What Are Avoided Cost Rates For Solar Energy Systems?

If you are taking advantage of net metering with your solar system, then “avoided costs” are something that you need to be aware of. These help you determine the value of the solar power that your system generates and what you share with the grid.

This can be a complex topic, so our team at Solar Bear Orlando is here to explain a quick overview of what you need to know and how avoided costs work.

What Are Avoided Costs?

The term “avoided cost rates” was introduced in the solar industry in 1978 by the United States Public Utility Regulatory Act (PURPA).

In layman’s terms, avoided costs are equal to the expense that your utility provider will avoid by not having to generate new power with traditional fossil fuel sources. Avoided costs define the amount that your energy company is required to pay you if your solar system is grid-tied and set up for net metering.

Generally, the factors that influence the avoided costs rate is the wholesale price of electricity which varies widely depending on:

  • Time of day
  • Season
  • Location

Due to the demand for solar energy, the industry has become a lot more competitive, and costs are declining, so solar-avoided cost rates are becoming quite more favorable.

What Impacts Solar Avoided Cost Rates?

Some of the most common factors that affect the value of avoided cost rates for solar customers and utilities include:

#1. Time of Day

Per the time-of-use (TOU) energy rate structure, solar power is more valuable when energy demand is at its peak. For most areas, this means that avoided cost rates are typically the highest on weekday afternoons and during the early evening, especially during hot summer months.

#2. Fuel Prices

Ever-fluctuating fuel prices have a direct impact on avoided cost rates as they directly influence the cost of generating electricity from different sources.

#3. Technology Advancements

Due to demand, the cost of solar and wind power continues to decline due to technological innovations, thus impacting the avoided cost rates.

#4. Regulatory Policies

Regulatory policies set guidelines for compensation mechanisms for renewable energy providers and encourage investment in cleaner energy sources.

#5. Market Conditions

Changes in market trends can influence the availability and pricing of alternative energy sources like solar and can have a big impact on the rate of avoided costs.

Important Note

Avoided costs are calculated differently across the United States, but most utility companies have a predetermined schedule that outlines the avoided costs based on the day, week, and year that energy is shared with the grid.

If you live in an area where your excess solar is paid back to you at avoided-cost rates, we recommend installing solar batteries that can capture excess power. This allows for greater energy independence and maximizes your solar system’s saving potential.

Related Reading > Solar Cost Breakdown: Average Costs for 2024

Contact Solar Bear Orlando

Want to make the most of your solar system? Lean on our team of solar experts at Solar Bear Orlando for efficient solar installations all across Central Florida. We will help you gain control of your home’s energy by harnessing the power of the sun. You might as well, you live in the Sunshine State after all!

Contact us today at (727) 471-7442!