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Definition
Avoided cost is the wholesale value a utility 'avoids' by not having to generate or buy power from another source. Under net-billing structures like NEM 3.0, this figure is used to price the solar energy you export back to the grid. The key thing to understand is that avoided cost is typically far below the retail rate you pay for electricity, which means your export credits are worth less than they would be under older one-to-one net metering programs. This gap between what you pay and what you earn for exports changes the economics of going solar, often making battery storage more attractive so you can use your own power instead of exporting it cheaply. Avoided-cost rates can vary by utility, time of day, and season.
Also Known As
Avoided Cost Rate
Wholesale Export Value
Net-Billing Export Credit
Avoided Cost Calculator (ACC)
Used in Context
- Under NEM 3.0, your exported solar is credited at avoided cost rather than the higher retail rate, so a homeowner often adds a battery to maximize self-consumption.
- When a Dreamy Leads quote compares solar plans, it factors in avoided-cost export credits to show realistic payback expectations.
- Your installer ran an avoided-cost projection to estimate how much you'd earn for sending power back to the grid during midday hours.
Why is avoided cost lower than my retail electricity rate?
Avoided cost reflects only the wholesale value a utility saves by not generating or buying power elsewhere, not the full retail price you pay. The retail rate includes transmission, distribution, and other charges, so export credits priced at avoided cost are typically far below what you pay per kilowatt-hour.
How does avoided cost affect my solar savings under NEM 3.0?
Under NEM 3.0, exported solar is credited at avoided cost, which lowers the value of power you send to the grid compared to older net metering. This often makes self-consumption and battery storage more attractive, since using your own power is worth more than exporting it cheaply.
Does the avoided-cost rate stay the same all day?
Not usually. Avoided-cost values can vary by utility, time of day, and season, reflecting the changing wholesale value of power. Exports during high-demand evening hours may be credited differently than midday exports, which is why timing and battery use can influence your overall solar economics.
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