Cost implications of increased solar penetration and time-of-use rate interactions

Abstract

Abstract Electricity-grid operators are facing new challenges in matching load and generation due to increased solar generation and peak-load growth. This paper demonstrates that time-of-use (TOU) rates are an effective method to address these challenges. TOU rates use price differences to incentivize conserving electricity during peak hours and encouraging use during off-peak hours. This strategy is being used across the USA, including in Arizona, California and Hawaii. This analysis used the production-cost model PLEXOS with an hourly resolution to explore how production costs, locational marginal prices and dispatch stacks (type of generation used to meet load) change due to changes in load shapes prompted by TOU rates and with additional solar generation. The modelling focused on implementing TOU rates at three different adoption (response) levels with and without additional solar generation in the Arizona balancing areas within a PLEXOS model. In most cases analysed, implementing TOU rates in Arizona reduced reserve shortages in the Western Interconnect and, in some cases, very substantially. This result is representative of the interactions that happen interconnection-wide, demonstrating the advantage of modelling the entire interconnection. Production costs were decreased by the additional solar generation and the load change from TOU rates, and high response levels reduced the production costs the most for high-solar-generation cases. Load change from TOU rates decreased locational marginal prices for a typical summer day but had inconsistent results on a high-load day. Additional solar generation decreased the usage of combustion turbines, combined cycles and coal-fired generation.