Overview of Value of Solar

Andrew D. Mills

Lawrence Berkeley National Laboratory

National Conference of State Legislatures

August 24, 2016

This presentation was funded by the U.S. Department of Energy’s Office of

Electricity Delivery and Energy Reliability

Value of Solar is Based On the Changes in

the Power System with Addition of Solar

2

Value Categories from RMI Review of Solar

PV Benefit and Cost Studies

3Source: Hansen et al. 2013

Energy Value is Avoided Fuel Costs

• Power systems are generally dispatched to minimize variable costs

• Dispatch plants up to the point that demand is met (marginal unit)

• Addition of solar reduces generation, which reduces variable costs

• With large shares of solar, increasingly lower cost units are displaced

• Complications: (1) Generation mix may be different with and without solar,

(2) future fuel costs are uncertain, (3) power system constraints can lead to

curtailment4

Power

Variable

Cost

Supply

Demand

Net DER

Demand

• Power systems require sufficient generation capacity to reliably meet demand

• New capacity is added as load grows, old units retire, or contracts expire

• Solar contributes to adequacy, reducing the need to build other units

• With large share of solar, incremental contribution to adequacy can decline

• Complications: (1) Deliverability may be important consideration for

distributed solar

Capacity Value is Avoided Cost of Capacity

Resources (i.e., Peakers)

5

Transmission and Distribution (T&D) Value

is Deferral of T&D Upgrades

6

Source: Adapted from Cohen et al. 2016

• T&D upgrades needed to replace aging infrastructure or to meet growing load

• In some locations, distributed solar can lower peak demand and defer T&D

upgrades

• Large shares of solar on particular feeders may increase T&D costs

• Complications: (1) Peak load reduction on feeder may differ from system-

wide peak load reduction (2) coordination between isolated planning forums

Environmental Value is Reduced Emissions

from Thermal Generation

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This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

a) CO2 benefits by state (central value SCC;

million $2015)

b) Normalized CO2 benefits by AVERT electricity region

(central value SCC; ¢/kWh)

c) Air quality benefits by state (average COBRA;

million $2015)

d) Normalized air quality benefits by AVERT electricity

region (average COBRA; ¢/kWh)

Figure ES-3. Annual GHG and air quality benefits of the 20 GW of solar power installed by the end of 2014 by region or state

Finally, although the present work might inform policy decisions, it does not intend to suggest

any specific type of policy. The costs and benefits of increased solar deployment will be

impacted by the policy and market mechanisms used to effect that development; therefore, this

analysis quantifies the general magnitude of environmental and health benefits only. Moreover,

while the analysis presented in this report suggests a significant possible role for solar energy in

delivering environmental and health benefits, previous research shows that achieving those

benefits in the most cost-effective way might be best supported by a policy framework that

directly addresses key market failures and unpriced externalities rather than solely using

technology- or sector-specific incentives.

Air quality benefits (avoided SO2, NOx, PM2.5) of 20 GW of

solar power installed by the end of 2014 in

cents/kWh

• Combustion of fuels in thermal power plants creates criteria pollutant and

greenhouse gas emissions

• Addition of solar reduces generation, which lowers emissions

• Lower emissions reduces premature mortality and climate change damages

• Complications: (1) Emission regulations are changing the emission rates of

thermal plants, (2) cycling thermal plants can increase emission rates

Source: Wiser et al. 2016

Power

Variable

Cost

Supply

Demand

Net DER

Demand

Wholesale price

reduction

Wholesale Electricity Market Price

Reduction (“Merit-order”) Effects• Addition of solar can lower wholesale energy and capacity prices

• Clear benefit to consumers that purchase power in wholesale markets,

but…

• Is this a social benefit or just a transfer from producers to consumers?

• How long does this effect persist? Is it permanent or temporary?

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Quantitative Estimates Vary: Systems,

Assumptions, Methods, and Perspectives

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4.3.4 Implied Avoided Cost of PV

Discussions about the costs and benefits of customer-sited PV often rely on estimates or

assumptions about the “avoided costs” from PV (often used interchangeably with the term “value

of PV”), which is simply the reduction in costs resulting from customer-sited PV, per unit of

customer-sited PV generation. Such avoided costs may be construed broadly at the societal

level, or more narrowly by considering only reductions in costs for the utility, which would

typically include the impact of PV on different utility cost components (e.g., energy, generation

capacity, T&D capacity, losses).

For the purpose of comparison between our results and other estimates of avoided costs from

customer-sited PV, we map the cost reductions from customer-sited PV estimated within our

analysis to the categories often used in avoided cost calculations (see Figure 11). The simple

calculations used to parse avoided costs into these categories become much more difficult when

accounting for the deferral of “lumpy” investments like new generation plants. For simplicity,

we conduct these approximations for 2018, the latest year before PV begins to displace lumpy

investments for the SW Utility. To be clear, these avoided cost values should be considered

simply for benchmarking purposes; the financial model used for this analysis does not, itself,

distinguish among the specific set of cost categories in Figure 11, and more generally, the model

does not contain the level of granularity in modeling the physical impacts of customer-sited PV

on utility systems to be considered a refined, independent estimate of avoided costs. Additional

details describing the methods used to approximate the breakdown of the value of PV are

provided in Appendix B.

Figure 11. Estimated Avoided Costs in 2018 for the SW and NE Utilities (6% PV Penetration)

For the specific year shown, the total avoided cost value of PV is equal to 7.5 cents/kWh for the

SW utility and 11.7 cents/kWh for the NE utility. For both utilities, avoided energy costs are the

largest component, followed by avoided capacity costs and avoided distribution costs. These

sources of avoided costs are augmented by: avoided transmission costs; reductions in the cost of

planning reserves, which are based on a percentage of peak demand; avoided costs related to

losses, which impact both the amount of energy purchased and the amount of generation capacity

needed to meet peak demand and reserves; and avoided RPS procurement costs, resulting from

the reduction in retail sales and corresponding reduction in RPS obligations (which are set as a

percentage of sales).

0

2

4

6

8

10

12

14

SW Utility NE Utility

Avo

ide

d C

ost

of

PV

in 2

01

8(c

en

ts/k

Wh

)

Avoided Distribution

Avoided Transmission

Avoided RPS

Avoided Losses - Capacity

Avoided Reserves

Avoided Capacity

Avoided Losses - Energy

Avoided Energy

• Systems: What generating units are on the margin when solar is generating?

How well is solar generation correlated with peak demand?

• Assumptions: What are future fuel prices?

• Methods: Does the generation mix change with solar? How is the

contribution to meeting peak demand calculated?

• Perspectives: Does the value of solar include societal impacts?

Source: Satchwell et al. 2014

The Value of Solar Can Change with

Increased Penetration

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• Capacity value changes as the peak net load shifts into early evening

• Energy value decreases as lower variable cost plants are displaced and solar

curtailment occurs

• Other values can change with penetration too: losses, T&D deferral,

environmental benefits

• Several mitigation strategies (e.g., low cost storage, demand response)

Source: Mills and Wiser 2012a, 2015

For More Information

Contact info:

Andrew D. Mills, ADMills@lbl.gov, (510) 486-4059

The work described in this presentation was funded by the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability (National Electricity Division) under Contract No. DE-AC02-05CH11231.

Cohen, M.A., P.A. Kauzmann, and D.S. Callaway. 2016. “Effects of Distributed PV Generation on California’s Distribution System, Part 2: Economic Analysis.” Solar Energy, Special Issue: Progress in Solar Energy, 128(April): 139–152. doi:10.1016/j.solener.2016.01.004.

Denholm, P., R. Margolis, B. Palmintier, C. Barrows, E. Ibanez, L. Bird, and J. Zuboy. 2014. Methods for Analyzing the Benefits and Costs of Distributed Photovoltaic Generation to the US Electric Utility System. NREL/TP-6A20-62447 Golden, CO: National Renewable Energy Laboratory. http://www.nrel.gov/docs/fy14osti/62447.pdf.

Hansen, L., V. Lacy, and D. Glick. 2013. “A Review of Solar PV Benefit & Cost Studies.” 2nd Edition. Boulder, CO: Rocky Mountain Institute. http://www.rmi.org/Knowledge-Center%2FLibrary%2F2013-13_eLabDERCostValue.

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Additional References

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Mills, A., and R. Wiser. 2012a. Changes in the Economic Value of Variable Generation with Increasing Penetration Levels: A Pilot Case Study of California. LBNL-5445E. Berkeley, CA: Lawrence Berkeley National Laboratory. http://emp.lbl.gov/sites/all/files/lbnl-5445e.pdf.

Mills, A.D., and R.H. Wiser. 2012b. An Evaluation of Solar Valuation Methods Used in Utility Planning and Procurement Processes. LBNL-5933E. Berkeley, CA: Lawrence Berkeley National Laboratory. http://emp.lbl.gov/sites/all/files/lbnl-5933e_0.pdf.

Mills, A.D., and R.H. Wiser. 2015. “Strategies to Mitigate Declines in the Economic Value of Wind and Solar at High Penetration in California.” Applied Energy 147(June): 269–278. doi:10.1016/j.apenergy.2015.03.014.

Satchwell, A., A. Mills, G. Barbose, R. Wiser, P. Cappers, and N. Darghouth. 2014. Financial Impacts of Net-Metered PV on Utilities and Ratepayers: A Scoping Study of Two Prototypical US Utilities. LBNL-6913E. Berkeley, CA: Lawrence Berkeley National Laboratory’. http://emp.lbl.gov/publications.

Wiser, R., T. Mai, D. Millstein, J. Macknick, A. Carpenter, S. Cohen, W. Cole, B. Frew, and G. Heath. 2016. “The Environmental and Public Health Benefits of Achieving High Penetrations of Solar Energy in the United States.” NREL/TP-6A20-65628, LBNL-1004373. On the Path to SunShot. Golden, CO: National Renewable Energy Laboratory (NREL). http://www.osti.gov/scitech/biblio/1253978.

Numerous state-specific value-of-solar studies are tracked here: http://www.seia.org/policy/distributed-solar/solar-cost-benefit-studies.