This Number Helps Explain Why Rooftop Solar Is Becoming More Attractive in Many States

About 5 percent of U.S. households have rooftop solar, a share that may seem like a lot, but it looks low compared to places like Germany (about 20 percent) and Australia (about 30 percent).

One of the big reasons that the United States lags some of those other countries is that electricity is unusually cheap here, so it makes less sense on a financial basis for someone to buy rooftop solar.

But this is changing.

Utilities across the country have been raising their electricity rates by leaps and bounds, with the approval of state regulators. The rate hikes reflect increases in the utilities’ costs of operation and their desire to show growth in earnings. This is fueling demand for rooftop solar, the technology that many utilities view as competition.

At what point is a customer’s electricity rate high enough to justify rooftop solar on a financial basis? That’s complicated, and depends on policies at the state level and how much sun a place gets. But let’s simplify things and I’ll throw out a number: 15 cents.

This rate, 15 cents per kilowatt-hour, translates to a monthly bill of about $130 for a household with average electricity consumption.

People in the solar business and energy analysts sometimes talk about 15 cents per kilowatt hour as the approximate point at which things change. In states with rates above that level, companies that sell rooftop solar can more easily demonstrate the potential for financial savings to customers.

I spoke with Pavel Molchanov, an energy industry analyst for the financial services company Raymond James, who recently published a research note looking at the rooftop solar market in terms of which states are above and which are below 15 cents per kilowatt hour.

“Utility rates never go down,” he said. “They go up, and then they stabilize and then they go up again. For homeowners who are tired of utility rates going up, rooftop solar is a solution.”

In 2022, 16 states had residential rates of 15 cents or more, according to the Energy Information Administration.

Hawaii was highest with 43 cents, which is part of a legacy of relying on imported oil to generate power; California was next with 26.2 cents, due to the high costs of providing power in the state, which includes serving rugged terrain and expenses tied to wildfires.

The next eight states are all in the northeast, plus Alaska, all of which have rates of 20 cents or more, and have long had rates greater than the national average.

I want to zero in on the next group, which are fertile ground for rooftop solar to expand: the states whose rates have recently risen above 15 cents.

This includes New Jersey and Pennsylvania, both of which already have a history with the rooftop solar industry due to state policies that led to periods of rapid adoption. It also includes Midwestern states like Michigan, Illinois, Wisconsin and Indiana.

In Illinois, the growth of rooftop solar is getting an assist from the state Climate and Equitable Jobs Act, whose subsidies have helped to expand the market.

At the same time, Indiana regulators have approved utility policies in the last two years that have reduced the financial benefits of solar by revising rules for “net metering,” which determine how much the utility must reimburse solar owners for excess electricity they send back to the grid.

But I don’t want to get too bogged down in a discussion of individual states. Utility rates are rising everywhere and the national average crossed the 15-cent mark for the first time last year, with a rate of 15.1 cents.

It would make sense for rooftop solar prices to increase along with utility rates due to inflation in the costs of some parts and employee pay. And yet, Molchanov expects that solar costs will stay about the same, thanks in part to economies of scale as demand increases.

“The unambiguously good news is that, in this case, the more sustainable solution is also becoming the most cost-effective solution,” he said.

I asked Will Kenworthy, Midwest regulatory director of the advocacy group Vote Solar, if he thinks the “15 cent rule” is a useful way of explaining the market.

“It’s a reasonable proxy, a reasonable rule of thumb,” he said.

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But it leaves out some big variables, like the state laws that make Illinois much more hospitable to solar than Indiana, he said.

If you’d like a deeper look at the rooftop solar market, I’d recommend the Lawrence Berkeley National Laboratory’s Tracking the Sun series. One takeaway from the series is that rooftop solar costs can vary a lot, even within the same geographic area, so it’s difficult to generalize about costs.

Also, RMI has a nifty interactive tool that helps consumers to estimate the payback period for rooftop solar down to the county level.

Some fine print: When I said that about 5 percent of the country’s households have rooftop solar, this comes from a 2020 figure from the Energy Information Administration about solar on single-family homes, plus Molchanov’s estimate of the increase that has happened since then. The number I cited for rooftop solar share in Australia comes from its federal government, and the number from Germany comes from a solar trade group there.

Molchanov’s larger point is that the outlook is good for the rooftop solar industry. Utilities should take notice.

“Utilities are fighting a losing battle,” he said. “Rooftop solar will continue to grow. Utilities need to learn to live with this reality.”

Other stories about the energy transition to take note of this week:

How Much Will a New Hydrogen Investment Help the Climate?: The Energy Department has awarded $7 billion for clean hydrogen hubs across the country. This long-awaited announcement, which included a visit by President Joe Biden to a marine terminal in Philadelphia, could be a critical part of producing hydrogen to reduce emissions in hard-to-decarbonize industries like steelmaking. But without proper guardrails, the money could turn into a major subsidy for the use of fossil fuels to make hydrogen, as Nicholas Kusnetz and Jon Hurdle report for ICN.

A New Agreement Seems to Ease Conflict Between Solar Industry and Environmental Advocates: After extensive negotiations, a coalition of solar companies, conservationists and others have agreed on a set of principles and plans to work together to speed up construction of renewable energy projects while also protecting nature and giving benefits to nearby communities. Sammy Roth of the Los Angeles Times reports on the agreement and how it may be an encouraging sign of compromise between some heavy hitters in clean energy and environmental advocacy, like the Solar Energy Industries Association, Natural Resources Defense Council and the Nature Conservancy.

Ford’s Chairman Says Strike Is Helping Tesla and Toyota: Bill Ford, the executive chairman of Ford Motor, made an unusually blunt statement about the ongoing United Auto Workers’ strike against Ford, General Motors and Stellantis, the parent company of Chrysler. “Toyota, Honda, Tesla and the others are loving the strike, because they know the longer it goes on, the better it is for them,” he said, quoted by Neal E. Boudette of The New York Times. The strike has a lot to do with the shift to electric vehicles, as Ford and other automakers have shifted much of their growth to nonunion joint ventures that make batteries. Ford executives have said they need to have costs that are competitive with non-union automakers like Tesla, Toyota and Honda.

GOP States Raise Fees on Electric Cars as Gas Tax Revenue Falls: At least eight states, all but one controlled by Republicans, require drivers of electric vehicles to pay an annual registration fee of $200 or more, as Kimberly Kindy reports for The Washington Post. EV advocates say this is an effort to discourage sales of the vehicles, while lawmakers say they are trying to make up for a loss of gas tax revenue. Texas is the latest state to adopt such a requirement. All of the states are Republican-controlled except for Pennsylvania, which is under split control.

A Boston Skyscraper Is Named the World’s Biggest ​‘Passive House’ Office: The Winthrop Center in downtown Boston has received certification as a “Passive House,” which means it is extremely energy efficient. The nonprofit Passive House Institute in Germany verified the building’s performance, the largest office to meet the group’s standards. Alison F. Takemura of Canary Media reports on what features in the building enabled it to qualify, like triple-pane windows and high-performing insulation.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].

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