Impact of tariff structure on the economics of behind-the-meter solar microgrids

Within a single jurisdiction, electricity regulators may set varying tariff structures depending on the type of customer, to recover the cost of generating and delivering electricity. From this cost perspective, the various tariff structures are similar to one another. This paper however, demonstrates that the tariff structures are very different from the point of view of determining the economics of behind-the-meter solar microgrids. Based on empirical data for Ontario we analyse three tariff structures: time-of-use (ToU), customer peak demand charges (DC) and system-wide peak charges (PC). The operation of the microgrid is first optimized and then the internal rate of return (IRR) of the system over its lifetime is maximized by choosing the optimal battery size. This analysis is projected into the future for project start dates 2019-2025 and results in IRRs of 2.7%-7.7% (ToU, residential) 5.6%-13.4% (DC, day/evening use commercial building), 7.5%-17.6% (DC, day-use commercial building). The PC tariff structure was determined to be unsuited to a solar microgrid partly because trends in the system peak hours have resulted in 9.2% per year decline in solar energy yield since its introduction in 2010.