Value of Solar Introduction KRR 160331 - Pace University

Introduction to Value of Solar

Karl R. Rábago

Executive Director - Pace Energy and Climate CenterCo-Director – Northeast Solar Energy Market Coalition

Bonbright Criteria for Rate Making1. Effectiveness in yielding total revenue requirements under the fair-return standardwithout any socially undesirable expansion of the rate base or socially undesirable level of product quality and safety2. Revenue stability and predictability, with a minimum of unexpected changes that are seriously adverse to utility companies3. Stability and predictability of the rates themselves, with a minimum of unexpected changes that are seriously adverse to utility customers and that are intended to provide historical continuity4. Static efficiency, i.e., discouraging wasteful use of electricity in the aggregate as well as by time of use5. Reflect all present and future private and social costs in the provision of electricity (i.e., the internalization of all externalities)6. Fairness in the allocation of costs among customers so that equals are treated equally7. Avoidance of undue discrimination in rate relationships so as to be, if possible,compensatory (free of subsidies)8. Dynamic efficiency in promoting innovation and responding to changing demand-supply patterns9. Simplicity, certainty, convenience of payment, economy in collection, understandability, public acceptability, and feasibility of application10. Freedom from controversies as to proper interpretation

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Ideal Solar Rates

• Fair to the utility and non-solar customers• Fair compensation to the solar customer• Decouple compensation from incentives• Align public policy goals (decouple

compensation from consumption)• Intuitively sound and administratively

simple

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Cost of Service Ratemaking• Properly set retail rates =

• Cumulated costs to provide delivered kWh @ meter• Plus, a margin (for profit, debt service coverage, etc.)

• Distributed “DG” Solar: A kWh of energy produced at or very near the point of consumption avoids all the costs reflected in proper cost-based rates, plus:• Customer bears financing, insurance, operational risk• Solar is drought-proof; carbon-proof; price-stable• Excess, according to physics, serves the nearest

unserved load; often higher-than-average value

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Net Metering• Net metering customers are fully charged for their gross

consumption. (See next slide)• Net metering does not allow the customer to “avoid” distribution

charges, only “offset.” There is a big difference.• Valuation studies in AZ, CA, CO, CT, MA, ME, MN, MS, NC,

NH, NV, RI, TX, VT, WI show that net metering at full retail results in solar customers subsidizing the utility and non-solar customers.

• It is illogical to assert that net metering creates a subsidy without a full cost-of-service or valuation study to prove it.

• So the real question – what is the fair offset rate for distributed solar generation?

“In God We Trust, All Others Must Bring Data”W. Edwards Deming

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Net Metering

NEM Bill = (GC – GP) x RateR

or (GC x RateR) - (GP x RateR)

where: GC = Gross ConsumptionGP = Gross ProductionRateR = Retail Rate(in some places, differential for offset vs.excess production


Value of Solar Analysis Tool

• Traces to the 1990s; developed at Austin Energy in 2006, with help from Clean Power Research

• First used to benchmark IPP offers and PPA pricing• Then used to benchmark commercial PBR

(performance based rate)• Covered energy, capacity, T&D, fuel price volatility,

environmental for utility analysis• Separate study characterized jobs and other

economic development benefits (not everything belongs – hard to quantify, better venues)


Solar Value: Analytical Approach• When a customer and the community invest in solar, it provides

valuable, privately-funded, clean electricity—at or very near the point of use. (Customer capital at risk)

• If the utility had to provide that same quality electricity, what would it be worth? What is the fair value?

• Analysis shows value or avoided expenses for:• Electric energy and capacity• Transmission & distribution (energy & capacity)• Line losses (transmission & distribution)• Fuel price hedging (cost to maintain stable fuel prices)• DRIPE – Demand Response Induced Price Effect• Environmental value (non-fossil, carbon-free, "waterproof")

• Analysis shows additional societal value, often >2X utility value, for jobs, economic development, local tax revenues, etc.


Determining the VOS Value• Cumulative and long-term avoided cost

• Like resource planning valuation• LCOE, adjusted for load match (intermittence),

line losses, and risk• Conservative, known, and measurable

• Derives an energy value, so customer bears risk of non-performance

• Can set compensation separately from incentive levels, allowing better management of both


Sample Solar Valuation - Maine

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Distributed Solar Valuation:“A Regulator’s Guidebook”


Available through:

http://irecusa.org

Thank you!

Pace Energy and Climate Centerhttp://energy.pace.edu


Karl R. Rábago

Executive Director914-422-4082

[email protected]

Value of Solar Introduction KRR 160331 - Pace University

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