Stress-test your solar savings before the next electricity rate increase

Every solar proposal you receive rests on one number most people never look at: the annual electricity rate increase it assumes. Change that escalator from 5% to 1% and, in our illustrative example below, the same panels on the same roof lose about 40% of their projected 25-year solar savings. Before you compare price per watt, find the escalator and stress-test it.

The short answer: rerun the projection at 1%, 3% and 5%, hold the export credit flat, and look hard at the low case. If the system only makes sense at 5%, you are buying a forecast, not a system. Kentucky’s own record supports testing a range. The state’s average residential price grew between about 2.5% and 3.9% a year over the last 5 to 20 years, and single years have swung from a 12% jump to a 2% drop.

Why one small number drives your solar savings

An escalator compounds. At 1% a year, the rate in year 25 is about 1.27 times today’s. At 3% it is about 2.03 times. At 5% it is about 3.23 times. That is the difference between a modest hedge and a tripling of what every kilowatt-hour is worth.

A high escalator also pushes the value into the distant future. In the example below, years 16 through 25 carry about 42% of the 25-year total at a 1% escalator and about 53% at 5%. The higher the escalator, the more of your savings sits in the years nobody can forecast well.

Three things to check on any proposal:

• What escalator it uses, and where it is written. It belongs on an assumptions page. A projection with no visible escalator is on our list of solar proposal red flags.
• What it escalates. If one rate is applied to the whole projection, the export credit is being escalated too. In Kentucky, that credit is set separately and does not automatically follow retail rates.
• Whether it discounts. A dollar saved in year 25 is worth less than a dollar today. Undiscounted 25-year totals flatter every scenario.

What Kentucky’s electricity price history shows

The U.S. Energy Information Administration (EIA) publishes the average price Kentucky residential customers paid each year. Here is what that series implies over different windows.

Window	Start (¢/kWh)	2025 (¢/kWh)	Compound annual change
5 years (2020–2025)	10.87	13.13	3.85%
10 years (2015–2025)	10.24	13.13	2.52%
15 years (2010–2025)	8.57	13.13	2.89%
20 years (2005–2025)	6.57	13.13	3.52%

Source: EIA Kentucky Electricity Profile, Table 8 (1990–2024), and Electric Power Annual 2025, Table 2.10 (2025). Nominal dollars, not adjusted for inflation. We calculated the compound rates.

Three things the table hides:

• The path is lumpy. The average rose 12.3% in 2022, fell 2.0% in 2023, then rose 1.1% in 2024 and 2.7% in 2025. EIA’s preliminary monthly data put January–August 2026 at 14.20¢, about 8.9% above the same months of 2025.
• Flat decades happen. Kentucky’s average residential price was 5.69¢ in 1990 and 5.47¢ in 2000. A 25-year projection can include a stretch like that.
• The average is not the rate your panels offset. EIA’s figure is revenue divided by kilowatt-hours sold, across every utility serving Kentucky homes. It blends fixed charges and riders into one per-kWh number. Your solar offsets only the per-kWh parts of your own utility’s bill.

So 3% is a defensible midpoint for Kentucky’s recent past. The past also includes long stretches near 1%–2% and short bursts above 8%. A projection worth signing should hold up in both.

The 2026 LG&E and KU rate change, step by step

If you are in LG&E or KU territory, 2026 showed how uneven a “rate increase” can be:

1. May 2025: LG&E and KU filed base rate cases with the Kentucky Public Service Commission (PSC Case Nos. 2025-00114 and 2025-00113).
2. January 1, 2026: The utilities began billing their proposed rates on an interim basis, subject to refund, while the PSC finished its review.
3. February 16, 2026: The PSC issued final orders that approved a settlement with modifications. The average residential electric bill rose 6.54% for KU (at 1,085 kWh a month) and 4.73% for LG&E (at 866 kWh). Customers were later credited the difference between the interim and final rates.
4. March 2026: The utilities withdrew from the settlement and asked the PSC to reconsider. That settlement had included a base-rate “stay out” through August 2028. On rehearing, the PSC declined to approve it as filed, so don’t assume a base-rate freeze.
5. August 14, 2026: The rehearing order adjusted rates slightly, adding about $0.39 a month to the average residential base bill at each utility.
6. September 1, 2026: Separate two-year fuel adjustment clause reviews moved fuel costs into the base energy charge. That added 0.127¢ per kWh for LG&E and 0.162¢ for KU.

That is at least four changes to base residential rates between January and September, before any monthly fuel adjustment. Rates do not rise in a smooth line, and your model doesn’t need to pretend they do. It needs to survive a realistic range.

Fixed charges vs. energy charges: the part solar can’t touch

Solar reduces the kilowatt-hours you buy. It does not reduce the daily basic service charge, which LG&E’s and KU’s residential tariffs name as the minimum charge. As of the sheets effective September 1, 2026:

• LG&E Rate RS: $0.48 a day (about $14.60 a month) plus 11.499¢ per kWh.
• KU Rate RS: $0.58 a day (about $17.64 a month) plus 11.396¢ per kWh.

Both are before adjustment clauses, taxes and fees. LG&E’s March 2025 tariff listed $0.45 a day and 10.838¢ per kWh for the same rate. That is a 6.7% rise in the fixed charge and 6.1% in the energy charge. In this case the two moved roughly together. That isn’t automatic. Here, the settlement set the residential basic service charge increase at each utility’s system-average percentage. A future case could tilt the other way. If more of an increase lands in fixed charges, your bill rises faster than your savings.

Riders matter too. The current LG&E Rate RS sheet lists nine adjustment items, up from seven in March 2025. They include the fuel adjustment clause, environmental cost recovery surcharge, demand-side management, franchise fee and school tax. Some are charged per kWh and some as a percentage of the bill. In rehearing briefs, intervenors warned the PSC that surcharges “can fluctuate monthly, injecting volatility into customer bills.”

Fuel adjustment clauses: the line that moves every month

Kentucky’s fuel adjustment clause regulation, 807 KAR 5:056, lets electric utilities adjust bills per kWh as fuel costs change against a base level set by the PSC. In the regulation’s words, that lets them “immediately recover increases in fuel costs.” The PSC reviews the adjustments every six months, and every two years it can reset the base and move fuel costs into base rates. That is what happened on September 1, 2026.

For a solar owner, two points matter:

• Energy you use at home avoids the per-kWh fuel charge, so a fuel spike makes self-consumed solar more valuable that month.
• A spike is not a trend. The adjustment can shrink, or turn into a credit, when fuel costs fall. Don’t let one expensive year set your 25-year escalator.

Export credit risk

Under the NMS-2 rider, which covers LG&E and KU customers whose systems began service on or after September 24, 2021, each kWh you send to the grid earns a dollar-denominated bill credit. The credits are 7.089¢ at LG&E and 7.534¢ at KU, and both tariffs say the credit applies only to the energy charge and per-kWh riders. As of September 2026, LG&E’s export credit was about 62% of its energy charge.

In the 2025 rate cases, LG&E asked to cut its credit to 3.786¢ and KU to 3.859¢, about 47% and 49% lower. The settlement kept the existing credits, and the PSC agreed. The PSC also told each utility to file updated avoided-cost components for NMS-2 with its next qualifying-facility filing. So the export credit held flat while the energy charge rose, and the number will be looked at again.

The NMS-2 tariff also says a customer on a two-part rate “will be allowed to take service under a two-part rate structure for 25 years.” Ask your attorney what that language does and doesn’t cover. For modeling, we treat the export credit as a number that can change, because the utilities have already asked to change it. Co-ops, Kentucky Power and Duke Energy Kentucky have their own rules. Our Kentucky net metering explainer covers the differences.

A worked stress test

Here is an illustrative system. These are round numbers close to current LG&E and KU charges, not a quote and not a tariff calculation:

• 10,000 kWh produced in year one, declining 0.5% a year
• 60% used at home, valued at 12¢ per kWh (energy charge plus per-kWh riders)
• 40% exported, credited at 7¢ per kWh
• Year-one value: $1,000
• A hypothetical $20,000 net cost, used only to show simple payback

Table 1: one escalator applied to everything

Escalator	Year 1	Year 10	Year 25	25-year total	Simple payback
1%	$1,000	$1,045	$1,126	$26,543	19.1 years
3%	$1,000	$1,247	$1,802	$34,091	16.4 years
5%	$1,000	$1,483	$2,860	$44,414	14.6 years

Table 2: stress cases against the 3% headline

Case	Year 10	Year 25	25-year total	Change vs. 3% headline	Simple payback
Headline: 3% on everything	$1,247	$1,802	$34,091	—	16.4 years
Export credit stays at 7¢	$1,166	$1,546	$31,142	−$2,950 (−8.7%)	17.3 years
Export credit cut to 3.8¢ in year 6	$1,043	$1,432	$28,760	−$5,331 (−15.6%)	18.5 years
Per-kWh charges rise 2%, export credit flat	$1,090	$1,275	$28,214	−$5,878 (−17.2%)	18.4 years
Per-kWh 2% and export cut in year 6	$968	$1,162	$25,832	−$8,259 (−24.2%)	19.8 years

What the numbers say:

• On identical hardware, the 5% case projects about $17,900 more than the 1% case. The panels didn’t change; the forecast did.
• Holding the export credit flat, which is how the tariff works today, removes almost $3,000 from the 3% headline.
• A year-6 cut about the size LG&E and KU proposed in 2025, plus increases tilting toward fixed charges, takes the 25-year total down by nearly a quarter. Payback moves from about 16 years to about 20.
• Discounted at 5% a year, the 3% headline’s $34,091 is worth about $18,073 in today’s dollars.

None of this says solar is a bad idea in Kentucky. It says the answer depends on assumptions you can check. You can run your own numbers in our Solar Payback Estimator.

What we’d do

• Find the escalator and write down what it applies to: energy charges, fixed charges, export credits or “the bill.”
• Rerun at 1%, 3% and 5% and decide in advance which case you need the system to survive.
• Split production into self-consumed and exported kWh, and hold the export credit flat or lower.
• Separate the basic service charge from the per-kWh charges, and don’t count savings against it.
• Ask for the year-by-year table, not just the 25-year total, and look at what a discounted total says.
• Get an independent read if the numbers don’t add up. Our Proposal Second Opinion rebuilds the projection with every assumption on one page.

As of November 1, 2026

The LG&E and KU charges above come from tariff sheets effective September 1, 2026, which reflect the PSC’s February 16 and August 14, 2026 orders and the August 18 fuel clause reviews. EIA’s 2026 figures are preliminary year-to-date data. Fuel adjustments change monthly, and future cases or filings can change base rates and export credits. Check your utility’s current tariff before you rely on any number here. This is general information and an illustration, not a forecast of your bill.