Distributed Generation Benefits and Planning

Challenges

CREPC/SPSC Resource Planners’ ForumOctober 3, 2012

Arne Olson

Energy and Environmental Economics, Inc.

E3 has operated at the nexus of planning, policy and markets since it was founded in 1989

E3 advises utilities, regulators, government agencies, power producers, energy technology companies, and investors on a wide range of critical issues in the electricity and natural gas industries

Offices in San Francisco, CA and Vancouver, B.C.

Developed “High DG” cases for CPUC, SPSC

2

Agenda

1. What is DG, and what does it do for us?

2. Is DG more cost-effective than central station generation? (Hint: it depends on your perspective.)

3. Challenges in harvesting DG values: how current planning practices account for DG (or not).

4. Concluding Thoughts

3

What is DG, and what does it do for us?

What is DG?

5

distributed

adjective

spread out or scattered about or divided up [ant: concentrated] WordNet® 3.0, © 2006 by Princeton University.

DG has been defined in manydifferent ways depending on the context

DG dimensions:

• Size: 1 kW up to … 50 MW?

• Location: customer side vs. utility side of meter

• Interconnection point: distribution, sub-transmission, bulk transmission

• Proximity to load: behind-the-meter, same distribution feeder, in a load pocket, remote from load

• Technology type: PV, CHP, micro wind, fuel cells, microturbines, reciprocating engines

Which of These are DG?

6

20 MW near substationsLarge commercial rooftopsResidential rooftops

Illustrative Example of Distributed Solar PVRemote 20 MW sites identified by California’s RETI

Why DG?

Ratepayer benefits:

• High locational energy value in load pocket

• Reduced losses (~7% average, up to 15% on peak)

• Reduced need for new transmission

• Reduced need for new distribution

Non-ratepayer benefits:

• Reduced electricity bills for customer-side DG

• Reduced land-use footprint in sensitive ecological regions

• Local jobs in economically-depressed areas?

• Increased consumer choice & autonomy?

• More tangible/real than remote RE?

7

DG has a number of potential benefits relative to central

station generation

Spectrum of DG Interconnection Points

8

Existing HighVoltageSystem

Renewable energyzone

Sub-Trans.Substation

DistributionSubstation

Gen Step-upSubstation

2

3 4

5

6

ReferencePoint forCosting

$A $B

$C

-$E

-$F

Meter

1

230kV+69kV to138kV

4kV to21kV

Non-existingTransmission

NetworkTransmission

230kV+

$D

Since DG can have many definitions, it is better to focus on the benefits that generation can provide at different interconnection points

DG Interconnection Points

Home

Neighborhood CommunityRemote, new transmission

Remote, existing transmission

DG Benefits Depend on Interconnection Point

Interconnection Point

DG Benefit HomeNeighbor-

hood Community

Remote, existing

transmission

Remote, new

transmission

Locational energy value ● ● ● - -

Reduced Losses ● ● ● - -

Reduced need for distribution ● ● - - -

Reduced need for transmission ● ● ● - -

Environmental/other benefits ● ● ● ● ?

Reduced bills for DG system owners ● - - - -

9

Rate

payer

Benefits

Oth

er

Ben

efits

Is DG More Cost-Effective Than Central Station

Generation?

Solar PV Costs Can Vary Dramatically by Location

$105

$121

$154

$231

Source: CPUC 33% RPS Calculator, April 2012

Residential rooftop (4 kW)

Large, ground-mount

(150 MW)

Small, ground-mount

(5-20 MW)$167

Small, ground-mount

(1-5 MW)

Installed cost varies due to resource quality, size, installation type (shown as levelized $/MWh)

11

Example Values by Interconnection Point

Interconnection Point

DG BenefitHome(5 kW)

Neighbor-hood

(1-5 MW)Community(5-20 MW)

Remote, existing Tx(150 MW)

Remote, new Tx

(150 MW)

Levelized Cost $231 $167 $154 $121 $105

Locational energy value -$39 -$39 -$39 -$34 -$34

Reduced Losses -$3 -$3 -$1 - -

Capacity Value -$35 -$35 -$35 -$38 -$38

Reduced need for distribution

-$26 -$26 - - -

Reduced need for transmission

-$7 -$7 -$7 - +$20

Net Ratepayer Cost $121 $57 $72 $49 $53

Environmental/other benefits

? ? ? ? ?

12

Values using CPUC “net cost” approach ($/MWh)

Values based largely on CPUC RPS Calculator

0 200 400 600 800 1000 1200$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

SCEPG&ESDG&ESMUDLADWPSolar Rooftop PV LCOE

Monthly Consumption (kWh)

$/kW

h

DGPV Can Be Cost-Effective for Net Metered Customers

Typical California residential rates

13

South Coast Rooftop PV LCOE

Challenges in Harvesting DG Values

Accounting for DG in Resource Planning

DG is typically considered as a load modifier

• Base load forecast developed via econometric estimation

• Load modifiers to reflect demand-side policies and programs

Remaining net load served with least-cost portfolio of supply-side resources

• Wires savings and other locational values of demand-side resources frequently not considered

15

Utility-side DG has not historically been cost-competitive enough to

merit full consideration in IRP

Accounting for DG in Transmission Planning

Transmission planning is done for multiple purposes, not all of which reference local value of DG

• Interconnection: respond to service requests (DG does not help)

• Economic: relieve congestion (DG can help)

• Reliability: serve load in local area (DG can help)

DG not considered as transmission option, but may be reflected in load forecast

16

Local area studies are typically based on

meeting NERC criteria (N-1, G-1)

Accounting for DG in Distribution Planning

Distribution planning typically done with “small area” study

• Focuses on peak demand on distribution elements (feeders, transformers) in a defined area

• Trends that affect small area growth may be different from trends affecting utility-wide growth

• Utility might forecast “terminal load” based on land use plan

Harvesting distribution deferral value requires that investments actually be deferred

• Distribution engineers may be reluctant to consider effects of DG due to asymmetric risk (cost vs. blackout)

• DG investments may not be occurring outside of fast-growing areas

17

Vineyard

05

1015202530

1999 2001 2003 2005 2007

Pro

ject

s (M

W)

Las Positas

05

1015202530

1999 2001 2003 2005 2007

Pro

ject

s (M

W)

San Ramon / Dublin

05

1015202530

1999 2002 2005 2008

Pro

ject

s (M

W)

DG must be serving load downstream on distribution

feeder in order to defer distribution investments

Concluding Thoughts

Concluding Thoughts

Dramatic reduction in cost of PV has made DG a “live” option for the first time

• We can now plausibly ask the question “Is it cost-effective to develop distributed resources close to load that do not require new transmission infrastructure?”

• However, PV module cost reductions also affect cost of central station solar resources

DG can have significant additional value relative to central station resources in specific situations

• Highest locational value occurs where resources are serving load downstream in a fast-growing area

There are challenges in harvesting these values due to utility planning and procurement practices

19

Thank You!Energy and Environmental Economics, Inc. (E3)

101 Montgomery Street, Suite 1600

San Francisco, CA 94104

Tel 415-391-5100

Web http://www.ethree.com

Arne Olson (arne@ethree.com)