In the context of distributed solar in Texas, the concept of **avoided cost** is central to understanding how exported electricity is compensated.
Unlike many states that mandate retail-rate net metering, Texas does not require utilities in the deregulated ERCOT market to compensate solar customers at the full retail rate. Instead, compensation is governed by individual REP plan terms, which often reference wholesale prices.
Utility Economics
Avoided cost refers to the cost that an electric utility avoids by not having to generate or procure an additional unit of electricity because a residential solar system supplies that energy to the grid instead.
Modeling Baseline
GetSunScore uses avoided cost as a conservative baseline for all Texas solar savings projections. This produces more realistic ROI estimates than models assuming 1-to-1 net metering.
Avoided Cost FAQ
Texas deregulated its electricity market in 2002, which created a competitive REP structure without a statewide mandate for retail-rate net metering. Instead, REPs often use avoided cost or wholesale prices as a benchmark for solar export credit.
Because avoided cost is typically lower than the retail rate, systems in Texas are often sized to maximize on-site consumption rather than over-production for the grid.