It All Comes Down to One Number: Avoided Cost
The value of solar comes down to a single variable: the cost of the electricity you no longer have to buy from your utility.
For Arizona homeowners, especially customers of Arizona Public Service (APS), that number is rising faster than most people realize. And when electricity prices rise, solar savings increase automatically.
For example, if the average annual increase in electricity cost goes from 3% to 6%, solar pays twice the monthly dividends. This isn’t theoretical… because it’s happening right now.
The 3% Assumption No Longer Reflects Reality
For years, solar savings models used a simple assumption: electricity rates would increase about 3% annually.
That benchmark was based on long-term national averages. It was reasonable—until recently.
In Arizona, and particularly within APS territory, rate increases are no longer gradual or predictable. Instead, they’re occurring in larger, step-based changes driven by regulatory decisions, infrastructure investments, and cost recovery mechanisms.
APS Rate Increases Are Accelerating
Recent filings and approved adjustments show a clear shift in trajectory:
- Multiple rate increases in recent years have exceeded historical norms
- A proposed ~14% rate increase is currently under review
- Cumulative increases over a short period are well above long-term averages
Electricity costs in Arizona are rising faster than the assumptions used in most solar proposals. For a deeper breakdown of the trend, see our analysis in Arizona Energy Demand is Rising – What It Means for Arizona Electric Rates.
What This Means for Solar Savings
When electricity prices rise faster, solar becomes more financially valuable in three key ways:
- Higher value per kWh produced
- Faster growth in avoided utility costs
- Stronger long-term savings accumulation
In practical terms:
- At ~3% utility inflation → savings grow steadily
- At ~5-6% inflation → savings grow significantly faster
For many homeowners, this shift can:
- Shorten payback periods
- Increase total lifetime savings
- Improve overall return on investment
Depending on usage patterns, rate plans, and system design, higher electricity inflation can increase long-term solar savings by 50% or more compared to older assumptions.
This shift is already being reflected in real-world utility bills, as outlined in Arizona Power Bills Could Rise 14%.
Why Rates Are Likely to Keep Rising
The current APS rate case—and broader utility trends—point to structural drivers that extend beyond a single increase:
- Grid modernization and infrastructure investment
- Wildfire mitigation and system hardening
- Fuel cost volatility and energy market exposure
- Regulatory-approved cost recovery and return structures
The Arizona Corporation Commission oversees these changes, and recent filings suggest utilities are seeking more flexible mechanisms to adjust rates over time.
Even Kris Mayes has publicly challenged the scale of proposed increases, citing affordability concerns.
What This Signals
- Rate increases are becoming more frequent and less predictable
- Smaller adjustments may occur more often
- Long-term electricity cost stability is increasingly unlikely
The Cost of Waiting Is Increasing
In the past, delaying a solar installation by a year or two had minimal financial impact.
That’s no longer the case.
With rising and compounding electricity rates:
- Each delay means paying higher utility costs sooner
- Future savings are reduced by missed lower-cost years
- Changes to APS export rate structures could impact future compensation
Waiting now carries a measurable financial cost.
Solar + Battery Storage: A Strategic Advantage
As electricity pricing becomes more dynamic, battery storage is no longer just about backup power.
It directly improves financial performance by:
- Avoiding high peak-rate electricity
- Increasing self-consumption of solar energy
- Reducing exposure to future rate changes
For a deeper look at how storage protects against both outages and rising rates, explore Secure Your Energy Future Today: Why Solar + Battery Storage Makes Sense in Arizona.
A More Accurate Way to Evaluate Solar Today
If your solar proposal still assumes 3% utility inflation, it may be underestimating your long-term savings.
A more realistic approach is to model multiple scenarios:
- Conservative: 3%
- Moderate: 5%
- Current trend: 5-6%+
This gives a clearer picture of how rising electricity costs impact your investment.
Bottom Line
The economics of solar in Arizona have shifted:
- Old assumption: ~3% annual electricity inflation
- Current trend: closer to ~5-6% in APS territory
That change alone can:
- Accelerate payback timelines
- Increase total savings significantly
- Improve long-term financial performance
With no clear indication that rate increases will slow, solar is becoming more valuable over time—not less.
Get an Accurate Solar Savings Analysis
If you’re evaluating solar in Arizona, it’s critical to use current, realistic electricity rate assumptions.
Rooftop Solar provides APS-specific savings models that reflect:
- Real rate structures
- Time-of-use pricing
- Multiple inflation scenarios
Request a custom analysis to see how rising electricity costs impact your potential savings.
Frequently Asked Questions
How much are APS electricity rates increasing in Arizona?
Recent APS rate changes and proposals indicate increases above long-term averages, including a proposed increase of around 14%. Actual impacts vary by rate plan and final regulatory approval.
Is 3% still a valid assumption for electricity inflation?
It reflects historical national averages, but in Arizona—particularly APS territory—recent trends suggest higher short-term increases.
How do rising electricity rates affect solar payback?
Higher rates increase the value of avoided electricity, which can shorten payback periods and increase lifetime savings.
Does battery storage improve solar ROI in Arizona?
Yes. Batteries help reduce peak-rate usage and increase self-consumption, which becomes more valuable as electricity prices rise.
Should I wait to install solar?
Delaying may result in higher cumulative utility costs and reduced savings potential, especially in a rising-rate environment.
Sources
Arizona Public Service Rate Case Information
https://www.pinnaclewest.com/investors/regulatory-information/default.aspx
Arizona Attorney General Kris Mayes Statement on APS Rate Increase
https://www.azag.gov/press-release/attorney-general-mayes-granted-intervention-oppose-outrageous-aps-rate-hike-request
Arizona Corporation Commission Utilities Division
https://www.azcc.gov/utilities/electric
KJZZ News – APS Rate Increase Coverage
https://www.kjzz.org
Copper Courier – APS Rate Increase Reporting
https://coppercourier.com
