The Effects of Electricity Billing Structures and Electricity Rates on the Profitability of Solar Photovoltaic Projects: Evidence from Poultry Farms

Abstract

Increasing prices for fossil fuels contribute to rising electricity prices. This coupled with the drop in the cost of solar photovoltaic (PV) panels has led to a rapid growth in PV adoption. Commercial poultry is a growing agricultural sector with substantial energy needs, which has led to interest in PV as a means of decreasing input costs. Research questions remain, however, about whether PV systems are profitable and what size systems should be built to be the most profitable. Also, various utility rates (sell and buy prices) and compensation structures for PV (such as net metering, net billing, and buy-all, sell-all) have significant impacts on profitability. Because these rates and structures vary across utilities, it is beneficial for poultry growers and those providing advice to growers to understand these impacts. We collect original load data from a commercial poultry farm located in northern Alabama and use a government-developed software platform to simulate the effects of varying billing rates, billing structure, and system size. The simulation is run thousands of times to develop a Monte-Carlo distribution of profitability over all treatments. We then use descriptive statistics on the variation of profitability across trials and a regression to estimate the average effect of each treatment, holding other drivers constant. Findings show that net metering provides the highest profitability, ceteris paribus; for instance, over the expected life of the system, net metering on average produces $14,630 more profitability than net billing and $16,513 more than buy-all, sell-all structures. The results also show how various system sizes affect profitability under different billing rates and structures, revealing which system is likely to be most profitable in various areas of the U.S.