Distributed Energy Resources

Study evaluates value of solar in SMUD’s service territory

Energy + Environmental Economics recently released an independent study that evaluated the true value of solar in the Sacramento, Calif. area.

The study, which was commissioned by SMUD to study the value of solar in its service territory, evaluated the value of solar, the value of solar plus storage when managed by SMUD or a customer and the value of the societal benefits derived from solar power.

SMUD said the study was commissioned to help inform its solar pricing structure moving forward based on valuation criteria from the rooftop solar industry, environmentalists, economists and community members.

“Our independent analysis carefully evaluated the benefits and costs of customer solar and storage systems to SMUD’s entire customer base under its current Net Energy Metering program,” said Arne Olson, senior partner at Energy + Environmental Economics. “While net metered solar provides benefits, the study shows that it causes electric rates to increase for other customers. Moreover, most of the environmental benefits associated with customer solar can be achieved much more cost-effectively with other means, such as utility-scale solar,” said Olson.

The study found that the value of solar is 7 cents per kilowatt-hour (kWh) in 2020 and steadily declines through 2030, as additional solar hits the market.

SMUD currently pays its solar customers retail rates for their solar generation – 12 cents per kWh on average – creating a cost shift to non-solar customers in the amount of $25 to $41 million annually. This amounts to $26 to $45 per customer, per year and disproportionately impacts low-income customers.

That will continue to grow exponentially to $94 million or $92 per customer, per year by 2030 if not addressed.

“Our goal is to deliver the cleanest energy at the most cost-effective rate to our customers,” said SMUD CEO and General Manager Arlen Orchard. “To do that, we must find a solution that is fair and equitable to both our rooftop and non-solar customers. We will continue conversations with a broad range of stakeholders in the coming months as we work toward a comprehensive solution that’s fair to all of our customers.”

The study showed the following results:

  • The value of rooftop solar in 2020 is 3-7 cents per kWh, depending upon how you calculate the benefits of rooftop solar. The value drops significantly by 2030 to 3-4 cents per kWh because of the expected growth of solar in California; 
  • SMUD pays retail rates of 12 cents per kWh, on average, for rooftop solar generation, creating a cost shift that is passed on to non-solar customers in the amount of $25 to $41 million in 2020 or $26 to $45 per customer per year. That cost-shift grows to $94 million in 2030 or $92 per customer per year. This cost-shift is reflected in customers’ bills;
  • Value of rooftop solar increases with energy storage. Value is highest when the utility can optimize the storage to the benefit of all SMUD customers; and
  • Declining value of solar over the next decade is due to substantial new utility-scale and rooftop solar being installed over the next decade.

In an attempt to right-size its rates for both solar and non-solar customers, SMUD said it will consider options for a new rooftop solar rate that fairly compensates our rooftop solar customers for the benefits of their systems.

As part of this process, SMUD noted that it will ensure there are substantial opportunities for stakeholders and customers to provide input on this important issue.


In 1996, a legislative mandate created net energy metering (NEM) to encourage the adoption of rooftop solar. NEM allows a solar customer to avoid purchasing some electricity from the utility, sell excess generation back to the grid and purchase power when needed from the utility.

SMUD was required to keep NEM in place until it reached 180 megawatts (MW) of customer-owned solar on the SMUD system. Those requirements were met in 2017.

Now, SMUD is seeking a new NEM structure that supports fair and equitable rates and affordable power for all customers, financial stability for SMUD and, environmental benefits for everyone.

The utility noted that it has helped to grow the rooftop solar industry in Sacramento. Over the past 20 years SMUD has spent $250 million to support customer-owned solar units resulting in 216 MW of rooftop solar on the grid.

Without revisions to the NEM rate, by 2030, SMUD customers will spend a total of $600 million to support customer-owned solar.

Furthermore, to meet its ambitious carbon reduction goals, SMUD is investing another $1.5 billion in new utility-scale solar (solar farms) through 2040, much of it in the Sacramento region. This will help SMUD reach its carbon reduction goals, as quickly as possible and at about 25 percent of the cost of rooftop solar.

With its recent Integrated Resource Plan adoption and Climate Emergency Declaration seeking carbon neutrality by 2030, SMUD must utilize all strategies to deliver clean, affordable power to its customers, it said.

The Energy + Environmental Economics study “is a crucial piece of the process and is intended to help inform the SMUD Board as it determines how to fairly compensate its 25,000 rooftop solar customers, as well as maintain equitable rates for the remaining 600,000 who do not own solar systems,” SMUD said.

Additional information is available here.