pricing distributed energy: beyond net metering · * regulatory assistance project: designing...
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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 netconsumption 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
on the y axis
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Residential Costs, Prices and
Utility Revenue Requirements
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400DER Customer
DER Revenue
kWh/month
Bill $
1,000Standard 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 NEGNet 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 NEGBuy-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 $
1,000Standard Tariff Customer
Energy Price
Customer
Charge $12
$132
400DER Customer
DER RevenueDER Cost
Cost
Customer +
Demand
Charge
Standard Tariff Customer:
Revenue = Cost
Avoided Cost
Avoided Cost
Definition under PURPA*:
“the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source.” (18 CFR §292.101(b)(6))
The costs saved by the grid if energy is supplied by an alternative source
*Public Utility Regulatory Policies Act, 1978
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What Costs Are Avoided by DER?
Short term Lowers utility generation
– Fuel cost
– Variable O&M cost
Long term Reduced investment in generation capacity
Potential reduced investment in transmission/distribution capacity
Potential avoided environmental costs
What should be included in rate design?
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Interpretations of Avoided Cost
Utility perspective:
Costs avoided when demand declines
Wholesale market energy and reserves prices
Some acceptance: Slower growth in generation capacity
Hard to demonstrate T&D savings
Wisconsin regulatory review reflects this perspective
Result close to wholesale price
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Interpretations of Avoided Cost (2)
Solar/renewable advocate perspective:
Expansive view encompassing most long-term costs
Value of Solar (VOS)
Uses long-term contract offering a quasi-fixed price for up to 25 years (Minnesota)
Market price of energy adjusts annually (Austin)
Avoided costs re-evaluated with increased penetration
Avoided cost estimates up to 30¢/kWh** Regulatory Assistance Project: Designing Distributed Generation Tariffs Well, Table 10 re VOS Studies
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Value of Solar Components:Sample Calculation
Cost Category
Gross
Starting
Value
Load
Match
Factor
Loss
Savings
Factor
Distributed
PV Value
Avoided Fuel Cost 0.061$ 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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