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Modeling Distributed Generation
Adoption using Electric Rate
Feedback Loops
USAEE Austin, TX – November 2012
Mark Chew, Matt Heling, Colin Kerrigan, Dié (Sarah) Jin,
Abigail Tinker, Marc Kolb, Susan Buller, Liang Huang
Contents
Background/Motivation
Methodology
Results and Next Steps
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Background (1/2)
What is DG?
In this context, DG is generation (primarily solar PV) on the customer side of the meter, where most of
the power displaces grid-supplied energy.
How Much DG is in PG&E’s Service Area?
• 27% of nationwide rooftop systems are located within our service area, compared to 5% population
• 69,000 rooftop PV systems installed as of July 31, 2012, growing at approximately 1,000/month
• 693 MW -- 290 MW Res, 403 Non-Res solar DG, compared to over 20 GW max demand
What are the Key Drivers?
• Declining costs of PV technology
• Availability of attractive ownership structures (lease, PPA)
• High percentage of customer base is green-minded
• High marginal customer rates, which customers can avoid paying through DG
• Supportive policy in California (eg. direct subsidies, Net Energy Metering (NEM), Virtual NEM)
• Political climate in California strongly supportive of DG
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Background (2/2)
Why is it significant to PG&E?
• Continued growth without fundamental changes in rates will allow DG adopters to avoid paying for
grid and other services that they receive
– In California, residential customers are charged in 4 tiers, with marginal rates increasing with increasing
monthly usage
– Residential customers with the largest monthly usage are most incentivized to adopt DG; revenues lost from
these adopters are much larger than costs avoided
– “Cost shift” refers to the increase in costs among non-adopters, when policy allows DG adopters to pay less
than their share of costs to the utility they generate
• Because of present rate structure, a shrinking population high-use customers (those most likely to
adopt) will cover these costs through higher rates
Why is a model needed?
• In a decoupled environment, high rates drive DG adoption; DG adoption drives rates even higher
• Impacts of different policies are hard to intuitively predict because of the positive feedback dynamic
• The model guides PG&E’s leadership on how to best enable a sustained DG industry without
unfairly harming non-adopters
 Goal of analytical effort is to evaluate the impact of different
DG policies
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Contents
Background/Motivation
Methodology
Results and Next Steps
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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DG Model Structure
LCOE
Levelized Cost of Energy
Adoption
LVOE
Levelized Value of Energy
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Rates
LVOEs depend on previous years’ rates; LCOEs are based on technology
cost and performance assumptions.
Adoption is based on Cost Effectiveness, which is based on the Levelized
Cost of Energy (LCOE) of DG technologies and the Levelized Value (LVOE)
produced by the DG units.
Rates module uses adoption information to calculate the new rates, which in
turn are fed back into the LVOE module to restart the loop
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Cost-Effectiveness Module
Common Inputs
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Capacity factor
Degradation rates
Discount rate
LCOE Inputs
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LVOE Inputs
Capital costs
(including finance structure)
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•
•
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O&M costs
Fuel costs
Electric efficiency
Thermal efficiency
Tax benefits
Incentives
DG Technology
CostEffectiveness
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Electric rates (forecast)
Gas rates (forecast)
Generation profiles
Compensation
mechanisms (e.g.,
NEM, FiT)
Adoption Module
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Customers Segmented to Forecast Adoption
Historic Customer
Characteristics
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Adoption Behavior
Usage
Rate Type
Income
Homeownership
Geography
Regression
Model on
Adoption from
2003-2010
Adoption
Module
Historic Cost
Effectiveness
Projected Cost
Effectiveness
Adoption
and
Energy
Impacts to
Rates
Inputs from Cost
Effectiveness
Module
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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DG Adoption Causes Rate Increase
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Cost of doing business
Procurement Cost
RATE
1a
Capacity Cost
Integration Cost
Rev.
Required
Rev.
Collected
Customer
Charge
*
Number of
Customers
Demand
Charge
*
Maximum KW
*
kWh
consumption
Interconnection Cost
Incentives & Admin
Cost
1a
Energy
Charge
v
1b
Although RRQ will decrease because of net avoided cost (expense), this does not
offset the lost revenue from decreasing kW and kWh sales.
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Contents
Background/Motivation
Methodology
Results and Next Steps
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Results
Main Insights from Model
The DG model is being used to prepare for high DG scenarios
• The scenario that would create the greatest cost shift is “virtual net metering” – where all customers
could count remotely located PV against their current consumption, under the current rate structure
• Because of rate structure, costs caused by DG are shifted to customers who are unable to lower
their usage or adopt DG – a fairness issue
• Rate changes to address high bill impacts also significantly reduce cost shift from DG
Cost Shift
$
Subsidies Sunset
Rates Mitigation Case
Rates Mitigation Plus
Rates Mitigation + Customer Charge
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Rates Mitigation + Standby Charge
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Next Steps
Work with stakeholders on rate reform
• Seek sustainable future with healthy DG market and customer choice
• Explore alternatives to Net Energy Metering (NEM) that provide fair compensation
• Reduce the highest rate tiers
• Make rate structure less volumetric, to reflect actual costs of service
Modeling Distributed Generation Adoption using Electric Rate Feedback Loops
USAEE 2012 – Pacific Gas & Electric Company
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Thank You
Mark Chew
mark.chew@pge.com