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Value of Solar Tariff Will it work in Washington State?

Value of Solar Tariff Will it work in Washington State?. Ahlmahz Negash 11-05-2014. Overview. Net Energy Metering Value of Solar Tariffs Valuation methodologies Minnesota Method Modified Version Conclusion: VOST in Washington. Net Energy Metering.

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Value of Solar Tariff Will it work in Washington State?

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  1. Value of Solar TariffWill it work in Washington State? Ahlmahz Negash 11-05-2014

  2. Overview • Net Energy Metering • Value of Solar Tariffs • Valuation methodologies • Minnesota Method • Modified Version • Conclusion: • VOST in Washington

  3. Net Energy Metering “This is a stable and highly successful policy. We need to maintain net metering, not ‘fix’ it.” -Anne Smart, TASC Executive Director

  4. How does NEM Value Solar? Is this fair? Grid Electricity PV Electricity

  5. Why is NEM an issue? • Poor Retail Rate Design • Volumetric, not cost reflective • Poor DER Pricing Mechanisms • Incentive-based, not value-based “Todays rates are an increasing reflection of yesterday’s grid”. 1.Rocky Mountain Institute, “Rate Design for the Distribution Edge”, August 2014 2.Edison Electric Institute, “Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business”, Jan 2013

  6. Financial Impact of NEM Lawrence Berkeley National Lab, “Financial Impacts of Net-Metered PV on Utilities and Ratepayers: A Scoping Study of Two Prototypical U.S. Utilities”, September 2014

  7. Legislation to Eliminate or Alter NEM NC Clean Energy Technology Center, “Rethinking Standby Charges and Fixed Cost Charges: Regulatory and Rate Design Pathways to Deeper Solar PV Cost Reductions”, August 2014

  8. Summary: NEM Debate Argument against NEM Argument for NEM The benefits of PV more than make up for the cost of NEM. • PV customers avoid fixed costs and shift them to other customers • PV customers use the grid as a free battery!

  9. Value of Solar (I) “The right price mechanism for a forward-looking technology is not backward-looking costs.” -Karl Rabago, Former Texas Regulator and Utility Executive

  10. Value of Solar Tariffs (VOST) • Sum of several individually calculated value components. • “Buy All. Sell All.” • Levelized Value • Alternative to NEM • Clean Power Research • Austin Energy – 2012 • Minnesota - 2014 Is it possible for VOST>Retail Rate?

  11. Value of Solar Tariffs Design Process

  12. Step 1: Identify Value Components Straightforward Complex

  13. Step 2: Quantify Economic Value • Calculate 25-year levelized cost of each value component • Process: • Estimate marginal solar production for 25 year period • Estimate discounted utility costs for each “value component” • Value-based price is the discounted cost divided by the discounted production

  14. Example: Value of Avoided Fuel Costs Where,

  15. Results: Value of Avoided Fuel Costs

  16. Step 3: VOST Calculation Where,

  17. Load Match Factors (Winter Peaking Region) Effective Load Carrying Capacity (ELCC) Peak Load Reduction (PLR) PLR = 0 ELCC = 0.0047

  18. Value of Solar Tariff • Will this method work for Washington State? • Winter peaking • No capacity value! • Marginal fuel is NG and Hydro • Energy value is incorrect! • Env. Value is incorrect! $0.096

  19. Marginal Fuel Assumption… 50% NG & 50% Hydro 20% NG & 80% Hydro $0.059 $0.073

  20. Value of Solar (II)

  21. Another VOST • Energy value = Mid-C Forecast • Load Match = Capacity Factor • Env. Value = Reduced RPS Needs + REC Sales • REC=$1/REC $0.065

  22. One more time… • Energy value = Market Price • Load Match = Capacity Factor • Env. Value = Reduced RPS Needs + REC Sales • REC=$50/REC $0.122

  23. Conclusion Washington State VOST: Policy Implications

  24. Value of Solar Tariff Solar Policy Incentive-Based NEM Tax Credits Production Credits • Standard-Based • RPS (Solar) • REC/SREC • ACP Rate Policy Implications… Policy creates demand Policy rewards supply Value of Solar EPA SCC . . . VOS sets prices (e.g. ACP) VOS justifies incentive level VOS determines rate

  25. VOST: A good idea? Yes No Without strong solar policies, the value of solar is low in Washington. A VOST is not likely to be high enough to drive local solar economy. Uncertainty in future policies can place financial risk on utilities and/or undervalue solar. • VOST is fair and just compensation method for everyone. • VOST is more economically sound and efficient than current net metering policies. • VOST can optimize solar penetration and location without arbitrary caps.

  26. Summary • Many factors influence VOST calculations • Economic assumptions • Regional characteristics • Federal and state RE/solar policies • A successful Washington State VOST would: • require monetizing additional externalities • be very policy dependent • address the need to restructure rates

  27. Thank you!

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