Electricity demand savings from distributed solar photovoltaics

Due largely to recent dramatic cost reductions, photovoltaics (PVs) are poised to make a significant contribution to electricity supply. In particular, distributed applications of PV on rooftops, brownfields, and other similar applications – hold great technical potential. In order for this potential to be realized, however, PV must be “cost-effective”—that is, it must be sufficiently financially appealing to attract large amounts of investment capital.Electricity costs for most commercial and industrial end-users come in two forms: consumption (kWh) and demand (kW). Although rates vary, for a typical larger commercial or industrial user, demand charges account for about ∼40% of total electricity costs. This paper uses a case study of PV on a large university campus to reveal that even very large PV installations will often provide very small demand reductions. As a result, it will be very difficult for PV to demonstrate cost-effectiveness for large commercial customers, even if PV costs continue to drop. If policymakers would like PV to play a significant role in electricity generation – for economic development, carbon reduction, or other reasons – then rate structures will need significant adjustment, or improved distributed storage technologies will be needed.

► Demand charges typically account for ∼40% of total electricity costs for larger electricity users. ► Distributed photovoltaic (PV) systems provide minimal demand charge reductions. ► As a result, PVs are not a financially viable alternative to centralized electricity. ► Electricity rate structures will need changes for PV to be a major electricity source.