Compensating,Distributed...
Transcript of Compensating,Distributed...
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed
Generation Customers
Ted Kelly, Principal & Business Development Manager
TPPA Annual Conference July 22, 2014
Today’s Agenda
Defining Distributed Generation
Fair Compensation for Distributed Generation
Evaluating Retail Rates for Distributed Generation
Key Points to Designing Distributed Generation Rates
Discussion
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Defining Distributed Generation
What is Distributed Generation
• Generally non-‐centralized sources of electric
generation
• Wind • Photovoltaic • Combined heat and power • Fuel cells • Micro turbines
Benefits of Distributed Generation
• Benefits to customers and utilities
• Reduced transmission and distribution costs
• Reduced environmental impacts
• Enhanced reliability
Possible Pitfalls of Distributed
Generation
• Benefits dependent on installation and operation
• Policies to encourage need to provide flexibility
• Can needs to be taken avoid subsidies
Keys to Successful Distributed
Generation
• Flexibility in selecting right technology
• Flexibility in structuring deals to meet needs
• Balance needs of customers and utility
Distributed Generation
Applications
• Continuous power
• Combined heat and power
• Peaking power
• Green power
• Premium power
• Transmission and distribution deferral
• Ancillary service power
• Remote power
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Fair Compensation for
Distributed Generation
Industry Transition
• Technology is making customer resources less
expensive
• Technology and costs are enabling customer
resource development and participation
• What constitutes fair compensation in this time of
transition?
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Strategies for Managing a Shrinking Budget
Evaluating Retail Rates for Distributed
Generation
Rates to Accommodate DG
• Utilities exist to provide electric service to
customers
• Traditionally rates designed to recover
costs, minimize cost shifting, and are
simple and understandable
• Traditional rates no longer meet needs
Rates May Not Recover
Fixed Costs
• Traditional rates typically include fixed
charge and variable charge
• Customer charge set considerable below
actual fixed costs
• Large portion of fixed costs recovered
through variable energy charge
• Energy charge typically set to recover fixed
and variable costs based on projected sales
• If customers generate energy, lowers sales
and utility’s costs not recovered
Rates May Shift Costs from DG
Customers to Other Customers
• Energy charges set at level to recover fair
share of fixed costs from each customer
• If some customers install generation, they
will not contribute fair share of fixed costs
• Cost shifts more pronounced if utility
forced to raise rates to recover revenue
requirement
Recovering Fixed Costs with
Fixed Charges
• A rate design that recovers costs in same way
as costs incurred can mitigate risk
• Fixed costs recovered through fixed charges
• Variable costs recovered through variable
charges
• Rebalancing rates protects financial stability
of utility
• Eliminates cross subsidies caused by
interaction between traditional rate designs
and DG
Rate Rebalancing Provides More
Accurate Price Signals
• Rates should send accurate price signals
• Traditional rate designs give inaccurate
price signal
• Rates designs to recover costs as incurred
provide more accurate signal
• Distributed generation proponents are
concerned that rate design changes may
reduce incentives
• Subsidizing distributed generation with
poor rate design is unsustainable
Fixed Charge Cost Recovery Can
Benefit Low Income Customers
• Low income customers are not necessarily
low usage customers
• In many systems lower income customer
live in the oldest and least energy
efficient homes
• Lower income customers are often least
likely to invest in distributed generation
• These customers most likely to bear cost
of subsidizing distributed generation
investment
Straight-‐Fixed Variable Rates
Are One Option
• Remember the goal is to provide safe,
reliable, affordable power
• Many ways to accomplish this
• Straight-‐fixed variable rates are one
option
• Other approaches include:
• Three part rates for residential customers • Traditional rates with include stand by
charges or other specific charges for distributed generation customers
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Key Points to Designing Distributed
Generation Rates
Key Points for Distributed
Generation Rates
• Value is a two way street
• Consider all relevant sources of benefit
and cost over the long term
• Select and implement a valuation method
• Cross subsidies may flow either way
Key Points (continued)
• Extrapolating from extreme situations is
misleading
• Rules matter (e.g. interconnection)
• Keep as simple as possible
• Support innovative business models
Key Points (continued)
• Keep incentive decision separate from rate design
• Keep decoupling decision separate from rate
design
• Consider mechanisms for “have nots”
Consider Many Possible Alternative or
Supplemental Rate Policies
• Fixed charges
• Demand charges
• Time-‐based rates
• Bi-‐directional distribution rates
• Minimum monthly bills
• Standby rates
• Value of solar tariff
• Separate PV customer class
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Closing Thoughts
In Closing
• The electric grid is important to all customers
and grid costs should be fairly recovered from all
• A DG customer provides value to all customers
and that value should be compensated fairly
• Rates for DG can be designed well to provide fair
compensation
In Closing
• Rates typically based on average embedded
costs, new resources are paid based on marginal
costs so the “rate” may be >, < or = “price paid to
an incremental resource
• Rate design should provide for fair
compensation without harming small users
• Administrative simplicity matters
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Discussion
Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed
Generation Customers
TPPA Annual Conference July 22, 2014