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PV Valuation Methodology
Recommendations for
Regulated Utilities in Iowa
February 26, 2016
Prepared for:
MidwestRenewableEnergyAssociation
Prepared by:
BenNorris,CleanPowerResearch
PV Valuation Methodologies Recommendations
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Legal Notice from Clean Power Research
ThisreportwaspreparedforMREAbyCleanPowerResearch(CPR).Thisreportshouldnotbeconstruedasaninvitationorinducementtoanypartytoengageorotherwiseparticipateinanytransaction,toprovideanyfinancing,ortomakeanyinvestment.
AnyinformationsharedwithMREApriortothereleaseofthereportissupersededbytheReport.CPRowesnodutyofcaretoanythirdpartyandnoneiscreatedbythisreport.Useofthisreport,oranyinformationcontainedtherein,byathirdpartyshallbeattheriskofsuchpartyandconstitutesawaiverandreleaseofCPR,itsdirectors,officers,partners,employeesandagentsbysuchthirdpartyfromandagainstallclaimsandliability,including,butnotlimitedto,claimsforbreachofcontract,breachofwarranty,strictliability,negligence,negligentmisrepresentation,and/orotherwise,andliabilityforspecial,incidental,indirect,orconsequentialdamages,inconnectionwithsuchuse.
CPR’s Solar Valuation Background
CPRholdsauniquepositioninthesolarvaluationfield,havingdevelopedthefirstvalueofsolartariffofferedinNorthAmerica.AustinEnergyapprovedCPR’svalue-basedpricingpresentedina2011study,andoffereditasanewformofcompensationtoitssolarcustomers.CPRhadperformedanearliervaluationstudyforAustinEnergyin2006.
In2014,CPRworkedwithutilitiesandstakeholdersinMinnesotatodevelopthefirstdetailed,publicmethodologytobeusedbyutilitiesinsettingrates.Thismethodology,guidedbystatelegislativerequirements,wasapprovedbytheMinnesotaPublicUtilitiesCommissionforutilitiesseekingavalue-basedcompensationtiedtothecostsandbenefitsofdistributedsolargeneration.ItistheonlysuchCommission-approvedmethodologyinNorthAmerica.
InApril2015,CPRpublishedacomprehensivemarket-basedvalueofsolarstudythatwascommissionedbytheMainePublicUtilitiesCommission.Thisstudywasalsoastakeholder-drivenprocess,andincludedawidesetofscenariosandassumptionsforthepurposeofinformingpublicpolicy.Itincludedthreedetailedstudiesforthreeutilityregions.
CPRhasperformedanumberofrelatedstudies,includingnetmeteringcost/benefitstudiesandsolarfleetshapemodelingforDukeEnergy,WeEnergies,PortlandGeneralElectric,USD/SanDiegoGasandElectric,SolarSanAntonio,andNYSERDA/ConEdison.CPRhasalsoworkedwithsolarindustryorganizations,suchastheSolarElectricPowerAssociation(SEPA)andtheSolarEnergyIndustriesAssociation(SEIA)toevaluateothervalue-basedcompensationschemes,suchasannualversuslevelizedVOS,long-terminflation-adjustedVOS,valueofexportenergy,andothers.
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Contents PART1-INTRODUCTION................................................................................................................5
Introduction.......................................................................................................................5
Purpose..............................................................................................................................5
OverviewofMethodology..................................................................................................6
PART2–TECHNICALANALYSIS......................................................................................................6
TheMarginalPVResource.................................................................................................6
LoadAnalysisPeriodandEconomicStudyPeriod..............................................................7
PVSystemRatingConvention............................................................................................8
LoadDataandPVFleetProductionProfile........................................................................8
EffectiveLoadCarryingCapability(ELCC)...........................................................................9
PeakLoadReduction(PLR)...............................................................................................11
LossSavingsAnalysis........................................................................................................11
PART3–ECONOMICANALYSIS....................................................................................................13
AvoidedEnergyCosts.......................................................................................................13
AvoidedCostofResourceAdequacy................................................................................14
VoltageRegulation...........................................................................................................15
AvoidedTransmissionCapacityCost................................................................................15
AvoidedDistributionCapacityCost..................................................................................16
PART4–OUTOFMARKETBENEFITS...........................................................................................16
AvoidedEnvironmentalCost............................................................................................16
FuelPriceGuarantee........................................................................................................17
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PART5–IMPLEMENTATIONOPTIONS.........................................................................................17
EvaluationofExistingNetMeteringPrograms.................................................................17
ConsiderationsforCommunitySharedSolar...................................................................18
ValueofExportedSolarEnergy........................................................................................18
QualifyingFacilitiesRates.................................................................................................19
ApplicabilitytoOtherDERTechnologies..........................................................................19
RealTimePricingwithAMI..............................................................................................20
ValueofSolarTariffs........................................................................................................20
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PART 1 - INTRODUCTION
Introduction
CleanPowerResearch(CPR)wasengagedbytheMidwestRenewableEnergyAssociationtodevelopamethodologyforvaluingdistributedsolarenergyresources.ManystudieshavebeenperformedbyCPRandothersoverrecentyearstoinwhichmethodologieshavebeendevelopedtoperformthesevaluations.
Distributedsolardiffersfromconventionalgenerationinseveralrespects.First,itisnotdispatchableandthereforerequiresameansforevaluatingits“effective”capacitytoputitonacomparableeconomicfootingwithin-marketresources.
Second,itisdistributed,meaningthatitavoidsthelossesassociatedwithlong-distancetransmission,voltagestepdownatdistributionsubstations,andthedistributionlines.Thisrequiresthatalosssavingsfactorbeincorporatedintothestudy.
Third,itsproductionprofilevariesconsiderably,dependingupontheorientation(azimuthandtiltangle)ofthesystemanditslocation.Asapracticalapproach,theconceptofanaggregate“fleet”ofresourcesisintroducedtoaddressthis,andthevaluationisdesignedtovalueoutputofthefleet.
Finally,solarprovidesanumberofsocietalbenefits,suchastheabilitytoproduceenergywithoutharmfulairemissionsandprotectionagainstuncertaintyinfuelpricefluctuations.Thesebenefitsare“outofmarket”inthesensethatthesocietalcostsofconventionalgenerationarenotincludedinconventionalratemaking.Itislefttotheuserofthemethodologyastowhethersuchbenefitsshouldbeincludedinavaluationstudy.
Purpose
Thisreportdescribesingeneraltermsamethodologythatmaybeusedforsuchavaluation.Forreadability,thereportisdevoidofdetailedequationsandtables,anditdoesnotincludeanactualvaluationexamplebasedonthismethodology.However,itdoesincorporatethelessonslearnedinanumberofsuchvaluationstudiesperformedbyCPRovertheyears.
Inadditiontothemethodology,thereportdescribessomeoptionsforimplementation.Theseincludetheuseofthemethodologyinevaluatingexistingnetenergymeteringcross-subsidies,
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considerationsforcommunitysharedsolar,theadaptationofmethodsforenergyexportsandotherDERtechnologies,andtheuseofresultsinvalue-basedcompensationschemes.
Itishopedthatsuchavaluationexercisecouldbeconductedusingthemethodsdescribedhere.
Overview of Methodology
Themethodologyisdescribedinthreemajorparts.Thefirstisatechnicalanalysiswheremanyofthekeyintermediatetechnicalmetricsarecalculated.Thisincludethedefinitionofthestudyperiod,theratingconventions,thedevelopmentofhourlyfleetproductionprofiles,thedeterminationof“effective”capacityinrelationtoresourceadequacyandthedistributionsystem,andthetreatmentoflosssavings.
Thesecondpartistheeconomicanalysisofin-marketbenefits.Thismethodologyincludesavoidedenergycosts,avoidedresourceadequacycosts,avoidedtransmissioncapacitycosts,andavoideddistributioncosts.Itisimportanttonotethatthismethodologyincorporatessomebenefitsthathavebeenbrokenoutasseparatecategoriesonotherstudies.Forexample,theenergybenefitincludestheeconomicimpactsofbothachangeinloadandachangeinprice.Theresourceadequacybenefitincludesthecontributiontowardmeetingbothpeakloadandtheplanningmargin.
Next,twoout-of-marketbenefitsareincluded.Thesearethebenefitsmostcommonlyincludedinstudiesofthissort,andtheyincludetheavoidedenvironmentalcostandthefuelpriceguarantee.Thesebenefitsaremorespeculativeanddonotrepresentbenefitsforwhichamonetizedtransactioncurrentlytakesplaceintheenergymarketplace.
PART 2 – TECHNICAL ANALYSIS
The Marginal PV Resource
Themethodologyincorporatesinitsframeworktheconceptofa“MarginalPVResource”forwhichthevalueofproductionissought.Existingsolarresourcesarenotincludedintheanalysisexcepttotheextentthattheyshapetheexistingloadsusedintheanalysis.Itisunderstoodthatastheamountofsolarinasystemincreases,thetechnicalcontributiontowardscapacitydecreases.Thisisbecausethepeakloadshiftstonon-daytimehours.Duetothiseffect,theinitialsolarresources(the“earlyadopters”)providemoretechnicalbenefitsthansystems
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installedinlateryears(theactualvaluedependsonotherfactorssuchasfuelpricesandthesemayincreaseordecrease).
Withthisinmind,itisnecessarytostateupfrontwhichofthesolarresourcesarebeingevaluated:allresourcestodate?Allresourcesanticipatedoverthenext20years?ThismethodologyisbasedonamarginalanalysisofthenextPVresourceofunitsizetocomeonline.
Asdescribedbelow,aPVFleetProductionProfileisdevelopedthattakesintoaccountthediversityoflocationsanddesignattributesofthedistributedsolarfleet.Theunitoutputofthisfleetis,ineffect,theMarginalPVResource,eventhoughsucharesourcedoesnotexistinpractice.Theconceptishelpfulbecauseiteliminatesasetofcomplicatingvaluescenarios(Whatisthevalueofawest-facingsystem?atrackingsystem?asysteminthesouthernornorthernpartoftheserviceterritory?)TheMarginalPVResourcethereforeisthenextinstalledincrementofsolarcapacitythatrepresentsthegeographicalanddesigndiversityofthedistributedPVfleet.
Load Analysis Period and Economic Study Period
Therearetwoseparateperiodsofinterestinperformingthevaluation:theLoadAnalysisPeriodandtheEconomicStudyPeriod.TheLoadAnalysisPeriodisusedtoevaluatetechnicalparameters,suchastheabilityoftheresourcetodeliverenergyduringpeaktimes.Suchanalysesrequiretheuseofhistorical,measureddata.Forexample,anevaluationofeffectivecapacitymaycompareayearofhourlysolarproductionagainstthesameyearofutilityload.Inthiscase,theLoadAnalysisPeriodwouldbedefinedastheyearoverwhichthistechnicalanalysiswasbased.Theanalysiscouldtakeplaceoverseveralyears(e.g.,threeyears)inordertoaccountforyear-to-yearloadandweathervariation.
ThesecondperiodofinterestistheEconomicStudyPeriod.Thisistheperiodoverwhichthetwoeconomicalternativesareevaluated:theproductionofenergybytheMarginalResourceandthedeliveryofenergyusingconventionalgeneration.Thecostsandbenefitsofthesealternativesoccurinthefuture,sotheEconomicStudyPeriodisselectedoveroneormorefutureyears.
TheselectionofEconomicStudyPeriodisoftentiedtothefinalmetricsforpresentingthebenefitsandcosts,andtheassumedusefulservicelifeoftheresource(e.g.,the20to30yearlifeofsolarPV)maybeused.Forexample,ifa25yearservicelifeisassumed,thestudyobjectivemaybetoestimatethelevelizedvalueover25years.Suchananalysiswouldtakeinto
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accountanticipatedcapacityadditionsoverthisperiod,expectedchangesinwholesaleenergycosts,andloadgrowthrates.
Avaluationstudymaybedesignedtocalculateaone-year,orfirst-year,valueofgeneration.Thisisincontrasttoalong-termlevelizedrate.Suchanapproachofferstheadvantageofaccuracybecauseitislessdependentonlongtermforecasts(e.g.,itwouldrequireaone-yearfuelpriceforecastratherthana25-yearfuelpriceforecast).Inthiscase,theinvestorinrenewablestakestheriskoffuturefluctuationsinvalue.Ratherthan“lockingin”a25-yearrate,theratefluctuationsyeartoyearareunknown,andthismaybeanimportantfactorintheinvestmentdecisions.
Intheone-yearanalysisapproach,longtermbenefitsthatfalloutsideoftheanalysisperiod,suchastheavoidanceoffuturegenerationcapacityadditions,maystillbeincluded.Forexample,afutureyearcapacityadditioncouldbeincludedbyamortizingthecapacitycostoftheadditionoveritsexpectedlife,calculatingthepresentvalueoftheannualizedavoidedcoststhatoccurduringthelifeoftheMarginalResource,andthenamortizingthisvalueoverthelifeoftheMarginalResource.Thisresultsintheannualvalueattributedtothepresentresourceinavoidingordeferringtheneedforfutureresources.
PV System Rating Convention
ThemethodologyrequirestheestablishmentofaratingconventiontobeusedfortheMarginalResource.Thereareseveralratingmethodsavailable,suchasDCpowerunder“StandardTestConditions,”DCpowerunder“PVUSATestConditions”(DC-PTC),andanACratingthatincludestheeffectofinverterefficiency.
Theselectionofratingconventionissomewhatarbitrary,butmustbeusedconsistently.Forexample,ifaDCratingisused,thentheMarginalResourcewouldhaveaunitratingof1kWDC.Whendeterminingtheannualenergyproduced,thesameconventionwouldbeused:annualenergywouldbeexpressedasACenergydeliveredtothegridperkWDC.Likewise,theeffectivegenerationcapacitywouldbeexpressedastheeffectivegenerationcapacityperkWDC.
Load Data and PV Fleet Production Profile
Thecapacity-relatedtechnicalmetricsthatfollow(seesectionsonEffectiveLoadCarryingCapabilityandPeakLoadReductionbelow)areheavilydependentupontheassumedproductionprofileoftheMarginalPVResource.Ifthereisagoodmatchbetweensolarproductionandload,thentheeffectivecapacityishigh.Ontheotherhand,ifthepeakload
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occursduringtimeswhensolarproductionispoor,thentheeffectivecapacitywillbelow.Thisdirectlyaffectstheeconomiccapacityvalue.
Beforecalculatingthematch,itisnecessarytoobtaintheloaddataanddevelopasolarproductionprofile.BoththeloadandproductionprofilearetimeserieswithstartandendtimescorrespondingtotheLoadAnalysisPerioddescribedabove.Anhourlyintervalismostcommonforstudiesofthistype,althoughotherintervalscouldbeused.MISOpricingisavailableinhourlyintervals,andthiswillformthebasisoftheenergyvaluation.Therefore,hourlyintervalsareassumedhere.
Twosetsofloaddataarerequired:theMISOsystemloaddataandtheutilitydistributionloaddata.Thesystemloaddatawillbeusedtocalculateeffectivegenerationcapacity,sotheloaddatashouldcorrespondtotheMISOzoneassociatedwiththeutility.Thedistributionloaddatawillbeusedtocalculatetheeffectivedistributioncapacity.
Inaddition,aproductionprofilerepresentingtheoutputoftheMarginalResourceisrequiredovertheLoadAnalysisPeriod.ThiscanbeeithersimulatedormeasuredfromsamplePVresources,butmustaccomplishthefollowing:
• Thedatamustaccuratelyreflectthediversityofgeographicallocationsacrosstheutilityandthediversityofdesignorientations(rangeofazimuthanglesandtiltangles,etc.).Typically,thisrequirestheaggregationofseveralhundredsystemscomprisingarepresentative“fleet”ofsolarresources.
• Thedatamustnotrepresent“typicalyear”conditions,butrathermustbetakenfromthesamehoursandyearsastheloaddata.Itmustbetherefore“timesynchronized”withload.
• Thegrossenergyoutputoftheresourceisrequired,notthenetexportenergywhichincludeson-siteconsumption.
ThefleetcomprisesalargesetofrealoranticipatedPVsystemshavingvaryingorientations(differenttiltanglesandazimuthangles)atalargenumberoflocations.TheintentionistocalculatecostsandbenefitsforthePVfleetasawhole,ratherthanforaspecificsystemwithspecificattributes.
Effective Load Carrying Capability (ELCC)
Distributedsolarisnotdispatchableinthemarket,butitdoeshaveanindirecteffectontheamountofpowerthatisdispatched.Ifdistributedsolarproducesenergyduringpeakload
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hours,thentherequiredamountofdispatchablecapacityislowered.Therefore,itisimportanttoquantifyhoweffectivedistributedsolarisinreducingcapacityrequirements.
EffectiveLoadCarryingCapability(ELCC)isthemetricusedforthispurpose.Itistypicallyexpressedasapercentageofratedcapacity.Forexample,ifsolariscreditedwithanELCCof50%,thena100kWsolarresourceisconsideredtoprovidethesameeffectivecapacityasa50kWdispatchableresource.
MISOisworkingtodevelopaprocess1forsolaraccreditationandseveralalternativesusedatotherISOsareunderconsideration.Whensuchaprocessbecomesdefined,itcouldbeusedtocalculateELCCusingthePVFleetProductionProfile.
Beforetheprocessisdeveloped,itwillbenecessarytoselectaninterimmethod,andonesuchmethodisdescribedhere.ThismethodhasbeenusedinotherstudiesbyCPR2andcanbeusedasaneasilyimplementedmethoduntiltheMISOprocessisavailable.
UndertheMISOtariff,LoadServingEntities(LSEs)arerequiredtomeetbothalocalclearingrequirement(LCR)intheirlocalresourcezone(LRZ)aswellasMISO-levelplanningreservemarginrequirement(PRMR).Bothoftheserequirementsensurethatreliabilitymeetsa1dayin10yearlossofloadstandard.Eachofthetworequirementsisconsideredseparately.
First,thecontributionofdistributedsolarinmeetingtheLCRrequirementisdependentupontheloadmatchofsolarproductionwiththezonalload.ThiscouldbeevaluatedastheaverageofthePVFleetProductionProfileduringthepeak100hoursperyearintheLRZ.Thecontributionofthesedistributedresourcesnotonlyreducetherequiredresourcestomeetthepeakzonalloadbutalsoreserverequirements.Forexample,iftheaverageproductionduringthepeak100hoursintheLRZwas0.5kWhperhourperkWofratedsolarcapacityandifthelocalresourcerequirementperunitofpeakdemandwas1.1,thentheeffectivecontributionofsolarwouldbe0.5x1.1=55%ofratedcapacity.
Second,thecontributionofdistributedsolarinmeetingthePRMRrequirementisdependentupontheloadmatchwiththeMISOsystemload.Inthiscase,thecontributioncouldbecalculatedbyaveragingthePVFleetProductionProfileduringthepeak100hoursperyearintheMISOfootprintandapplyingtheplanningreservemargin.Forexample,iftheloadmatch
1See“MISOSolarCapacityCredit”at:https://www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/SAWG/2015/20150806/20150806%20SAWG%20Item%2007%20Solar%20Capacity%20Credit.pdf2E.g.,a2014valuationstudyfortheMainePUC.
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was40%andthemarginwas7%,thentheeffectivecontributionofsolarwouldbe0.4x1.07=43%ofratedcapacity.
Finally,theLSEsmayusethesameresourcetoserveboththeLCRrequirementandthePRMRrequirement.Theeffectivecapacity,orELCC,wouldbeselectedasthelowerofthetworesults.Continuingtheexample,iftheeffectivesolarcapacitywas55%forLCRbutonly43%forPRMRpurposes,thentheoverallELCCwouldbe43%.
Peak Load Reduction (PLR)
TheELCCisameasureofeffectivecapacityforresourceadequacy.Itisanessentialinputtoevaluatingthebenefitofavoidedgenerationcapacitycosts.However,itisnotnecessarilyagoodmetricforevaluatingavoidedtransmissionanddistribution(T&D)capacitybenefitsfortworeasons:(1)itisbasedontheloadsoftheMISOzone,ratherthantheutility’sdistributionloads(peaksmakeoccuratdifferenttimes);and(2)itaveragesoutputovermanyhours,whereasdistributionplanningrequiresthattheresourcebethereforasmallnumberofpeakhours.
Therefore,adifferentmeasureofeffectivecapacitycanbeusedinevaluatingthedistributionbenefits.ThePeakLoadReduction(PLR)isdefinedasthemaximumdistributionloadovertheLoadAnalysisPeriod(withouttheMarginalPVResource)minusthemaximumdistributionloadovertheLoadAnalysisPeriod(withtheMarginalPVResource).
Thedistributionloadisthepowerenteringthedistributionsystemfromthetransmissionsystem(i.e.,generationloadminustransmissionlosses).IncalculatingthePLR,itisnotsufficienttolimitmodelingtothepeakhour.AllhoursovertheLoadAnalysisPeriodmustbeincludedinthecalculation.Thisisbecausethereducedpeakloadmaynotoccurinthesamehourastheoriginalpeakload.
Loss Savings Analysis
Distributedsolarresourcesnotonlydisplaceenergydeliveredtotheload.Theyalsoavoidlossesinthetransmissionanddistributionlines.Toaccountforthis,LossSavingsFactorsarecalculatedandincorporatedintotheanalysis.
LossSavingsFactorsdependonthebenefitandcostcategoryunderevaluation.Forexample,oneLossSavingsFactorcouldbedeterminedfortheavoidedenergycostsbydeterminingthelossesthatwouldbeincurredintheabsenceofPVthesolarhoursofagivenyear,andcomparingthistothelossesthatwouldbeincurredduringthosesamehoursiftheMarginal
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Resourcewerepresent.ThedifferencecouldbeexpressedinaLossSavingsFactorassociatedwiththeavoidedenergycosts.
TheLossSavingsFactorassociatedwithavoideddistributioncapacitycosts,however,wouldbedifferentfromtheoneassociatedwithenergy.Thisisduetotwofactors.First,asdescribedinthePLRmetric,onlythepeakdistributionhoursareofinterestincalculatingthePLR.Avoidedlossesduringnon-peakhours(e.g.,mid-morninghours)arenotrelevanttothedeterminationofavoideddistributioncapacitycosts.Second,onlytheavoidedlossesinthedistributionsystemarerelevanttothedistributionbenefitcalculation.Avoidedlossesinthetransmissionsystemshouldnotbeincluded.
ThreeLossSavingsFactorsshouldbedevelopedasshowninTable1.
Table 1. Loss Savings Factors
LossSavingsFactor LossSavingsConsidered AvoidedAnnualEnergy Avoidedtransmissionanddistributionlossesfor
everyhouroftheLoadAnalysisPeriod.
ELCC Avoidedtransmissionanddistributionlossesduringthe100peakhoursineachyearoftheLoadAnalysisPeriod.
PLR Avoideddistributionlosses(nottransmission)atthedistributionpeak.
Whencalculatingavoidedmarginallosses,theanalysisshouldsatisfythefollowingrequirements:
1. Avoidedlossesshouldbecalculatedonanhourly(notanannual)basisovertheLoadAnalysisPeriod.Thisisbecausesolartendstobecorrelatedwithloadandlossesduringhighloadperiodsexceedaveragelosses.
2. Avoidedlossesshouldbecalculatedonamarginalbasis.ThemarginalavoidedlossesarethedifferenceinhourlylossesbetweenthecasewithouttheMarginalPVResource,andthecasewiththeMarginalPVResource.Avoidedaveragehourlylossesarenotcalculated.Forexample,iftheMarginalPVResourceweretoproduce1kWofpowerforanhourinwhichtotalcustomerloadis1000kW,thentheavoidedlosseswouldbethecalculatedlossesat1000kWofcustomerloadminusthecalculatedlossesat999kWofload.
3. Calculationsofavoidedlossesshouldnotincludeno-loadlosses(e.g.,corona,leakagecurrent).Onlyload-relatedlossesshouldbeincluded.
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4. Calculationsofavoidedlossesinanyhourshouldtakeintoaccountthenon-linear
relationshipbetweenlossesandload(load-relatedlossesareproportionaltothesquareoftheload,assumingconstantvoltage).
PART 3 – ECONOMIC ANALYSIS
Avoided Energy Costs
Distributedsolarreducesthewholesalecostofenergyintworespects.First,itreducesthequantityofenergyprocuredintheMISOmarketfordeliverytocustomers.Solarproductiondisplacesenergythatwouldhavebeenprocuredatagivenpriceinagivenhour.Second,itlowersdemandforenergy,resultinginlowerclearingpricesforalltransactions,aneffectsometimesreferredtoasthe“marketpriceresponse.”
ThegoalofthevaluationanalysisisillustratedinFigure3,whichshowstherelationshipbetweenpriceandloadinagivenhour.Asloadincreases(ordecreases),thepricesimilarlyincreases(ordecreases).Thisrelationshipreflectsthesupplyanddemandofresourcesparticipatinginthemarket.
Figure 1. Avoided Energy Cost (Illustrative)
InthisillustrationLrepresentsthemeasuredloadinanygivenhour,andPrepresentsthecorrespondingprice(theMISOday-aheadclearingprice).TheMarginalPVResourcereducesloadfromLtoL*andpricefromPtoP*.ThisreducesthetotalwholesalecostofenergyfromLPtoL*P*andthesavingsarerepresentedbytheshadedregions.
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Thecalculationofsavingsmaybeperformedintwosteps.ThefirststepistomultiplytheobservedmarketpricePbythechangeinload(thebluearea).ThechangeinloadisthePVfleetproductionforthehour.Thisisdoneforeachhourofasampleyearandsummed.
ThesecondstepistomultiplytheresultingloadL*bythereductioninprice.ThisrequiresanestimateofthechangeinpricewhichmaybeobtainedfromamodelsuchastheoneillustratedinFigure2.Thisshowshourlyload-pricepointsforagivenmonthatasampleISO.FromthesepointsamodelFmaybedevelopedasaleastsquarescurvefit.Then,theanalysiscanassumethatthechangeinpricefromPtoP*isproportionaltothechangeinF.Thecalculationisdoneforeachhouroftheyearandsummed.
Figure 2. Load Versus Price Model F
Avoided Cost of Resource Adequacy
Part2describedamethodforcalculatingELCC,ameasureoftheeffectivenessofdistributedsolarresourcesinmeetingresourceadequacyrequirements.Theavoidedcost,then,iscalculatedbymultiplyingtheELCCbythecostofnewentry(CONE)fortheLRZ.CONEindicatestheannualizedcapitalcostofconstructinganewplant.
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CONEiscalculatedbyMISO3byannualizingthenetpresentvalue(NPV)ofthecapitalcost,longtermO&Mcosts,insuranceandpropertytaxes.Thereareothermeasuresofcapitalcost,4suchastheMISOplanningauction,butthesedonotnecessarilycorrespondtothelong-term(e.g.,25year)serviceprovidedbysolar.
Voltage Regulation
DistributionutilitieshavetheresponsibilitytodeliverelectricitytocustomerswithinspecifiedvoltagewindowsasrequiredbyStaterules.WhenPVorotherdistributedgenerationresourcesareintroducedontothegrid,thiscanaffectlinevoltagesdependingupongeneratorrating,availablesolarresource,load,lineconditions,andotherfactors.Furthermore,atthedistributionlevel(incontrasttotransmission)PVsystemsaremoregeographicallyconcentrated.Dependinguponconcentrationandweathervariability,PVcouldcausefluctuationsinvoltagethatwouldrequireadditionalregulation.
Insomecases,theseeffectswillrequirethatutilitiesmakemodificationstothedistributionsystem(e.g.,addingvoltageregulationortransformercapacity)toaddressthetechnicalconcerns.Forpurposesofthismethodology,itisassumedthatsuchcostsarebornbythesolargenerator.Consequently,nocostisassumedrelatedtointerconnectioncosts.
AdvancedInverters
Advancedinvertertechnologyisavailabletoprovideadditionalserviceswhichmaybebeneficialtotheoperationofthedistributionsystem.Theseinverterscancurtailproductionondemand,sourceorsinkreactivepower,andprovidevoltageandfrequencyridethrough.ThesefunctionshavealreadybeenproveninelectricpowersystemsinEuropeandmaybeintroducedintheU.S.intheneartermonceregulatorystandardsandmarketsevolvetoincorporatethem.
Basedontheseconsiderations,itisreasonabletoexpectthatatsomepointinthefuture,distributedPVmayofferadditionalbenefits,andvoltageregulationbenefitsmaybeincludedinafuturemethodology.
Avoided Transmission Capacity Cost
3See“CostofNewEntry:PY2016/17,”at:https://www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/SAWG/2015/20151029/20151029%20SAWG%20Item%2004%20CONE%20PY%202016-2017.pdf4See“MichiganPublicServiceCommissionSolarWorkingGroup–StaffReport”athttps://efile.mpsc.state.mi.us/efile/docs/17752/0045.pdf
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DistributedPVhasthepotentialtoavoidordefertransmissioninvestments,providedthattheyaremadeforthepurposeofprovidingcapacity,andprovidedthatthesolarproductioniscoincidentwiththepeak.Thechallengeisfindingthecostoffuturetransmissionthatisavoidableordeferrableasaresultofdistributedgeneration.Asaproxyforthisprice,transmissiontariffsusedtorecoverhistoricalcostsmaybeused.
IntheMISOfootprint,networktransmissionservicetoloadisprovidedundertheOpenAccessTransmissionTariff(OATT)asaper-MWdemandchargethatisafunctionofmonthlysystempeaks.UsingthePVFleetProductionProfileandthehourlyloadsofthezone,theaveragemonthlyreductioninnetworkloadmaybecalculatedfortheMarginalPVResource.Forexample,thereductioninJanuarynetworkloadforagivenyearwouldbecalculatedbyfirstsubtractingthePVFleetProductionfromloadeveryhourofthemonth.Then,thepeakloadforthemonthwithoutPViscomparedtothepeakloadwithPV,andthedifference,ifany,isconsideredthereductioninnetworkloadforthatmonth.Asimilaranalysiswouldbeperformedfortheremaining11monthsoftheyear.Foreachmonth,thereductioninpeakdemandwouldbemultipliedbythezonalnetworkpriceintheOATTSchedule9.
Avoided Distribution Capacity Cost
Incalculatingtheavoideddistributioncost,thePLRisusedastheloadmatchfactor.ThisismultipliedbytheNPVofdistributioncapacityovertheEconomicStudyPeriod.Forexample,iftheEconomicStudyPeriodis25years,thenthecostofnewdistributioncapacitywithinthegeographicalareaofinterestshouldbeestimatedforeachyearinthisperiod.
Detailedcostestimatesaregenerallyavailableonlyforareasfacingneartermcapacityupgrades,makingitdifficulttoperformthisanalysis.Thereforefuturecostsoutsidetheplanninghorizonmaybemadebasedonaprojectionofcostsandpeakloadsoverarepresentativehistoricalperiod,suchasthelast10years,andmustcorrespondtoanticipatedgrowthrates.Costsforreliability-relatedpurposesshouldnotbeincludedbecausetheyarenotavoidablebydistributedsolar.
PART 4 – OUT OF MARKET BENEFITS
Avoided Environmental Cost
WithdistributedPV,environmentalemissionsincludingcarbondioxide(CO2),sulfurdioxide(SO2),andnitrousoxides(NOx)maybeavoided.Ingeneral,itisrelativelystraightforwardto
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calculatethetechnicalimpact—forexample,throughtheuseoftheEnvironmentalProtectionAgency’sAVERTtool—buttheestimatesofavoidedsocialcostsaremoredifficulttoquantify.
Estimatesofsocialcostsmustbetakenfromexternalstudies.Thesocialcostofcarbon,forexample,maybebasedonresultsfromtheInteragencyWorkingGrouponSocialCostofCarbon.5
Itshouldbenotedthatcoststocomplywithenvironmentalstandards(scrubbers,etc.)areembeddedintheenergycostsalreadydescribed.Thetechnicalcalculationsofemissionsshouldthereforealreadytakeintoaccountthecompliancemeasuresusedtoreduceemissions.Thesocialcostsarethereforeassociatedwiththeemissionsaftercompliancehasbeenmet(the“net”emissions)andthecostsarethereforeinadditiontocompliance.
Fuel Price Guarantee
Thisvalueaccountsforthefuelpricevolatilityofnaturalgasgenerationthatisnotpresentforsolargeneration.Toputthesetwogenerationalternativesonthesamefooting,thecostthatwouldbeincurredtoremovethefuelpriceuncertaintymaybeincluded.ThiscanbeaccomplishedbyestimatingthenaturalgasdisplacedbyPVovertheEconomicStudyPeriodanddeterminingthecostofnaturalgasfuturesrequiredtoeliminatetheuncertainty.
Notethatpricevolatilityisalsomitigatedbyothersources(wind,nuclear,andhydro).Therefore,themethodologyisdesignedtoquantifythehedgeassociatedonlywiththegasthatisdisplacedbyPV.
PART 5 – IMPLEMENTATION OPTIONS
Evaluation of Existing Net Metering Programs
AvaluationusingtheabovemethodswouldresultintheavoidedcostsperkWhofdistributedsolargeneration.Thisvaluationcouldthenbeusedtoevaluatethequestionofwhethersolarcustomersundernetenergymetering(NEM)ratesaresubsidizingnon-solarcustomersorwhethernon-solarcustomersaresubsidizingNEMcustomers.
5TheannualSocialCostofCarbonvaluesarelistedintableA1oftheSocialCostofCarbonTechnicalSupportDocument,foundat:http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf.
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NEMcustomersareonlybilled(orcredited)forthedifferencebetweentheirconsumptionchargesandtheirgenerationcredits.IthasbeenarguedthatfixedcostsrecoveredthroughvolumetricratesmaynotberecoveredequitablybecauseNEMcustomersareabletoreducetheirmonthlynetconsumption.Ontheotherhand,NEMcustomersmayprovideadditionalbenefits,resultinginsavingstoothercustomers.Forexample,aNEMcustomermaybedeliveringenergyandcapacitytothegridattimeswhenitismostvaluable.Usingthemethodsdescribedherecanhelptodeterminewhethercostshiftingistakingplaceandthedirectionofcostshifting(whethersolarcustomersaresubsidizingorbeingsubsidizedbynon-solarcustomers,asthecasemaybe).
Considerations for Community Shared Solar
Somecustomersdonothavegoodoptionstoinstallsolarontheirrooftops.Theymaynotowntheirbuilding(especiallyinthecaseofcommercialcustomers),thebuildingmaybeheavilyshaded,oritmaynotlenditselftosolarduetoarchitecturalconsiderations.Forthese,customers,communitysharedsolarmaybeanoption.SystemsbuiltforthispurposemaybesitedinmoredesirablelocationswithgoodsolaraccessandmaybebuiltwithhigherratingsatlowercostperkW.
However,themethodologiesdescribedabovemayhavetobeadjusted.Therearetwofactorsthatmustbeconsidered.First,theproductionprofileofthesesystemswillbedifferentthanthatoftheoverallfleetasdescribedinPart2.Thesesystemswillbebuiltatoptimalorientation(e.g.,southfacingatanoptimaltiltangle)inordertomaximizetheenergyproduction.Therefore,theproductionprofileassociatedwithsuchanoptimaldesignshouldbeusedratherthanthefleetprofile.
Itshouldalsobenotedthatthesharedsolarresourcemaybeelectricallydistantfromthemember-customer.Inasense,theenergywouldhavetotravelfromthesharedresourcetothecustomer,andthiswouldincludeadditionallossesnotaccountedforinthemethodology.However,theenergyinpracticewouldnotbedeliveredtothespecificcustomerbutsimplyaccountedforandcreditedthroughmetering.Theenergyproducedbytheresourcewouldstillresultinavoidedlosses,exceptthatthelosseswouldbeavoidedindeliveringenergytonon-membersratherthantothemembersthemselves.Themethodologywouldprovideareasonableaccountingofthisbenefit.Suchwouldnotbethecaseifthesharedresourcewereoutsideoftheserviceterritoryoftheutility.
Value of Exported Solar Energy
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Insomestudies,thevalueofexportenergyissoughtratherthanthevalueofgrosssolarproduction.Thismaybethecase,forexample,indevelopingatariffinwhichself-consumptionisusedtoreduceacustomer’selectricitybill.Sucharatewouldeffectivelyprovidethecustomer-generatorwithtwobenefitstreams:thebenefitoflowerutilitybillsduetoself-consumptionandthebenefitofabillcreditsassociatedwiththevalueofexportenergy.Fromtheutilityperspective,suchamechanismalsoresultsintwoimpacts:lostrevenuefromtheself-consumptionandlostrevenueassociatedwiththosebillcreditsthatareexercised.
Regardlessofperspective—customerorutility—theeconomicanalysisrequiresasstudyinputsthehourlyloadprofileandtherelativesizeofthesolarsystemandtheload.Thisdataisnecessarytocalculatethehourlyexportprofile,andthisisadifferentshapeandmagnitudethanthegrossproduction.Ifsolargenerationisself-consumedduringthedaytime,themid-dayexportmaybelowornon-existent,incontrasttothePVFleetProductionProfiledescribedinthismethodology.Thismeansthatthecapacityvaluewillbedifferentsinceitisdependentuponthematchofbetweensolarandload.
Customershaveachoiceinsizingtheirsystems.Dependinguponsize,moreorlessenergywillbedeliveredtothegridasexportenergy.Therefore,astudyoftheexportenergyvaluewouldhavetoincludescenariosthathandlethesesizevariations.Forexample,scenarioscouldbedevelopedinwhichsolarprovides100%,75%,50%and25%oftheannualenergy.
Finally,thedetailsofthecustomerloadprofileareimportant.Oneresidentialcustomer,forexample,mayhaveadifferentloadprofilethananother.Theexportenergyprofilewillthereforebedifferentevenifotherfactorssuchassystemdesignarethesame.
Includingmultiplescenariosofrelativesizeandprofileshapemayproveimpracticalduetotheadditionaltechnicalefforttoaddresseachscenarioaswellasthecomplexityindeterminingwhichresulttoapplytoagivencustomer.Therefore,thestudyapproachmightconsiderjustoneorasmallnumberofrepresentativescenariosasanapproximation.
Qualifying Facilities Rates Manyofthemethodsdescribedherecouldbeusedtohelpidentifyasolar-specificavoidedcostrateforqualifyingfacilitiesunderPURPA.Theresultingratewouldincorporatemanyofthesolar-specificattributes,suchasthehourlyproductionprofile,intermittency,andlosssavings.
Applicability to Other DER Technologies
AspectsofthismethodologymaybeusedforotherDERtechnologies,suchasstorageandefficiency.However,thePVFleetProductionProfilewouldhavetobereplacedwithaprofile
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suitabletothetechnology.Forexample,energystoragemayhaveaprofilethatincludesoff-peakchargingandon-peakdischarging.Iftheprofilewereknown,oriftheywereassumedinascenarioanalysis,thentherestofthemethodologycouldbeusedtocalculatethevalueoftheseresources.
Real Time Pricing with AMI
Insomecases,suchasstorage(adispatchableresource),thecustomerhascontrolofitsoperation,sothegenerationprofilesmaynotbeknown.Value-basedratescalculatedusinganassumedproductionprofilemightthereforenotbevalidforthesecases.
Ifthegoalofthevaluationistodevelopamechanismforcompensation,themethodologymaybeadaptedforuseinatechnology-neutralvalue-basedrateusingreal-timepricing.Inthiscase,theDERprofilemaybedeterminedattheconclusionofthebillingmonthandappliedagainstactualenergyprices(e.g.,LMPs).Inthecaseofstorage,thechargingordischargingperiodswouldcorrespondtoenergychargesandcredits.Capacityvaluecouldbefixedfornon-dispatchableresourcesbutcouldrequireadherencetoresourcequalificationstandardssimilartotheMISOstandardsandutilitycontrol(orpenaltiesfornotdispatchingduringcriticalpeaks).
Value of Solar Tariffs
Valueofsolartariffs(orVOST)wereintroducedbyAustinEnergyin2012andbyHawaiianElectricin2015.Thesetariffsintendtoprovidecompensationforsolarbasedonvalue.AustinEnergy,forexample,usesamethodologysimilartotheonedescribedhereandincorporatingmarket-basedpricesinERCOT.TheHawaiianElectric“gridsupply”optionprovidesforself-consumptionandarateforexportenergybasedonmarginalenergycosts.