California Time-of-Use (TOU) Transition: Effects on Distributed Wind and Solar Economic Potential

Time-of-use (TOU) retail energy rates price electricity differently by the time of day, communicating to consumers the costs of supplying electricity diurnally. This study evaluates the impact of Decision D.15.07-001, which mandates a transition in 2020 to default TOU rates for residential ratepayers in California, on the economic viability of behind-the-meter distributed wind and solar systems. Previous studies have demonstrated that increasing wind and solar generation will materially affect the diurnal cost of wholesale electricity. As retail and wholesale prices become more aligned, this could affect the inter-technology economic viability of distributed generation. We assess economic viability through 'economic potential,' or the amount of generation capacity that exceeds a rate of return of 5.4%. In addition, we identify sensitivities of economic potential to capital costs and other techno-economic factors as well as the specific counties and sectors with substantial economic potential. We find that TOU implementation is projected to moderately increase economic potential of distributed wind and marginally decrease that of distributed solar. Over the long-term as variable renewable energy penetration increases in California, particularly utility-scale solar, net peak load and thus peak prices will shift later in the evening. To the extent that retail rates continue to evolve with wholesale prices, we find the changes could positively affect the value of wind generation more than that of solar generation. Over the scenarios considered, model results indicate realistic pathways to reaching a robust distributed wind market in California though solar economic potential was found to be substantially larger than that of wind.