Carnegie Mellon University

Can We Solve the Solar Market Struggle?

Alan Andrew Scheller-Wolf, the Richard M. Cyert Professor of Operations Management, Tepper School Senior Associate Dean of Faculty and Research, speaks about his research on solar energy and its affordability.

Video Transcript

I actually teach a class on sustainable operations here at Tepper. One of the topics we cover is energy. And if I'm a consumer and solar comes into the market, I want to know my bill's not going to go up. I don't want to be paying for someone else's solar panel.

The name of our paper is "That's Not Fair: Tariff Structures for Electricity Markets with Rooftop Solar." If people are putting solar panels on their roof, they sometimes generate more electricity than they need. And people have the ability typically to sell this power back to the electricity market. Now the problem is, if people switch to solar, that costs the utility company money. Regulators have to try to ensure that the utility company is solvent, because if the utility company's not solvent, we've got a problem.

How does a utility company make up the money? They raise the retail rates. This is a big equity problem, because then the people who tend to install solar are wealthier people. And so the wealthy people install solar, get a price break, and they're essentially being subsidized by the people who don't install solar, who often are less affluent.

You don't have to pay full retail rate. You can pay a lower rate. And then the people aren't making as much money off of their rooftop solar, which means the solar panel manufacturers, who are private enterprises and aren't regulated, might not be able to make money. And that's what happened in Nevada.

If you have a tiered contract that distinguishes between adopters and non-adopters, you can induce the proportion of customers that you want to adopt, and you can guarantee that there won't be cross-subsidization. So its both moves us in the direction of green energy that we want, and what we would call fair.