Definition and Solar Context
Avoided cost is the reduction in electricity expenditure achieved when a solar energy system produces power that would otherwise have been purchased from the grid. In solar savings modeling, avoided cost represents the per-unit value assigned to solar generation based on the retail or wholesale electricity rate it displaces.
GetSunScore applies avoided cost calculations as a core component of the SunScore™ Projection Engine, using publicly available utility rate data to estimate how much solar production reduces a homeowner's bill.
What Does Avoided Cost Mean?
In energy economics, avoided cost is the marginal cost of electricity that a consumer avoids purchasing from the grid due to on-site generation. For residential solar modeling, it isTypically calculated as the effective retail electricity rate applied to each unit of solar energy consumed directly on-site.
This is distinct from export compensation, which governs the rate assigned to electricity exported to the grid. In markets where export rates are lower than retail rates, direct self-consumption carries higher economic value than grid export.
Why Avoided Cost Matters in Modeling
Avoided cost is the primary mechanism by which solar savings materialize in the modeled projection framework. When the SunScore™ Projection Engine estimates system output, each kWh that displaces grid purchases is assigned an avoided cost value.
Across a 20-year projection, the cumulative avoided cost — adjusted for modeled utility rate escalation — forms the majority of estimated savings. This calculation is influenced by factors like the Solar Degradation Rate and Utility Rate Structure.
How Avoided Cost Applies in Texas
In Texas, avoided cost modeling must account for the deregulated retail market within ERCOT. Because retail rates vary by REP and plan type, the avoided cost applicable to a given household is not uniform across the market.
GetSunScore sources representative rate data from publicly available REP offerings to establish avoided cost inputs. Texas's lack of a mandatory net metering policy makes the distinction between on-site consumption (avoided cost) and grid export particularly material.
Frequently Asked Questions
Avoided cost is the value of electricity a solar system owner does not have to purchase from the grid because their system produces it on-site. It is calculated as the effective retail electricity rate multiplied by the amount of solar energy directly consumed.
The SunScore™ Projection Engine applies utility-specific rate data to estimated solar production figures to calculate avoided cost on an annual and cumulative basis. Over a modeled 20-year projection, avoided cost represents the primary source of estimated savings.
Avoided cost is the primary component of estimated savings, but not the only one. Export compensation (net metering credits or buyback payments) adds value beyond on-site consumption. Incentives such as the Federal ITC reduce net system cost.
In the ERCOT deregulated market, retail rates vary by REP, which means avoided cost differs by household rate plan. GetSunScore uses representative rate data from publicly available 2024 REP rate postings for modeling purposes.
Avoided cost governs the value of solar energy consumed on-site. Net metering governs the value assigned to solar energy exported to the grid. In Texas, where retail net metering is not mandated, these values often differ. See Net Metering and Buyback Plan for related definitions.
Avoided cost figures are reference-year 2024 estimates based on publicly available data. Results are non-binding modeled projections.