Valuation of Distributed Energy Resources under New York State’s REV Initiative
Solar Developers and Utilities Propose Valuing CO2 Emissions
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Valuing Renewable Energy: New York State’s Renewing the Energy Vision (REV) Initiative sets an aggressive goal where 50% of the State’s electricity will be provided by renewable resources by 2030. Several agencies are proactively advancing REV’s objectives, with the New York State Public Service Commission (PSC) taking a lead role in advancing necessary structural changes to the regulatory regime governing electric generation and distribution. Not surprisingly, the PSC has identified achieving a “more precise articulation of the full value” of the benefits of Distributed Energy Resources (DER) as a “cornerstone REV issue.”
The agency took a more concrete step on this issue in late December 2015, when it initiated a new proceeding on the value of DER. Recognizing that implementing an approach to achieve full valuation of DER is likely a long term effort, the agency wants to pursue an “interim approach to valuing DER including a transition plan for moving from net metering to DER valuation that can be adopted prior to December 31, 2016.”
Currently, Net Energy Metering (NEM) provides individualized reduced rates for distribution charges, accounting for power exported onto the grid. Costs incurred by utilities for buying back exported power are shifted to those customers who do not participate in NEM. Adopting a staff recommendation, the PSC in October 2015 had approved, as a starting point, a valuation system for DER with the formula “LMP + D,” where LMP is the location-based marginal price of energy, and D represents the “full range of additional values provided by the distribution-level resource.” The agency explained:
This “value of D” can include load reduction, frequency regulation, reactive power, line loss avoidance, resilience and locational values as well as values not directly related to delivery service such as installed capacity and emission avoidance. (emphasis added)
Solar Companies and Utilities Submit Interim Proposal to PSC: On April 18, 2016, three leading solar power developers – SunEdison, Inc., SolarCity, Inc., and SunPower, Inc. – and five of New York’s major electricity utilities (Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, Inc., New York State Electric & Gas Corporation, Niagara Mohawk Power Corporation d/b/a National Grid, Orange and Rockland Utilities, Inc., and Rochester Gas and Electric), collectively, the “Partnership,” submitted a proposal to the PSC for an interim successor to move away from NEM. The Partnership’s proposal offers a system for gradually phasing out NEM while introducing a compensation rate and developer payments drawn from Community Distribution Generation (CDG) and Grandfathered Monetary Crediting Remote Net Metering (GRMN) projects.
Of particular significance, the Partnership applies the LMP + D equation, but introduces a price point for “externalities” (E) – to reflect the social benefits of DER. Specifically, the Partnership proposes E to be the constant value of carbon dioxide emissions reductions, as determined by the U.S. Environmental Protection Agency’s Social Cost of Carbon, minus the value of carbon as set by the Regional Greenhouse Gas Initiative. This value will be gradually introduced as a cost to customers for the economic value of carbon-free electricity. By placing a value on E, the Partnership would create a visible stream of cash flow that enables developers to invest in CDG. Moreover, according to the Partnership, the transition from NEM to CDG would evolve the credit counter-party risk from single homes to an entire community, lowering the cost of financing and reducing the cost of electricity.
Initial DSIP Deadline Looming: The PSC has issued an Order that requires utilities to submit by June 30 individual Initial Distributed System Implementation Plans (DSIPs) that identify changes utilities can immediately implement to advance REV’s goals. Joint and supplemental DSIPs that outline utilities’ cooperative efforts are due November 1, 2016.
Beveridge & Diamond counsels private and municipal clients on environmental review and local, state and federal permitting and regulatory compliance requirements associated with the siting and development of renewable energy and fossil fuel generating facilities and transmission lines. For more information, please contact the authors.