How Grid-Tie Works in Alabama, even for Alabama Power Customers

You have heard that solar can reduce or eliminate your power bill. The power company will purchase any excess power and you can even make money. If you covered a few acres with solar panels, you might even have a nice retirement income.

All of the above is true in states where the utility offers NET metering. Net metering exchanges kWh at the retail rate. The utility pays you the same amount for a kWh as you pay them. No utility in Alabama offers net metering and it exists mostly (maybe ONLY) in places where it is mandated by the state. Net metering is bad for utilities and their customers. Every solar system results in lost revenue to the utility and forces rate payers to subsidize the lost revenue. I think net metering will eventually go the way of the dinosaur.

The intent of a grid-tie system is to offset kWh you would otherwise purchase. This it does. Here is how it works in Alabama. Every kWh you generate and consume saves you the cost of the kWh and the associated taxes, including the state and federal income tax. A solar kWh consumed by the owner saves around 16 cents. That is a good deal. Most Alabama utilities will purchase any excess kWh you generate at the “offset”, or wholesale rate, of around 4 cents. That is a reasonable and fair deal.

Technically, you can offset every kWh your house consumes, making ownership of a grid-tie system very green. However, reducing your power bill is another matter. A grid-tie solar system sized to maximize the return-on-investment will be sized to minimize the generation sold to the utility at the reduced rate. In other words, you want to minimize the kWh you generate and sell for 4 cents. This is the current situation with most all electric coops in Alabama, including TVA.

Alabama Power is a little more jealous of their revenue. They got the PSC to approve a Capacity Reservation Charge, or CRC for short. It is currently about $5.50 per system kWh rating per month. Their take is something like this. The capacity they have installed to serve your house is idle when the sun is shining. But they must maintain the capacity because they have to meet your electrical demand when the sun is not shining. So, they charge you a fee for holding that capacity in reserve. This makes perfect business sense to a utility and I suspect many other utilities will follow this model and small roof-top grid-tie solar will disappear.

Alabama Power likes solar. They own a lot of it. And they seem very friendly to their customers owning solar. But the CRC protects their revenue by essentially putting the generation of your solar system into their pocket. If your goal is to be green, this program works for you. If you are interested in reducing your power bill, not so much.

By the way, grid-tie systems must be connected to the utility to function. They go down with the grid. Many people are disappointed that their grid-tie solar system does not produce power during a grid outage.

But solar is not going away. In fact, it is now a force to be reckoned with and will play a significant role in the future of residential power. Easily 90% of our systems involve energy storage – batteries. These systems reduce or eliminate your dependency on purchased power. They are fully capable of interacting with the grid, but because of the complexity of utility interconnection agreements, most owners choose not to connect their solar system to the grid. These systems power select loads much like an uninterruptible power supply and can push power into your grid panel, reducing your purchased power. No grid interconnection agreement and no permission slip required from the utility. The technology is amazing.

A solar water heater is an excellent way to use solar energy to reduce your dependency on fossil fuels and will save a boat load of money if you replace an electric water heater. Solar water heaters cost less than a modest grid-tie system, break even in around 7 years, and will return around $20,000 over its expected 30+ year lifetime. No permission slip or contract with the electric utility required. This is a better solar option for many people.

Thanks for your interest in solar and I appreciate your reading this blog. We would love to help you tap into the abundant solar resource – the natural and renewable source of energy.