compensating,distributed...
TRANSCRIPT
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed
Generation Customers
Ted Kelly, Principal & Business Development Manager
TPPA Annual Conference July 22, 2014
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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
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Defining Distributed Generation
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What is Distributed Generation
• Generally non-‐centralized sources of electric
generation
• Wind • Photovoltaic • Combined heat and power • Fuel cells • Micro turbines
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Benefits of Distributed Generation
• Benefits to customers and utilities
• Reduced transmission and distribution costs
• Reduced environmental impacts
• Enhanced reliability
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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
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Keys to Successful Distributed
Generation
• Flexibility in selecting right technology
• Flexibility in structuring deals to meet needs
• Balance needs of customers and utility
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Distributed Generation
Applications
• Continuous power
• Combined heat and power
• Peaking power
• Green power
• Premium power
• Transmission and distribution deferral
• Ancillary service power
• Remote power
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Fair Compensation for
Distributed Generation
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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?
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Strategies for Managing a Shrinking Budget
Evaluating Retail Rates for Distributed
Generation
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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
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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
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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
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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
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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
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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
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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
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Key Points to Designing Distributed
Generation Rates
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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
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Key Points (continued)
• Extrapolating from extreme situations is
misleading
• Rules matter (e.g. interconnection)
• Keep as simple as possible
• Support innovative business models
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Key Points (continued)
• Keep incentive decision separate from rate design
• Keep decoupling decision separate from rate
design
• Consider mechanisms for “have nots”
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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
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Closing Thoughts
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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
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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
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed Generation Customers
Discussion
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Engineering, Architecture, Construction, Environmental, and Consulting Solutions
Compensating Distributed
Generation Customers
TPPA Annual Conference July 22, 2014