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The Elastic Price of Electricity and How to Avoid It

Updated: Apr 25

By: Connor Sanborn, Co-Founder of SunFlower LLC


One loaded question we get asked a lot at SunFlower is: Will solar energy save me money?

Most anyone asking this is frustrated by paying so much for their electricity, with good reason. It’s an unavoidable cost that no one wants to pay for, yet has no choice but to. The main drawback of doing nothing and continuing to pay your bill as usual is that electricity prices not only in NH, but nationally, have increased on average 2% per year for over a decade (Historical Electric Rate Information, 2020). This means that using the same amount of electricity in the future is projected to cost you more money than it does today.


For this reason, people search for alternatives that save them either money, electricity or both. The best ways to accomplish this are by producing your own energy (through solar photovoltaics [PV], for example) or increasing your energy efficiency. The focus here is generating your own renewable solar energy to save you money on electricity, as well as learning why some competing alternatives simply fall short, financially, in the long run.


Without zero-money down offerings from an installation company, some may think they’re better off paying normal electric bills than paying the money for something that makes electricity for them. After all, they’re probably still going to have a monthly bill from the utility company no matter what, right? This assumption is not wrong, yet misses a key point in the financial logic behind ‘going solar’.


What Do You Pay for Your Electricity Now?


When you glance at a bill from your electric company, it looks a lot like an itemized shopping receipt from your local grocer. In the state of NH, most utilities have 6 separate charges, each applied to the total measured unit(s) of energy, or kilowatt-hour(s) (kWh), that you consume throughout the month.


The Big 6 (Charges):

  1. Customer

  2. Supply

  3. Transmission

  4. Distribution

  5. Stranded Cost of Recovery

  6. System Benefits



In future posts we’ll discuss what these different charges mean and how they each relate to the net-metering of solar energy.


For now, suffice it to say that there’s room for improvement in how much you’re being charged for your electricity and that’s why people move to alternatives such as solar energy, to offset many of these costs.


Competitive Electric Energy Suppliers


Those who open their electric bills with a consistent desire to set them ablaze have discovered options outside of paying the utilities directly for the source of their power. One such route is going through a competitive energy supplier (CES) who can offer a lower ‘supply rate’ than the one available through your utility company. A simple internet search with the keywords “NH, Suppliers” leads us to a Public Utilities Commission (PUC)-run website revealing a number of alternative electricity suppliers for various NH utilities. Some CES energy is renewable (wind, solar, hydropower), typically coming at a price premium. A good portion of CES electricity is sourced from non-renewable resources, through the combustion of natural gas in combined-cycle power plants (think giant, gas-fired turbines), for instance.


Signing up with a competitive supplier can potentially reduce only the ‘supply charge’ on the electric bill - 1 of the 6 that are accounted for - but the difference yields marginal savings unless your electricity consumption is completely unrestrained (see cost breakdown below). The catch is, financial savings are typically achievable only when these suppliers are using energy sourced through non-renewables. That’s a big problem currently, stemming from the low price of natural gas. The good news is that renewables are coming down in cost by the day (another future post) and will soon surpass fossil fuels in their cost-effectiveness.


Generally, CES deals come in short-term contracts, anywhere from 1-24 months; it’s extremely important to read the fine print and opt-out if necessary prior to the onset of contract extension rate hikes typically embedded within. Major utility companies adjust their electricity rates 2-3 times per year - generally up during colder months and down in the spring and summertime. With the consistent changing of electric rates, it may be tough to figure out whether going with a CES company is really worth the effort and time. We resolve this dilemma in the cost breakdown below (spoiler: it’s not).


Comparing the Lifetime Costs/Savings of Doing Nothing, Switching Suppliers or Owning Solar PV


Solar energy, for most households, can take things to the next level. Analogous to baking pizzas at home vs. getting them delivered each time, producing solar energy at your residence, business or farm saves many of the extra costs normally associated with buying electricity. Avoiding delivery and other various charges is an obvious financial win here, but you may still ask, “how is the value produced by a solar energy system calculated?” Assessing how much money you can really save down the line through different electricity options requires only some basic math and a solar analysis of your location.



Figure 1 This sample NH home has ample roof area for capturing sunlight at different times of the day (brighter color indicates better solar exposure). The compass orientation of this home isn’t perfect for solar PV, but good enough that the investment makes sense at this location.



Example Scenario Assumptions -


Home Energy Consumption: 7,380 kWh/year (New Hampshire Electricity Rates, 2020)

Utility Rate Prior to Switch: $0.1682/kWh (2020 Summary of Electric Rates, 2020)

Optional Utility Rate with CES: $0.1647/kWh (Compare Residential Suppliers, 2020)

Annual Utility Rate Inflation: 0.0%

Solar PV Purchase Net Cost: $13,046

Solar Panels Used: 19 x Solaria 370W Panels, 7.03 kW (DC)

Solar Self-Consumption Ratio: 30% Self-Consumption : 70% Grid Power

Annual Energy Production: 8,454 kWh/year (8.5 MWh/year)

Renewable Energy Credit (REC): $20/MWh (1 MWh = 1,000 kWh)

REC Revenue to Customer: $169/year


Figure 2 For various energy purchasing options, the average cost of electricity for the residential NH consumer is shown above. The levelized cost of energy (LCOE) describes the average cost per unit energy for a generation unit over its lifetime. A LCOE of $0.05/kWh means that - over 25 years - the customer pays just 5 cents per kWh for their electricity produced from solar PV. This rate includes the purchase cost of the system, as do the lifetime savings (or net present value). With solar PV, the LCOE is calculated by taking the net cost of the solar array and dividing it by its lifetime energy production. Since the consumer does not own the energy assets when referring to the electric utility or a CES, the specified electricity rates are considered as the LCOE. Ownership of solar panels results in an average cost of energy at less than one-third that of the other two energy supply options.



Figure 3 Annual savings are depicted for three ways of providing energy to a sample NH home. The yearly savings generated through ownership of a solar PV array yield over 32-times the value of savings received by switching to a CES for the supply of electricity. Doing nothing and staying with the current electric utility for supply is considered a ‘business-as-usual’ scenario, yielding zero savings annually.



Figure 4 Overall electricity costs are considered over a 25-year period for three consumer choices. Doing nothing and continuing to pay the full rate for electricity results in spending nearly 8-times more over 25 years than if the customer switches to solar PV. Most utility costs that solar PV owners see on their average electric bills are monthly customer charges; switching to an alternate supplier does nothing to reduce these charges, whereas the overproduction of solar energy can.


Figure 5 In this example, lifetime financial savings for a solar PV owner are nearly 27-times greater than only switching the energy supplier on their electricity bill. In fact, as shown in Figure 3, the annual bill savings alone for a solar PV owner are more significant than the lifetime bill savings from switching to a CES. Doing nothing by continuing to pay the electric utility bill as usual results in zero lifetime bill savings for the customer.


Lessons Learned


As we see in the figures above, overall savings from solar energy reach astronomical levels when compared with the savings from switching who supplies your electricity. To give them a fighting chance, the alternative CES rate chosen for this example was the lowest of all available supply rates on the PUC website. Electricity rate inflation was kept at 0.0% though it is projected to increase at 2% per year. We also find that most folks use more than the average amount of energy referenced in this scenario (probably because apartments are included in this statewide average). These two conditions mean that even greater financial savings are possible, if not likely, for homeowners with good circumstances for solar.


Renewable Energy Credits (RECs) created from the solar energy generated are another fiscal bonus available only to those producing their own sustainable power. These payments to the customer alone typically amount to hundreds of dollars, annually. At this point, the cat’s out of the bag! Ownership of solar PV is saving people money over utility power - it’s as simple as that.


Energy in general can be a magically-confusing world; there are many perspectives through the looking-glass (sorry, I had to). From the viewpoint of long-term financial results, at least, there’s no argument that our money couldn’t be put to better use for the energy that we need, regardless. A positive side-effect for those exploring the possibilities of owning solar may even include a loss of impulse to burn their electric bill!






#solar#renewableenergy#cleanenergy#energyproduction#costsavings#electricitycosts#electricbill#energyefficiency#goingsolar





Sources:


Electricity Local. 2020. New Hampshire Electricity Rates. [online] Available at: <https://www.electricitylocal.com/states/new-hampshire/> [Accessed 31 March 2020].


Eversource.com. 2020. 2020 Summary Of Electric Rates. [online] Available at: <https://www.eversource.com/content/docs/default-source/rates-tariffs/nh-summary-rates.pdf?sfvrsn=2947c862_6> [Accessed 2 April 2020].


Puc.nh.gov. 2020. Compare Residential Suppliers. [online] Available at: <https://www.puc.nh.gov/ceps/ResidentialCompare.aspx?choice=Eversource> [Accessed 2 April 2020].


Puc.nh.gov. 2020. Historical Electric Rate Information. [online] Available at: <https://www.puc.nh.gov/Sustainable%20Energy/Solar/Historic%20Electric%20Rate%20Info.html> [Accessed 4 April 2020].


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