The Town of Coalville

There once was a town named Coalville. Each house in the town used exactly $100 per month in electricity. One day they elected a new mayor who promised to clean up the town. They passed a law requiring everyone to install enough PV on their house to cover exactly 1/2 of their electric use. Once everyone had done this what was the new household electric bill in Coalville?

This is actually a very complex question to answer. The answer is not likely $50.

Here are some reasonable assumptions one might make about the situation in Coalville and its implications to the new electric bills.

If 1/3 of the electric bill were fuel cost and 2/3 were fixed cost (not a bad assumption for many towns), the electric bill would only decrease by 1/6, since we cut the fuel use in 1/2, but it was only 1/3 the total cost. So the new bill is $83.33/month as long as the other non-fuel cost remained constant.

If however, if 1/2 of their electric bill was fuel, possibly because they were buying some expensive power from the neighboring town of Gasville, then they saved 1/2 of 1/2 of their bill, so the new bill would be $75/mo.

If however they were growing and they were on the verge of having to build a new power plant then the total savings could include both the fuel savings and plant capital cost savings. But can peak demand be lowered effectively by installing PV panels? Not in my town, see post "Grid Tied PV and Peak Demand"

This example is also meant to demonstrate that in the financial analysis of PV systems, even the power used "real-time" by the home owner is not necessarily worth retail price, because the utility may have to raise rates on everyone to cover their fixed cost. In my town, we are all starting to pay a noticable renewable energy fee on our bills. My home and office RE fee is aproaching $1000 a year.

It's tricky to consider the big picture. Net metering and subsidies really muddy the waters. Without net metering laws, each utility could consider it's marginal cost and price electricity appropriately. Areas with the highest marginal cost might have better economic justification for PV, while utilities with low marginal cost will not. Unfortunately net metering laws will encourage PV installations in all situations equally.

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