hourly consumption profile can be obtained by asking the homeowner or business-owner about how they consume energy. First, we can ask about their base loads. Again, these are the loads that are always on, 24/7. The most common source of base loads is refrigerators. Then, we can move on to the rest of their load. It may be too much trouble to list down each and every appliance that is used to get the exact hourly consumption profile, so it is a good idea to focus only on the largest loads used. These are usually air-conditioners, flat irons, washing machines, and other appliances used related to the business for commercial clients.
In designing solar energy systems, analyzing the monthly and hourly consumption is a critical first step. This is to make sure that the solar energy system that will be installed is properly sized and will optimally match their consumption and their net metering arrangement.
On-Grid Solar Energy PV System Sizing Based on Electrical Consumption
Sizing an on-grid solar energy system starts with determining what type of net metering arrangement will be available for the customer after installation. This was discussed in the previous section on Net Metering. As a summary, there are two types of net metering arrangements:
Net metering calculates the “net” or total energy consumed. This is the total energy imported from the grid minus the total excess energy from the solar energy system that is exported to the grid. In this case, the system may be designed so that its total annual production will be equal to the customer’s total annual energy consumption. There may be months where solar energy production will be greater than the energy consumption. This will result in a negative monthly electric bill, which will then be credited to the next billing period. The important thing is that the total annual electric solar energy production will equal the total annual energy consumption so that the customer’s net electric bill for the whole year is 0.
Net metering tracks how much energy is exported back to the grid and the customer is paid a feed-in-tariff for every kWh exported. The feed-in-tariff is usually lower than the retail price of electricity which makes exporting to the grid unadvisable. In this case, the system is designed to achieve a balance of minimizing the excess energy that will be exported to the grid and offsetting a maximum amount from the customer’s energy consumption.
On-Grid Solar Energy System Sizing Based on Roof Size and Other Factors
Other factors may also be considered when sizing solar energy systems aside from the customer’s electrical consumption. These factors may be:
Roof Size – the customer’s roof may be limited by size, shading, and orientation. Obstructions like trees, electrical posts, etc., can render some segments of the roof to be unadvisable to install PV modules on. Analyzing the shading effects of obstructions will be discussed in the section on Modeling Shading Using Google Sketchup. Also, PV modules installed on roofs that are oriented in a certain way will not be as productive as when they are installed on a roof that is due South (or North, for countries located in the southern hemisphere).
Customer Budget – the customer’s budget may also be limited to be able to afford a certain system size. In this case, this limit can be the starting point of our analysis in system sizing, working our way downwards to the best system size.
Grid Feed-in Limitations – there may be cases where the utility grid may set a limit on the system size that we can install to accommodate for the maximum power that the grid on the customer’s area can absorb. We can work around this by installing some kind of feed-in limiter for our solar energy system. For example, when using an SMA inverter, we can set our system to zero export with the help of the SMA Energy Meter. This SMA Energy Meter detects when the inverter exports energy. When this happens, it sends a signal to the inverter along with the information of how much excess energy is being produced. The inverter then moves the PV array’s operating point away from the MPP to reduce input power by the amount required to prevent feed-in to the grid.
Engr. Jet Andal has 6 years of experience in the design and installation of residential, commercial and utility-scale solar PV systems. Together, and with the use of solar energy, let us help make the world a better place. You can click here to read all of our other blogs. For aspiring solar PV engineers, you can also check out his Solar PV Engineering Ebook on Amazon on this link.