An avoided-cost rate is a compensation rate based on costs a utility avoids by receiving electricity or capacity from another resource. The applicable methodology, tariff or contract defines the rate and its use. It is not automatically your retail electricity price or the value of every kilowatt-hour your solar system produces.
For a residential solar project, ask which modeled energy receives which value. Electricity used at home, exports credited during billing and unused credits settled later can follow different calculations.
Our South Carolina net-metering guide covers utility-program choices. This entry explains the cost basis within those arrangements. All numbers below are fictional teaching assumptions unless explicitly attributed; they are not current tariffs, Sunburst savings results or property-specific estimates.
Whose cost is being avoided?
In the utility compensation context, the reference is the utility’s alternative cost. Ask what the utility would otherwise generate or purchase, rather than starting with the homeowner’s retail bill.
The federal definition in 18 CFR 292.101(b)(6) concerns incremental utility energy or capacity costs displaced by purchases from qualifying facilities. That is a defined regulatory context, not a statement that every rooftop export has identical eligibility or compensation.
For a homeowner, “costs avoided by my solar panels” can mean something different: the bill expense that changes when onsite generation replaces grid purchases. Keep that homeowner calculation separate from the utility’s avoided-cost purchase basis.
A proposal using the phrase without naming whose costs it means needs clarification. Ask for the tariff reference and the calculation, not just a favorable label.
Is an avoided-cost rate the same as a retail electricity rate?
No. Retail pricing and utility purchase compensation are separate rate designs. Do not substitute one for the other without an applicable rule establishing that treatment.
The National Laboratory of the Rockies identifies metering and billing arrangements, sell-rate design and retail-rate design as separate parts of distributed-generation compensation. That framework helps explain why a single number cannot describe the whole bill.
| Figure in a proposal | Question it answers |
|---|---|
| Retail purchase rate | What charges apply to energy bought from the utility? |
| Export or purchase credit | What compensation applies to eligible energy supplied? |
| Avoided-cost basis | Which displaced utility costs inform the stated compensation? |
| Whole-bill savings | How does the complete bill change under the modeled case? |
The solar export rate definition explains the realized selling or credit rate. Avoided cost explains a possible basis for that value; it is not the name for every compensation arrangement.
Does the rate apply to all solar generation?
Only the applicable rule determines the credited quantity. Do not multiply annual solar production by an avoided-cost rate before establishing what the program purchases or settles.
Some generation may serve household loads directly. Some may be exported and credited through a billing arrangement. An accumulated balance may receive a separate settlement treatment later.
For a fictional monthly system, generation is 800 kWh, direct onsite use is 500 kWh and physical exports are 300 kWh on a coherent boundary. Applying an assumed export rate to all 800 kWh would misclassify the 500 kWh used at home.
Even the 300 kWh export quantity is not automatically the amount settled at avoided cost. Netting and credit rules must be applied first. Our net billing explanation keeps the accounting arrangement separate from the rate’s cost basis.
How do you calculate a simple eligible-energy credit?
Once a hypothetical eligible quantity and coherent rate are established, the arithmetic is:
Energy credit = eligible kWh × dollars per kWh.
Suppose a fictional calculation has 250 eligible kWh and a rate of 4 cents per kWh. Convert the rate to $0.04 per kWh. The credit is 250 × $0.04 = $10.
| Input | Fictional value | Interpretation |
|---|---|---|
| Eligible energy | 250 kWh | Quantity established by the assumed rules |
| Stated rate | 4 cents/kWh | Four hundredths of a dollar per kWh |
| Dollar calculation | 250 × $0.04 | Consistent units |
| Result | $10 | Credit before any separate bill treatment |
This example does not establish when a real credit is paid, whether it offsets every charge or whether every exported kWh qualifies. Those are tariff questions, not multiplication questions.
Why do energy and capacity units need separate checks?
Energy and capacity describe different quantities. The federal avoided-cost definition includes energy, capacity or both, but a particular household settlement may reference a specified energy credit.
Do not multiply a payment expressed per kW by an energy quantity expressed in kWh. A capacity-related value also needs its stated time basis and qualifying conditions.
For fictional dimensional arithmetic, 100 kWh at $0.05 per kWh gives $5. A separate hypothetical $5-per-kW-month amount applied to 2 qualifying kW gives $10 for the stated month. Neither invented calculation establishes a real offer or lets you combine the two into one universal solar rate.
Keep the exact tariff units in the proposal worksheet. If a figure appears as dollars per MWh, convert it before comparing it with cents per kWh. Label each step so the reviewer can reproduce the calculation.
What does Dominion’s current Solar Choice rider illustrate?
As verified October 6, 2026, Dominion Energy South Carolina’s Residential Rate 5 Solar Choice rider, effective July 2026, describes monthly time-of-use energy netting and credit carryforward. For November billing cycles, accumulated excess energy not used to reduce billed kWh is paid at the company’s avoided cost and the excess-energy balance is cleared. The rider identifies that avoided cost as the off-peak winter energy credit in Rate PR-1.
That is an example of a specific rate applied to a specific settlement quantity. It does not mean every instantaneous export receives avoided-cost compensation throughout the year.
Use the actual account’s program and applicable tariff version. This entry does not quote a current PR-1 numerical amount or establish your eligibility. The net-metering true-up definition explains the settlement event separately.
Why does the netting period matter before the rate?
Netting determines which energy quantities remain to be billed or credited. The rate is applied to the quantity established by those rules, not necessarily to a dashboard’s raw export total.
Consider a fictional interval with 10 kWh imported and 8 kWh exported. An assumed interval-netting arrangement could leave 2 kWh net import for that interval. A different arrangement could value imports and exports separately.
Now consider those quantities occurring in different periods. The treatment can change even though the combined energy totals look the same. The applicable tariff, not an annual spreadsheet sum, determines the accounting.
Ask the proposal author to show the raw flows, netting step, eligible credit quantity and rate application in order. A rate comparison is incomplete when the credited quantity changes between scenarios without explanation.
Is a carried kWh credit already a cash payment?
Not automatically. A quantity held in an energy ledger can have a different role from a dollar credit or an issued payment. Its eventual treatment depends on the program.
In a fictional ledger, 400 kWh remains available for eligible future energy offsets. That does not mean the homeowner currently holds 400 times the retail price in spendable cash.
If a hypothetical later settlement applies $0.04 per kWh to the remaining 400 kWh, that calculation gives $16. Substituting a fictional $0.20 retail price would give $80, but it would apply the wrong rate if the assumed settlement explicitly uses $0.04.
Keep ledger units visible. Ask whether a balance is carried, applied, expired, purchased or paid out, and when. The word credit alone is too ambiguous for a financial model.
Can an avoided-cost rate vary with time or contract terms?
The applicable document establishes whether and how a value changes. Avoided-cost terminology alone does not promise a permanent flat rate for the life of the system.
Check the effective date, season, time period and any referenced schedule. If the tariff points to another rate document, preserve that reference with the calculation rather than replacing it with a number from an old article.
For fictional arithmetic, 100 eligible kWh at $0.03 produces $3; the same quantity at $0.05 produces $5. That comparison illustrates sensitivity to the rate, not a forecast that an actual utility will move between those values.
If a purchase contract establishes a particular term, evaluate that contract rather than assuming every annual revision affects it identically. A household rider and a negotiated generation contract can have different purposes and conditions.
How should self-consumption and export value be separated?
Use coherent quantities for energy consumed onsite and energy eligible for compensation. Value each according to the relevant scenario rather than treating all production as a sale.
In a fictional simplified year, assume 6,000 kWh used onsite avoids a variable purchase charge of $0.15 per kWh. Separately assume 2,000 eligible exported kWh earns $0.04 per kWh. The respective arithmetic is $900 and $80, or $980 combined before other changes.
Those assumptions do not describe an actual tariff. They exclude fixed charges, taxes, demand effects and changes to the rate schedule. Nor do they imply the bill will fall by $980 without comparing the full bills.
The solar self-consumption definition explains the energy-use quantity. Avoided-cost compensation belongs only where the applicable purchase or settlement rule places it.
Why is an average bill price a risky substitute?
Dividing a total bill by total kWh produces an average for that bill. It does not necessarily identify the marginal charge displaced by another kWh or the compensation for an export.
For a fictional $150 bill covering 1,000 kWh, the average is $0.15 per kWh. If the assumed bill contains a $30 fixed component and $120 variable component, the variable arithmetic is $0.12 per kWh under those simplified assumptions.
Using $0.15 for every onsite kWh would allocate some fixed cost as though it disappeared with consumption. Using it as an export credit would be another unsupported substitution.
Request the actual rate components and before-and-after bill calculation. An avoided-cost definition helps clarify one rate basis; it cannot repair a model that treats every charge as proportional to energy.
What does this mean for adding more panels?
Evaluate the incremental production and where it goes. Additional generation used onsite and additional generation remaining eligible for a lower compensation assumption can have different modeled values.
In a fictional case, an extra 1,000 kWh splits into 200 kWh of onsite use at an assumed $0.15 displaced charge and 800 eligible exported kWh at $0.04. The arithmetic is $30 plus $32, or $62 before additional costs and bill effects.
A different split of 800 onsite and 200 exported kWh gives $120 plus $8, or $128 on those same assumptions. Total additional generation is identical; its modeled disposition differs.
These examples do not establish that oversizing is always poor or that more panels are always better. Ask for the marginal scenario, applicable system limits, incremental cost and realistic future-load assumptions before deciding.
Does a lower export value automatically justify a battery?
No. Storage must be evaluated against its cost, supported operation, energy losses, available surplus and the relevant import and export values. The rate difference alone is incomplete.
Suppose a fictional scenario diverts 5 kWh that otherwise earns $0.04 per kWh. Forgone export value is $0.20. Assume that energy produces 4 kWh of later household-facing delivery, displacing an eligible $0.15-per-kWh charge. The modeled avoided purchase is $0.60, leaving a $0.40 difference before equipment, operating and other effects.
All quantities use the explicitly stated boundaries. Do not apply another loss factor to the 4 kWh if conversion losses are already included.
That arithmetic does not establish a payback or approved charging arrangement. Ask whether the proposed system can perform the operation under the utility and manufacturer rules, and evaluate backup value separately from bill savings.
How does load shifting fit into the comparison?
Moving a flexible task may change onsite solar use without storing energy. Its practical value depends on the task, timing and actual tariff treatment.
In a fictional example, a 2 kWh task shifts into a window with otherwise eligible surplus. Assume it replaces a $0.15-per-kWh grid purchase and forgoes $0.04-per-kWh compensation. The simplified difference is 2 × ($0.15 − $0.04) = $0.22.
That does not mean every task can move, that the solar will always be available or that every export faces that assumed rate. The alternative use and actual credit rules need to remain coherent.
Our load shifting entry owns the scheduling decision. Here, the important point is that compensated exports have an opportunity value; consuming surplus is not automatically free of any trade-off.
Which bill charges and payment rules remain separate?
Identify charges that do not change with the assumed energy reduction and conditions that affect credit application. Those fields determine why a positive credit does not automatically produce a zero bill.
The applicable tariff may distinguish energy charges, facilities charges, minimum-bill treatment and other components. Ask for the actual rules rather than assuming a credit offsets every line item.
For a fictional bill with a $20 fixed charge and $10 eligible energy credit, the credit’s existence does not establish that the fixed charge disappears. The accounting must identify what the credit can offset and what remains due.
Also check whether a credit is carried forward or issued as a payment. Do not promise a monthly check from the multiplication alone. The solar quote comparison guide helps review these assumptions alongside the installed equipment and contract scope.
How should long-term rate uncertainty be modeled?
Keep the current verified rule separate from future assumptions. Do not extend a today’s rate as a guaranteed value for decades without a document supporting that treatment.
For a fictional 1,000 eligible kWh annual quantity, $0.02, $0.04 and $0.06 per kWh yield $20, $40 and $60 respectively. These are sensitivity cases, not predicted future rates.
Use the same equipment and coherent quantities when comparing rate cases. If household use, degradation or export quantities also change, label those assumptions separately so the reviewer knows what drives the result.
Ask how much of the proposal’s value depends on the avoided-cost component. A decision supported by substantial verified onsite-use value may respond differently to a credit change than one dependent on large exports. Neither outcome can be assumed from system size alone.
What should a commercial buyer clarify?
Determine whether the project offsets onsite loads, sells generation under a purchase arrangement or combines permitted functions. The contract and meter arrangement govern the value calculation.
An avoided-energy figure does not automatically describe a capacity payment, demand-charge reduction or renewable-energy-credit ownership. Keep those items separate and use the documents applicable to the account and project.
Request the purchase term, qualifying quantities, rate methodology, adjustment provisions and responsibilities for metering and interconnection. If legal or contract interpretation is needed, involve the appropriate qualified adviser rather than relying on a glossary definition.
The federal qualifying-facility context mentioned earlier supplies terminology. It does not determine whether your specific project qualifies or establish a universal right to the modeled price. A commercial proposal should identify its actual governing arrangement.
What belongs in the South Carolina tariff record?
Start with the utility name and rate code shown on the property account. Then identify the applicable solar program, customer class, enrollment conditions and effective documents.
Use the utility information hub to find the relevant starting point. A postal city or a neighbor’s program does not establish your provider or cohort.
| Record | Why it matters |
|---|---|
| Account provider and rate code | Identifies the actual starting arrangement |
| Solar program and eligibility | Establishes which rules can apply |
| Effective tariff and referenced schedules | Supports the current calculation |
| Netting and credit periods | Determines eligible quantities |
| Rate units and applicable time category | Prevents dimensional or timing errors |
| Carryforward and settlement treatment | Explains what happens to unused balances |
| Fixed charges and minimum-bill rules | Supports the whole-bill comparison |
Keep the source date with the proposal. Recheck the documents when a quote is revised, enrollment changes or the system scope changes.
What questions should you ask about a savings projection?
Ask the author to reproduce the energy and bill calculations from the stated assumptions. You should not have to infer which price was applied where.
- How much generation is used onsite, physically exported and ultimately credited under each rule?
- Which netting interval and time categories establish those quantities?
- Which figure is a retail purchase charge and which is compensation?
- Does the avoided-cost value apply monthly, at a true-up or under another contract?
- Are fixed charges and minimum-bill treatment included?
- Which future values are assumptions rather than current rules?
- Does storage or shifting forgo a credit already counted elsewhere?
If one field is unclear, request a corrected model before comparing payback claims. Our financing and incentive information provides a separate starting point for purchase structure; an export-compensation assumption should not be disguised as an upfront incentive.
What is the next decision for your home?
Determine whether the avoided-cost figure materially affects your proposal and whether its applicable quantity has been established correctly. That is more useful than comparing isolated rates from different utilities.
Bring your utility bills, rate code, solar proposal and any referenced tariff or credit statement. Ask for one consistent model showing onsite use, credited energy, settlement and remaining bill charges.
An assessment of solar options for your home can begin that property-specific discussion. Confirm program eligibility and account treatment with the serving utility. No universal credit amount or guaranteed bill outcome is implied by this definition.
An avoided-cost rate becomes useful when the utility, document, units and credited quantity are clear. Its role is one part of the complete solar-value calculation.
Frequently asked questions
Is avoided cost always the same as a wholesale market price?
Do not treat the terms as interchangeable. The applicable methodology can reference defined utility energy or capacity costs. Use the actual schedule or contract rather than substituting an unrelated market price.
Does a utility’s avoided-cost definition establish my export entitlement?
No. Eligibility, interconnection, customer class and program terms still need verification. A general regulatory definition does not establish your property’s approved arrangement.
Should I multiply my inverter’s production total by this rate?
Only if the applicable arrangement actually values that entire quantity on that basis. Onsite use, physical exports, netted balances and settlement quantities can differ.
Can the same program use energy credits first and avoided cost later?
Yes, when its written rules establish that sequence. Dominion’s dated Solar Choice example distinguishes monthly credit treatment from the remaining November settlement quantity. Do not transfer that sequence to another program.
Is a lower avoided-cost figure proof that solar has no value?
No. Evaluate onsite-use value, actual compensation, project cost and the complete bill. The rate alone cannot establish whether the property-specific investment is worthwhile.
Can I use my neighbor’s rate if we live in the same city?
Verify your own provider, rate code and solar program. Nearby accounts can differ in utility or enrollment conditions, and a city name does not resolve those differences.
Does an export credit reduce the amount I owe on a solar loan?
It does not automatically change the loan contract. Utility bill credits or payments and financing obligations are separate cash flows. Keep their timing and conditions distinct.
Should future EV use be added to the current onsite-use estimate?
Model it as a separately labeled future-load case with realistic timing and energy. Do not assume every additional kWh will coincide with solar production or receive the same financial treatment.
Sources and methodology
Research checked October 6, 2026. This entry defines a compensation basis; existing pages retain export-rate, net-billing, true-up and utility-program comparison intents. Arithmetic and scenario tables are original fictional educational examples.
- 18 CFR 292.101: definitions: the federal qualifying-facility context for incremental utility energy and capacity costs. No project-specific entitlement is inferred.
- Dominion Energy South Carolina Residential Rate 5 Solar Choice rider: July 2026 tariff example of monthly credit handling and November settlement at the referenced PR-1 off-peak winter energy credit. No current numerical PR-1 amount is quoted.
- National Laboratory of the Rockies: distributed-generation compensation mechanisms: distinction between billing arrangements, sell-rate design and retail-rate design. General illustrations do not override the account’s applicable tariff.
No statewide uniform export rate, measured Sunburst savings, approved address eligibility or long-term utility price guarantee is asserted. Recheck actual tariffs and contract terms before accepting or revising a financial model.