SOLAR PHOTOVOLTAIC ADOPTION

CLIENT

CONFIDENTIAL: Large investor-owned utility in southwest U.S.

CHALLENGE

A large investor-owned utility in the southwest U.S. needed to understand the likely growth of rooftop solar PV in their service territory, under a variety of possible electricity rate reform scenarios. They desired a stable and growing market for solar PV in their service territory, while also ensuring appropriate and fair electric rate structures.

approach

Lumidyne staff (Cory Welch), while employed at Navigant Consulting, simulated adoption of solar PV in both the residential and commercial sectors using a calibrated Bass diffusion modeling approach, implemented in a System Dynamics framework. The model employed a discounted cash flow optimization sub-model that calculated likely lease or power purchase agreement (PPA) prices from third-party-owned (TPO) systems, a dominant business model at the time. The economic analysis of solar PV systems considered system cost declines over time, tax credits, incentives, PV production, and provider investment return requirements. Diffusion model parameters were calibrated using historical PV adoption data and nonlinear parameter optimization algorithms. The calibrated model was used to forecast adoption over a 20-year time frame, under a range of assumptions regarding future electricity rates and structures.

RESULTS

The IOU used the results of the forecast to inform their electric rate case and proposed rate structure for solar PV moving forward. The solar PV industry generally accepted the new rate structure, and the market for solar PV in their service territory continues to grow at a robust pace.

BASS DIFFUSION & SYSTEM DYNAMICS

The analysis employed Bass diffusion theory in a System Dynamics modeling construct, permitting flexibility regarding time-varying inputs (e.g., cost, tax credits).

FORECAST SCENARIOS

PV system adoption was forecast under numerous scenarios on electric rates, cost trajectory, and tax credit assumptions.

MODEL CALIBRATION

The model was calibrated to historical adoption data and obtained excellent agreement, providing added confidence in the forecasts.

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