Certain utilities spend a significant amount of time and energy arguing against net metering, but at the end of the day every one still has to decide which energy sources to invest in.
A new report goes beyond the metering squabbles, but its attempt to design a framework to value solar may highlight the contentions in the valuation debate as much as it illuminates answers for utilities.
Residential distributed photovoltaic (DPV) installations grew 60% from 2012 to 2013 and will increase to over 27 gigawatts at over 1.8 million grid-connected locations by 2018, according to The True Value of Solar (VOS), a study from ICF International (ICF).
The premise of the study, according to ICF Vice President and paper co-author Steven Fine, was devise a valuation system to help engineer DPV into the enabling system of the grid because “DPV is going to be an integral part of that system."
Utilities, regulators, investors, and markets “are missing out on optimal strategies to price assets, lower costs, and mitigate risks, because they lack a consistent and accurate approach for determining the true value of solar,” according to the study.
“A strong VOS approach, in which the real costs and benefits to the system are accurately portrayed and valued, is not only a useful tool for integrating increasing amounts of DPV onto the grid, but will be critical for utilities, regulators, and other stakeholders to make rational planning and risk management decisions,” the paper concludes.
Solar's Costs and Benefits
The cost and benefit categories ICF uses to value solar are Energy, Avoided/Deferred Capacity, Avoided Transmission and Distribution (T&D) Losses and Capacity, Grid Support Services, Environmental, and Frequency to Update.
Financial, Social, and Security costs and benefits were omitted, Fine explained, because “DPV needs to be evaluated in the same light as other grid generation, not just as a decrement to load.”
Financial hedging and societal benefits were also not included because they are not part of other generation asset valuations or are not yet available in the market, the paper reports. Security benefits should not be part of a VOS until resiliency is better understood.
Pace Energy and Climate Center Executive Director Karl Rabago, who as an Austin Energy executive created the first U.S. VOS tariff, welcomed the ICF paper because “in far too many jurisdictions, utilities and their witnesses are advocating positions without any analysis.”
But after careful review of it, Rabago said it seemed skewed “to make sure the value does not get very big.”
“ICF does analysis for utilities, for people in the coal, nuclear, and renewables sectors, for independent power producers (IPPs), and for private equity investors,” Fine said in response. “We work very hard to maintain objectivity and we are increasingly interested in the role DPV will play.”
The penetration of solar
Rabago was concerned about the paper’s emphasis on high penetrations of solar because “the national penetration rate is about 0.2% and most of the places where VOS analysis is being discussed are well below 1%.”
The ICF focus is at the distribution system level where, due to demographics and income levels, solar installations can be clustered at high penetration levels, Fine explained. “The vast majority of the country doesn’t have that penetration. But at certain locations and at certain times and on certain feeder lines and under certain load characteristics, you can have voltage violation issues. You need to pay attention to that clustering effect.”
DPV’s energy value is uncontroversial but in calculating the capacity value Rabago prefers a long-run, levelized capacity value to the ICF methodology.
“Many studies assign full cost of new entrants (CONE) value to solar. It is the levelized capacity cost for fossil generation minus the energy revenues,” Fine said. “Many of the studies just apply that CONE value to solar.” It seemed, he said, “they were trying to maximize the value.”
But the ICF paper takes the capacity value discussion another step. “Decrement it by the coincidence with peak," Fine said, "and take a realistic look at when the region is going to be short of capacity and give it value starting at that time."
In the next few years, he acknowledged, capacity values are likely to increase because of coal plant shutterings driven by low natural gas prices, the EPA’s Clean Power Plan and its MATS Rule, and because of FERC Order 745.
“You need to consider these factors in the same way a utility doing an integrated resource plan or an IPP doing a project pro forma and estimating revenues takes a hard look at how much the market needs capacity,” he said.
Transmission and distribution system impacts
In valuing DPV’s impact on transmission and distribution, ICF’s attention again went to the distribution system because “unless you have a lot of solar, it will not avoid or defer transmission capacity,” Fine explained.
One of the biggest benefits of DPV could be the avoided energy losses from not using the transmission system, he added. “DPV avoids line losses and they can be substantial. It is a value that should be fully awarded to DPV.”
It can also help utilities avoid the costs of new distribution capacity. Where distribution systems are overloaded, DPV may mitigate that overloading and allow utilities to defer or avoid transformer and line upgrades. But, Fine said, where solar is clustered and there is the potential for voltage violations, utilities will incur costs.
It is hard to find and use that kind granular, feeder by feeder data in the calculation of a VOS tariff because it is not widely available, Rabago said.
But because of the clustering issue, utilities like the Sacramento Municipal Utility District are studying feeder system impacts and thinking about guiding locational development of solar, Fine said.
The social value
Rabago objected to ICF excluding DPV’s social value. As a prominent and widely called-upon rate case expert witness, he has seen extensive consideration by utilities and regulators of social benefits like spending on load retention and economic development.
“We did not include social because we have never seen it included in the value of central station renewable or fossil generation,” Fine said. “If it is valued for DPV, it ought to be valued for all renewables but the other studies don’t do that. It seemed to be another way that some studies were inflating the value of DPV.”
This may be one of the first VOS methodologies that compares DPV with central station renewables like utility scale solar and wind as well as to central station fossil generation, Fine acknowledged.
“There is value in having emissions-free generation,” he agreed. It is an environmental benefit. ICF argues the most accurate approach would be studying production cost modeling to determine the resource on the margin that is being backed off.
“If that study is too complicated and costly, assume natural gas,” Fine explained. “We are saying a consistent value should be used and should be applied to wind just as it is applied to DPV.”
The security value
Rabago found ICF’s exclusion of solar security benefits objectionable, though it was also excluded in four of the five studies ICF references. “Regulators have this issue high on their agendas. We need utilities and their consultants to advance a more principled and rigorous discussion of security issues,” he said.
“DPV needs to evolve to have security value,” Fine said. “After Superstorm Sandy, people with solar were just as dead as people without it. They couldn’t restart without the centralized grid. It provided no security.”
When smart inverters and battery backup become more prevalent and micro-grid configurations now being piloted are more common, DPV will provide security and security value should be considered, he said. “That it is the way the industry is going but right now it is not the state of the technology.”
“ICF will continue to get utility work, especially from the utilities who don’t want to do solar,” Rabago said. “But if regulators are forcing them to account for the value of solar, they might not be well-served by such a transparent effort at undervaluing it.”
“The benefits of distributed solar should be evaluated in the same way the benefits of central station solar should be evaluated,” Fine said. “There ought to be a level playing field.”