White Paper on Distributed Generation Valuation and Compensation - Presentation and Discussion of
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Presentation and Discussion of
White Paper on Distributed Generation
Valuation and Compensation
Juliet Homer and Alice Orrell
Pacific Northwest National Laboratory
ICC Stakeholder Workshop – March 1, 2018
PNNL-SA-132738 March 1, 2018 1
Agenda
Introduction – Purpose of White Paper
Background
Context is Important
Perspectives Used in Valuations
Illinois Context
Market Types
Valuation Building Blocks
Valuation Challenges
State Approaches
Summary
Questions/comments..
PNNL-SA-132738 March 1, 2018 2
Introduction – Purpose of White Paper
Help guide states in determining goals and objectives for distributed
generation valuation and compensation
States may have similar questions and issues but differences in
system contexts, including market expectations, policy priorities and
regulations result in different responses
White paper highlights what some states are doing and challenges,
to show how distributed generation valuation and compensation are
currently being considered
PNNL-SA-132738 March 1, 2018 3
Background
PURPA, enacted in 1978 was designed to encourage energy
conservation and support renewable energy
Utilities required to purchase electricity from renewables at avoided cost rate
In some ways PURPA laid the foundation for net metering
Net Energy Metering is a state policy that compensates generation at
retail electrical rates, not avoided cost rates
38 states have mandated net metering rules
Many states are scaling back net metering requirements
Feed-in Tariff programs compensate generation at a set rate, typically
higher than the retail rate.
Feed-in tariff programs typically designed to achieve overarching policy goals
Not common in the U.S. but used in many European countries and Japan
PNNL-SA-132738 March 1, 2018 4
Context is Important
A state’s goals will impact valuation calculations
Goals can come from legislation, executive goals and/or commission
actions
As a state moves toward developing valuation and compensation
schemes, clear goals and objectives are needed
Context drives the valuation process and the perspective used in the
valuation
Selecting a primary perspective will determine which elements should be
considered and how they should be included in a valuation
PNNL-SA-132738 March 1, 2018 5
Perspectives Used in Valuations
PNNL-SA-132738 March 1, 2018 6
Source: RMI 2013
Illinois Context
As ICC considers valuation for distributed generation rebate (also called
smart inverter rebate), different perspectives will need to be considered
Consider existing policies, directions, legislation and context provided in
Future Energy Jobs Act (FEJA)
“The adoption and deployment of cost-effective distributed energy resource
technologies and devices…which can…stimulate economic growth, enhance
the continued diversification of Illinois' energy resource mix, and protect the
Illinois environment;…which should benefit all citizens of the State, including
low-income households…”
Rebate “must reflect the value of the distributed generation, consider
geographic, time-based, and performance-based benefits, as well as present
and future grid needs” and “be grounded in a technical knowledge of how
distributed energy systems impact the distribution network and the grid in
general.”
“The social cost of carbon is an appropriate valuation of the environmental
benefits provided by zero emission facilities”
PNNL-SA-132738 March 1, 2018 7
Illinois Context - FEJA Requirements
FEJA requires rebate recipients to have their distributed generation
interconnected to the utility’s grid with a smart inverter—the utility will be
allowed to operate and control the smart inverter with the intent of
preserving distribution system reliability.
Any compensation from the utility to the distributed generation owner for
this control and use of the smart inverter is separate from the distributed
generation rebate.
PNNL-SA-132738 March 1, 2018 8
Market Types
One NREL report (Taylor et al. 2015) characterized three different
market types, for the purpose of valuations:
Price-support market – value of DG rate not sufficient to fully recover
levelized cost of energy (LCOE); additional incentives can be used to bridge
the gap
Transitional market – value of DG rate is nearly equal the LCOE and limited
additional incentives may be needed to sustain the market
Price-competitive market – DG rate value is greater than LCOE, meaning the
market is self sustaining
A state can consider which of these market types exist in their
jurisdiction, including planned incentives and tax credits, when translating
valuation calculations into program design.
PNNL-SA-132738 March 1, 2018 9
Valuation Building Blocks
First step in DG value calculation is to survey different value components
and associated costs and benefits to be used as valuation building blocks
States include different elements based on state-specific policy goals or
legislation and market types
Past efforts show that even when elements are clearly identified, there
can be different interpretations of how they should be calculated
In response, some states (like CA and NY) are developing standard
methods or calculators to reduce ambiguity and promote consistency
PNNL-SA-132738 March 1, 2018 10Potential Value Calculation Elements
PNNL-SA-132738 March 1, 2018 11
Source: Wolf et al. 2014 - Advanced Energy Economy InstituteAnother example
PNNL-SA-132738 March 1, 2018 12Relative Weights of Value Components in
Minnesota Value of Solar Calc.
From Minnesota value of solar calculation
PNNL-SA-132738 March 1, 2018 13Valuation Challenges
Some of the more challenging elements to characterize and value
include grid support services, Renewable Portfolio Standard and
environmental compliance, market price response, and social values
such as economic development benefits and environmental quality
Monetizing social value or the value of meeting state policy directives
around employment or low income customers, can be difficult or
impossible to quantify
Value is context dependent - Solar PV generation may provide a
significant generation capacity deferral value in certain regions, but in
other regions the avoided generation capacity value is zero
Determining how value varies by time and location is a nascent field of
study, currently limited to research organizations and some of the more
advanced utilities and states
PNNL-SA-132738 March 1, 2018 14State Approaches - California
Legislature passed AB 324 requiring utilities to submit Distribution
Resource Plans (DRPs)
A requirement of DRS is to evaluate locational benefits and costs of
distributed energy resources (DERs) on the distribution system
Three large investor-owned utilities jointly hired consulting firm E3 to
develop a technology-agnostic Excel tool for a locational benefits pilot
PNNL-SA-132738 March 1, 2018 15State Approaches – California 2
Components of avoided costs to be calculated in the Locational Net
Benefits Analysis in California, as required by CPUC
Note Components of Avoided Proposed LNBA Elements in IOU
Costs Fillings
Central Focus Avoided T&D Sub-
transmission/substation/feeder
Distribution voltage/power quality
Distribution reliability/resiliency
Transmission
System-Level Use DERAC Avoided generation System and local resource
Avoided Costs Values capacity adequacy
Flexible resource adequacy
Avoided energy Use locational marginal prices to
determine
Avoided GHG Incorporated into avoided energy
Avoided RPS Methodology outlined in DERAC
Avoided ancillary services Methodology outlined in DERAC
Additional to - Renewable integration costs
DERAC Societal avoided costs
PNNL-SA-132738 March 1, 2018 16
Public safety costsState Approaches – New York
New York Public Service Commission (NYPSC) directed utilities to
develop proposals to calculate value of DER (VDER) tariffs in 2017
VDER tariffs, (aka value stack tariffs) to replace net metering for
community solar in short term - eventually be applied across the grid
VDER components:
Energy value
Capacity value – market value
Capacity value – out of market value
Environmental value – market value
Environmental value – out of market value
Demand reduction value
Locational system relief value
Market transition credit
PNNL-SA-132738 March 1, 2018 17State Approaches – New York 2
Initial concerns expressed about New York’s value stack tariff
Methodologies result in significantly different VDER tariffs because
utilities have notably different calculations for marginal cost of service
(MCOS)
MCOS studies are used to derive two important parts of the VDER tariff—the
demand reduction value (DRV) and the locational system relief value (LSRV)
Because of different calculation approaches, the VDER for ConEdison is
$226/kW and for Central Hudson is $15/kW
Value components change frequently, so there’s no long-term financial
certainty for DER owner
DRV and LSRV calculations can be changed every three years
Makes obtaining financing more difficult
PNNL-SA-132738 March 1, 2018 18State Approaches - Oregon
Oregon SB1547 requires utilities to credit community solar participants at
the resource value of solar energy (RVOS), to be determined by the
Oregon Public Utility Commission (OPUC)
OPUC retained E3 to develop a methodology for calculating the RVOS
every two years
Investigation to Determine the Resource Value of Solar docket is ongoing
Initial utility filings included wildly different results resulting from different
interpretations of the valuation components
In Idaho Power’s initial filing, the utility assumed a high administration cost (or
negative value), which resulted in a low net RVOS of $1.61/MWh. This
compares to PacifiCorp’s initial RVOS of $49.72/MWh.
PNNL-SA-132738 March 1, 2018 19State Approaches – Oregon 2
OPUC directed utilities to include the following values in RVOS
calculations
Elements determined using existing avoided cost studies
Energy
Generation capacity
Line losses
Transmission & distribution capacity
Integration
Administration
Elements determined after workshops or later
Hedging costs (assigned proxy values for the initial filing)
Market price response (assigned proxy values for the initial filing)
Environmental compliance
Elements valued at zero initially
RPS compliance
Grid services
PNNL-SA-132738 March 1, 2018 20State Approaches - Minnesota
In 2013, Minnesota passed legislation to allow IOUs to apply to the
Minnesota Public Utility Commission for a voluntary value of solar tariff
(VOST) as an alternative to net metering
Minnesota Department of Commerce retained the consulting firm Clean
Power Research (CPR) to develop a VOST methodology
Although Minnesota is an early VOST adopter, no IOUs have
implemented a VOST at this time
One report suggests that VOST policies would be less expensive for
utilities in the long run, but Minnesota IOUs have determined that VOST
policies are less favorable than net metering in the short term
Legislation mandated that the VOST methodology consider the following:
Energy and its delivery
Generation capacity
Transmission capacity
T&D line losses
PNNL-SA-132738 March 1, 2018 21
Environmental value.State Approaches – Minnesota 2
PNNL-SA-132738 March 1, 2018 22State Approaches – Minnesota 3
PNNL-SA-132738 March 1, 2018 23State Approaches - Austin, TX
Austin Energy became the first utility to offer a VOST to its residential
customers in place of net metering for systems up through 20 kW in size
VOST calculation, also created by CPR, was designed to consider the
following values
Line loss savings
Avoided fuel costs
Avoided costs of installing new generation capacity
Fuel price hedge value
Avoided T&D expenses
Environmental benefits
These values are reflected in component calculations: guaranteed fuel
value, plant operations and maintenance value, generation capacity
value, avoided T&D capacity costs, and avoided environmental
compliance costs
PNNL-SA-132738 March 1, 2018 24State Approaches - Austin, TX 2
Value of solar rate changes annually, based on updated inputs such as
natural gas price
The rate customers receive is a five-year rolling average
VOST rate appears on residential customers’ monthly electric bills as a
credit on electricity costs and customers still pay the retail rate for all of
their electricity consumption (buy-all sell-all approach that separates the
payments for the solar generation from the customer’s electricity use)
City of Austin also provides a rebate for residential customers, on top of
the VOST, to increase solar PV adoption by lowering the upfront cost of a
system
The value of the rebate declined over the years and is currently at
$1.10/W
With a rebate and a VOST, Austin Energy has adopted the perspective of
the participating customer, and has a price-support market, to make
distributed generation cost effective for its customer owners
PNNL-SA-132738 March 1, 2018 25Other States
Maine
In March 2017, Maine Public Utilities Commission (PUC) replaced net
metering with a buy-all, sell-all compensation structure
DG owners buy all of their electricity from the utility at the retail rate and then
sell all electricity produced at the utility’s avoided cost
Hawaii
Closed net metering to new applicants and created three new tariffs -
customer self-supply (CSS) and customer grid-supply (CGS) options, and a
time-of-use (TOU) tariff program similar to NEM, but at a reduced credit rate
Hawaii PUC and HECO are developing revised grid service tariffs for (1)
capacity, (2) fast frequency response, (3) regulating reserve (regulating up
and down), and (4) replacement reserve
The values for these four bulk services were based on avoided cost for each
category of service, and were determined based on modeling
PNNL-SA-132738 March 1, 2018 26Other States 2
Indiana
Similar to Maine, Indiana is phasing out net metering by July 2022 or when
individual utilities reach 1.5% peak summer load caps
Under the new program, the compensation rate will equal 1.25 times the
utility’s average wholesale electricity price
Mississippi
Under Mississippi’s revised distributed generation program, only
instantaneous electricity generation and use can be credited at the retail rate
Excess electricity exported to the utility grid is credited at the utility’s avoided
cost rate plus a 2.5¢/kWh premium
Arizona
As of December 2016, Arizona replaced net metering with a net billing
program where excess generation exported to the grid is valued at a non-
retail, predetermined avoided cost rate
Each utility will determine its specific avoided cost rate
PNNL-SA-132738 March 1, 2018 27Other States 3
New Jersey
Net metering program is currently under review
Pending Senate Bill 2276 would establish the "New Jersey Solar Energy
Study Commission" that would study all aspects of solar energy in the state
In September 2017, the New Jersey Board of Public Utilities initiated a
generic proceeding on the state’s solar market, but the filings within the
proceeding are not public
PNNL-SA-132738 March 1, 2018 28Summary Context is important - valuations and compensation strategies will vary based on goals and objectives they are being designed to achieve Goals and objectives should be made clear up front and will drive the perspective used in performing valuations and how outcomes are applied Goals and objectives will drive the perspective(s) taken in the valuation An important early step is to survey different value components and their associated costs and benefits that could be used as building blocks Utilities and stakeholders can have different interpretations of how value elements should be calculated. Some states are developing standardized calculators and methods to reduce ambiguity and inconsistencies Assessing locational and temporal value and applying value in compensation schemes is an emerging field of study and challenging In some states pilots are being used to test compensation and valuation methodologies and/or they are being applied to a subset of applications, such as community solar PNNL-SA-132738 March 1, 2018 29
Next Steps
Discuss issues and receive feedback today
Receive written comments over next two weeks
Develop another report on DG valuation and compensation options for
Illinois – April
Second stakeholder workshop – May
Receive written comments
Final Report on Distributed Generation Rebate Calculation options for
Illinois - July
PNNL-SA-132738 March 1, 2018 30Questions/comments?
Juliet Homer Alice Orrell
Juliet.homer@pnnl.gov Alice.Orrell@pnnl.gov
509-375-2698 509-372-4632
Thanks!
PNNL-SA-132738 March 1, 2018 31Discussion Questions
a) What’s the Illinois-specific context for distributed generation valuation
and compensation that is the same as or different from other states?
b) What approaches from other states may fit or not fit in Illinois and why?
c) What can be gleaned from original FEJA language or other key policies
about rebates and valuation objectives and perspectives?
d) What is the relationship to the valuations required by the Adjustable
Block Program found in Sections 1-75(c)(1)(K) and (L) of the IPA Act?
e) What categories of data are or are not available that will influence value
calculations?
f) What are process suggestions or considerations for arriving at DG
rebates?
g) Which value elements are most important for Illinois?
h) What elements should be considered in differentiating DG value by
location?
PNNL-SA-132738 March 1, 2018 32You can also read
