Pricing Distributed Energy: Beyond Net Metering Corey Lott, Ph.D. - - PowerPoint PPT Presentation

Pricing Distributed Energy: Beyond Net Metering

Corey Lott, Ph.D. Christensen Associates Energy Consulting June 25, 2019

Wisconsin Public Utility Institute New Technologies and Pricing Challenges

The Net Metering Dilemma

Net Metering Defined

 “Net metering is a billing mechanism that

credits solar energy system owners for the electricity they add to the grid.”*

 Uses a utility’s standard tariff and current

metering technology

 Net Energy Metering (NEM) measures net

consumption of Distributed Energy Resource (DER) customers

 DER customers credited at the standard tariff

energy price

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*Solar Energy Industries Association: https://www.seia.org/initiatives/net-metering

Rate Design and Utility Costs

 Standard Tariff = Customer Charge

+ Energy Charge

 Fixed Costs vs. Variable Costs  Utility costs vary by month, day, hour  Example Standard Tariff:

• Customer Charge: $12 /customer-month
• Energy Charge: $0.12 /kWh
• Typical Customer: 1,000 kWh
• DER Customer: 400 kWh (produces 600 kWh)

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Net Metering Basics

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Net Metering at Retail Rate 400 Usage (kWh) $132 $12 1,000 Bill $ $60

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Net Metering Appears to Create a New DER Customer Class

“Net zero” DER customers would show up

• n the y axis

* * ** ** * * *

Residential Costs, Prices and Utility Revenue Requirements

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400 DER Customer

DER Revenue

kWh/month Bill $

1,000 Standard Tariff Customer Price Customer Charge $12 $132 Cost Customer- Related Unit Cost

Standard Tariff Customer: Revenue = Cost DER Cost

Net Metering Credit Alternatives for Net Excess Generation (NEG)

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Net Metering with Credit at Retail Rate for NEG Net Metering with Avoided Cost-Based Credit for NEG

400 Usage (kWh) $132 $12 1,000 Bill $ $60 400 Usage (kWh) $132 $12 1,000 Bill $ $60

Alternatives to Net Metering

“Buy-All/Sell-All”

 Metering:

• Requires two meters
• Can be hourly or monthly usage collected

 Billing:

• All site consumption is purchased from the utility at the

standard energy charge

• All site generation is sold to the utility at a separate

price (more on this later)

• The bill is the sum of these two totals

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Net Metering and Buy-All/Sell-All with Avoided-Cost Based Credit

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Net Metering Credit on NEG Buy-All/Sell-All Credit on all Site Generation

400 Usage (kWh) $132 $12 1,000 Bill $ $60 400 Usage (kWh) $132 $12 1,000 Bill $ $60 $102

Residential Demand Charges

 Metering (2 approaches):

1) Meter capable of recording total usage and max demand 2) Use hourly interval metering to record net flows each hour

 Billing:

• Charge for net energy consumption
• Charge for demand via highest net flow value

 Issue: Is energy price close to avoided cost?

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Residential Demand Charge with DER

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kWh/month Bill $

1,000 Standard Tariff Customer Energy Price Customer Charge $12 $132 400 DER Customer

DER Revenue DER Cost

Cost Customer + Demand Charge

Standard Tariff Customer: Revenue = Cost

Avoided Cost

Avoided Cost

 Definition under PURPA*:

• “the incremental costs to an electric utility of electric

energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source.” (18 CFR §292.101(b)(6))

 The costs saved by the grid if energy is supplied

by an alternative source

*Public Utility Regulatory Policies Act, 1978

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What Costs Are Avoided by DER?

 Short term

• Lowers utility generation

– Fuel cost – Variable O&M cost

 Long term

• Reduced investment in generation capacity
• Potential reduced investment in

transmission/distribution capacity

• Potential avoided environmental costs

 What should be included in rate design?

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Interpretations of Avoided Cost

Utility perspective:

 Costs avoided when demand declines

• Wholesale market energy and reserves prices
• Some acceptance: Slower growth in generation

capacity

• Hard to demonstrate T&D savings

 Wisconsin regulatory review reflects this

perspective

• Result close to wholesale price

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Interpretations of Avoided Cost (2)

Solar/renewable advocate perspective:

 Expansive view encompassing most long-term

costs

 Value of Solar (VOS)

• Uses long-term contract offering a quasi-fixed price for

up to 25 years (Minnesota)

• Market price of energy adjusts annually (Austin)
• Avoided costs re-evaluated with increased penetration

 Avoided cost estimates up to 30¢/kWh*

* Regulatory Assistance Project: Designing Distributed Generation Tariffs Well, Table 10 re VOS Studies

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Value of Solar Components:

Sample Calculation

Cost Category Gross Starting Value Load Match Factor Loss Savings Factor Distributed PV Value Avoided Fuel Cost 0.061 $ 8% 0.066 $ Avoided Plant O&M - Fixed 0.003 $ 40% 9% 0.001 $ Avoided Plant O&M - Variable 0.001 $ 8% 0.001 $ Avoided Gen Capacity Cost 0.048 $ 40% 9% 0.021 $ Avoided Reserve Capacity Cost 0.007 $ 40% 9% 0.003 $ Avoided Trans Capacity Cost 0.018 $ 40% 9% 0.008 $ Avoided Dist Capacity Cost 0.008 $ 30% 5% 0.003 $ Avoided Environmental Cost 0.029 $ 8% 0.031 $ Avoided Voltage Control Cost tbd Solar Integration Cost tbd Value of Solar 0.134 $ Source: Minnesota Value of Solar: Methodology , Clean Power Research, 1/31/2014; Figure 3, p. 42.

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Replacing Net Metering

Steps in Transition from Net Metering

 Introduce new metering to obtain needed

information

• Net kWh and kW (Demand Charges)
• Total kWh in and out (Buy-All, Sell-All)
• Hourly interval metering (Either, enables TOU)

 Close enrollment for existing net metering tariff

• Grandfather existing DER installations into net metering

 Introduce new DER pricing design to:

• Fully recover fixed cost
• Price site generation at a level that is acceptable to all

stakeholders

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Potentially Adequate Designs

 Buy-all/sell-all:

• Adequate price incentives
• Full cost recovery
• Issue: Reflecting reduced net demand in bills

 Net billing with demand charges:

• Full cost recovery
• Reflects reduced net demand in bills
• Requires unbundling to make energy price reflect

energy-related embedded cost, although not marginal cost

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Key Issue: Avoided Cost

 Utility perspective focuses on avoided costs

reflected in their books

 Customer/solar advocate perspective is

expansive

• Calculations in VOS rely on present value of long-run

marginal costs

• Some avoided costs are hotly debated

 Parties are far apart, limiting ability to

compromise

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Questions? Comments?

Please contact Corey Lott at cjlott@caenergy.com

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