Installed solar photovoltaic (PV) capacity more than tripled in the past three years, while installed costs for residential and commercial systems have fallen by about 30%. And this growth spurt is far from over. Industry analysts forecast that PV capacity will double from current levels by the end of 2015.

Increased adoption of distributed generation, particularly distributed solar PV, will change utility-customer interactions, cost recovery, and revenue streams. As a greater number of electricity customers choose to generate their own power, demand for utility system power declines. Under the status quo fixed system costs, such as the costs of transmission and distribution services, will be recovered over fewer kilowatt-hour (kWh) sales by the utility, and this could put upward pressure on electricity rates.

Regulators face the challenge of defining and preparing for the potential rate and revenue impacts of expanded distributed PV. Looking forward, it will be important to address potential financial impacts on utilities – to the extent they are responsible for ensuring that electricity infrastructure supports reliable electric service. The regulatory context and rate structures governing utilities and owners of residential and commercial-scale distributed PV present both market opportunities and market barriers that will influence the path forward for proliferating distributed PV.

A number of regulatory models and rate design alternatives are available to address the challenges posed by the transition toward increased adoption of distributed PV. In a recent paper, Regulatory Considerations Associated with the Expanded Adoption of Distributed Solar, the National Renewable Energy Laboratory (NREL) teamed with the Regulatory Assistance Project (RAP) to frame these issues, explore the regulatory implications, and examine the options for addressing this growing challenge.