1. Looking Ahead at Rooftop Solar in the Pacific Northwest Northwest Public Power Association Communications and Energy Innovations Conference Lake Tahoe, Nevada September 15, 2015 Charlie Black Charles J. Black Energy Economics cjbenergy@msn.com (425) 765-3321

2. Topics  Instant poll  Where Is Rooftop Solar Likely to Grow Sooner, Later?  Boom 1 –> Bust –> Boom 2  Where Does Energy Storage Fit?  Seasonal Imbalances for Zero Net Energy  Utility Services and Rates with Distributed Solar 2

3. Disclaimer Information shown in the following slides was gathered from various sources. The ideas reflect the perspective of CJB Energy Economics and were developed to stimulate conversation. 3

4. Residential Rooftop Solar? In The Northwest???

5. Instant Poll For your utility, which of the following will pose a greater challenge during the next five years?  Residential customer adoption of rooftop solar photovoltaic generation  Stagnating retail electric sales due to other causes 5

6. Instant Poll For your utility, which of the following is likely to pose a greater challenge ten years from now?  Residential customer adoption of rooftop solar photovoltaic generation and complementary technologies  Stagnating retail electric sales due to other causes 6

7. Instant Poll What proportion of your utility’s residential customers have fairly good awareness of how much their electricity service costs, in dollars per month?  Less than 33 percent  Between 33 and 66 percent  More than 66 percent 7

8. Instant Poll What proportion of your utility’s residential customers have fairly good awareness of how their electricity service is priced (e.g., customer and energy charges)?  Less than 33 percent  Between 33 and 66 percent  More than 66 percent 8

9. Instant Poll What proportion of your utility’s residential customers have fairly good awareness that your costs to serve them include both variable energy costs and fixed capacity costs?  Less than 33 percent  Between 33 and 66 percent  More than 66 percent 9

10. Where Is Solar Likely to Grow Sooner, Later? Factors Affecting Growth of Solar  Local solar irradiance  Equipment costs (incl. technological advances)  System installation costs  Complementary technologies  Federal and state subsidies, policies  Third party service providers  Overall utility costs  Design of utility services and rates 10

11. Solar Generating Potential Varies by Location 11

12. Where Is Solar Likely to Grow Sooner, Later? Grid Parity Differs Geographically  Parity has occurred first in the sunniest states, especially where retail electric rates are also high and policies are favorable (e.g., CA, HI, AZ, NV)  Parity is beginning to spread to more states, including some that are not as sunny (e.g., NY, NJ, MA) 12

13. Where Is Solar Likely to Grow Sooner, Later? 13

14. Could It Happen in the Northwest?

15. Where Is Solar Likely to Grow Sooner, Later? What About the Pacific Northwest?  Relatively poor solar irradiation  Relatively low retail electric rates  Low greenhouse gas emissions from electric sector 15

16. Where Is Solar Likely to Grow Sooner, Later? What About the Pacific Northwest?  Relatively poor solar irradiation  Relatively low retail electric rates  Low greenhouse gas emissions from electric sector  But: Further cost reductions could still make solar competitive here Strong environmental ethic, consumer interest Potential for new policies, subsidies (including to keep up with the Joneses/California) 16

17. Boom 1 -> Bust -> Boom 2 Boom 1: 2012-2016 (Emergence)  Falling costs for rooftop solar (especially PV panels)  Subsidies and policies (e.g., 30% Federal investment tax credit, state incentives, net metering policies)  New entrants (installers, leasing companies)  Early adopters  Majority of growth limited to a few states (e.g., CA, HI, AZ, NV) 17

18. Boom 1 -> Bust -> Boom 2 Bust: 2017-2019 (Retrenchment)  Further declines in costs (e.g., inverters)  Reduced subsidies (e.g., 30% ITC drops to 10% after 2016)  Shakeout, consolidation of third party service providers  Community and commercial solar grow moderately, while residential customers wait-and-see?  Footprint widens (e.g., Northeast, TX, CO, Southeast) 18

19. Boom 1 -> Bust -> Boom 2 Boom 2: 2020 and Beyond (Expansion)  Further cost reductions (including installation)  Integration with complementary technologies (e.g., smart homes, electric vehicles, energy storage)  New policy support (e.g., solar as means for GHG reduction)  Maturation and capitalization of third party service providers  Growing consumer interest in solar; may become preferred over legacy utility services and rates  Viability and growth spread across more states 19

20. Solar Photovoltaic is Getting Smaller Current: 5 kW of panels cover 376 square feet Post-2015: 5 kW of panels cover 155 square feet 20

21. Solar Photovoltaic is Getting Smaller Current: 5 kW of panels cover 376 square feet Post-2015: 5 kW of panels cover 155 square feet Smaller size lowers installation costs Higher energy conversion efficiency (watts per square foot) But, same generation profile (still dark at night, more hours of daylight in summer than winter) 21

22. Where Does Energy Storage Fit?  While battery technology can help with diurnal shaping, energy volume is limited  Other forms of storage with longer cycles, greater energy volume will also be needed  Consumers will still need to rely on the utility system for energy storage  Single homes not most cost-effective place for batteries (creates opportunity for utilities or others) 22

23. Battery Development is Targeting the Diurnal Imbalance Source: Tesla 23

24. Source: Tesla TESLA Powerwall Launched April 30, 2015 7 kWh daily cycle (~1/4 of average daily residential load) 2.0 kW continuous output 3.3 kW peak output 5.8 amp nominal 8.6 amp peak ~20% roundtrip losses 34” x 51” x 7” 220 lbs. ~$7,000 installed cost ~$0.15/kWh storage cost 24

25. Distributed Energy Storage Opportunity 25

26. Distributed Energy Storage Opportunity Example: home peak load 14 kilowatts 25 kilovolt-amp distribution transformer used to serve about five homes  Diversity benefits allow multiple homes to share one distribution transformer  Same general concept could be applied to distributed energy storage (e.g., peak output for 12 Powerwalls = 40 kilowatts) 26

27. Seasonal Imbalances for Zero Net Energy  Net metering policies allow customers to use the utility system to “bank” imbalances between their load and their generation  Battery capabilities and costs limit their use to storage of a few hours of energy per day  However, seasonal energy imbalances can be far larger – especially in the Pacific Northwest Electric load concentrated in winter months Solar generation concentrated in summer months 27

28. San Diego, California 10 Percent Seasonal Imbalance 28 ~18 percent annual capacity factor

29. Long Island, New York 10 Percent Seasonal Imbalance 29 ~15 percent annual capacity factor

30. Minneapolis, Minnesota 12 Percent Seasonal Imbalance 30 ~15 percent annual capacity factor

31. Seattle, Washington 34 Percent Seasonal Imbalance 31 ~12 percent annual capacity factor

32. 32 If an average Seattle home went “off grid” and generated an amount of rooftop solar power equal to their annual electricity consumption, over 500 Powerwalls would be needed to store the seasonal imbalances between generation and load at the home. (8,536 kWh * 0.34 / 0.8) /(7 kWh) = 518

33. Services and Rates with Distributed Solar  Traditional utility residential electric rate designs typically recover variable and significant fixed costs via per-kWh energy charges  Some fixed costs are basically the same for most residential customers (e.g., metering, billing, general administration)  Other fixed costs vary based on the size of the customer (e.g., generating, transmission, distribution capacity costs) 33

34. Services and Rates with Distributed Solar  Traditional rate design has worked well over time Simple Customers who use more electricity pay more via their energy charges – includes roughly accurate recovery of capacity costs Energy charges also provide incentive to conserve “energy” (actually capacity too) 34

35. Services and Rates with Distributed Solar  When more than a few of a utility’s customers adopt rooftop solar, traditional retail electric rate design becomes ineffective Adopters’ net energy use declines, reducing revenue from energy charges Adopters still use the utility system for capacity and now also for energy storage, without paying costs for those services Under recovery of costs from adopters shifts costs to non-adopters (can reinforce incentive to adopt) 35

36. Services and Rates with Distributed Solar  Increasing the utility’s fixed charge or customer charge can help - to a certain extent Simple, mechanically easy to implement Partially reduces loss of revenue from adopters (adopters still don’t pay their full share of capacity costs and get subsidized energy storage) Including capacity costs in the fixed/customer charge shifts costs onto smaller customers Lower energy charges reduce customers’ incentive to conserve “energy” (and capacity) Is already being portrayed by solar providers as utilities unfairly protecting their monopolies, blocking competition 36

37. Thank You! Charlie Black Charles J. Black Energy Economics cjbenergy@msn.com (425) 765-3321