---
description: Avoided cost rates for Solar power help determine the impact on your electricity bill and assess the overall value of your solar investment.
title: What is meant by Avoided Cost Rates for Solar Power? - Energy Theory
image: https://energytheory.com/wp-content/uploads/2024/01/avoided-cost-rates-for-Solar-power.jpg
---

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# What is meant by Avoided Cost Rates for Solar Power?

By [Elliot Clark](https://energytheory.com/author/elliot_clark/)January 4, 20243 Mins Read

![avoided cost rates for Solar power](https://energytheory.com/wp-content/uploads/2024/01/avoided-cost-rates-for-Solar-power-1024x683.jpg "What is meant by Avoided Cost Rates for Solar Power?")

Understanding avoided cost rates is essential for assessing the value of the solar energy you contribute to the grid. While specific monetary details may vary nationwide, grasping the fundamental principles of avoided cost rates is crucial for solar customers in the US. Avoided cost rates for solar power help** determine the impact on your electricity bill** and assess the overall value of your solar investment.

Avoided cost refers to the** extra expense an electric utility avoids in generating or acquiring power.** This represents the minimum compensation that an electric utility must pay an independent power producer, such as a residence with grid-tied solar panels. For example, if you generate solar power and supply it to the utility at an avoided-cost rate, the utility purchases your solar energy at a rate equivalent to its approximate cost to generate the same amount of electricity or acquire it from an alternative source, like a neighboring power plant.

### **When are Avoided Costs Paid in Net Metering?**

Net metering policies for residential solar installations vary across states and utilities, but the application of avoided cost rates generally occurs after the solar billing cycle. In the majority of net metering programs, the flexibility to accumulate excess bill credits over several months is permitted. Subsequently, any **surplus credits are typically converted to cash at avoided-cost rates following 12 months**, a process commonly referred to as the true-up statement.

For example, consider a scenario where your solar panels are configured in a true 1-to-1 net metering arrangement, and you receive retail energy prices for the electricity you contribute to the grid. If, over one year of operation, your solar system generates 12,000 kWh of electricity while your property only consumes 11,500 kWh, the remaining surplus of 500 kWh is likely to be **compensated at avoided-cost rates on your subsequent utility bill.**

**Also See:** [What is Return on Investment (ROI)?](https://energytheory.com/what-is-return-on-investment-roi/)

### **How much Avoided Cost Rate Range?**

Solar avoided cost rates vary geographically, influenced by local utility regulatory bodies. Despite the lack of a federal rate, the system often results in rates lower than traditional net metering structures. Even in high-cost areas like California, avoided cost rates are typically in the **$0.04 to $0.05 per kWh range.**

### **What are the Factors Affecting Avoided Cost Rate?**

Several key factors have a significant impact on the value of avoided cost rates for solar power customers:

**1. Time of Day**

If solar exports are timed precisely when local energy demand is at its peak, the value of solar exports may increase in a [time-of-use (TOU)](https://energytheory.com/what-are-time-of-use-tou-rates/) energy rate structure. Typically, avoided cost rates for solar exports are **highest on weekday afternoons and early evenings,** especially during the summer months.

**2. Fuel Prices**

The value of avoided cost rates is closely l**inked to current electricity generation fuel prices.** Local average fuel prices in different regions of the United States can vary significantly based on market rates, the availability of fossil fuels, and renewable energy resources.

**3. Operational Costs**

In addition to the cost of electricity, operational expenses **related to electric grid infrastructure, transmission losses,** [energy procurement](https://www.costanalysts.com/energy-procurement/)**,** and other utility overhead may affect avoided cost rates. Some regions may offer programs that provide additional compensation for solar exports in addition to the standard avoided cost rates.

**Recommended:** [What is Energy Arbitrage?](https://energytheory.com/what-is-energy-arbitrage/)

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[Elliot Clark](https://energytheory.com/author/elliot_clark/)

Elliot is a passionate environmentalist and blogger who has dedicated his life to spreading awareness about conservation, green energy, and renewable energy. With a background in environmental science, he has a deep understanding of the issues facing our planet and is committed to educating others on how they can make a difference.

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