This guide explains how electric rates in the Black Hills area affect solar power installations, and how different types of rates are structured and applied in different circumstances. Contact your utility provider for the latest information.
Federal law (PURPA) says that if you generate power at home, the utility company has to pay you for any extra electricity you send back to the grid. They'll put in a bi-directional meter that tracks electricity both ways, and you'll see a credit on your bill for the power you add to the grid.
It is important to note that in South Dakota there is no net-metering system, but rather an alternative known as net-billing. The utility will offer a credit that is reflective of the "avoided cost" based on their energy cost. More information on that is below.
Utility service
A solar power system will work the same on any grid connection, but the utility that serves you, the specific rate that is assigned, plus the type of heating and other major appliances your home has, all contribute to how your bill will be affected.
When starting a solar installation project, we will ask about your current utility rate plan and usage in order to recommend the best options. We will also provide you with copies of the utility's interconnection paperwork and notify the utility when the installation is underway and completed. Additionally, your utility provider will require proof of homeowner's insurance in order to approve the interconnection.
To better understand how rates work, check out our post about the difference between power and energy.
Rate Options
While each utility offers a unique set of rates, residential options generally belong to one of the following categories:
Regular or Total Electric - this rate simply charges per unit of energy (kWh) you consume without additional usage charges. This is purely a 'volumetric rate'.
Demand charge / Peak demand - this rate discounts the energy (kWh) rate in exchange for an additional charge based on the highest power (kW) demand registered for the billing period. As opposed to volumetric, this is called a 'capacity rate', and is designed to encourage reduction of peak power during specific periods of the day.
Time-of-use (TOU) - this rate is similar to the demand rate and it is likely to become an option in the future. With TOU, the kWh rate adjusts for different times, such as a high rate during the daytime and a low rate during the nighttime.
Sub-metered (Discounted) Electric Heat - this is an option that can be applied with either a regular rate or a demand rate, and may or may not be compatible with solar.
Vehicle charging - this is a special rate similar to the heat rate that discounts the energy used to charge a vehicle at night (off-peak time) and may not be compatible with solar.
Special discounted rates may not be offered by the utility when the home is using solar power because the discount is only offered as a reduction on the energy that is purchased from the utility company, and not on the electricity that is produced on-site. This especially pertains to sub-metered heat discounts that are offered by some electric cooperatives.
When it comes to reducing power bills with a solar power system, some rate systems are more favorable than others. In general, the higher the energy charge (kWh rate), the relatively greater the savings of offsetting expensive electricity with your own solar power. The preferred utility service rate for reducing bills with solar power is usually a standard or all-electric rate. Peak demand charges cannot be reduced by solar energy directly, however, you can lower demand charges by incorporating a battery system.
Black Hills Energy (South Dakota)
Link to rates: https://www.blackhillscorp.com/rates
Residential rates include Regular Residential, Total Electric, and Demand Service.
BHE billing includes a Cost Adjustment Summary - this charge is based on the number of kWh consumed. Adding the energy charge and the cost adjustment charge together and then dividing by the kWh billed equals the actual rate being charged per kWh.
Note: BHE's Colorado and Wyoming rates and policies may not apply in South Dakota.
Black Hills Electric Cooperative
Link to rates: https://bhec.coop/rates
Residential rates options include On-Peak Demand or General Service w/ Electric Heat.
The Peak Demand rate reduces the kWh rate while adding the additional demand rate.
Homes with electric heat (meeting a minimum usage requirement) can qualify for the electric heat discount. Homes that do not use electric heat are assigned the demand rate instead. The electric heat discount is not offered in conjunction with solar power. If you add solar power, the heat meter will be removed and the service assigned to the demand rate.
West River Electric Association
Link to rates (must log in): https://westriver.coop
There is one residential rate with the option of submetered heat.
Submetered heat may or may not be compatible with solar power.
WREA does not currently offer a demand rate.
Electric vehicle charging rates may be offered, and may or may not be compatible with solar.
Butte Electric Cooperative
Link to rates: https://www.butteelectric.com/rate-schedule
Residential rates include (Regular) Residential, All-Electric, and Demand.
Submetered heat is offered at a discount and is compatible with solar for accounts started prior to 2016 (grandfathered).
Electric vehicle charging rates may be offered, and may or may not be compatible with solar.
About Net Metering
Net metering, net billing, and avoided cost are all related concepts but have different meanings.
Net metering is a billing arrangement that allows customers who generate some or all of their own electricity from renewable sources such as solar panels to send any excess electricity they generate back to the grid and receive credits on their utility bill. This allows customers to offset their consumption of electricity from the utility company by sending their excess generation back to the grid.
Net metering is legislated in many states, including Wyoming, but not in South Dakota. Net Billing better describes the system as it applies in South Dakota.
Net billing is similar to net metering but the compensation for the excess energy generated is based on the utility's avoided cost rate, rather than the retail rate. The avoided cost rate is the cost that the utility company would have incurred to generate or purchase the same amount of electricity from other sources. This rate is typically lower than the retail rate that customers are charged for electricity consumed from the grid.
The avoided cost rate varies by the supplier and location. As of 2022, avoided cost rates are about 10% to 20% the amount of the retail rate when you purchase electricity.
The lack of net metering policy and low avoided cost rates in South Dakota may seem to make investing in solar power less favorable. However, it's important to note that properly sizing the solar power system will ensure that the investment is optimized and not oversized. When done correctly, solar power can still be a good investment, with many people seeing a full return on their investment well within the system's lifespan. Additionally, future changes in electricity rates can affect the payback time, so if the cost of power increases, the savings from the solar system will also increase accordingly.