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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 2 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 3 How does NEM Value Solar? Is this fair? PV Electricity Grid Electricity 4 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 5 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 6 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 7 Summary: NEM Debate Argument against NEM Argument for NEM • PV customers avoid fixed costs and shift them to other customers • PV customers use the grid as a free battery! • The benefits of PV more than make up for the cost of NEM. Traditional Benefits Non-Traditional Benefits 8 Value of Solar (I) “The right price mechanism for a forward-looking technology is not backwardlooking costs.” -Karl Rabago, Former Texas Regulator and Utility Executive 9 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? 10 Value of Solar Tariffs Design Process Identify Value Components Quantify Economic Value Calculate VOST 11 Step 1: Identify Value Components Energy Benefits Capacity Benefits Avoided fuel cost Generation Capacity Ancillary Benefits Voltage Regulation Avoided variable plant O & M costs Reserve Capacity Avoided energy loss Transmission & Distribution Capacity Straightforward Environmental Benefits: * Reduced RPS Need * REC Sales * Reduced Carbon * Other Benefits Other Benefits Energy hedge value Externalities Fixed O & M Plant Costs Societal Benefits * Local Economy * Stimulates technology * Other benefits Complex 12 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 ππππππππππππ‘ = πππΏπππ−1 π¦πππ=0 π·ππ πππ’ππ‘ππ ππ‘ππππ‘π¦ πΆππ π‘π π¦πππ πππΏπππ−1 π¦πππ=0 π·ππ πππ’ππ‘πππππππππ’ππ‘ππππ¦πππ 13 Example: Value of Avoided Fuel Costs πππππ’ππ = 24 π¦πππ=0 π΅π’πππππΉπ’ππππππππ¦πππ πππππππππβπππ»πππ‘π ππ‘ππ¦πππ πππππππ’ππ‘ππππ¦πππ π ππ ππΉππππ·ππ πππ’ππ‘πΉπππ‘πππ¦πππ 24 π¦πππ=0 πππππππ’ππ‘ππππ¦πππ π ππ ππΉππππ·ππ πππ’ππ‘πΉπππ‘πππ¦πππ Where, π ππ ππΉππππ·ππ πππ’ππ‘πΉπππ‘πππ¦πππ = 8760 πππππππ’ππ‘ππππ¦πππ = 1 1+π π¦πππ πππΉππππ‘πβπππβππ’π ∗ 1 − π π¦πππ βππ’π=1 πππππππππβπππ»πππ‘π ππ‘ππ¦πππ = 8760 βππ’π=1 π»πππ‘π ππ‘πβππ’π ∗ πππΉππππ‘πβπππβππ’π 8790 βππ’π=1 πππΉππππ‘πβπππβππ’π ππΊππππππ¦πππ + πΉπ’πππππππππ£ππβπππ ∗ 1 + π π΅π’πππππΉπ’ππππππππ¦πππ = ππΊπππππ11 ∗ 1 + π π¦πππ , π¦πππ , ∗ 1+β π¦πππ π¦πππ = 0 … 11 π¦πππ = 12 … 24 14 Results: Value of Avoided Fuel Costs Prices Year Solar Weighed Heat Rate Utility Price Costs Guaranteed Fuel Prices Burnertip Fuel Price p.u. PV Production Utility $/MMBtu $/MMBtu (Btu/kWh) $/kWh $/kWh (kWh) ($) ($) $4.43 7900 $0.03 $0.05 1018 $35.61 $4.63 7908 $0.04 $0.05 1013 $37.09 $4.78 7916 $0.04 $0.05 1007 $38.08 $4.90 7924 $0.04 $0.05 1002 $38.91 $5.05 7932 $0.04 $0.05 997 $39.97 VOS 2014 2015 2016 2017 2018 $3.93 $4.13 $4.28 $4.40 $4.55 . . . . . . . . . . . . . . . . . . . . . 2034 $8.77 2035 $9.01 2036 $9.24 2037 $9.49 2038 $9.74 Validation: Present Value $9.27 $9.51 $9.74 $9.99 $10.24 8060 8068 8076 8084 8092 $0.07 $0.08 $0.08 $0.08 $0.08 $0.05 $0.05 $0.05 $0.05 $0.05 921 916 911 907 902 Disc. Costs Discount Factor (risk free) Utility VOS VOS ($) ($) $55.56 $55.29 $55.01 $54.74 $54.46 1.0000 0.9998 0.9936 0.9821 0.9661 $35.61 $37.08 $37.84 $38.21 $38.61 $55.56 $55.28 $54.66 $53.76 $52.61 . . . . . . . . . . . . . . . $68.81 $70.24 $71.71 $73.21 $74.74 $50.26 $50.01 $49.76 $49.51 $49.27 0.5430 0.5218 0.5017 0.4828 0.4650 $37.36 $36.65 $35.98 $35.34 $34.75 $991.54 $27.30 $26.10 $24.97 $23.90 $22.91 15 $991.54 Step 3: VOST Calculation ππ’ππΆππππππππ‘π ππππ = ππππ ∗ πΏππππππ‘πβπΉπππ‘πππ ∗ 1 + πΏππ π πππ£ππππ πΉπππ‘πππ π Where, ππΏπ π€ππ‘βππ’π‘πππ π ππ πΏππππππ‘πβπΉπππ‘πππ = πΈπΏπΆπΆπ€ππ‘βππ’π‘πππ π ππ 1 πΏππ π πππ£ππππ ππΏπ πΏππ π πππ£ππππ πΉπππ‘πππ = πΏππ π πππ£ππππ πΈπΏπΆπΆ πΏππ π πππ£ππππ πΈπππππ¦ πππ πππ π‘ πππππππ‘π¦ πππππππππ‘ πππ ππ‘βππ πππππππ‘π¦ πππππππππ‘π πππ ππππππ¦ πππππππππ‘ πππππππππ‘π πππ πππ π‘ πππππππ‘π¦ πππππππππ‘ πππ ππ‘βππ πππππππ‘π¦ πππππππππ‘π πππ ππππππ¦ πππππππππ‘ πππππππππ‘π 16 Load Match Factors (Winter Peaking Region) Effective Load Carrying Capacity (ELCC) ELCC = 0.0047 Peak Load Reduction (PLR) PLR = 0 17 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! $0.096 18 Marginal Fuel Assumption… 50% NG & 50% Hydro 20% NG & 80% Hydro Levelized Value of Solar (Marginal Fuel: 50% NG) Levelized Value of Solar (Marginal Fuel: 20% NG) 0.12 0.12 Levelized Value ($/kWh) 0.1 0.08 0.06 0.04 0.02 0 AvoidedFuel AvoidedOMFixed AvoidedOMVariable AvoidedGenCap AvoidedResCap AvoidedTransCap AvoidedDistCap AvoidedEnviron 0.1 Levelized Value ($/kWh) AvoidedFuel AvoidedOMFixed AvoidedOMVariable AvoidedGenCap AvoidedResCap AvoidedTransCap AvoidedDistCap AvoidedEnviron 0.08 0.06 0.04 0.02 1 2 $0.073 0 1 $0.059 2 19 Value of Solar (II) 20 Another VOST • Energy value = Mid-C Forecast • Load Match = Capacity Factor Levelized Value of Solar ($1 REC) 0.12 AvoidedEnergy EnergyHedgeValue AvoidedLineLosses AvoidedGenCap AvoidedTransCap AvoidedDistCap ReducedRPSNeeded RECSales • Env. Value = Reduced RPS Needs + REC Sales • REC=$1/REC Levelized Value ($/kWh) 0.1 0.08 0.06 0.04 0.02 0 1 2 $0.065 21 One more time… • Energy value = Market Price • Load Match = Capacity Factor • Env. Value = Reduced RPS Needs + REC Sales • REC=$50/REC $0.122 22 Conclusion Washington State VOST: Policy Implications 23 Policy Implications… Solar Policy Policy creates demand Policy rewards supply Incentive-Based Standard-Based NEM Tax Credits Production Credits • • • RPS (Solar) REC/SREC ACP Rate Value of Solar EPA SCC ... VOS determines rate Value of Solar Tariff 24 VOST: A good idea? Yes 1. VOST is fair and just compensation method for everyone. 2. VOST is more economically sound and efficient than current net metering policies. 3. VOST can optimize solar penetration and location without arbitrary caps. No 1. Without strong solar policies, the value of solar is low in Washington. 2. A VOST is not likely to be high enough to drive local solar economy. 3. Uncertainty in future policies can place financial risk on utilities and/or undervalue solar. 25 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 26 Thank you! 27
