Application of Benefit-Cost Methods for the Evaluation of the Value of Solar. Scott Bloomberg Associate Director

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1 Application of Benefit-Cost Methods for the Evaluation of the Value of Solar Scott Bloomberg Associate Director SBCA 2018 Conference, Washington, DC March 15, 2018

2 Introduction Net energy metering is a policy to compensate distributed solar photovoltaic (PV) owners at the retail electricity rate for any excess generation. This structure helped to incentivize early adopters and bring down the cost of solar PV. Now, many jurisdictions are questioning the appropriateness of compensation at the full retail rate because while solar PV provides some economic benefits, it also introduces costs. The result of this questioning has been for jurisdictions to instead ask, What is the value of solar? Benefit-cost analysis, if properly conducted, can help answer this question for regulators and other stakeholders 1

3 Common Categories of Benefits and Costs for Solar PV Benefits Avoided Energy Avoided Capacity Avoided T&D Capacity Avoided System Losses Avoided RPS Compliance/Environmental Avoided Grid Support Services Avoided Outages Non-Energy Benefits Costs Reduced Revenue Administrative Costs Interconnection Integration Benefits and costs vary by location and time - I will focus on a few of these categories 2

4 Avoided Energy Costs What is the cost of energy of the power displaced by the distributed solar PV? High Cost/High Solar PV Typically higher variable cost fossilfired generators (average over all hours with significant variation across hours) Low Cost/Low Solar PV Typically lower variable cost generators (average over all hours with significant variation across hours) Potential for displacing non-dispatchable resources with no avoided costs Can displace market purchases or reduce market sales Range of avoided costs: 6 to 8 /kwh (higher in HI) Range of avoided costs: 3 to 6 /kwh Avoided energy costs can change significantly over time requiring regular updating of values If calculating avoided energy costs from market prices, environmental costs should not be double counted 3

5 Avoided Capacity Costs The value of distributed solar PV is a function of how it contributes to meeting peak demand High Cost/High Solar PV Solar is at its max output in the hours prior to the peak (not at the peak), and leads to significant ramping requirements, which could offset any potential benefits Over time, very high solar PV penetration can shift peaks to post-sunset hours, thereby driving capacity benefits to zero Range of avoided costs: 4 to 9 /kwh Low Cost/Low Solar PV Winter peaking region solar contribution to peak is nil Range: 0 to 3 /kwh Jurisdictions evaluate distributed solar PV s contribution to meeting peak demands differently (e.g., historical contribution during peak month, top 20 hours) Energy storage has the potential to enhance this value if paired with solar PV 4

6 Avoided RPS Compliance/ Environmental Costs Distributed solar PV could count towards RPS generation or reduce RPS generation requirements (depending on state RPS rules) Avoided environmental costs should be based on market costs rather than social costs (same is true for RPS) High Cost/High Solar PV Has a tight RPS that is expected to binding into the future Has state-level CO 2 limits and associated price No binding limits on other pollutants Range of avoided costs: 2 to 4 /kwh Low Cost/Low Solar PV No state RPS No state/federal CO 2 price No binding limits on other pollutants Range of avoided costs: 0 /kwh Consideration of non-market environmental costs could create a crosssubsidization of PV customers by non-pv customers by compensating PV customers for something that non-pv customers do not pay 5

7 Benefit-Cost Tests Can Reveal the Value of Solar to Different Groups Utility/Program Administrator Cost Test - Evaluation of the present value of net benefits (i.e., benefits minus costs) of the solar PV NEM program from utility s perspective Answers the question of whether solar can contribute to lower costs for the utility and its customers as a whole Ratepayer Impact Measurement (RIM) Test - Evaluation of net impacts from ratepayer s perspective, e.g., change in rates/bills due to changes in utility revenues/operating costs Answers the question of whether solar can contribute to lower costs for solar customers and non-solar customers (or at least not increase costs to non-solar customers) The findings from a benefit-cost test cannot be reliably applied to different jurisdictions or time periods 6

8 Conclusions 1. Solar PV net metering has evolved from an avenue to support the development of solar technology to an issue of fairness, whereby jurisdictions are wary of shifting costs onto non-solar PV customers 2. One cannot simply rely on rules of thumb or studies of the value of solar from other jurisdictions because the benefits and costs could be completely different 3. In addition to the value of solar varying by location, its value can also change quickly over time so frequent updating of the value is helpful 7

9 California s Duck Curve Load Minus Wind and Solar Generation on a Typical Day in April (Worst Case) Ramp needs over 3 hours ~9,000 MW in 2017 ~11,000 MW in 2020 ~14,000 MW in 2025 ~18,000 MW in 2030 Source: NERA analysis using data from the CPUC RPS Calculator 8

Distributed Generation

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