Making Sense of How Billing Works (in granular detail)

Article Summary

• Community solar involves three transactions. One is between you and the utility for your solar production, the other is between you and the utility for your energy use, and the final one is between you and Neighborhood Sun to purchase your solar credits.
• Because of a lag time in billing, you are always going to be cash flow positive. That means you are saving money from day one.

Community solar is so new, that many people have questions about the billing process and how their solar share relates to their utility bill. I have found that the best way to understand the billing is to think of it as three separate transactions that just happen to overlap one another.  It’s just easier to visualize/conceptualize when it is viewed as three transactions that are between 2 parties each, rather than one transaction that takes place over the course of 2+ months between 3 parties. It’s a bit of a long explanation, but worth the read if you really want to understand community solar.

The first transaction to think about starts with the solar farm itself – Your utility (BGE, PEPCO,PSE&G, etc) is purchasing the electricity generated by your allotment from the solar farm at the full retail price – when you initially enrolled we got a report from your utility showing your historical usage for the prior 12 months.  That allowed us to predict the amount of electricity that you would need for the next 12 months, taking seasonality into account.  Using 12 months allows us to make a more accurate assessment for each individual household.

Once we had that estimate we were able to assign an allocation from the projected output of the farms to you for the next 12 months – in other words, we knew how many panels you would need to power your home.  Your allotment is set at 80% of your expected needs because, quite honestly, if your allotment produces more electricity than you need over the course of a year it is essentially wasted and the solar project loses money.  It’s a pilot program and if it is to succeed the developers can’t lose money – otherwise more developers won’t participate and make the program grow.

To get back to the “transaction” – your utility is required to purchase the electricity produced by your panels every month, and they are required to pay the full retail price, which means they have to pay the same amount for the electricity that they buy as the electricity that they sell.  During the summer, when there is upwards of 14 hours of sunlight each day, your panels are generating a ton of clean electricity, and your utility is buying it from you for the retail price.  You could leave the country, turn your electricity in your home off, and they still would be buying those kWh from you.  You are selling clean electricity from your panels to your utility.  That is transaction #1, and it is completely unrelated to the electricity that you used in your home.  That is an important aspect to keep in mind.

Transaction #2 is that your utility is delivering electricity to your home and they get paid for that.  They own the wires.  There are also taxes, state and local.  There are fees that everyone pays that go to maintenance of wires, repairs to substations, operating their customer service center, etc.  These are expenses that are related to operating that are in addition to the production and delivery of electricity and those charges will always exist.  These are on the familiar bill that your utility sends you every month.

If you were not participating in community solar you would pay one bill that included everything – generation/production of electricity, delivery/transmission of electricity, taxes, fees, etc.  That would be one bill and convenient.  It also would be almost completely coal/nuclear/fracked gas/oil for the generation portion and bad for the planet.

Your monthly utility bill, without community solar, looks 98% the same as it does with it. The only difference is the credit that you received from Transaction #1 would be listed as a community solar credit and will be a negative number.   They bought electricity from you at the full retail price and gave you full retail credit.  The location of these credits does vary from one utility to another, but it is fairly easy to find because it is typically the only negative number on your bill, and it is always the largest negative number.

Please also realize that they don’t give you cash for the electricity that they purchased, they give you credits.  In the future when you look at a utility bill for July or August, it’s quite possible they will owe you more than your entire bill, including the taxes and fees.  That’s because solar farms generate much more electricity in August than they do in January when there is far less daylight and the credits will not be as high.

The third transaction is what you pay to Neighborhood Sun.  You are buying the credits at a discount, so if you receive $100 in credits from your utility and are getting a 10% discount, the amount of your payment to Neighborhood Sun would be $90 – a $10 savings.

One final, but very important thing to realize is that there will always be a lag between when you get your credits from your utility and when you get an invoice from us.  It is simply a matter of the way the system works – they issue credits to the customers, and a couple weeks later they tell us what those credits were for, and then we invoice the following month.  It’s a system that benefits the customers because you get the credits prior to paying for them, but we don’t get paid until the utility tells us what the dollar amounts of the credits amounted to for each of our subscribers.  In summary, you will always be cash flow ahead of the game.  That’s a guarantee because we don’t even know what to bill you for credits until they’ve already been applied.

Here is an example to use for demonstration – below that are two infographics – one for Pepco and one for BGE – the reason for two is that they have different schedules for notifications:

The solar farm was started on March 1st and started generating electricity.

On March 31st, the utility (in this case Pepco) read the meter and was able to determine the total output of the entire farm.

Several days later – so let’s say for this example April 5th – Pepco was able to determine the amount of credits that each subscriber was to receive (we provide Pepco with a list of customers and the % of the farm that they receive).

Once they have those amounts determined they start issuing credits to each of those customers as their next Pepco billing cycle ends.

This is where a lot of people start to get confused – if your billing cycle starts and stops on the 4th of each month, then in this example you would not see those credits until May 5th even though the electricity was created in March.

To further add to the lag time, the utilities wait to notify Neighborhood Sun about credits that were issued until after all credits have been assigned.  That means that, in this example, they would let us know the amount of your credits around May 10th.  Since we only invoice once a month, you may not receive an invoice from Neighborhood Sun until June.

In summary, electricity is generated in March, credits are issued to customers in April, Neighborhood Sun is notified about the credits in May and the customer gets invoiced by Neighborhood Sun in June.

To see a visual infographic of a typical BGE cycle click HERE

To see a visual infographic of a typical PEPCO cycle click HERE