Solar energy can serve as a cost-saving hedge against future increases in electric utility rates, according to “Hedging Against Utility Rate Fluctuations with a Solar PPA,” a recent report from Tioga Energy. The volatility and escalation witnessed to date, coupled with the challenges California-based businesses and organizations face, illustrate the need for businesses to consider managing their electricity price risk through a solar PPA, the company explains.
Relying on data collected from the Energy Information Administration and an analysis by the California Public Utilities Commission, the Tioga report reviews California rate increases from 1970 to the present, analyzes the likelihood of future utility electricity price increases, and then compares the forecasted electric utility rate increases with the fixed rate of a solar PPA. The findings demonstrate a compelling argument for businesses to adopt solar energy for its positive impact as a financial hedge, Tioga states.
The study found that California rates have risen steadily from 1970 to 2004, with compound annual growth rates in the range of 7 percent, depending on customer and utility segments.
Further analysis shows that a range of complex factors will have significant impact on future utility rates, including increased reliance on natural gas; a high probability of additional operating costs associated with carbon emissions cap-and-trade legislation; and increased costs and time required for new power plant and transmission development.
Tioga adds that its solar savings model – which is used with customers and partners to forecast probable solar savings under various scenarios – shows that typical solar PPAs offer a very high probability of significant savings over future electric utility rates, and that even solar PPAs with an initial price substantially higher than current electric utility rates can be more likely than not to generate a net savings over time.
