On the benefits of behind-the-meter rooftop solar and energy storage: The importance of retail rate design

We investigate the impact of retail rate design on the investment incentives, avoided utility costs, and cost-shifting concerns associated with rooftop solar plus battery storage systems that are located behind-the-meter. To illustrate these interactions, we consider recently proposed changes to California's time-of-use pricing policy for commercial and industrial consumers which shifts on-peak prices from midday to the constrained evening hours. We find that these rate adjustments reduce cost-shifting concerns across consumers considerably, but also decreases solar PV investment and has an ambiguous effect on storage investment. We demonstrate that storage reduces utility costs, but the magnitude of this effect varies critically with the prevailing retail rate structure. Importantly, we show that a shift in the on-peak period to the constrained evening hours does not always elevate the avoided cost associated with a battery system when demand charges are imposed on a consumer's private maximum demand. We illustrate that this issue can be alleviated by imposing demand charges on consumption that arises in system-constrained hours. We find that while storage reduces the utility's costs, it can also increase cost-shifting concerns. These findings demonstrate the potential trade-offs between maximizing avoided costs and minimizing cost-shifting concerns under commonly employed retail rate structures. •We examine the relationship between retail rate design and solar PV and battery storage systems.•Retail rate design has an important impact on the operational decisions of battery storage.•High volumetric tariffs result in high levels of solar PV investment, avoided costs, and cost-shifting.•Tariffs with a heavy weight on maximum demand charges reduce cost-shifting but also lower avoided cost.•We highlight the presence of a key trade-off between maximizing avoided costs and minimizing cost-shifting.