distributed solar energy net-energy metering · distributed solar energy net-energy metering ......

Helping Utilities Make Smart Solar Decisions


Business Confidential

Distributed Solar Energy Net-Energy Metering

June 27, 2013


SEPA is an educational non-profit (501 c3)

Membership Utilities

Joint Action Agencies,

G&Ts, RTOs, FPAs

Wholesale Marketers,

IPPs

Manufacturers

Project Developer/

Installer/ Distributors

Business & Professional

Services

Affiliates

• Celebrating 20 years of service to utilities and solar • Membership based - 1,000+ members • Providing unbiased information focused on supporting

utilities and their needs as they relate to solar adoption • Providing exclusive member programming, research,

education, collaboration and consulting services

420+

Utility

52% of electricity customers

+90% of installed

solar capacity

500+ solar

industry & stakeholder

2

About SEPA


Aligning Solar and Utilities Sampling of Members

3


National Markets DG represents over half of the capacity deployed

4

• Utility-scale additions included over 70 PV projects

• Utility ownership accounted for 12% of utility-scale projects, with 88% coming from PPAs

• Behind-the-meter projects accounted for > 99% of installed systems

• Currently ~ 3.5 GW of NEM projects in US, with 80% concentrated in 5 states: CA, NJ, AZ, HI, MA

• Small-scale systems on the utility side of the meter represent an additional 127 MW

• Anticipating 750 MW of CSP installed in 2013


Most Active Solar Utilities: 2012

5

Annual solar capacity additions surpassed 2 GW for the first time in 2012

Activity outside CA is accelerating Midwestern municipal activity may be

early signal of consumer interests in new “solar” markets

Helping Utilities Make Smart Solar Decisions 6

Customer-Sited PV Utility portfolios are dominated by DG

…the vast majority of DG resources are deployed under policy mandates

Seven out of the top ten solar states achieved this measure through DG deployment…

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TX

NC

MA

FL

HI

CO

NV

AZ

NJ

CA

States Leading Cumulative Solar Capacity Deployment (2012 YE)

Customer-Sited PV

PPA PV

PPA CSP

Utility-Owned PV

Utility-Owned CSP


DG Growing Among C&I Customers Despite rates that typically return less “bill” value

7

PPAs and lease models reflect over 80% of transaction

Source: GTM 2012


Finance Innovation in Residential

8

70%

Helping Utilities Make Smart Solar Decisions 9

Declining Costs of DG DG markets will continue to benefit from cost decreases

DOE’s SunShot initiative aspires to bring residential DG cost to $1.50/w by 2020


Cost Reduction Opportunities Utilities may bring advantages in DG deployment

10

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

US Germany

Soft Costs &Profit

Other Hardware

Inverter

Module

Seel, Barbose, & Wiser, “Why are Residential PV Prices in Germany So Much Lower Than in the United States” September 2012

Opportunities exist for utilities to impact the cost of deploying DG resources

Soft Costs Include

• Customer acquisition • Design and permitting • Labor • Interconnection • Finance and risk mitigation • Production assurance • Profit


Net Energy Metering Defined

11

Net energy metering (NEM) is a billing mechanism that credits solar system owners for the electricity exported onto the electricity grid.

Under the simplest implementation of net metering, a utility customer’s billing meter runs backward as solar electricity is generated and exported to the electricity grid and forward as electricity is consumed from the grid.

What isn’t included in the definition?

Concurrent energy production and consumption behind the customer meter

Considerations:

• Savings form solar energy resources impact each rate schedule, and its design differently

• Rate design – demand-based rates, system access charges, service delivery charges, cost of services design and dual-rate solutions


Broader Perspective on DG Challenges traditional utility planning and rate design

12

NEM

Behind-the-meter production/consumption


Why net metering “made sense” • Easily explained to the customer • Reasonable at low penetration • Clear alignment between regulators and customers • Strong support mechanism for customer resources Signals for reconsidering net metering in its current format • PV cost declines and upward rate pressure sending poor market

signals to customers/developers • Utility cost recovery impacts become significant • Incentives within net metering are material but not explicit • Customers and PV market have gained enough sophistication to

understand alternatives

Role of Net-Energy Metering

13

Today 43 states and over 400 utilities offer some form of net energy metering…

…what is the likelihood of every instance offering customers the “right” compensation?


Financial Impacts of NEM on Utility Timing dictates impacts on shareholder and customers

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Annual Bill After

Solar

Bill Savings from Solar

Annual Bill Reduction

Tota

l An

nu

al B

ill B

efo

re S

ola

r

Make-up of typical utility rates

Variable Cost (fuel) Fixed

Cost (deployed utility infrastructure)

Impact on non-solar ratepayer

Total Annual Incentive + = Impact

redistributed to ratepayers

Revenue Requirement: • Authorized returns • Tax and depreciation • Operations and Maintenance

Total Annual Incentive: • Sum of Production-based

incentive payments

Variable Costs: • Operating costs saved after

solar installation • Fuel and potentially O&M

Fixed Costs: • Costs previously incurred in

deploying utility infrastructure • Generation, T&D, etc.

Impact on shareholders

Revenue Requirement Not Collected = Shareholder

Impact

(Between rate cases)

(Post-rate case)


Distributed Resources Return Value Detailed analysis is required

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Value Component Basis

Avoided Fuel Cost Cost of natural gas fuel to operate a gas turbine (CCGT) plant

operating on the margin to meet electric loads and T&D losses.

Avoided Plant O&M Cost Costs associated with operations and maintenance of the CCGT

plant.

Avoided Generation Capacity Cost Capital cost of generation to meet peak load and planning

margins.

Avoided T&D Capacity Cost Cost of money savings resulting from deferring T&D capacity

additions.

Avoided Environmental

Compliance Cost

Cost to comply with environmental regulations and policy

objectives.

Fuel Price Hedge Value Cost to minimize natural gas fuel price uncertainty.

(Solar Penetration Cost) Additional cost incurred to accept variable solar generation onto

the grid.

Other Components Utility specific considerations, as applicable.

SAMPLE VALUES

Does the distributed resource return value consistent with the NEM compensation?


Camps Dividing on Addressing NEM

16

NEM is fine, don’t change it

Demand Charges

Cost of Services

Value of Solar (FIT)

NEM needs to be reevaluated

One rate solution Two rate solution

CAMP 1 CAMP 2

MO

DEL

RA

TE

CO

NST

RU

CT


Utility Resources and Forecast Needs Impacts on customer costs

17

05

01

00

15

0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Levelized Cost Value Scenario 1 Value Secnario 2Year

Levelized Resource Values

$/M

Wh

Even with equal long-term value…

…near-term impacts to ratepayers are not equal


Importance of Program Design

Fixed Value

• Customers receive a fixed Levelized Cost of Energy (LCOE)

• Price locked in for term of agreement (20 years)

• Curve refreshed routinely but new value applies to new customers only

Floating Value

• Customers given a fixed LCOE based on the VOS

• Value recalculated every X years

• Refreshed LCOE applies to all customers

Tiered Step-down

• VOS is an endpoint

• Incentives used to bridge today’s transaction price to true VOS

• Step-down can be throttled to speed up or slow down transition depending upon market conditions

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Calculating a Value of Solar is only the first step; determining what to do with it is key


Aligning Around Common Objectives Building towards long-term sustainability

19

Objectives in designing NEM alternatives

1. Quantify the system value of the distributed solar resource

2. Establish a transaction model that supports solar and customers

3. Maintain transactional and operation simplicity

4. Build a model that allows for DG development and minimizes need for subsidies

5. Maintain reliable recovery of utility costs


Utility Solar Database Increasing visibility into utility solar activities

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The USDb is a standalone website, designed and supported by SEPA…allows research information across nine core categories…

…searchable by individual utilities or program categories in both a map and table view for between 400-500 utilities with solar activity

• Utility Demographics

• News

• Program details

• Large projects

• Deployed solar

• Procurement activity

• Reporting

• Regulatory activity

• Budget and incentive details


Utility Solar Database Increased efficiency in research and peer-building

21

Critical tool for benchmarking, information sharing and streamlining initiatives

The USDb offers utility insight at a more granular level than is available anywhere…saving valuable research time and improving information dissemination

• What types of solar installations and how many MW does a utility have?

• Which utilities have advanced utility ownership of solar projects? What filings supported those initiatives?

• Which utilities have developed community solar programs? What are their tenets

• Which utilities have active RFP solicitations?


Utility Community Solar Handbook (May):

• Supporting utility managed community solar best practices

Utility Solar Rankings and Market Report (Jun):

• Detailed solar deployment data

• Procurement drivers and trends

Rate Making, Solar Value and NEM – A Primer (Jul):

• Build understanding around fundamental concepts

• Designed to initiate a dialogue

Large Solar Project Quarterly Bulletin (4x/yr):

• Detailed large construction, announcement, and pricing intelligence

Utility Solar Planning Report (Oct):

• Understanding solar treatment in utility generation planning

Research Publications The intersect between utilities and solar

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Energy Storage and Solar (Q4):

• Understanding challenges and opportunities for synergistic technologies

Value of Solar (2013/2014):

• Assessing VOS approaches and applications to program design

Utility Solar Roadmap (onging thru 2015):

• Benchmarking utility solar dimensions

Consulting and Syndicated Research (ongoing):

• Strategic planning

• Program design

• Stakeholder interface

• Benchmarking

Research Agenda (cont’d)

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Business Confidential 24

Eran Mahrer

VP, Strategy and Research

Thank You

distributed solar energy net-energy metering · distributed solar energy net-energy metering ......

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