recommendations for regulated utilities ... - pace university

PV Valuation Methodology

Recommendations for

Regulated Utilities in Iowa

February 26, 2016

Prepared for:

MidwestRenewableEnergyAssociation

Prepared by:

BenNorris,CleanPowerResearch

PV Valuation Methodologies Recommendations

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Legal Notice from Clean Power Research

ThisreportwaspreparedforMREAbyCleanPowerResearch(CPR).Thisreportshouldnotbeconstruedasaninvitationorinducementtoanypartytoengageorotherwiseparticipateinanytransaction,toprovideanyfinancing,ortomakeanyinvestment.

AnyinformationsharedwithMREApriortothereleaseofthereportissupersededbytheReport.CPRowesnodutyofcaretoanythirdpartyandnoneiscreatedbythisreport.Useofthisreport,oranyinformationcontainedtherein,byathirdpartyshallbeattheriskofsuchpartyandconstitutesawaiverandreleaseofCPR,itsdirectors,officers,partners,employeesandagentsbysuchthirdpartyfromandagainstallclaimsandliability,including,butnotlimitedto,claimsforbreachofcontract,breachofwarranty,strictliability,negligence,negligentmisrepresentation,and/orotherwise,andliabilityforspecial,incidental,indirect,orconsequentialdamages,inconnectionwithsuchuse.

CPR’s Solar Valuation Background

CPRholdsauniquepositioninthesolarvaluationfield,havingdevelopedthefirstvalueofsolartariffofferedinNorthAmerica.AustinEnergyapprovedCPR’svalue-basedpricingpresentedina2011study,andoffereditasanewformofcompensationtoitssolarcustomers.CPRhadperformedanearliervaluationstudyforAustinEnergyin2006.

In2014,CPRworkedwithutilitiesandstakeholdersinMinnesotatodevelopthefirstdetailed,publicmethodologytobeusedbyutilitiesinsettingrates.Thismethodology,guidedbystatelegislativerequirements,wasapprovedbytheMinnesotaPublicUtilitiesCommissionforutilitiesseekingavalue-basedcompensationtiedtothecostsandbenefitsofdistributedsolargeneration.ItistheonlysuchCommission-approvedmethodologyinNorthAmerica.

InApril2015,CPRpublishedacomprehensivemarket-basedvalueofsolarstudythatwascommissionedbytheMainePublicUtilitiesCommission.Thisstudywasalsoastakeholder-drivenprocess,andincludedawidesetofscenariosandassumptionsforthepurposeofinformingpublicpolicy.Itincludedthreedetailedstudiesforthreeutilityregions.

CPRhasperformedanumberofrelatedstudies,includingnetmeteringcost/benefitstudiesandsolarfleetshapemodelingforDukeEnergy,WeEnergies,PortlandGeneralElectric,USD/SanDiegoGasandElectric,SolarSanAntonio,andNYSERDA/ConEdison.CPRhasalsoworkedwithsolarindustryorganizations,suchastheSolarElectricPowerAssociation(SEPA)andtheSolarEnergyIndustriesAssociation(SEIA)toevaluateothervalue-basedcompensationschemes,suchasannualversuslevelizedVOS,long-terminflation-adjustedVOS,valueofexportenergy,andothers.


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Contents PART1-INTRODUCTION................................................................................................................5

Introduction.......................................................................................................................5

Purpose..............................................................................................................................5

OverviewofMethodology..................................................................................................6

PART2–TECHNICALANALYSIS......................................................................................................6

TheMarginalPVResource.................................................................................................6

LoadAnalysisPeriodandEconomicStudyPeriod..............................................................7

PVSystemRatingConvention............................................................................................8

LoadDataandPVFleetProductionProfile........................................................................8

EffectiveLoadCarryingCapability(ELCC)...........................................................................9

PeakLoadReduction(PLR)...............................................................................................11

LossSavingsAnalysis........................................................................................................11

PART3–ECONOMICANALYSIS....................................................................................................13

AvoidedEnergyCosts.......................................................................................................13

AvoidedCostofResourceAdequacy................................................................................14

VoltageRegulation...........................................................................................................15

AvoidedTransmissionCapacityCost................................................................................15

AvoidedDistributionCapacityCost..................................................................................16

PART4–OUTOFMARKETBENEFITS...........................................................................................16

AvoidedEnvironmentalCost............................................................................................16

FuelPriceGuarantee........................................................................................................17


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PART5–IMPLEMENTATIONOPTIONS.........................................................................................17

EvaluationofExistingNetMeteringPrograms.................................................................17

ConsiderationsforCommunitySharedSolar...................................................................18

ValueofExportedSolarEnergy........................................................................................18

QualifyingFacilitiesRates.................................................................................................19

ApplicabilitytoOtherDERTechnologies..........................................................................19

RealTimePricingwithAMI..............................................................................................20

ValueofSolarTariffs........................................................................................................20


PART 1 - INTRODUCTION

Introduction

CleanPowerResearch(CPR)wasengagedbytheMidwestRenewableEnergyAssociationtodevelopamethodologyforvaluingdistributedsolarenergyresources.ManystudieshavebeenperformedbyCPRandothersoverrecentyearstoinwhichmethodologieshavebeendevelopedtoperformthesevaluations.

Distributedsolardiffersfromconventionalgenerationinseveralrespects.First,itisnotdispatchableandthereforerequiresameansforevaluatingits“effective”capacitytoputitonacomparableeconomicfootingwithin-marketresources.

Second,itisdistributed,meaningthatitavoidsthelossesassociatedwithlong-distancetransmission,voltagestepdownatdistributionsubstations,andthedistributionlines.Thisrequiresthatalosssavingsfactorbeincorporatedintothestudy.

Third,itsproductionprofilevariesconsiderably,dependingupontheorientation(azimuthandtiltangle)ofthesystemanditslocation.Asapracticalapproach,theconceptofanaggregate“fleet”ofresourcesisintroducedtoaddressthis,andthevaluationisdesignedtovalueoutputofthefleet.

Finally,solarprovidesanumberofsocietalbenefits,suchastheabilitytoproduceenergywithoutharmfulairemissionsandprotectionagainstuncertaintyinfuelpricefluctuations.Thesebenefitsare“outofmarket”inthesensethatthesocietalcostsofconventionalgenerationarenotincludedinconventionalratemaking.Itislefttotheuserofthemethodologyastowhethersuchbenefitsshouldbeincludedinavaluationstudy.

Purpose

Thisreportdescribesingeneraltermsamethodologythatmaybeusedforsuchavaluation.Forreadability,thereportisdevoidofdetailedequationsandtables,anditdoesnotincludeanactualvaluationexamplebasedonthismethodology.However,itdoesincorporatethelessonslearnedinanumberofsuchvaluationstudiesperformedbyCPRovertheyears.

Inadditiontothemethodology,thereportdescribessomeoptionsforimplementation.Theseincludetheuseofthemethodologyinevaluatingexistingnetenergymeteringcross-subsidies,


considerationsforcommunitysharedsolar,theadaptationofmethodsforenergyexportsandotherDERtechnologies,andtheuseofresultsinvalue-basedcompensationschemes.

Itishopedthatsuchavaluationexercisecouldbeconductedusingthemethodsdescribedhere.

Overview of Methodology

Themethodologyisdescribedinthreemajorparts.Thefirstisatechnicalanalysiswheremanyofthekeyintermediatetechnicalmetricsarecalculated.Thisincludethedefinitionofthestudyperiod,theratingconventions,thedevelopmentofhourlyfleetproductionprofiles,thedeterminationof“effective”capacityinrelationtoresourceadequacyandthedistributionsystem,andthetreatmentoflosssavings.

Thesecondpartistheeconomicanalysisofin-marketbenefits.Thismethodologyincludesavoidedenergycosts,avoidedresourceadequacycosts,avoidedtransmissioncapacitycosts,andavoideddistributioncosts.Itisimportanttonotethatthismethodologyincorporatessomebenefitsthathavebeenbrokenoutasseparatecategoriesonotherstudies.Forexample,theenergybenefitincludestheeconomicimpactsofbothachangeinloadandachangeinprice.Theresourceadequacybenefitincludesthecontributiontowardmeetingbothpeakloadandtheplanningmargin.

Next,twoout-of-marketbenefitsareincluded.Thesearethebenefitsmostcommonlyincludedinstudiesofthissort,andtheyincludetheavoidedenvironmentalcostandthefuelpriceguarantee.Thesebenefitsaremorespeculativeanddonotrepresentbenefitsforwhichamonetizedtransactioncurrentlytakesplaceintheenergymarketplace.

PART 2 – TECHNICAL ANALYSIS

The Marginal PV Resource

Themethodologyincorporatesinitsframeworktheconceptofa“MarginalPVResource”forwhichthevalueofproductionissought.Existingsolarresourcesarenotincludedintheanalysisexcepttotheextentthattheyshapetheexistingloadsusedintheanalysis.Itisunderstoodthatastheamountofsolarinasystemincreases,thetechnicalcontributiontowardscapacitydecreases.Thisisbecausethepeakloadshiftstonon-daytimehours.Duetothiseffect,theinitialsolarresources(the“earlyadopters”)providemoretechnicalbenefitsthansystems


installedinlateryears(theactualvaluedependsonotherfactorssuchasfuelpricesandthesemayincreaseordecrease).

Withthisinmind,itisnecessarytostateupfrontwhichofthesolarresourcesarebeingevaluated:allresourcestodate?Allresourcesanticipatedoverthenext20years?ThismethodologyisbasedonamarginalanalysisofthenextPVresourceofunitsizetocomeonline.

Asdescribedbelow,aPVFleetProductionProfileisdevelopedthattakesintoaccountthediversityoflocationsanddesignattributesofthedistributedsolarfleet.Theunitoutputofthisfleetis,ineffect,theMarginalPVResource,eventhoughsucharesourcedoesnotexistinpractice.Theconceptishelpfulbecauseiteliminatesasetofcomplicatingvaluescenarios(Whatisthevalueofawest-facingsystem?atrackingsystem?asysteminthesouthernornorthernpartoftheserviceterritory?)TheMarginalPVResourcethereforeisthenextinstalledincrementofsolarcapacitythatrepresentsthegeographicalanddesigndiversityofthedistributedPVfleet.

Load Analysis Period and Economic Study Period

Therearetwoseparateperiodsofinterestinperformingthevaluation:theLoadAnalysisPeriodandtheEconomicStudyPeriod.TheLoadAnalysisPeriodisusedtoevaluatetechnicalparameters,suchastheabilityoftheresourcetodeliverenergyduringpeaktimes.Suchanalysesrequiretheuseofhistorical,measureddata.Forexample,anevaluationofeffectivecapacitymaycompareayearofhourlysolarproductionagainstthesameyearofutilityload.Inthiscase,theLoadAnalysisPeriodwouldbedefinedastheyearoverwhichthistechnicalanalysiswasbased.Theanalysiscouldtakeplaceoverseveralyears(e.g.,threeyears)inordertoaccountforyear-to-yearloadandweathervariation.

ThesecondperiodofinterestistheEconomicStudyPeriod.Thisistheperiodoverwhichthetwoeconomicalternativesareevaluated:theproductionofenergybytheMarginalResourceandthedeliveryofenergyusingconventionalgeneration.Thecostsandbenefitsofthesealternativesoccurinthefuture,sotheEconomicStudyPeriodisselectedoveroneormorefutureyears.

TheselectionofEconomicStudyPeriodisoftentiedtothefinalmetricsforpresentingthebenefitsandcosts,andtheassumedusefulservicelifeoftheresource(e.g.,the20to30yearlifeofsolarPV)maybeused.Forexample,ifa25yearservicelifeisassumed,thestudyobjectivemaybetoestimatethelevelizedvalueover25years.Suchananalysiswouldtakeinto


accountanticipatedcapacityadditionsoverthisperiod,expectedchangesinwholesaleenergycosts,andloadgrowthrates.

Avaluationstudymaybedesignedtocalculateaone-year,orfirst-year,valueofgeneration.Thisisincontrasttoalong-termlevelizedrate.Suchanapproachofferstheadvantageofaccuracybecauseitislessdependentonlongtermforecasts(e.g.,itwouldrequireaone-yearfuelpriceforecastratherthana25-yearfuelpriceforecast).Inthiscase,theinvestorinrenewablestakestheriskoffuturefluctuationsinvalue.Ratherthan“lockingin”a25-yearrate,theratefluctuationsyeartoyearareunknown,andthismaybeanimportantfactorintheinvestmentdecisions.

Intheone-yearanalysisapproach,longtermbenefitsthatfalloutsideoftheanalysisperiod,suchastheavoidanceoffuturegenerationcapacityadditions,maystillbeincluded.Forexample,afutureyearcapacityadditioncouldbeincludedbyamortizingthecapacitycostoftheadditionoveritsexpectedlife,calculatingthepresentvalueoftheannualizedavoidedcoststhatoccurduringthelifeoftheMarginalResource,andthenamortizingthisvalueoverthelifeoftheMarginalResource.Thisresultsintheannualvalueattributedtothepresentresourceinavoidingordeferringtheneedforfutureresources.

PV System Rating Convention

ThemethodologyrequirestheestablishmentofaratingconventiontobeusedfortheMarginalResource.Thereareseveralratingmethodsavailable,suchasDCpowerunder“StandardTestConditions,”DCpowerunder“PVUSATestConditions”(DC-PTC),andanACratingthatincludestheeffectofinverterefficiency.

Theselectionofratingconventionissomewhatarbitrary,butmustbeusedconsistently.Forexample,ifaDCratingisused,thentheMarginalResourcewouldhaveaunitratingof1kWDC.Whendeterminingtheannualenergyproduced,thesameconventionwouldbeused:annualenergywouldbeexpressedasACenergydeliveredtothegridperkWDC.Likewise,theeffectivegenerationcapacitywouldbeexpressedastheeffectivegenerationcapacityperkWDC.

Load Data and PV Fleet Production Profile

Thecapacity-relatedtechnicalmetricsthatfollow(seesectionsonEffectiveLoadCarryingCapabilityandPeakLoadReductionbelow)areheavilydependentupontheassumedproductionprofileoftheMarginalPVResource.Ifthereisagoodmatchbetweensolarproductionandload,thentheeffectivecapacityishigh.Ontheotherhand,ifthepeakload


occursduringtimeswhensolarproductionispoor,thentheeffectivecapacitywillbelow.Thisdirectlyaffectstheeconomiccapacityvalue.

Beforecalculatingthematch,itisnecessarytoobtaintheloaddataanddevelopasolarproductionprofile.BoththeloadandproductionprofilearetimeserieswithstartandendtimescorrespondingtotheLoadAnalysisPerioddescribedabove.Anhourlyintervalismostcommonforstudiesofthistype,althoughotherintervalscouldbeused.MISOpricingisavailableinhourlyintervals,andthiswillformthebasisoftheenergyvaluation.Therefore,hourlyintervalsareassumedhere.

Twosetsofloaddataarerequired:theMISOsystemloaddataandtheutilitydistributionloaddata.Thesystemloaddatawillbeusedtocalculateeffectivegenerationcapacity,sotheloaddatashouldcorrespondtotheMISOzoneassociatedwiththeutility.Thedistributionloaddatawillbeusedtocalculatetheeffectivedistributioncapacity.

Inaddition,aproductionprofilerepresentingtheoutputoftheMarginalResourceisrequiredovertheLoadAnalysisPeriod.ThiscanbeeithersimulatedormeasuredfromsamplePVresources,butmustaccomplishthefollowing:

• Thedatamustaccuratelyreflectthediversityofgeographicallocationsacrosstheutilityandthediversityofdesignorientations(rangeofazimuthanglesandtiltangles,etc.).Typically,thisrequirestheaggregationofseveralhundredsystemscomprisingarepresentative“fleet”ofsolarresources.

• Thedatamustnotrepresent“typicalyear”conditions,butrathermustbetakenfromthesamehoursandyearsastheloaddata.Itmustbetherefore“timesynchronized”withload.

• Thegrossenergyoutputoftheresourceisrequired,notthenetexportenergywhichincludeson-siteconsumption.

ThefleetcomprisesalargesetofrealoranticipatedPVsystemshavingvaryingorientations(differenttiltanglesandazimuthangles)atalargenumberoflocations.TheintentionistocalculatecostsandbenefitsforthePVfleetasawhole,ratherthanforaspecificsystemwithspecificattributes.

Effective Load Carrying Capability (ELCC)

Distributedsolarisnotdispatchableinthemarket,butitdoeshaveanindirecteffectontheamountofpowerthatisdispatched.Ifdistributedsolarproducesenergyduringpeakload


hours,thentherequiredamountofdispatchablecapacityislowered.Therefore,itisimportanttoquantifyhoweffectivedistributedsolarisinreducingcapacityrequirements.

EffectiveLoadCarryingCapability(ELCC)isthemetricusedforthispurpose.Itistypicallyexpressedasapercentageofratedcapacity.Forexample,ifsolariscreditedwithanELCCof50%,thena100kWsolarresourceisconsideredtoprovidethesameeffectivecapacityasa50kWdispatchableresource.

MISOisworkingtodevelopaprocess1forsolaraccreditationandseveralalternativesusedatotherISOsareunderconsideration.Whensuchaprocessbecomesdefined,itcouldbeusedtocalculateELCCusingthePVFleetProductionProfile.

Beforetheprocessisdeveloped,itwillbenecessarytoselectaninterimmethod,andonesuchmethodisdescribedhere.ThismethodhasbeenusedinotherstudiesbyCPR2andcanbeusedasaneasilyimplementedmethoduntiltheMISOprocessisavailable.

UndertheMISOtariff,LoadServingEntities(LSEs)arerequiredtomeetbothalocalclearingrequirement(LCR)intheirlocalresourcezone(LRZ)aswellasMISO-levelplanningreservemarginrequirement(PRMR).Bothoftheserequirementsensurethatreliabilitymeetsa1dayin10yearlossofloadstandard.Eachofthetworequirementsisconsideredseparately.

First,thecontributionofdistributedsolarinmeetingtheLCRrequirementisdependentupontheloadmatchofsolarproductionwiththezonalload.ThiscouldbeevaluatedastheaverageofthePVFleetProductionProfileduringthepeak100hoursperyearintheLRZ.Thecontributionofthesedistributedresourcesnotonlyreducetherequiredresourcestomeetthepeakzonalloadbutalsoreserverequirements.Forexample,iftheaverageproductionduringthepeak100hoursintheLRZwas0.5kWhperhourperkWofratedsolarcapacityandifthelocalresourcerequirementperunitofpeakdemandwas1.1,thentheeffectivecontributionofsolarwouldbe0.5x1.1=55%ofratedcapacity.

Second,thecontributionofdistributedsolarinmeetingthePRMRrequirementisdependentupontheloadmatchwiththeMISOsystemload.Inthiscase,thecontributioncouldbecalculatedbyaveragingthePVFleetProductionProfileduringthepeak100hoursperyearintheMISOfootprintandapplyingtheplanningreservemargin.Forexample,iftheloadmatch

1See“MISOSolarCapacityCredit”at:https://www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/SAWG/2015/20150806/20150806%20SAWG%20Item%2007%20Solar%20Capacity%20Credit.pdf2E.g.,a2014valuationstudyfortheMainePUC.


was40%andthemarginwas7%,thentheeffectivecontributionofsolarwouldbe0.4x1.07=43%ofratedcapacity.

Finally,theLSEsmayusethesameresourcetoserveboththeLCRrequirementandthePRMRrequirement.Theeffectivecapacity,orELCC,wouldbeselectedasthelowerofthetworesults.Continuingtheexample,iftheeffectivesolarcapacitywas55%forLCRbutonly43%forPRMRpurposes,thentheoverallELCCwouldbe43%.

Peak Load Reduction (PLR)

TheELCCisameasureofeffectivecapacityforresourceadequacy.Itisanessentialinputtoevaluatingthebenefitofavoidedgenerationcapacitycosts.However,itisnotnecessarilyagoodmetricforevaluatingavoidedtransmissionanddistribution(T&D)capacitybenefitsfortworeasons:(1)itisbasedontheloadsoftheMISOzone,ratherthantheutility’sdistributionloads(peaksmakeoccuratdifferenttimes);and(2)itaveragesoutputovermanyhours,whereasdistributionplanningrequiresthattheresourcebethereforasmallnumberofpeakhours.

Therefore,adifferentmeasureofeffectivecapacitycanbeusedinevaluatingthedistributionbenefits.ThePeakLoadReduction(PLR)isdefinedasthemaximumdistributionloadovertheLoadAnalysisPeriod(withouttheMarginalPVResource)minusthemaximumdistributionloadovertheLoadAnalysisPeriod(withtheMarginalPVResource).

Thedistributionloadisthepowerenteringthedistributionsystemfromthetransmissionsystem(i.e.,generationloadminustransmissionlosses).IncalculatingthePLR,itisnotsufficienttolimitmodelingtothepeakhour.AllhoursovertheLoadAnalysisPeriodmustbeincludedinthecalculation.Thisisbecausethereducedpeakloadmaynotoccurinthesamehourastheoriginalpeakload.

Loss Savings Analysis

Distributedsolarresourcesnotonlydisplaceenergydeliveredtotheload.Theyalsoavoidlossesinthetransmissionanddistributionlines.Toaccountforthis,LossSavingsFactorsarecalculatedandincorporatedintotheanalysis.

LossSavingsFactorsdependonthebenefitandcostcategoryunderevaluation.Forexample,oneLossSavingsFactorcouldbedeterminedfortheavoidedenergycostsbydeterminingthelossesthatwouldbeincurredintheabsenceofPVthesolarhoursofagivenyear,andcomparingthistothelossesthatwouldbeincurredduringthosesamehoursiftheMarginal


Resourcewerepresent.ThedifferencecouldbeexpressedinaLossSavingsFactorassociatedwiththeavoidedenergycosts.

TheLossSavingsFactorassociatedwithavoideddistributioncapacitycosts,however,wouldbedifferentfromtheoneassociatedwithenergy.Thisisduetotwofactors.First,asdescribedinthePLRmetric,onlythepeakdistributionhoursareofinterestincalculatingthePLR.Avoidedlossesduringnon-peakhours(e.g.,mid-morninghours)arenotrelevanttothedeterminationofavoideddistributioncapacitycosts.Second,onlytheavoidedlossesinthedistributionsystemarerelevanttothedistributionbenefitcalculation.Avoidedlossesinthetransmissionsystemshouldnotbeincluded.

ThreeLossSavingsFactorsshouldbedevelopedasshowninTable1.

Table 1. Loss Savings Factors

LossSavingsFactor LossSavingsConsidered AvoidedAnnualEnergy Avoidedtransmissionanddistributionlossesfor

everyhouroftheLoadAnalysisPeriod.

ELCC Avoidedtransmissionanddistributionlossesduringthe100peakhoursineachyearoftheLoadAnalysisPeriod.

PLR Avoideddistributionlosses(nottransmission)atthedistributionpeak.

Whencalculatingavoidedmarginallosses,theanalysisshouldsatisfythefollowingrequirements:

1. Avoidedlossesshouldbecalculatedonanhourly(notanannual)basisovertheLoadAnalysisPeriod.Thisisbecausesolartendstobecorrelatedwithloadandlossesduringhighloadperiodsexceedaveragelosses.

2. Avoidedlossesshouldbecalculatedonamarginalbasis.ThemarginalavoidedlossesarethedifferenceinhourlylossesbetweenthecasewithouttheMarginalPVResource,andthecasewiththeMarginalPVResource.Avoidedaveragehourlylossesarenotcalculated.Forexample,iftheMarginalPVResourceweretoproduce1kWofpowerforanhourinwhichtotalcustomerloadis1000kW,thentheavoidedlosseswouldbethecalculatedlossesat1000kWofcustomerloadminusthecalculatedlossesat999kWofload.

3. Calculationsofavoidedlossesshouldnotincludeno-loadlosses(e.g.,corona,leakagecurrent).Onlyload-relatedlossesshouldbeincluded.


4. Calculationsofavoidedlossesinanyhourshouldtakeintoaccountthenon-linear

relationshipbetweenlossesandload(load-relatedlossesareproportionaltothesquareoftheload,assumingconstantvoltage).

PART 3 – ECONOMIC ANALYSIS

Avoided Energy Costs

Distributedsolarreducesthewholesalecostofenergyintworespects.First,itreducesthequantityofenergyprocuredintheMISOmarketfordeliverytocustomers.Solarproductiondisplacesenergythatwouldhavebeenprocuredatagivenpriceinagivenhour.Second,itlowersdemandforenergy,resultinginlowerclearingpricesforalltransactions,aneffectsometimesreferredtoasthe“marketpriceresponse.”

ThegoalofthevaluationanalysisisillustratedinFigure3,whichshowstherelationshipbetweenpriceandloadinagivenhour.Asloadincreases(ordecreases),thepricesimilarlyincreases(ordecreases).Thisrelationshipreflectsthesupplyanddemandofresourcesparticipatinginthemarket.

Figure 1. Avoided Energy Cost (Illustrative)

InthisillustrationLrepresentsthemeasuredloadinanygivenhour,andPrepresentsthecorrespondingprice(theMISOday-aheadclearingprice).TheMarginalPVResourcereducesloadfromLtoL*andpricefromPtoP*.ThisreducesthetotalwholesalecostofenergyfromLPtoL*P*andthesavingsarerepresentedbytheshadedregions.


Thecalculationofsavingsmaybeperformedintwosteps.ThefirststepistomultiplytheobservedmarketpricePbythechangeinload(thebluearea).ThechangeinloadisthePVfleetproductionforthehour.Thisisdoneforeachhourofasampleyearandsummed.

ThesecondstepistomultiplytheresultingloadL*bythereductioninprice.ThisrequiresanestimateofthechangeinpricewhichmaybeobtainedfromamodelsuchastheoneillustratedinFigure2.Thisshowshourlyload-pricepointsforagivenmonthatasampleISO.FromthesepointsamodelFmaybedevelopedasaleastsquarescurvefit.Then,theanalysiscanassumethatthechangeinpricefromPtoP*isproportionaltothechangeinF.Thecalculationisdoneforeachhouroftheyearandsummed.

Figure 2. Load Versus Price Model F

Avoided Cost of Resource Adequacy

Part2describedamethodforcalculatingELCC,ameasureoftheeffectivenessofdistributedsolarresourcesinmeetingresourceadequacyrequirements.Theavoidedcost,then,iscalculatedbymultiplyingtheELCCbythecostofnewentry(CONE)fortheLRZ.CONEindicatestheannualizedcapitalcostofconstructinganewplant.


CONEiscalculatedbyMISO3byannualizingthenetpresentvalue(NPV)ofthecapitalcost,longtermO&Mcosts,insuranceandpropertytaxes.Thereareothermeasuresofcapitalcost,4suchastheMISOplanningauction,butthesedonotnecessarilycorrespondtothelong-term(e.g.,25year)serviceprovidedbysolar.

Voltage Regulation

DistributionutilitieshavetheresponsibilitytodeliverelectricitytocustomerswithinspecifiedvoltagewindowsasrequiredbyStaterules.WhenPVorotherdistributedgenerationresourcesareintroducedontothegrid,thiscanaffectlinevoltagesdependingupongeneratorrating,availablesolarresource,load,lineconditions,andotherfactors.Furthermore,atthedistributionlevel(incontrasttotransmission)PVsystemsaremoregeographicallyconcentrated.Dependinguponconcentrationandweathervariability,PVcouldcausefluctuationsinvoltagethatwouldrequireadditionalregulation.

Insomecases,theseeffectswillrequirethatutilitiesmakemodificationstothedistributionsystem(e.g.,addingvoltageregulationortransformercapacity)toaddressthetechnicalconcerns.Forpurposesofthismethodology,itisassumedthatsuchcostsarebornbythesolargenerator.Consequently,nocostisassumedrelatedtointerconnectioncosts.

AdvancedInverters

Advancedinvertertechnologyisavailabletoprovideadditionalserviceswhichmaybebeneficialtotheoperationofthedistributionsystem.Theseinverterscancurtailproductionondemand,sourceorsinkreactivepower,andprovidevoltageandfrequencyridethrough.ThesefunctionshavealreadybeenproveninelectricpowersystemsinEuropeandmaybeintroducedintheU.S.intheneartermonceregulatorystandardsandmarketsevolvetoincorporatethem.

Basedontheseconsiderations,itisreasonabletoexpectthatatsomepointinthefuture,distributedPVmayofferadditionalbenefits,andvoltageregulationbenefitsmaybeincludedinafuturemethodology.

Avoided Transmission Capacity Cost

3See“CostofNewEntry:PY2016/17,”at:https://www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/SAWG/2015/20151029/20151029%20SAWG%20Item%2004%20CONE%20PY%202016-2017.pdf4See“MichiganPublicServiceCommissionSolarWorkingGroup–StaffReport”athttps://efile.mpsc.state.mi.us/efile/docs/17752/0045.pdf


DistributedPVhasthepotentialtoavoidordefertransmissioninvestments,providedthattheyaremadeforthepurposeofprovidingcapacity,andprovidedthatthesolarproductioniscoincidentwiththepeak.Thechallengeisfindingthecostoffuturetransmissionthatisavoidableordeferrableasaresultofdistributedgeneration.Asaproxyforthisprice,transmissiontariffsusedtorecoverhistoricalcostsmaybeused.

IntheMISOfootprint,networktransmissionservicetoloadisprovidedundertheOpenAccessTransmissionTariff(OATT)asaper-MWdemandchargethatisafunctionofmonthlysystempeaks.UsingthePVFleetProductionProfileandthehourlyloadsofthezone,theaveragemonthlyreductioninnetworkloadmaybecalculatedfortheMarginalPVResource.Forexample,thereductioninJanuarynetworkloadforagivenyearwouldbecalculatedbyfirstsubtractingthePVFleetProductionfromloadeveryhourofthemonth.Then,thepeakloadforthemonthwithoutPViscomparedtothepeakloadwithPV,andthedifference,ifany,isconsideredthereductioninnetworkloadforthatmonth.Asimilaranalysiswouldbeperformedfortheremaining11monthsoftheyear.Foreachmonth,thereductioninpeakdemandwouldbemultipliedbythezonalnetworkpriceintheOATTSchedule9.

Avoided Distribution Capacity Cost

Incalculatingtheavoideddistributioncost,thePLRisusedastheloadmatchfactor.ThisismultipliedbytheNPVofdistributioncapacityovertheEconomicStudyPeriod.Forexample,iftheEconomicStudyPeriodis25years,thenthecostofnewdistributioncapacitywithinthegeographicalareaofinterestshouldbeestimatedforeachyearinthisperiod.

Detailedcostestimatesaregenerallyavailableonlyforareasfacingneartermcapacityupgrades,makingitdifficulttoperformthisanalysis.Thereforefuturecostsoutsidetheplanninghorizonmaybemadebasedonaprojectionofcostsandpeakloadsoverarepresentativehistoricalperiod,suchasthelast10years,andmustcorrespondtoanticipatedgrowthrates.Costsforreliability-relatedpurposesshouldnotbeincludedbecausetheyarenotavoidablebydistributedsolar.

PART 4 – OUT OF MARKET BENEFITS

Avoided Environmental Cost

WithdistributedPV,environmentalemissionsincludingcarbondioxide(CO2),sulfurdioxide(SO2),andnitrousoxides(NOx)maybeavoided.Ingeneral,itisrelativelystraightforwardto


calculatethetechnicalimpact—forexample,throughtheuseoftheEnvironmentalProtectionAgency’sAVERTtool—buttheestimatesofavoidedsocialcostsaremoredifficulttoquantify.

Estimatesofsocialcostsmustbetakenfromexternalstudies.Thesocialcostofcarbon,forexample,maybebasedonresultsfromtheInteragencyWorkingGrouponSocialCostofCarbon.5

Itshouldbenotedthatcoststocomplywithenvironmentalstandards(scrubbers,etc.)areembeddedintheenergycostsalreadydescribed.Thetechnicalcalculationsofemissionsshouldthereforealreadytakeintoaccountthecompliancemeasuresusedtoreduceemissions.Thesocialcostsarethereforeassociatedwiththeemissionsaftercompliancehasbeenmet(the“net”emissions)andthecostsarethereforeinadditiontocompliance.

Fuel Price Guarantee

Thisvalueaccountsforthefuelpricevolatilityofnaturalgasgenerationthatisnotpresentforsolargeneration.Toputthesetwogenerationalternativesonthesamefooting,thecostthatwouldbeincurredtoremovethefuelpriceuncertaintymaybeincluded.ThiscanbeaccomplishedbyestimatingthenaturalgasdisplacedbyPVovertheEconomicStudyPeriodanddeterminingthecostofnaturalgasfuturesrequiredtoeliminatetheuncertainty.

Notethatpricevolatilityisalsomitigatedbyothersources(wind,nuclear,andhydro).Therefore,themethodologyisdesignedtoquantifythehedgeassociatedonlywiththegasthatisdisplacedbyPV.

PART 5 – IMPLEMENTATION OPTIONS

Evaluation of Existing Net Metering Programs

AvaluationusingtheabovemethodswouldresultintheavoidedcostsperkWhofdistributedsolargeneration.Thisvaluationcouldthenbeusedtoevaluatethequestionofwhethersolarcustomersundernetenergymetering(NEM)ratesaresubsidizingnon-solarcustomersorwhethernon-solarcustomersaresubsidizingNEMcustomers.

5TheannualSocialCostofCarbonvaluesarelistedintableA1oftheSocialCostofCarbonTechnicalSupportDocument,foundat:http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf.


NEMcustomersareonlybilled(orcredited)forthedifferencebetweentheirconsumptionchargesandtheirgenerationcredits.IthasbeenarguedthatfixedcostsrecoveredthroughvolumetricratesmaynotberecoveredequitablybecauseNEMcustomersareabletoreducetheirmonthlynetconsumption.Ontheotherhand,NEMcustomersmayprovideadditionalbenefits,resultinginsavingstoothercustomers.Forexample,aNEMcustomermaybedeliveringenergyandcapacitytothegridattimeswhenitismostvaluable.Usingthemethodsdescribedherecanhelptodeterminewhethercostshiftingistakingplaceandthedirectionofcostshifting(whethersolarcustomersaresubsidizingorbeingsubsidizedbynon-solarcustomers,asthecasemaybe).

Considerations for Community Shared Solar

Somecustomersdonothavegoodoptionstoinstallsolarontheirrooftops.Theymaynotowntheirbuilding(especiallyinthecaseofcommercialcustomers),thebuildingmaybeheavilyshaded,oritmaynotlenditselftosolarduetoarchitecturalconsiderations.Forthese,customers,communitysharedsolarmaybeanoption.SystemsbuiltforthispurposemaybesitedinmoredesirablelocationswithgoodsolaraccessandmaybebuiltwithhigherratingsatlowercostperkW.

However,themethodologiesdescribedabovemayhavetobeadjusted.Therearetwofactorsthatmustbeconsidered.First,theproductionprofileofthesesystemswillbedifferentthanthatoftheoverallfleetasdescribedinPart2.Thesesystemswillbebuiltatoptimalorientation(e.g.,southfacingatanoptimaltiltangle)inordertomaximizetheenergyproduction.Therefore,theproductionprofileassociatedwithsuchanoptimaldesignshouldbeusedratherthanthefleetprofile.

Itshouldalsobenotedthatthesharedsolarresourcemaybeelectricallydistantfromthemember-customer.Inasense,theenergywouldhavetotravelfromthesharedresourcetothecustomer,andthiswouldincludeadditionallossesnotaccountedforinthemethodology.However,theenergyinpracticewouldnotbedeliveredtothespecificcustomerbutsimplyaccountedforandcreditedthroughmetering.Theenergyproducedbytheresourcewouldstillresultinavoidedlosses,exceptthatthelosseswouldbeavoidedindeliveringenergytonon-membersratherthantothemembersthemselves.Themethodologywouldprovideareasonableaccountingofthisbenefit.Suchwouldnotbethecaseifthesharedresourcewereoutsideoftheserviceterritoryoftheutility.

Value of Exported Solar Energy


Insomestudies,thevalueofexportenergyissoughtratherthanthevalueofgrosssolarproduction.Thismaybethecase,forexample,indevelopingatariffinwhichself-consumptionisusedtoreduceacustomer’selectricitybill.Sucharatewouldeffectivelyprovidethecustomer-generatorwithtwobenefitstreams:thebenefitoflowerutilitybillsduetoself-consumptionandthebenefitofabillcreditsassociatedwiththevalueofexportenergy.Fromtheutilityperspective,suchamechanismalsoresultsintwoimpacts:lostrevenuefromtheself-consumptionandlostrevenueassociatedwiththosebillcreditsthatareexercised.

Regardlessofperspective—customerorutility—theeconomicanalysisrequiresasstudyinputsthehourlyloadprofileandtherelativesizeofthesolarsystemandtheload.Thisdataisnecessarytocalculatethehourlyexportprofile,andthisisadifferentshapeandmagnitudethanthegrossproduction.Ifsolargenerationisself-consumedduringthedaytime,themid-dayexportmaybelowornon-existent,incontrasttothePVFleetProductionProfiledescribedinthismethodology.Thismeansthatthecapacityvaluewillbedifferentsinceitisdependentuponthematchofbetweensolarandload.

Customershaveachoiceinsizingtheirsystems.Dependinguponsize,moreorlessenergywillbedeliveredtothegridasexportenergy.Therefore,astudyoftheexportenergyvaluewouldhavetoincludescenariosthathandlethesesizevariations.Forexample,scenarioscouldbedevelopedinwhichsolarprovides100%,75%,50%and25%oftheannualenergy.

Finally,thedetailsofthecustomerloadprofileareimportant.Oneresidentialcustomer,forexample,mayhaveadifferentloadprofilethananother.Theexportenergyprofilewillthereforebedifferentevenifotherfactorssuchassystemdesignarethesame.

Includingmultiplescenariosofrelativesizeandprofileshapemayproveimpracticalduetotheadditionaltechnicalefforttoaddresseachscenarioaswellasthecomplexityindeterminingwhichresulttoapplytoagivencustomer.Therefore,thestudyapproachmightconsiderjustoneorasmallnumberofrepresentativescenariosasanapproximation.

Qualifying Facilities Rates Manyofthemethodsdescribedherecouldbeusedtohelpidentifyasolar-specificavoidedcostrateforqualifyingfacilitiesunderPURPA.Theresultingratewouldincorporatemanyofthesolar-specificattributes,suchasthehourlyproductionprofile,intermittency,andlosssavings.

Applicability to Other DER Technologies

AspectsofthismethodologymaybeusedforotherDERtechnologies,suchasstorageandefficiency.However,thePVFleetProductionProfilewouldhavetobereplacedwithaprofile


suitabletothetechnology.Forexample,energystoragemayhaveaprofilethatincludesoff-peakchargingandon-peakdischarging.Iftheprofilewereknown,oriftheywereassumedinascenarioanalysis,thentherestofthemethodologycouldbeusedtocalculatethevalueoftheseresources.

Real Time Pricing with AMI

Insomecases,suchasstorage(adispatchableresource),thecustomerhascontrolofitsoperation,sothegenerationprofilesmaynotbeknown.Value-basedratescalculatedusinganassumedproductionprofilemightthereforenotbevalidforthesecases.

Ifthegoalofthevaluationistodevelopamechanismforcompensation,themethodologymaybeadaptedforuseinatechnology-neutralvalue-basedrateusingreal-timepricing.Inthiscase,theDERprofilemaybedeterminedattheconclusionofthebillingmonthandappliedagainstactualenergyprices(e.g.,LMPs).Inthecaseofstorage,thechargingordischargingperiodswouldcorrespondtoenergychargesandcredits.Capacityvaluecouldbefixedfornon-dispatchableresourcesbutcouldrequireadherencetoresourcequalificationstandardssimilartotheMISOstandardsandutilitycontrol(orpenaltiesfornotdispatchingduringcriticalpeaks).

Value of Solar Tariffs

Valueofsolartariffs(orVOST)wereintroducedbyAustinEnergyin2012andbyHawaiianElectricin2015.Thesetariffsintendtoprovidecompensationforsolarbasedonvalue.AustinEnergy,forexample,usesamethodologysimilartotheonedescribedhereandincorporatingmarket-basedpricesinERCOT.TheHawaiianElectric“gridsupply”optionprovidesforself-consumptionandarateforexportenergybasedonmarginalenergycosts.

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