Friday, April 20, 2018 - 11:00am to 12:00pm
Room 124, Business Building
Presented by Siddharth Singh and Alan Scheller-Wolf
Utility regulators are grappling to devise compensation schemes for customers who sell rooftop solar generation back to the grid; they seek to support the adoption of renewable energy while safeguarding the interests of utilities, solar system installers, and retail customers. This is a difficult balance: Regulatory changes introduced in Nevada in 2015 to protect NV Energy (Nevada's sole utility company) induced SolarCity, the market leader in solar systems, to suspend operations in Nevada. Apparently, regulators failed to predict how their new tariff would influence the market players and ultimately their social objectives. We contribute and analyze a model to study the effect of tariff structure on the rooftop solar market, with implications for consumers, regulators and industry. We set up a sequential game to analyze the regulator's social welfare maximization problem in a market with an unregulated, monopolistic, profit-maximizing solar system installer and customers who endogenously determine whether to adopt solar or not. Customers make their decision based on conventional energy and solar system prices, taking into account their heterogeneous usage profiles and generation potentials. We show that the choice of tariff structure is crucial to achieving socially desirable objectives. In particular, two features are essential for a tariff structure to be effective: the ability to discriminate among customer usage tiers, and the ability to discriminate between customers with and without rooftop solar. Absent any one of these features, we show that the regulator might not be able maximize her social welfare objectives while avoiding cross-subsidization, in which rate changes leave some customers (typically non-solar customers) worse off than before. We then present a tariff with these two characteristics -- featuring full retail price repurchasing from solar customers -- that always guarantees feasibility of the regulator's optimization problem and has desirable customer equity properties, i.e., it avoids cross-subsidization. We illustrate our findings numerically using data from Nevada and New Mexico, two states currently grappling with this issue.