distributed energy resource cost/value framework

Distributed Energy ResourceCost/Value Framework

DRAFT NOT FOR DISTRIBUTION


INTRODUCTIONPurpose and contents

Framework PurposeWithout increased understanding of the costs and values of distributed energy resources, there is little ability to make tradeoffs between investments on either side of the distribution edge. The purpose of this framework is to provide clarity and consistency to the industry around the costs and values of distributed energy resources.

This framework document contains:

1.Conceptual framing

2.Identification of sources of cost & value

3.Assessment of what technological characteristics drive which costs & values

4.Recommended methodologies for determining cost & value

5.Terminology lexicon


DG and DSM service providers

DG Customers

Non DG Customers

Utility/Grid

Location and TimeLimited feedback loop to customers that the costs of service and value of

DG, DR and EE vary by location and time.

Cost AllocationTo the utility, revenue from DG customers

may not match the cost to serve those customers. The cost of integration—

balancing supply and demand—is not transparent. Traditional utility rates do not

allocate costs in ways that reflect the service being provided.

Social EquityCosts not paid for by DG customers are

allocated to non-DG customers

Value RecognitionMechanisms are not in place to recognize

or reward service provided by actor (utility or customer). Utilities have an

incentive to protect existing investments rather than look for new options.

service$$

Flexibility and PredictabilityProviding reliable power requires grid flexibility

and predictability. Power from distributed renewables fluctuate with the weather, adding

variability, and require smart integration to best shape their output to the grid. Legacy standards

and rules can be restrictive.

Social PrioritiesSociety values the environmental

benefits that distributed renewables provide, but utility has little incentive

to encourage it due to rate impacts.

CONCEPTUAL FRAMINGDERs can conflict with operational and pricing mechanisms designed for conventional resources


CONCEPTUAL FRAMINGTwo thought experiments at the extremes illustrate the issue

What if 100% of a utility’s customers became net zero?

What if net metering caps were not raised?


CONCEPTUAL FRAMINGAs the penetration of DERs increases, it IS increasingly important to reconceptualize DERs as a fundamental part of the system rather than “bolt-on”

Higher Penetration of DERs

From: To:

Shifting Framing

Incremental Transformational Rationale

Shifting Framing

Impacts of DERs to the existing system

Impacts of all resources as part of the system

As the role of DERs becomes larger, reaching an optimal system design requires comparing all resources on the same basisShifting

Framing Bundled, average, homogenous pricing

Unbundled, varying, heterogeneous pricing

Bundled, average, homogenous pricing is no longer adequate to recover costs, reflect differing service needs of customers, or the costs and values of DERs

Shifting Language

Impacts Requirements and capabilities

All technologies and resources have certain requirements to operate and can provide certain capabilities. “Impacts” takes some requirements and capabilities as given.

Shifting Language

Ancillary services Interconnected operations services

FERC-defined ancillary services are defined to support reliable transmission system operation, and are a subset of all grid services

Shifting Language

Avoided costs and benefits

Costs and values Avoided costs and benefits are based on incremental impacts to the existing system.

Shifting Language

Programs Services Programs generally reflect “bolt on” resources, whereas a consideration of services brings the focus to customer needs rather than technology capabilities.

Shifting Language

Ratepayers Customers Customers may be able to provide value to the system in addition to cost, and total bill is more relevant than rate.


CONCEPTUAL FRAMINGA new approach is needed that focuses on what the customer wants, what services can best meet those wants, and the costs and values of providing those services

ProvidersNeeds: Financial and security risk

mitigation

What services are required to support customer needs, and what is the cost of

providing those services?

What services can customers provide, and what

is the value of those services?

Is the ability of customers to provide services contingent

on anything?

What do customers want?

GridNeeds: Energy,

Capacity, Delivery,Grid Support

CustomersNeeds: Electricity,

Reliability, Information Control, DER integration

SocietyNeeds: Environmental Sustainability,

Public Health Benefits, Social & Economic Benefits


CONCEPTUAL FRAMINGPricing structures should ultimately be revisited, based on a foundational understanding of costs and values and the provision of services

CURRENT

FUTURE

Bundled, volumetric price

BUY, based on cost of service

SELL, based on value of service

Unbundle based on relevant services

Reflect temporal

and locational variation

Identification of key concepts


DISTRIBUTED ENERGY RESOURCESKey technological characteristics ultimately drive costs and values

DER Type Variable output Fuel-based Dispatchable Locational impacts

Temporal impacts

Efficiency End-use efficiency x x

Distributed generation

Solar PV x x x

Distributed generation

Combined heat & power x x xDistributed

generation

Small-scale wind x x x

Distributed flexibility &

storage

Demand response x x x


storage

Electric vehicles x x xDistributed flexibility &

storage Thermal storage x x


storage

Battery storage x x


SERVICES

Energy• Electricity• Line losses

Capacity• Net change in investments in central generation assets•Investment in distributed generation technologies and assets• Net change in investments in T&D assets

Grid Support (Interconnected Operations Services)• Net change in ancillary service requirements:‣ reactive supply & voltage control‣ regulation & frequency response‣ energy & generator imbalance‣ synchronized & supplemental operating reserves‣ scheduling, forecasting, and system control & dispatch

Financial and Security• Utility fuel price volatility• Customer price protection/elasticity• Emergency customer power and incidence of outages

Environmental• Criteria pollutants (SOx, NOx, PM10)• GHG emissions (CO2)• Water and land use

Social • Net impact on job market, employment taxes, and occupational safety

Grid Services

Customer Services

Financial and Security

Environmental Services

Social Services

Customer•Market & community transformation, company image, EE/EV adoption, increased electricity options (e.g. Green choice programs)


INCURRING COST

Categories PV CHP Storage DR EE PV + Storage CHP + Storage + EE

DR + EE

Energy

• Electricity X X X

• Line losses

Capacity

• Central generation capacity X

• Distributed generation technology X X X X X XX XX XX

• T&D capacity X X

Grid Support

• Reactive power X X

• Voltage control X X

• Frequency regulation X X

• Energy imbalance X X

• Operating reserves X X

• Scheduling/forecasting X X X X X X X

Financial & Security

• Fuel and electricity price volatility X X

• Emergency power

Environmental

• CO2, SOx, NOx, PM10, water, land X X

Social

• Jobs, taxes, market transformation, company image, EE/EV adoption.


CREATING VALUE

Categories PV CHP Storage DR EE PV + Storage CHP + Storage + EE

DR + EE

Energy

• Electricity X X X X X X XX

• Line losses X X X X X X XX

Capacity

• Central generation capacity X X X X X X X X

• Distributed generation technology

• T&D capacity X X X X X X X X

Grid Support

• Reactive power X X X X X X X X

• Voltage control X X X X X X X

• Frequency regulation X X X X X X X

• Energy imbalance X X X X X X X

• Operating reserves X X X X X X X

• Scheduling/forecasting

Financial & Security

• Fuel and electricity price volatility X X X X X X X

• Emergency power X X X X X X X x

Environmental

• CO2, SOx, NOx, PM10, water, land X X X X X X X x

Social

• Jobs, taxes, market transformation, company image, EE/EV adoption.

X X X X X X X X

Valuation methodologies

Electricity generation: value is well understood and depends on avoided fuel costs and peak coincidence

0 0.02 0.04 0.06 0.08

Value of Electric Generation

0.0400.013 0.068

Low end of range driven by:1) Low NG futures contract prices on the NYMEX, and low regional NG prices2) New fleets in MA with low heat rates3) Electric utilities with low capital costs extended over a long period of time

High end of range driven by:1) High NG futures contract prices on the NYMEX, and high regional NG prices2) Old fleets in CA with high heat rates3) Merchant Power Plant with high capital costs extended over a short period of time

0

0.03

0.06

0.09

0.12

0 2 4 6 8 10

Valu

e of

Ele

ctric

ity (2

012$

/kW

h)

Natural Gas Cost for Power Plants ($/Mbtu)

Electric Generation: Natural Gas Cost Sensitivity

•What is the methodology for the net value that PV provides?

Electricity produced by distributedenergy resources (DER) displaces electricity produced by central generation. The value of avoided central generation is driven by: 1) the price of the marginal fuel source, which is generally assumed to be natural gas; 2) the timing of DER availability (which determines the specific plants that are displaced), and 3) the quantity of electricity displaced.

Marginal Cost of Electricity Generation ($/kWh) = Natural Gas Cost for Power Plants ($/MBtu) x Heat Rate for Natural Gas Power Plants (Btu/kWh) + O&M Costs ($/kWh))

•What are the main gaps?‣ There is a trade-off between accuracy and transferability in selecting generalized vs

regional inputs‣ The NYMEX natural gas prices are a good proxy for marginal fuel costs, but they do not

reflect the precise fuel cost for specific hours, location, or utility contracts‣ The heat rate of a natural gas power plant varies based on the age of the plant, among

other factors, so using generalized heat rates will produced generalized (not specific) values

‣ Natural gas is not always the marginal fuel source, and the marginal fuel source will increasingly depend on DER penetration.

• Service can also be provided by other technologies:EE, CHP, and possibly DR* *DR is listed as a potential provider of electricity generation because electricity that is reduced at one point at time, for example when you pre-De, will not always be 100% made up at a later time

Heat Rate7,000 Btu/kWh9,050 Btu/kWh11,100 Btu/kWh

Sources:- Natural Gas Prices: Natural Gas: Henry Hub Gulf Coast Natural Gas Spot Prices. US Energy Information Administration. <http://www.eia.gov/dnav/ng/hist/rngwhhdD.htm>-Heat Rate: 1) Navigant Consulting, Inc. Distributed Generation and Distribution Planning: An Economic Analysis for the Massachusetts DG Collaborative (February 12, 2006). 2) Smellof, E. (January 2005) Quantifying the Benefits of Solar Power for California http://www.votesolar.org/tools_QuantifyingSolar%27sBenefits.pdf-Equation: Contreras, J.L., Frantzis, L., Blazewicz, S. and et al.,2008, "Photovoltaics Value Analysis", Navigant Consulting Inc., National Renewable Energy Laboratory, <http://www1.eere.energy.gov/solar/pdfs/42303.pdf>

AssumptionsNatural Gas Price Range ($/MMBtu) : $1.85 - $4.92

O&M Costs ($/kWh): $0.01 - $1.3Heat Rate (Btu/kWh): 7,000 - 11,100

PV

Total Value (2012 $/kWh)

•What is the methodology for the net value that PV provides?

The value of generation capacity is a measure of net change in central generation assets. This includes avoided assets as well as additional assets that are needed due to DER integration requirements. This value is spread over the lifetime of the PV system. The value of avoided capacity is driven by 1) the coincidence of PV availability with peak demand, and 2) central plant capital costs.

Central Power Plant Capacity ($/kWh) = Capital Cost ($/kW) x Effective Load Carrying Capacity (ELCC) Factor* x Levelization Factor

Generation capacity: the value depends on avoided capital costs and the degree with which PV can displace peak load

High end of range driven by:1) High ELCC factor (e.g. coincident timing of peak load and high solar availability)2) Optimal PV orientation3) High capital costs for a new NG turbine

Low end of range driven by:1) Low ELCC factor (e.g. misalignment of peak load and high solar availability)2) Sub-optimal PV orientation3) Low capital costs for a new NG turbine

0

0.01

0.02

0.03

0.04

0.05

0 25 50 75 100

ELCC Factor (%)Va

lue

of G

ener

atio

n C

apac

ity

($/k

Wh)

Sensitivity of Generation Capacity Value to the ELCC Factor

*ELCC Factor is a measure of the amount of PV capacity that can contribute to the alleviation of utility peak loads. This depends on the region, and the orientation of the PV calls.

Sources: Equation: Contreras, J.L., Frantzis, L., Blazewicz, S. and et al.,2008, "Photovoltaics Value Analysis", Navigant Consulting Inc., National Renewable Energy Laboratory, http://www1.eere.energy.gov/solar/pdfs/42303.pdf.Capital Cost ($/kWh): Black and Veatch. Cost and Performance Data for Power Generation Technologies. Prepared for NREL. February 2012.ELCC factor: An unnamed study conducted by NREL cited in: Contreras, J.L., Frantzis, L., Blazewicz, S. and et al.,2008, "Photovoltaics Value Analysis", Navigant Consulting Inc., National Renewable Energy Laboratory, http://www1.eere.energy.gov/solar/pdfs/42303.pdf

AssumptionsCapacity Factor: 20%

Discount Rate: 5%Plant Lifetime: 25 years

Capital Costs ($/kWh): $702 - $1,327ELCC Factor: 36 - 70%

Gas Turbine - $702 ($/kWh)Combined Cycle - $1,327 ($/kWh)

Capital Costs

•What are the main gaps‣ The capacity value as expressed in $/kWh will change significantly based on the number of

hours that the costs are levelized over. For instance, levelizing over peak hours (where PV directly contributes to peak load reduction) will result in a much higher value than levelizing over all hours in the life of the PV system (note: the $/kW value will not change; however).

‣ Capital costs vary significantly based on type of plant being deferred‣ The ELCC factor varies widely based on the regional load shape, PV system orientation, and

PV penetration

•Service can also be provided by other technologies:EE, CHP, Storage and DR

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0 0.01 0.02 0.03 0.04

Value of Generation Capacity

0.024 0.0380.010PV


T&D capacity: the net value of T&D investments is driven by load growth, locational costs, and peak coincidence

Low end of range driven by:1) Lower upgrade costs in rural areas2) Moderate temperatures (flat loads)3) Small projected load growth4) Low ELCC factor

High end of range driven by:1) Higher upgrade costs in urban areas2) High temperatures (spikes in load)3) Large projected load growth4) High ELCC factor

00.060.120.180.240.30

40 46 52 58 64 70

00.020.040.060.080.10

0 2 4 6 8 10

Sensitivity of T&D value

Valu

e of

T&

D (2

012$

/kW

h)

Sources: Equation: Contreras, J.L., Frantzis, L., Blazewicz, S. and et al.,2008, "Photovoltaics Value Analysis", Navigant Consulting Inc., National Renewable Energy Laboratory, http://www1.eere.energy.gov/solar/pdfs/42303.pdf.ELCC Factor: and Load Growth: Hoff, T.E., Perez, R., Braun, G., Kuhn, M., Norris, B., The Value of Distributed Photovoltaics in Austin Energy and the City of Austin, Clean Power Research LLC, (March 17, 2006)

•What is the methodology for the net value that PV provides?DER’s can provide value in allowing planners to defer investments in T&D. However, this value is only realized if the investment is actually deferred. This value is spread over the length of the deferment, and the cost of capital saved will increase as the length of the deferment increases. The value associated with this deferral is highly variable and driven by many local factors, including: 1) projected load growth in the region; 2) the cost of the T&D investment plan; 3) the ELCC factor; 4) the length of time the investment is deferred

Deferred T&D Cost Value ($/MWh) = [(Cost of T&D Investment Plan ($) x Value of Money (%) x ELCC Factor / Load Growth] x Levelization Factor

min: 0.5 (MW/yr)ave: 1 (MW/yr)max: 5 (MW/yr)

Load Growth

AssumptionsCapacity Factor: 20%Escalation rate: 2%Discount Rate: 5%

Deferred Investment time: 1 yearELCC Factor: 50%

Cost of investment plan ($): 1$MLoad Growth (MW/yr): 0.5 - 5 (MW/yr)

ELCC Factor (%)

Load Growth (MW/yr)

•What are the main gaps?‣ Most inputs vary significantly based on locational factors, such as load growth and T&D upgrade costs (e.g.

dense urban areas have much higher costs). This makes it very difficult to develop a baseline range of values for T&D. Additionally, some of the inputs are not linearly correlated with the value of T&D, so a small deviation in a baseline assumption can have a drastic impact on the value of T&D.

‣ The values of transmission and distribution are often grouped together, but these values are independent. Both values may not be readily available and can vary significantly based on regional characteristics.

‣ The capacity value as expressed in $/kWh will change significantly based on the number of hours that the costs are levelized over. For instance, levelizing over peak hours (where PV directly contributes to peak load reduction) will result in a much higher value than levelizing over all hours in the life of the PV system (note: the $/kW value will not change; however).

•Service can also be provided by other technologies:EE, CHP, and DR

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[note: due to the high degree of location variability with inputs, the range in the top graph provides a rough guide for the values of T&D, but it should not be viewed as an proxy for the value of T&D in any specific location]

PV

0 0.005 0.010 0.015 0.020

0.0020.0170.009

Value of T&D


•What is the methodology for the net value that PV provides?When losses are reduced, the values for electricity generation, generation capacity, T&D capacity, and environmental impact are magnified. The value of reduced line losses measures the additional value received from these other categories. Loss factors vary by time of use, which includes both season (summer/ winter) and time of day (peak, shoulder, off-peak).

Value of Line Losses ($/MWh) = (Avoided Generation Capacity Costs + Avoided Energy Production Costs + Avoided T&D Costs + Avoided Environmental Costs) x (Loss Factor* - 1)

*Loss factor is a measure of the amount of resistive losses in delivering energy.

•What are the main gaps?‣ There is no consensus in literature on whether losses should be bundled together into one

“losses” category, rolled in with the service that is experiencing the loss(generation, capacity, T&D, and environment), or presented as several distinct loss values

‣ Loss factors, broken down by time of day (peak, shoulder, off-peak), season (winter/summer), and service (generation, transmission, distribution) can be provided by the utilities, but it is unclear exactly how they are calculated. In addition, losses will vary hour by hour, and the avoided marginal losses will likely be greater than the average losses within a system.

‣ Each component (generation, transmission, distribution, etc...) has a different loss factor, so using a single loss factor will be less accurate than using different ones for each component

‣ Many utilities utilize average loss factors based on a single point in the utility system rather than marginal loss factors calculated for each subsection of the utility system

•Service can also be provided by other technologies:EE, CHP, and DR

Line losses: the value of line losses magnifies the value of electricity generation, capacity, T&D, and environment

0 0.008 0.016 0.024 0.032 0.04

Value of Line Losses

High end of range driven by:1) Long distance between power plant and point of use2) Production during peak hours3) High temperatures

Low end of range driven by:1) Short distance between power plant and point of use2) Production during non-peak hours3) Low temperatures

0.0370.005

Sources: Value of Line Losses Equation: Contreras, J.L., Frantzis, L., Blazewicz, S. and et al.,2008, "Photovoltaics Value Analysis", Navigant Consulting Inc., National Renewable Energy Laboratory, http://www1.eere.energy.gov/solar/pdfs/42303.pdf.Loss Factor Equation: Hoff, T.E., Perez, R., Braun, G., Kuhn, M., Norris, B., The Value of Distributed Photovoltaics in Austin Energy and the City of Austin, Clean Power Research LLC, (March 17, 2006)Loss Factors: E3 model with inputs from PG&E, SCE, and SD&EValue of Losses Range: 1) Hoff, T.E., Perez, R., Braun, G., Kuhn, M., Norris, B., The Value of Distributed Photovoltaics in Austin Energy and the City of Austin, Clean Power Research LLC, (March 17, 2006). 2) Duke, Richard, Robert Williams and Adam Payne, Accelerating Residential PV Expansion: Demand Analysis for Competitive Electricity Markets (2004)

PG&E SCE SDG&E

Generation Peak (Summer) 1.109 1.084 1.081

Transmission Peak 1.083 1.054 1.071

Distribution Peak 1.048 1.022 1.043

Loss Factors

PV 0.021



Grid support services: PV may be able to provide a variety of ancillary services, but the services are challenging to quantify and not well understood

•What is methodology for the net value that PV provides?The financial value of grid support services is driven by ancillary services (A/S) market prices, where markets exist, and the perceived ability of PV to provide these services.

Value of Ancillary Services ($/kWh) = Energy Cost ($/kWh) x [Total Ancillary Services Costs ($) / Total Energy Costs Energy ($)]

•What are the main gaps?‣ Many studies assume that A/S can provide minimal, or even zero,

value. Other methodologies provide rules-of-thumb estimates. For instance, the above methodology (based on E3’s methodology) calculates reduced A/S requirements as a percentage of reduced load, which is a broad approximation that does not scale across utilities.

‣ Some territories have A/S markets, making it easier to quantify the provision of A/S services, but regions without markets have no accepted methodology for quantifying the value of A/S services.

‣ It is not well understood which A/S and how much of each service PV and other DERs are able to provide.

‣ The ability of PV to provide some A/S requires technology modifications that will incur additional costs. In the absence of these modifications, PV will be unable to provide the A/S.

• Service can also be provided by other technologies:CHP, Storage, and DR

Sources: Energy and Environmental Economics, Inc. and Rocky Mountain Institute, Methodology and Forecast of Long Term Avoided Costs for the Evaluation of California Energy Efficiency Programs (October 25, 2004)

0 0.005 0.010 0.015 0.020


Ancillary Services Value

0.009 0.0180.00 PV

Grid Support Services

PV CHP Storage DR

• Reactive power ? ?• Voltage control ?• Frequency

regulation ?• Energy imbalance ?• Operating

reserves ?• Scheduling/

forecasting ?

DER Ability to Provide Ancillary Services


•What is methodology for the net value that PV provides?The net financial value from PV comes from 1) reduced risk based on decreased price volatility (e.g. there is no price uncertainty with PV fuel costs) and; 2) reduced market price resulting from decreased demand for central generation (a measure of price elasticity). There are other financial benefits, such as the ability to make investments that are sized correctly to meet load growth, but they have not been well quantified and standardized.

Hedge Value ($/kWh) = The Cost to Guarantee that a Portion of the Electricity Supply Costs are Fixed = [Units of Electricity Generated (kWh) x Heat Rate (MMBtu/kWh) x Future Price of Natural Gas) ($/MMBtu) / (1+ Risk Free Rate of Return)

Market Price Reduction Value ($/kWh) Market Savings Resulting from Reduced Load = [Change in Price after PV deployment ($/kWh) x New Load After PV Deployment (kWh)] / Load after PV deployment (kWh)

•What are the main gaps?

‣ The hedge value measures decreased fuel price volatility based on the futures market, but it is unclear what range of prices and what frequency of price spikes the future market assumes

‣ The market price reduction value only assesses the initial market reaction of reduced price, not the subsequent market dynamics (e.g. increased demand in response to price reductions, or the impact on the capacity market)

• Service can also be provided by other technologies:EE, Storage, DR, and possibly CHP (depending on efficiency)

Financial: The reduced financial risk offered by PV can be measured through hedge values or market price reductions

Sources:Equation and Financial Value Ranges: 1) Contreras, J.L., Frantzis, L., Blazewicz, S. and et al.,2008, "Photovoltaics Value Analysis", Navigant Consulting Inc., National Renewable Energy Laboratory, http://www1.eere.energy.gov/solar/pdfs/42303.pdf, 2) Perez, R., Norris, B., Hoff, T., The Value Of Distributed Solar Electric Generation To New Jersey and Pennsylvania,Clean Power Research. 2012, 3) Wiser, R., Mills, A., Barbose, G., Golove, W., The Impact of Retail Rate Structures on the Economics of Commercial Photovoltaic Systems in California(July 2007), Lawrence Berkeley National Laboratory.

0 0.012 0.024 0.036 0.048 0.06


Fuel Price Hedge Value

0.025 0.0500.00

0 0.01 0.02 0.03 0.04 0.05


Market Price Reduction Value

0.052 0.0690.035

PV

PV

Price(before PV)

Price(after PV)

Load(before PV)

Load(after PV)

Market Price Reduction

Market Price vs. Load


Security: The value of increased reliability is significant, but there is a need to quantify and demonstrate value provided by PV•What is methodology for the

net value that PV provides?The net value of added security comes from having a more reliability electricity system.There are two components to reliability: 1) the reduced likelihood of grid outages (and the associated costs), and 2) the availability of back-up power during outages.

Security Benefit ($/kWh) = [Cost of all outages ($) x Risk Reduction of Outages (%)] / [Total US Capacity (GW) x PV Capacity Required (%) x Capacity Factor (%) x 8760 hours]

•What are the main gaps?‣ Rules-of-thumb assumptions and calculations for security impacts require

significant review. For instance, the value of outages varies among stakeholders, and the ability of PV to reduce their likelihood is not well accepted

‣ The ability of PV to reduce outages may be partially reduced if regulators and utilities adjust reserve margins to accommodate the new PV capacity

‣ There are also opportunities to leverage combinations of distributed technologies to increase customer reliability, but these possibilities have not been proven or quantified

‣ The value of PV in increasing suppling power during outages can only be realized if PV is a) coupled with storage, or b) equipped with the capability to island itself from the grid during a power outage

• Service can also be provided by other technologies:EE and CHP

Reduced Outage Sensitivity for PV

0

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0.04

0.05

2% 3% 4% 5% 6% 7% 8%

Valu

e (2

012

$/kW

h)

Sources: Value of Security: 1) Perez, R., Norris, B., Hoff, T., The Value Of Distributed Solar Electric Generation To New Jersey and Pennsylvania, 2012; 2) Kristina Hamachi LaCommare and Joseph H. Eto. Understanding the Cost of Power Interruptions to U.S. Electricity Consumers. Berkeley National Laboratory. (September, 2004)

AssumptionsCost of U.S. Blackouts: $100 billion (average)

(range $31.7 - 487.5 billion/yr)% of Outages Mitigated by PV: 5%

Total US Capacity (GW) = 1000 GWRequired PV Capacity: 15 %PV Capacity Factor: 17.1%

PV

0 0.02 0.04 0.06 0.08 0.10 0.12

Value of Reduced Outages


0.007 0.02 0.108

(Blackout cost range: $31.7 - $487.5 billion/yr)

0

0.025

0.05

0.075

0.1

0% 5% 10% 15% 20% 25% 30%Valu

e (2

012

$/kW

h)

Capacity Penetration Sensitivity for PV

PV Capacity Penetration

Reduced Risk of Outages


Environment/Health: The value of greenhouse gas reduction depends on the pricing of carbon emissions

•What is methodology for the net value that PV provides?The value of reduced GHG emissions generated by power plants is based on the emissions intensity of displaced fuel and the value of emissions. Specific inputs depend on the type of avoided electricity generation. Depending on the timing of PV generation, natural gas is often avoided, but other fuel (e.g. coal) can also be avoided.

CO2 Emission Value ($/kWh) = CO2 Emissions Factor of Fuel (tons CO2/MMBtu) x Heat Rate (MMBtu/kWh) x Value of CO2 Emissions ($/tons of CO2)


‣ There is no universally accepted value for CO2 emissions. Current and projected input values of CO2 is highly variable and will vary based on changes in policy and markets. For instance, on July 26, 2012, California had a $19.50/tCO2 price, the Europe Union had a $9.33/tCO2 price, and Australia had a constant $23.80/tCO2 for all of 2012

• Service can also be provided by other technologies:EE and possibly CHP (depending on efficiency) and DR (if additional electricity is not purchased)

00.030.060.090.120.15

0 20 40 60 80 100

Valu

e (2

012

$/kW

h)2012$/ton CO2

Carbon Price Sensitivity

CAEU

Aus CoalNatural gas

0 0.03 0.06 0.09 0.12

Total Value (2012$/kWh)

Total Value

Coal

Natural Gas

0.108

0.0680.014

0.022

Heat Rate Sensitivity

0

0.03

0.06

0.09

0.12

0.15

8000 9000 10000 11000 12000

Valu

e (2

012

$/kW

h)

Heat Rate (MMBtu/kWh)

Coal: $100/tCO2Nat. Gas: $100/tCO2Coal: $20/tCO2Nat. Gas: $20/tCO2

Range driven by:1) A carbon price from $20/tCO2 to $100/tCO2. 2) Carbon intensity of displaced fuel

Sources: Inputs: Energy Information Administration: Average Heat Rates by Prime Mover and Energy Source, 2010 Value of Losses Range: Epstein, P., Buonocore, J., Eckerle, K. et al, Full Cost Accounting for the Life Cycle of Coal, 2011


Environment/Health: Coal carries a high cost due to its associated environmental and health impacts•What is methodology for the net value that PV provides?

There are several ways of assigning an economic value to avoided criteria air pollutants (e.g. SOx, NOx, and PM): 1) cost of abatement technologies, 2) market value and/or fines of pollutants, 3) human health impacts due to pollutants. Results shown here reflect the upper limit of value resulting from the health impact of criteria air pollutants. Specific inputs depend on the type of avoided electricity generation, which is often natural gas or coal.

Value of Criteria Pollutants ($/kWh) = Emissions Factor (tons/MMBtu) x Heat Rate (MMBtu/kWh) x Health Impact (illness/ton) x Value of health ($/illness)

In addition to the cost of criteria air pollutants, Epstein (2012) and NRC (2010) have quantified additional environmental/health impacts of coal. These include the impacts of Mercury pollution, land disturbances, methane emissions, etc. These methodologies vary significantly and generally represent rules-of-thumb calculations.

•What are the main gaps?‣ Input assumptions, such as statistical value of a life and concentration-

response functions, can result in a wide range of values.‣ Emissions from coal plants are changing quickly and will require regular

updates to the cost calculations resulting from health impacts‣ Rules-of-thumb calculations for many environmental/health impacts require

additional review

• Service can also be provided by other technologies:EE and possibly CHP (depending on emissions profile) and DR (if additional electricity is not purchased)

0

0.02

0.04

0.06

0.08

2 4 6 8 10

Valu

e (2

012

$/kW

h)

Value of a Statistical Life (2012 $, Millions)

Sensitivity of the Value of Air Pollutants

0 0.02 0.04 0.06 0.08 0.10


Value of Health Impact from Air Pollutants

Coal

Natural Gas0.10

0.034

0.010.002

CoalNatural Gas

Range driven by:1) Health impacts from coal mining 2) Choice of concentration-response function3) Value of a statistical life

Range driven by:1) Choice of concentration-response function2) Value of a statistical life

0 0.02 0.04 0.06 0.08 0.10


Value of other Environmental/Health Impacts

Coal 0.0720.048

Health impacts of coal mining Mercury impactsMethane emissions Others

Sources:Value of Losses Range: 1) National Research Council, Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use, 2010 2) Nicholas Z. Muller, Environmental Accounting for Pollution in the US Economy, 2011, 3) Epstein, P., Buonocore, J., Eckerle, K. et al, Full Cost Accounting for the Life Cycle of Coal, 2011


Environment: The value of water consumption and withdrawal is subject to significant uncertainty

•What is methodology for the net value that PV provides?Based on water consumption patterns for various generation technologies, the net value of water use can be calculated below. Specific inputs depend on the type of avoided electricity generation. Depending on the timing of PV generation, natural gas is often avoided, but other generation (e.g. coal) can also be avoided.

Water Benefit ($/kWh) = Water Intensity (gallons of H2O/kWh) x Value of Water ($/gallons)


‣ There is no universal approach for valuing water consumed or withdrawn for utility use

‣ Based on the value of procuring water supplies for municipalities, consumed water can have a value as high as $0.005/gallon/kWh. However, these values may be misleading as power plants pay much less per volume of water (e.g. some plants own water rights, and the only cost of water is to pump and divert water from a river)

• Service can also be provided by other technologies:EE, CHP and DR

0 0.002 0.004 0.006 0.008


Total Value of Consumed WaterCoal * high municipal

water prices

0

0.5

1

1.5

Coal

CSP

Nuc

lear

Oil/Gas

Nat

ural

GasBi

omas

s

PV

Win

d

Water Consumption by Technology

gals

/kW

h

0102030405060

Nuc

lear

Coal

Oil/Gas

Nat

. Gas

CSP

Biom

ass

PV

Win

d

Water Withdrawal by Technology

gals

/kW

h

0.0056

* Evaporative cooling processes have the highest consumption values..

* High withdrawal values are due to plants with once-through cooling technologies.

0.002Natural Gas

Sources: Inputs: 1) Fthenakis, Vasilis, Kim, Hyung Chul, Life-cycle uses of water in U.S. electricity generation, 2010 2) Western Resource Advocates, Every Drop Counts: Valuing the Water Used to Generate Electricity, 2011


Environment: A number of resources can add moderate value in reduced land use

•What is methodology for the net value that PV provides?Based on empirical data on the differences in land footprint for generation technologies, the net value of land use can be calculated below. Specific inputs depend on the type of avoided electricity generation. Depending on the timing of PV generation, natural gas is often avoided, but other generation (e.g. coal) can also be avoided. Land requirements for rooftop PV systems are assumed to be negligible for rooftop systems.

Land Footprint Benefit ($/kWh) = [Land use of avoided power generation (acres/kWh) x Value of Land ($/acres)] - [Land use of PV (acres/kWh) x Value of Land ($/acres)]

According to NREL, the cost of utility-scale land for PV can vary between $500 to $105,000/acre, with an additional $5,000 to $25,000/acre cost for site-preparation

Depending on the plant, additional land may be required for the siting of transmission lines, which may not be included in initial project costs


‣ Land and site preparation costs can vary by more than two orders of magnitude

‣ The value of land used for siting transmission lines is not well understood

• Service can also be provided by other technologies:EE, CHP, and DR

0 0.01 0.02 0.03 0.04 0.05


Total Value of Land

0

5

10

15

20

25

30

Nat

ural

Gas

Win

d, a

rray

spac

ing

Sola

r CSP

PV, G

roun

d M

ount

Coal

Nuc

lear

Geo

ther

mal

Win

d, fo

otpr

int

Sola

r PV,

Roo

ftop

Life Cycle Land Use for Power Generation

Land

use

(acr

es/M

W)

Utility Solar PV

*High land and preparation costs

0.0430.001

Sources: Inputs: 1) Fthenakis, Vasilis, Kim, Hyung Chul, Life-cycle uses of water in U.S. electricity generation, 2010 2) Western Resource Advocates, Every Drop Counts: Valuing the Water Used to Generate Electricity, Goodrich et al. Residential, Commercial, and Utility Scale Photovoltaic (V) System Prices in the United States: Current Drivers and Cost-Reduction Opportunities. NREL. February 2012. Pages 14, 23—28


Social: The value of job creation can be high, but there are macroeconomic effects that are not well understood•What is methodology for the net value that PV provides?

The net impact of jobs depends on number of jobs created or displaced as well as the value of each job. Based on published job multipliers and average salaries by industry, the impact of jobs can be calculated below. The value of job displaced will depend on the type of avoided electricity generation. Depending on the timing of PV generation, natural gas is often avoided, but other generation (e.g. coal) can also be avoided.

Job Income ($/kWh) = [Jobs Created (Jobs/kWh) x Average Salary of Jobs Created ($/Job)] - [Jobs Displaced (Jobs/kWh) x Average Salary of Jobs Displaced($/Job)]

Note: Instead of valuing jobs by income, the benefits of tax revenue can be also calculated. To quantify this value, the net income is multiplied by an assumed tax rate.


‣ There are macroeconomic effects that are not factored into this methodology, such as jobs that created or displaced by changes in spending. Solar generation, for instance, may result in higher electricity prices, which reduces economy-wide spending resulting in fewer jobs. This impact is not well understood or quantified

‣ There is also significant variability in the value of job multipliers for solar generation and energy efficiency

• Service can also be provided by other technologies:EE and possibly CHP, DR, and Storage (depending on job multipliers and associated industry salaries)

0 0.01 0.02 0.03 0.04 0.05 0.06 0.07


Net Income from Job Creation

PV

EE

0.0590.004

0.002 0.020

High end of range driven by:1) Methodology for assessing job creation2) High tax rates

High end of range driven by:1) Job multiplier

0 0.01 0.02 0.03 0.04 0.05


Net Tax Revenue from Job Creation

PV 0.04

0

0.5

1

1.5

Solar EEWind

Nuclear

Coal

Natural Gas

Hydro

Job Multipliers by Industry

Job-

year

/GW

h

0.170.23

1.42

0.59

Sources: Inputs: 1) Wei, M., Kammen, D., Putting Renewables and Energy Efficiency to Work, 2010; 2) Brookings Institute, Sizing the Clean Economy: A National and Regional Green Jobs Assessment, 2011; 3) U.S. Bureau of Labor Statistics Value of Losses Range: Perez, R., Norris, B., Hoff, T., The Value Of Distributed Solar Electric Generation To New Jersey and Pennsylvania,Clean Power Research. 2012,

Terminology lexicon


DISTRIBUTED ENERGY RESOURCES

Distributed Energy Resources

Distributed energy resources are demand- and supply-side resources that can be deployed throughout an electric distribution system to meet the energy and reliability needs of the customers serve by that system. DERs can be installed on either the customer side or the utility side of the meter.

Efficiency Technologies and behavioral changes that reduce the quantity of energy that customers need to meet all of their energy-related needs.

Distributed generationSmall, self-contained energy sources located near the final point of energy consumption. The main distributed generation sources are solar photovoltaics (PV), Combined Heat & Power (CHP), and small-scale wind.

Distributed flexibility & storage

A collection of technologies (demand response, electric vehicles, thermal storage, battery storage) that allows the overall system to use energy smarter and more efficiently by storing it when supply exceeds demand, and prioritizing need when demand exceeds supply.

Distributed intelligenceTechnologies that combine sensory, communication, and control functions to support the electricity system, and magnify the value of DER integration. Examples include smart inverters and home area networks.


TECHNOLOGY CHARACTERISTICS AND DRIVERSNote: add key characteristics and value drivers


SERVICES

Energy Services

Requirements and capabilities of the electricity system and changes in line losses associated directly with electricity generation from a given resource, technology, or package of technologies, relative to the current marginal energy source. The cost or vaue associated with electricity services is driven by fuel prices, operation and maintenance costs, other fixed & variable costs, the efficiency & age of the generation technology (ie, heat rate), the timing of energy demand and DER availability, and the amount of central generation displaced.

Capacity Services

Investments in generation, transmission, and distribution assets, as well as distributed generation technologies, relative to investments under the current marginal energy source. This includes both additional central capacity that is needed based on the integration of DER’s (to provide ancillary services or compensate for variability) and the physical DER technology itself. The cost or value associated with capcity services is driven by capital costs (central generaiton plants, T&D infrastructure, DER technologies), projected load growth, length of time the investment is deferred, the capacity of DER to supply electricity or decrease demand during peak periods.

Interconnected Operations Services

Services, exclusive of basic energy and transmision services, that are required to support the reliable operation of interconnected bulk electric systems. Ancillary services (commercial products defined in service agreements and tariffs) are a subset of IOS's. IOS's consist of Scheduling, System Control & Dispatch; Reactive Supply & Voltage Control from Generation; Energy Imbalance; Generator Imbalance; Supplemental Operating Reserves; Synchronized Operating Reserve; Regulation & Frequency Response; Backup Supply; Real Power Loss; Restoration; and Dynamic Scheduling. The value of IOS's is driven by ancillary services market prices, where markets exist, and the perceived ability (or inability) of DER's to provide the services.

Note: expand to include individual services within these categories


SERVICES, Cont.

Customer Services

The value to customers & companies from increased choice, variety, and social responsibility of electricity generation sources. Markets, communities, and companies can tranform their image in a way that attracts more customers, tourists, or makes themselves an example for others to follow by embracing distributed energy resources. There is also value just in having options and choices, ie., a green choice program.

Financial & Security Services

Interactions with the market, such as impacts on price volatility and price elasticity, and the availability of reactive and emergency power supplies from a given resource, technology, or package of technologies relative to the status quo. The reduced financial risk offered by DER's can be measured through the hedge value (the cost to guarantee that a portion of electricity supply costs are fixed) or the market price reduction value (the market savings resulting from reduced load). The hedge value is driven by the future price of natural gas; the market price reduction value is based on the relationship between price and load. The reduced security risk is based on the cost of U.S. blackouts, installed PV capacity, and the reduction in outages risks associated with the installed DER technologies.

Environmental Services

The level of carbon emissions, criteria pollutants, land, water use, and the impacts that result, from a given resource, technology, or package or technologies relative to the status quo. The value of greenhouse gas reduction is driven by carbon pricing. The value of reduced toxins and air pollutants from reduced use of fossil fuels is tied to the cost of the health impacts and illness from fossil fuels. The value to land use is based on the difference in the land footprint required with central generation vs. the DER technologies.

Social Services

Changes in job market opportunities, employment taxes, occupational safety measures, and less tangible impacts on the markets and communities relative to the status quo. The value of job creation can be measured based on the difference between the number and salary of jobs created by DERs and the number and salary of fossil fuel and central generation-based jobs made obsolete.

Note: expand to include individual services within these categories

distributed energy resource cost/value framework

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