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Value of Solar Tariff
Will it work in Washington State?
Ahlmahz Negash
11-05-2014
Overview
• Net Energy Metering
• Value of Solar Tariffs
• Valuation methodologies
• Minnesota Method
• Modified Version
• Conclusion:
• VOST in Washington
2
Net Energy Metering
“This is a stable and highly successful policy. We need to maintain net metering,
not ‘fix’ it.”
-Anne Smart, TASC Executive Director
3
How does NEM Value Solar?
Is this fair?
PV Electricity
Grid Electricity
4
Why is NEM an issue?
• Poor Retail Rate Design
• Volumetric, not cost reflective
• Poor DER Pricing Mechanisms
• Incentive-based, not value-based
“Todays rates are an increasing
reflection of yesterday’s grid”.
1.Rocky Mountain Institute, “Rate Design for the Distribution Edge”, August 2014
2.Edison Electric Institute, “Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business”, Jan 2013
5
Financial Impact of NEM
Lawrence Berkeley National Lab, “Financial Impacts of Net-Metered PV on Utilities and Ratepayers: A Scoping Study of Two Prototypical U.S. Utilities”, September 2014
6
Legislation to Eliminate or Alter NEM
NC Clean Energy Technology Center, “Rethinking Standby Charges and Fixed Cost Charges: Regulatory and Rate Design Pathways to Deeper Solar PV Cost Reductions”, August 2014
7
Summary: NEM Debate
Argument against NEM
Argument for NEM
• PV customers avoid fixed costs and
shift them to other customers
• PV customers use the grid as a free
battery!
• The benefits of PV more than make
up for the cost of NEM.
Traditional
Benefits
Non-Traditional
Benefits
8
Value of Solar (I)
“The right price mechanism for a forward-looking technology is not backwardlooking costs.”
-Karl Rabago, Former Texas Regulator and Utility Executive
9
Value of Solar Tariffs (VOST)
• Sum of several individually
calculated value components.
• “Buy All. Sell All.”
• Levelized Value
• Alternative to NEM
• Clean Power Research
• Austin Energy – 2012
• Minnesota - 2014
Is it possible for VOST>Retail Rate?
10
Value of Solar Tariffs Design Process
Identify
Value
Components
Quantify
Economic
Value
Calculate
VOST
11
Step 1: Identify Value Components
Energy
Benefits
Capacity
Benefits
Avoided fuel cost
Generation Capacity
Ancillary
Benefits
Voltage Regulation
Avoided variable
plant O & M costs
Reserve Capacity
Avoided energy loss
Transmission &
Distribution Capacity
Straightforward
Environmental
Benefits:
* Reduced RPS Need
* REC Sales
* Reduced Carbon
* Other Benefits
Other Benefits
Energy hedge value
Externalities
Fixed O & M Plant
Costs
Societal Benefits
* Local Economy
* Stimulates technology
* Other benefits
Complex
12
Step 2: Quantify Economic Value
• Calculate 25-year levelized cost of each value component
• Process:
• Estimate marginal solar production for 25 year period
• Estimate discounted utility costs for each “value component”
• Value-based price is the discounted cost divided by the discounted production
𝑉𝑂𝑆𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡 =
𝑃𝑉𝐿𝑖𝑓𝑒−1
𝑦𝑒𝑎𝑟=0 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑒𝑑 𝑈𝑡𝑖𝑙𝑖𝑡𝑦 𝐶𝑜𝑠𝑡𝑠𝑦𝑒𝑎𝑟
𝑃𝑉𝐿𝑖𝑓𝑒−1
𝑦𝑒𝑎𝑟=0 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑒𝑑𝑃𝑉𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑦𝑒𝑎𝑟
13
Example: Value of Avoided Fuel Costs
𝑉𝑂𝑆𝑓𝑢𝑒𝑙 =
24
𝑦𝑒𝑎𝑟=0 𝐵𝑢𝑟𝑛𝑒𝑟𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝑦𝑒𝑎𝑟 𝑆𝑜𝑙𝑎𝑟𝑊𝑒𝑖𝑔ℎ𝑒𝑑𝐻𝑒𝑎𝑡𝑅𝑎𝑡𝑒𝑦𝑒𝑎𝑟 𝑃𝑉𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑦𝑒𝑎𝑟 𝑅𝑖𝑠𝑘𝐹𝑟𝑒𝑒𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝐹𝑎𝑐𝑡𝑜𝑟𝑦𝑒𝑎𝑟
24
𝑦𝑒𝑎𝑟=0 𝑃𝑉𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑦𝑒𝑎𝑟 𝑅𝑖𝑠𝑘𝐹𝑟𝑒𝑒𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝐹𝑎𝑐𝑡𝑜𝑟𝑦𝑒𝑎𝑟
Where,
𝑅𝑖𝑠𝑘𝐹𝑟𝑒𝑒𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝐹𝑎𝑐𝑡𝑜𝑟𝑦𝑒𝑎𝑟 =
8760
𝑃𝑉𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛𝑦𝑒𝑎𝑟 =
1
1+𝑟
𝑦𝑒𝑎𝑟
𝑃𝑉𝐹𝑙𝑒𝑒𝑡𝑆ℎ𝑎𝑝𝑒ℎ𝑜𝑢𝑟 ∗ 1 − 𝑝
𝑦𝑒𝑎𝑟
ℎ𝑜𝑢𝑟=1
𝑆𝑜𝑙𝑎𝑟𝑊𝑒𝑖𝑔ℎ𝑒𝑑𝐻𝑒𝑎𝑡𝑅𝑎𝑡𝑒𝑦𝑒𝑎𝑟 =
8760
ℎ𝑜𝑢𝑟=1 𝐻𝑒𝑎𝑡𝑅𝑎𝑡𝑒ℎ𝑜𝑢𝑟 ∗ 𝑃𝑉𝐹𝑙𝑒𝑒𝑡𝑆ℎ𝑎𝑝𝑒ℎ𝑜𝑢𝑟
8790
ℎ𝑜𝑢𝑟=1 𝑃𝑉𝐹𝑙𝑒𝑒𝑡𝑆ℎ𝑎𝑝𝑒ℎ𝑜𝑢𝑟
𝑁𝐺𝑃𝑟𝑖𝑐𝑒𝑦𝑒𝑎𝑟 + 𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 ∗ 1 + 𝑔
𝐵𝑢𝑟𝑛𝑒𝑟𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝑦𝑒𝑎𝑟 =
𝑁𝐺𝑃𝑟𝑖𝑐𝑒11 ∗ 1 + 𝑔 𝑦𝑒𝑎𝑟 ,
𝑦𝑒𝑎𝑟
,
∗ 1+ℎ
𝑦𝑒𝑎𝑟
𝑦𝑒𝑎𝑟 = 0 … 11
𝑦𝑒𝑎𝑟 = 12 … 24
14
Results: Value of Avoided Fuel Costs
Prices
Year
Solar
Weighed
Heat Rate
Utility
Price
Costs
Guaranteed
Fuel Prices
Burnertip
Fuel Price
p.u. PV
Production Utility
$/MMBtu
$/MMBtu
(Btu/kWh)
$/kWh
$/kWh
(kWh)
($)
($)
$4.43
7900
$0.03
$0.05
1018
$35.61
$4.63
7908
$0.04
$0.05
1013
$37.09
$4.78
7916
$0.04
$0.05
1007
$38.08
$4.90
7924
$0.04
$0.05
1002
$38.91
$5.05
7932
$0.04
$0.05
997
$39.97
VOS
2014
2015
2016
2017
2018
$3.93
$4.13
$4.28
$4.40
$4.55
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2034
$8.77
2035
$9.01
2036
$9.24
2037
$9.49
2038
$9.74
Validation: Present Value
$9.27
$9.51
$9.74
$9.99
$10.24
8060
8068
8076
8084
8092
$0.07
$0.08
$0.08
$0.08
$0.08
$0.05
$0.05
$0.05
$0.05
$0.05
921
916
911
907
902
Disc. Costs
Discount
Factor
(risk free) Utility
VOS
VOS
($)
($)
$55.56
$55.29
$55.01
$54.74
$54.46
1.0000
0.9998
0.9936
0.9821
0.9661
$35.61
$37.08
$37.84
$38.21
$38.61
$55.56
$55.28
$54.66
$53.76
$52.61
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$68.81
$70.24
$71.71
$73.21
$74.74
$50.26
$50.01
$49.76
$49.51
$49.27
0.5430
0.5218
0.5017
0.4828
0.4650
$37.36
$36.65
$35.98
$35.34
$34.75
$991.54
$27.30
$26.10
$24.97
$23.90
$22.91
15
$991.54
Step 3: VOST Calculation
𝑛𝑢𝑚𝐶𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠
𝑉𝑂𝑆𝑇 =
𝑉𝑂𝑆𝑖 ∗ 𝐿𝑜𝑎𝑑𝑀𝑎𝑡𝑐ℎ𝐹𝑎𝑐𝑡𝑜𝑟𝑖 ∗ 1 + 𝐿𝑜𝑠𝑠𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝐹𝑎𝑐𝑡𝑜𝑟𝑖
𝑖
Where,
𝑃𝐿𝑅𝑤𝑖𝑡ℎ𝑜𝑢𝑡𝑙𝑜𝑠𝑠𝑒𝑠
𝐿𝑜𝑎𝑑𝑀𝑎𝑡𝑐ℎ𝐹𝑎𝑐𝑡𝑜𝑟𝑖 = 𝐸𝐿𝐶𝐶𝑤𝑖𝑡ℎ𝑜𝑢𝑡𝑙𝑜𝑠𝑠𝑒𝑠
1
𝐿𝑜𝑠𝑠𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑃𝐿𝑅
𝐿𝑜𝑠𝑠𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝐹𝑎𝑐𝑡𝑜𝑟𝑖 = 𝐿𝑜𝑠𝑠𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝐸𝐿𝐶𝐶
𝐿𝑜𝑠𝑠𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝐸𝑛𝑒𝑟𝑔𝑦
𝑓𝑜𝑟 𝑑𝑖𝑠𝑡 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡
𝑓𝑜𝑟 𝑜𝑡ℎ𝑒𝑟 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠
𝑓𝑜𝑟 𝑒𝑛𝑒𝑟𝑔𝑦 𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠
𝑓𝑜𝑟 𝑑𝑖𝑠𝑡 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡
𝑓𝑜𝑟 𝑜𝑡ℎ𝑒𝑟 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠
𝑓𝑜𝑟 𝑒𝑛𝑒𝑟𝑔𝑦 𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠
16
Load Match Factors (Winter Peaking Region)
Effective Load Carrying Capacity (ELCC)
ELCC = 0.0047
Peak Load Reduction (PLR)
PLR = 0
17
Value of Solar Tariff
• Will this method work for
Washington State?
• Winter peaking
• No capacity value!
• Marginal fuel is NG and Hydro
• Energy value is incorrect!
• Env. Value is incorrect!
$0.096
18
Marginal Fuel Assumption…
50% NG & 50% Hydro
20% NG & 80% Hydro
Levelized Value of Solar (Marginal Fuel: 50% NG)
Levelized Value of Solar (Marginal Fuel: 20% NG)
0.12
0.12
Levelized Value ($/kWh)
0.1
0.08
0.06
0.04
0.02
0
AvoidedFuel
AvoidedOMFixed
AvoidedOMVariable
AvoidedGenCap
AvoidedResCap
AvoidedTransCap
AvoidedDistCap
AvoidedEnviron
0.1
Levelized Value ($/kWh)
AvoidedFuel
AvoidedOMFixed
AvoidedOMVariable
AvoidedGenCap
AvoidedResCap
AvoidedTransCap
AvoidedDistCap
AvoidedEnviron
0.08
0.06
0.04
0.02
1
2
$0.073
0
1
$0.059
2
19
Value of Solar (II)
20
Another VOST
• Energy value = Mid-C Forecast
• Load Match = Capacity Factor
Levelized Value of Solar ($1 REC)
0.12
AvoidedEnergy
EnergyHedgeValue
AvoidedLineLosses
AvoidedGenCap
AvoidedTransCap
AvoidedDistCap
ReducedRPSNeeded
RECSales
• Env. Value = Reduced RPS Needs
+ REC Sales
• REC=$1/REC
Levelized Value ($/kWh)
0.1
0.08
0.06
0.04
0.02
0
1
2
$0.065
21
One more time…
• Energy value = Market Price
• Load Match = Capacity Factor
• Env. Value = Reduced RPS Needs
+ REC Sales
• REC=$50/REC
$0.122
22
Conclusion
Washington State VOST: Policy Implications
23
Policy Implications…
Solar Policy
Policy creates demand
Policy rewards supply
Incentive-Based
Standard-Based
NEM
Tax Credits
Production Credits
•
•
•
RPS (Solar)
REC/SREC
ACP Rate
Value of Solar
EPA SCC
...
VOS determines rate
Value of Solar
Tariff
24
VOST: A good idea?
Yes
1. VOST is fair and just compensation
method for everyone.
2. VOST is more economically sound
and efficient than current net
metering policies.
3. VOST
can
optimize
solar
penetration and location without
arbitrary caps.
No
1. Without strong solar policies, the
value of solar is low in
Washington.
2. A VOST is not likely to be high
enough to drive local solar
economy.
3. Uncertainty in future policies can
place financial risk on utilities
and/or undervalue solar.
25
Summary
• Many factors influence VOST calculations
• Economic assumptions
• Regional characteristics
• Federal and state RE/solar policies
• A successful Washington State VOST would:
• require monetizing additional externalities
• be very policy dependent
• address the need to restructure rates
26
Thank you!
27