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1820 Folsom Street | Boulder, CO 80302 | RMI.org
A REVIEW OF SOLAR PV
BENEFIT & COST STUDIES
Lena Hansen
lhansen@rmi.org
V...
ABOUT RMI AND E-LAB
2
Rocky Mountain Institute works across
industries on challenging energy issues to
drive the efficient ...
TABLE OF CONTENTS
3
1. Framing the need
2. Setting the stage
3. Overview of studies
4. Key findings about benefits and costs...
01
MODULE 1:
FRAMING THE NEED
SOLAR PV COSTS CONTINUE TO DECLINE...
5
$-
$2
$4
$6
$8
$10
$12
2000 2004 2008 2012 2016 2020
$/W
Historical (!10 kW)
RMI R...
...ENABLING INCREASING ADOPTION AROUND THE COUNTRY...
6
0
140
280
420
560
700
PN
M
(N
M
)SM
U
D
(C
A)
N
V
Energy
(N
V)
Atl...
...AND DRIVING HEADLINES.
7
THESE ISSUES ARE ROOTED IN DISTRIBUTED PV’S CHARACTERISTICS,
WHICH CONTRAST WITH HISTORICALLY CENTRALIZED SYSTEM
Siting Ow...
9
END-USE EFFICIENCY FLEXIBILITY
DISTRIBUTED GENERATION GRID INTELLIGENCE
• Solar PV
• Combined heat & power
• Small-scale...
MECHANISMS DESIGNED FOR AN HISTORICALLY CENTRALIZED
SYSTEM ARE NOT WELL-ADAPTED TO THE INTEGRATION OF DPV
DPV SERVICE PROV...
11
Power from DPV fluctuates with the weather, adding variability, and requires smart
integration to best shape output syst...
12
There is a limited feedback loop to customers that the costs or benefit of any electricity
resource, especially DERs, va...
MISALIGNMENT 2: ...AND TIME
13
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!&""#""$
!&%"#""$
!'""#""$
!'%"#""$
!(""#""$
!(%"#""$
!)""#""$
&$ '$ ($ )$ %...
MISALIGNMENT 3: SOCIAL PRIORITIES
?
$/kWh
Security and Reliability Value
Environmental Value
• Carbon Emissions Reductions...
MISALIGNMENT 4: BENEFIT AND COST RECOGNITION & ALLOCATION
Conventional
Situation
What if a DPV customer
does not pay full ...
MISALIGNMENT 5: SOCIAL EQUITY
If a DPV customer does not
pay full cost to serve
demand...
Uncovered
Costs
Cost Reduction /...
THESE MISALIGNMENTS RAISE KEY QUESTIONS
• What benefits and costs does DPV actually create?
• How should those benefits and ...
02
MODULE 2:
SETTING THE STAGE
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
SOCIAL
SECU...
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENERGY
• energy
• system
losses
CAPACITY
•generation capacity
•transmission & ...
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
FINANCIAL
FINANCIAL RISK
• fuel price hedge
• market price response
21
A VARIE...
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
SECURITY RISK
• reliability & resilience
FINANCIAL
22
A VARIETY OF CATEGORIES ...
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENVIRONMENTAL
•carbon emissions
•criteria air pollutants (SOx,
NOx, PM10)
•wat...
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
SOCIAL
•Economic development
(jobs and tax revenues)
FINANCIAL
24
A VARIETY OF...
25
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENERGY
• energy
• system losses
CAPACITY
• generation capacity
• transmissi...
STAKEHOLDERS HAVE DIFFERING PERSPECTIVES THAT
AFFECT CONSIDERATION OF BENEFITS AND COSTS
26
“I want to do the right thing ...
BENEFITS AND COSTS ACCRUE TO DIFFERENT STAKEHOLDERS
AVOIDED COST
SAVINGS
TOTAL RESOURCE COST
PV Cost $
ENVIRONMENTAL BENEF...
STAKEHOLDER PERSPECTIVE: SOLAR CUSTOMER
28
• Reduction in utility bill
• Financial incentives
• Utility or other program a...
STAKEHOLDER PERSPECTIVE: UTILITY
“I want to serve my customers
reliably and safely at the lowest
cost, provide shareholder...
“I want reliable power
at the lowest cost.”
STAKEHOLDER PERSPECTIVE: OTHER CUSTOMERS
• Rebates / incentives for PV
passed ...
“We want improved
environmental quality
as well as an
improved economy.”
STAKEHOLDER PERSPECTIVE: SOCIETY
• The sum of all...
THE NATURE OF DPV IN TODAY’S SYSTEM CREATES A DIVIDE BETWEEN
WHO PAYS AND WHO BENEFITS
PV
Customer
Other
Customers
Society...
03
MODULE 3:
OVERVIEW OF
STUDIES
34
RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
35
The Value of Distributed Solar Electric
Generation to Ne...
36
The Value of Distributed Solar Electric
Generation to San Antonio
(CPR (TX) 2013)
The Value of Distributed Photovoltaic...
37
The Benefits and Costs of Solar Distributed
Generation for Arizona Public Service
(Crossborder (AZ) 2013)
Distributed Re...
38
Value of Variable Generation at High Penetration Levels
(LBNL 2012)
Quantifying the Benefits of Solar Power for Californ...
39
Photovoltaics Value Analysis
(NREL 2008)
Value of Variable Generation at High
Penetration Levels
(LBNL 2012)
The Value ...
STUDIES SHOW WIDELY VARYING RESULTS, ALTHOUGH IT IS POSSIBLE TO DISTILL
INSIGHTS AND IMPLICATIONS FOR MINNESOTA’S VOS PROC...
THREE FACTORS DRIVE DIFFERENCES IN SOLAR VALUE
41
1. Local Context
3. Methodologies
2. Input Assumptions
Local system cond...
1. LOCAL CONTEXT: SOLAR RESOURCE
42
Source: NREL
SOLAR INSOLATION AVERAGE SOLAR RADIATION BY AREA
Source: NREL PV Watts
1. LOCAL CONTEXT: SOLAR GENERATION PROFILE
43
GENERIC SOLAR GENERATION PROFILE
Average summer (top) and winter (bottom) da...
1. LOCAL CONTEXT: SYSTEM CHARACTERISTICS
44
SYSTEM OR LOCAL DEMAND PROFILE
Power(%)
100%
50%
0%
0:00 12:00 00:00
System De...
1. LOCAL CONTEXT: GENERATION MIX
45
TYPICAL SUMMER DAY
(APS 2009 study)
TYPICAL WINTER DAY
1. LOCAL CONTEXT: ORGANIZED MARKET ACCESS &
STRUCTURE
46
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%!"
&!"
'!"
(!"
)!"
*+," -./01" /2340" ,340"
!"#$%&
15...
2. INPUT ASSUMPTIONS: A PREVIEW
47
Value: Energy
System: Arizona Public Service
• APS 2013: $9.00/MMBtu in 2008,
$9.61 in ...
3. METHODOLOGIES: A PREVIEW
48
Value: Generation capacity
System: California
• E3 2012: In the long-run, value is based
on...
STUDY DESIGN: STRUCTURAL CHOICES
49
• Discount rate
• Timeframe
• System evolution over time
• solar penetration (current ...
04
MODULE 4:
KEY FINDINGS ABOUT
COSTS AND BENEFITS
51
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENERGY
• energy
• system losses
CAPACITY
• generation capacity
• transmissi...
52
WHAT IT IS
ENERGY
The cost and amount of energy that would have otherwise been
generated to meet customer needs, largel...
53
ENERGY
* = value includes losses
03691215Xcel2013APS,2013*
C
rossboarder(AZ),2013*
C
PR
(TX),2013*
C
rossborder(C
A),20...
54
ENERGY
APPROACH AND KEY CHOICES
How much energy will DPV
provide?
What is the value of that
energy?
• Solar data: TMY v...
55
ENERGY
CHOOSING SOLAR DATA
Taking a more granular approach to determining energy value requires a more detailed DPV
gen...
56
ENERGY
DEFINING THE MARGINAL RESOURCE
Accurately defining the marginal resource that DPV displaces requires an increasin...
57
ENERGY
FORECASTING FUEL PRICES
Although the NYMEX natural gas forward market is a reasonable basis for a natural
gas pr...
58
WHAT IT IS
The value of the additional energy generated by central plants that would
otherwise be lost due to the inher...
59
KEY POINTS
• Avoided losses usually represent a small, but not insignificant, source
of value
• Included in all studies;...
60
WHAT THE STUDIES SAY
SYSTEM LOSSES
012345
Xcel,2013
C
rossborder(C
A),2013
AE/C
PR,2012
E3,2012
N
REL,2008
AE/C
PR,2006...
61
APPROACH AND KEY CHOICES
What are the system’s loss
factors?
When and where does solar
reduce losses?
What types of avo...
62
Because losses are driven by the square of current, losses are significantly higher during
peak periods. Therefore, when...
63
WHAT IT IS
The value of deferring or displacing other generation investments by providing
capacity that can meet demand...
WHAT THE STUDIES SAY
* = value takes into account loss savings
03691215
Xcel,2013
APS,2013
Crossborder(AZ),2013*
CPR(TX),2...
65
APPROACH AND KEY CHOICES
1) How much capacity can solar provide?
GENERATION
CAPACITY
•Capacity credit: Effective load
c...
Generation capacity value is highly dependent on the correlation of DPV generation
to load. While all studies assess that ...
67
GENERATION
CAPACITY
Some studies credit every unit of dependable DPV with capacity value, whereas
others require a cert...
68
ELCC(%INSTALLEDPVCAPACITY)
LOAD PENETRATION
DIMINISHEDDEPENDABLECAPACITY
SOLAR PV AS PERCENT OF SYSTEM PEAK
As more DPV...
69
WHAT IT IS
The value of the net change in transmission and distribution infrastructure
investments due to the addition ...
70
036912
Xcel,2013
APS,2013
Crossborder(AZ),2013
CPR(TX),2013
Crossborder(CA),2013
CPR(NJ/PA),2012
E3,2012
AE/CPR,2012
AP...
71
How much capacity can solar provide?
TRANSMISSION &
DISTRIBUTION
CAPACITY
APPROACH AND KEY CHOICES
What (and where) is ...
72
TRANSMISSION &
DISTRIBUTION
CAPACITY
INSIGHTS AND IMPLICATIONS
Most important methodological choices, unresolved across...
73
WHAT IT IS
The value of the net change in grid support services (also known as ancillary
services) required to insure t...
GRID SUPPORT SERVICES
74
WHAT THE STUDIES SAY
-1012
Crossborder(AZ)2013
Crossborder(CA)2013
LBNL2012
E32012
NREL2008
APS20...
GRID SUPPORT SERVICES
75
• Studies varied in their assessments of grid support services; controversy over
determining the ...
76
WHAT IT IS
The net impact to the price of electricity and fuel prices. Benefits occur if DPV reduces
the demand for cent...
FINANCIAL: MARKET PRICE RESPONSE
77
• Only a few studies attempt to quantify the market price response; assumptions and
me...
78
WHAT IT IS
The cost that a utility would otherwise incur to guarantee that a portion of
electricity supply costs are fix...
79
WHAT THE STUDIES SAY
FINANCIAL: FUEL
PRICE HEDGE01345
Xcel,2013
C
PR
(TX),2013C
PR
(N
J/PA),2012
N
REL,2008
R.Duke,2005...
80
WHAT IT IS
Increased system reliability and resilience because of 1) reducing T&D
congestion and therefore outages, 2) ...
81
What is the value of increased reliability
and resilience?
• Economic value of reduced
blackouts
How much can DPV incre...
82
WHAT IT IS
The value from reducing carbon emissions and therefore mitigating climate
change, driven by the emission int...
83
WHAT THE STUDIES SAY
ENVIRONMENT:
CARBON
0246
C
rossborder(AZ)2013
C
PR
(TX)2013
AE/C
PR
2012
C
PR
(N
J/PA)2012
AE/C
PR...
84
APPROACH AND KEY CHOICES
ENVIRONMENT:
CARBON
How much carbon will DPV
reduce?
What is the value of that
carbon?
• Margi...
85
As with energy value, carbon value depends heavily on what the marginal resource is
that is being displaced. The same d...
86
While there is little agreement on what the $/ton price of carbon is or should be, it is
likely non-zero.
ESTIMATING CA...
87
WHAT IT IS
The value from reducing impacts or creating benefits around non-carbon
environmental factors, including crite...
CRITERIA AIR POLLUTANTS
• Pollution control costs vs.
estimated cost of health damages
VALUE:
• Crossborder (AZ) 2013: $0....
WATER LAND
• Cost or value of water in competing
sectors, potentially including municipal,
agricultural, and environmental...
90
WHAT IT IS
The value of a net increase in jobs and local economic development in the
form of increased tax revenue.
SOC...
91
WHAT THE STUDIES SAY
SOCIAL:
ECONOMIC
DEVELOPMENT
Sources: Wei, 2010
012345
C
PR
(N
J/PA)2012
N
REL
2008
(cents/kWh$201...
05
MODULE 5:
TAKEAWAYS AND
IMPLICATIONS TO
CONSIDER FOR
MINNESOTA
FOR CONSIDERATION IN MOVING FORWARD
93
Energy value
•Hourly, time-correlated generation profiles, with simulated data
verifi...
94
Generation capacity
•Effective load carrying capability (ELCC) to determine DPV’s
capacity credit
Transmission and dist...
95
FOR CONSIDERATION IN MOVING FORWARD
Environmental value
•Carbon: generally included and more consistently monetized; ma...
OVERALL PROCESS
96
• Be transparent around assumptions, perspectives, sources, and methodologies
• Explicitly decide if an...
THANK YOU
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A Review of Solar PV Benefit and Cost Studies

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A marvelous presentation on the many complicated factors involved in calculating the value of solar to an electric utility. Presented on 9/20/13 by Lena Hansen and Virginia Lacy of the Rocky Mountain Institute to a Value of Solar Workshop hosted by the Division of Energy Resources of the Minnesota Department of Commerce. Part 1 of the stakeholder process for establishing the state's value of solar methodology for utilities.

Published in: Technology, Business

Transcript of "A Review of Solar PV Benefit and Cost Studies"

  1. 1. 1820 Folsom Street | Boulder, CO 80302 | RMI.org A REVIEW OF SOLAR PV BENEFIT & COST STUDIES Lena Hansen lhansen@rmi.org Virginia Lacy vlacy@rmi.org 17 SEPTEMBER 2013 | SAINT PAUL, MN
  2. 2. ABOUT RMI AND E-LAB 2 Rocky Mountain Institute works across industries on challenging energy issues to drive the efficient and restorative use of resources with market-based approaches e-Lab brings together leading electricity sector actors to solve regulatory, business, and economic barriers to the economic deployment of distributed resources
  3. 3. TABLE OF CONTENTS 3 1. Framing the need 2. Setting the stage 3. Overview of studies 4. Key findings about benefits and costs 5. Takeaways and implications
  4. 4. 01 MODULE 1: FRAMING THE NEED
  5. 5. SOLAR PV COSTS CONTINUE TO DECLINE... 5 $- $2 $4 $6 $8 $10 $12 2000 2004 2008 2012 2016 2020 $/W Historical (!10 kW) RMI RF (2011) Sunshot Target (2011) Black and Veatch McKinsey-EERE (2009) Germany BNEF Q2 2013 (!20 kW) TOTAL INSTALLED COST FOR <10 KW SYSTEMS Source: LBNL, DOE, BNEF, RMI Analysis
  6. 6. ...ENABLING INCREASING ADOPTION AROUND THE COUNTRY... 6 0 140 280 420 560 700 PN M (N M )SM U D (C A) N V Energy (N V) Atlantic C ity Elec.(N J) SDG &E (C A)Xcel(C O )JC P&L (N J)APS (AZ)PSE&G (N J)SC E (C A)PG &E (C A) 0% 2% 4% 6% 8% 10% 20 47 53 126 124 138 204 237 370 437 615 CumulativeSolarGenerationCapacity(MW) MWSolarasa%ofPeakDemand MW Installed Distribued Solar as a % of Peak DISTRIBUTED SOLAR INSTALLED, BY UTILITY (END OF YEAR 2012) Sources: PNM 2012 10k, PNM 2013 & 2014 Resource Procurement Plans, CSI data, Xcel 2012 10-k, APS 2012 10-k, PSE&G 2012 10-k, SEPA Utility Solar Ranking Data 2013, SMUD board of directors 2013 agenda, RMI Analysis.
  7. 7. ...AND DRIVING HEADLINES. 7
  8. 8. THESE ISSUES ARE ROOTED IN DISTRIBUTED PV’S CHARACTERISTICS, WHICH CONTRAST WITH HISTORICALLY CENTRALIZED SYSTEM Siting OwnershipOperations Large plants located far from load Small, modular, scalable units located close to load Centralized operations controlling dispatchable supply resources Currently operate outside of centrally controlled dispatch; resources are variable and require no fuel Financed, built and owned by the utility Can be financed, installed, or owned by either the customer or third party 8 Conventional Generation Distributed Solar PV
  9. 9. 9 END-USE EFFICIENCY FLEXIBILITY DISTRIBUTED GENERATION GRID INTELLIGENCE • Solar PV • Combined heat & power • Small-scale wind • Others (i.e. fuel cells) • Demand Response • Electric Vehicles • Thermal Storage • Battery Storage • Smart inverters • Home-area networks THESE CHARACTERISTICS EXTEND BEYOND DPV TO ALL FORMS OF DISTRIBUTED ENERGY RESOURCES
  10. 10. MECHANISMS DESIGNED FOR AN HISTORICALLY CENTRALIZED SYSTEM ARE NOT WELL-ADAPTED TO THE INTEGRATION OF DPV DPV SERVICE PROVIDERS DPV CUSTOMERS NON-DPV CUSTOMERS 4. VALUE RECOGNITION AND ALLOCATION 5. SOCIAL EQUITY Service$$ 1. FLEXIBILITY & PREDICTABILITY 3. SOCIAL PRIORITIES UTILITY/GRID 2. LOCATION & TIME 10 SOCIETY
  11. 11. 11 Power from DPV fluctuates with the weather, adding variability, and requires smart integration to best shape output system needs. Source: Lovins, Amory B. and the Rocky Mountain Institute, “Reinventing Fire: Bold Business Solutions for the New Energy Era,” Chelsea Green Publishing Company, Vermont, 2011. MISALIGNMENT 1: FLEXIBILITY & PREDICTABILITY Illustrative
  12. 12. 12 There is a limited feedback loop to customers that the costs or benefit of any electricity resource, especially DERs, vary by location and time. GEOGRAPHICALLY VARYING PRICES Source: correspondence from Jon Wellinghoff. MISALIGNMENT 2: LOCATION... High Price Area Low Price Area
  13. 13. MISALIGNMENT 2: ...AND TIME 13 !"#""$ !%"#""$ !&""#""$ !&%"#""$ !'""#""$ !'%"#""$ !(""#""$ !(%"#""$ !)""#""$ &$ '$ ($ )$ %$ *$ +$ ,$ -$ &"$&&$&'$&($&)$&%$&*$&+$&,$&-$'"$'&$''$'($')$ ./0123412$56782$ 9:264;2$<237=2>?41$<4@2$ !"#$%& '()*& TIME VARYING PRICES There is a limited feedback loop to customers that the costs or benefit of any electricity resource, especially DERs, vary by location and time. Sources: http://www.iso-ne.com/markets/mkt_anlys_rpts/whlse_load/estimator/index.action, and http://www.bls.gov/ro1/cpibosap.pdf
  14. 14. MISALIGNMENT 3: SOCIAL PRIORITIES ? $/kWh Security and Reliability Value Environmental Value • Carbon Emissions Reductions • Air Quality Improvements • Water Usage & Pollution Reductions • Land Use & Impact Reductions Social Value • Economic Development SOLAR GENERATION VALUE EXTERNALIZED VALUE TO SOCIETY 14 Other Transmission Distribution Generation Society values the environmental and social benefits that DPV could provide, but those benefits are often externalized and unmonetized.
  15. 15. MISALIGNMENT 4: BENEFIT AND COST RECOGNITION & ALLOCATION Conventional Situation What if a DPV customer does not pay full cost to serve demand? What if a DPV customer is not fully compensated for service they provide? 15 Other Costs Transmission Cost Distribution Cost Generation Cost $/yr Mechanisms are not in place to transparently recognize or compensate service provided by the utility or the customer. cost to serve customer bill cost to serve customer bill cost to serve customer bill
  16. 16. MISALIGNMENT 5: SOCIAL EQUITY If a DPV customer does not pay full cost to serve demand... Uncovered Costs Cost Reduction / Societal Savings ...the remaining costs must be covered by... Other Customers Utility $ 16 Other Costs Transmission Cost Distribution Cost Generation Cost If costs are incurred by DPV customers that are not paid for, those costs would be allocated to the rest of customers. Conversely, DPV customers also provide benefits to other customers and society. cost to serve customer bill
  17. 17. THESE MISALIGNMENTS RAISE KEY QUESTIONS • What benefits and costs does DPV actually create? • How should those benefits and costs be assessed? • How can benefits and costs be more effectively allocated and priced? 17
  18. 18. 02 MODULE 2: SETTING THE STAGE
  19. 19. A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL FINANCIAL 19 •Basic framework for discussing value at highest level •Categories are agnostic to ultimate value (value = benefit - cost) •Does not reflect who incurs benefit or cost
  20. 20. SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL ENERGY • energy • system losses CAPACITY •generation capacity •transmission & distribution capacity •DPV installed capacity GRID SUPPORT SERVICES •reactive supply & voltage control •regulation & frequency response •energy & generator imbalance •synchronized & supplemental operating reserves •scheduling, forecasting, and system control & dispatch FINANCIAL 20 Grid services includes the direct benefits and costs that are incurred in the generation and delivery of electricity from operations to resource planning. A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
  21. 21. SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL FINANCIAL FINANCIAL RISK • fuel price hedge • market price response 21 A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES Financial risk includes areas of typical risk exposure or mitigation in electricity, such as volatility of fuel prices or market prices.
  22. 22. SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL SECURITY RISK • reliability & resilience FINANCIAL 22 A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES Security risk includes all aspects of grid reliability and resiliency, including effects on the system reduce the occurrence of outages, or respond to (“bounce back” from) outages.
  23. 23. SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL ENVIRONMENTAL •carbon emissions •criteria air pollutants (SOx, NOx, PM10) •water •land FINANCIAL 23 A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES Environmental includes impacts on carbon emissions, air emissions, water, land use.
  24. 24. SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL SOCIAL •Economic development (jobs and tax revenues) FINANCIAL 24 A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES The net impact on jobs and local economic development in the form of tax revenue.
  25. 25. 25 SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL ENERGY • energy • system losses CAPACITY • generation capacity • transmission & distribution capacity • DPV installed capacity GRID SUPPORT SERVICES • reactive supply & voltage control • regulation & frequency response • energy & generator imbalance • synchronized & supplemental operating reserves • scheduling, forecasting, and system control & dispatch SECURITY RISK • reliability & resilience ENVIRONMENTAL • carbon emissions • criteria air pollutants (SOx, NOx, PM10) • water • land SOCIAL • Economic development (jobs and tax revenues) FINANCIAL FINANCIAL RISK • fuel price hedge • market price response A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
  26. 26. STAKEHOLDERS HAVE DIFFERING PERSPECTIVES THAT AFFECT CONSIDERATION OF BENEFITS AND COSTS 26 “I want to do the right thing for the environment while reducing my electricity bill. I want to be fairly compensated for the benefits I provide.” SOLAR CUSTOMER UTILITY OTHER CUSTOMERS “I want to serve my customers reliably and safely at the lowest cost, provide shareholder value and meet regulatory requirements.” “I want reliable power at the lowest cost.” “We want improved environmental quality as well as an improved economy.” SOCIETY
  27. 27. BENEFITS AND COSTS ACCRUE TO DIFFERENT STAKEHOLDERS AVOIDED COST SAVINGS TOTAL RESOURCE COST PV Cost $ ENVIRONMENTAL BENEFITS ELECTRIC GRID SOCIETAL COST UTILITY COST $ $ $ RATE IMPACT PARTICIPANT COST $ INTEGRATION & INTERCONNECTION COSTS INCENTIVE, BILL SAVINGS LOST REVENUE, UTILITY NET COST SOCIAL BENEFITS 27
  28. 28. STAKEHOLDER PERSPECTIVE: SOLAR CUSTOMER 28 • Reduction in utility bill • Financial incentives • Utility or other program administrator • Federal, state, or local tax incentives • Cost of solar equipment and installation • Ongoing system operations and maintenance costs Benefits Costs “I want to do the right thing for the environment while reducing my electricity bill. I want to be fairly compensated for the benefits I provide.” PV Cost INCENTIVE, BILL SAVINGS $
  29. 29. STAKEHOLDER PERSPECTIVE: UTILITY “I want to serve my customers reliably and safely at the lowest cost, provide shareholder value and meet regulatory requirements.” 29 • Avoided energy costs • Reduced system losses • Avoided generation capacity costs • Avoided transmission and distribution costs • Avoided grid support services costs • Avoided financial risk and environmental compliance costs • Decreased revenue • Increased utility administrative costs • Financial incentive costs • Integration (including grid support) and interconnection costs Benefits Costs AVOIDED COST SAVINGS $ $ $ $ INTEGRATION & INTERCONNECTION COSTS INCENTIVE, BILL SAVINGS LOST REVENUE, UTILITY NET COST
  30. 30. “I want reliable power at the lowest cost.” STAKEHOLDER PERSPECTIVE: OTHER CUSTOMERS • Rebates / incentives for PV passed through to customers • Decreased utility revenue that is offset by increased rates • Increased utility administrative costs passed through to customers • Integration and interconnection costs passed through to customers 30 Benefits Costs $ LOST REVENUE, UTILITY NET COST • Avoided energy costs • Reduced system losses • Avoided generation capacity costs • Avoided transmission and distribution costs • Avoided grid support services costs • Avoided financial risk and environmental compliance costs
  31. 31. “We want improved environmental quality as well as an improved economy.” STAKEHOLDER PERSPECTIVE: SOCIETY • The sum of all benefits accrued to all stakeholders • Environmental (air quality, water, land) benefits • Social (jobs and economic development) benefits • Security (reliability and resilience) benefits • The sum of all costs accrued to all stakeholders 31 Benefits Costs TOTAL RESOURCE COST ENVIRONMENTAL BENEFITS SOCIETAL COST SOCIAL BENEFITS
  32. 32. THE NATURE OF DPV IN TODAY’S SYSTEM CREATES A DIVIDE BETWEEN WHO PAYS AND WHO BENEFITS PV Customer Other Customers Society at Large Benefits and Costs Energy Capacity: Gen/T&D Grid Support Services Financial Risk Security Risk Environmental Social 32 Financial Incentives + — — + + + + + + + + + + + Capacity: DPV cost — +/—+ + —Bill Savings
  33. 33. 03 MODULE 3: OVERVIEW OF STUDIES
  34. 34. 34 RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
  35. 35. RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS 35 The Value of Distributed Solar Electric Generation to New Jersey and Pennsylvania (CPR (NJ/PA) 2012) Energy and Capacity Valuation of Photovoltaic Power Generation in New York (CPR (NY) 2008)
  36. 36. 36 The Value of Distributed Solar Electric Generation to San Antonio (CPR (TX) 2013) The Value of Distributed Photovoltaics to Austin Energy and the City of Austin (AE/CPR 2006) Designing Austin Energy’s Solar Tariff Using A Distributed PV Calculator (AE/CPR 2012) RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
  37. 37. 37 The Benefits and Costs of Solar Distributed Generation for Arizona Public Service (Crossborder (AZ) 2013) Distributed Renewable Energy Operating Impacts and Valuation Study (APS 2009) Updated Solar PV Value Report (APS 2013) Costs and Benefits of Distributed Solar Generation on the Public Service Company of Colorado System (Xcel 2013) RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
  38. 38. 38 Value of Variable Generation at High Penetration Levels (LBNL 2012) Quantifying the Benefits of Solar Power for California (Vote Solar 2005) Accelerating Residential PV Expansion (R. Duke 2005) Evaluating the Benefits and Costs of Net Energy Metering for Residential Customers in California Crossborder (CA) 2013 Technical Potential for Local Distributed Photovoltaics in California (E3 2012) California Solar Initiative Cost-Effectiveness Evaluation (E3 2011) RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
  39. 39. 39 Photovoltaics Value Analysis (NREL 2008) Value of Variable Generation at High Penetration Levels (LBNL 2012) The Value of Distributed Solar Electric Generation to San Antonio (CPR (TX) 2013) Quantifying the Benefits of Solar Power for California (Vote Solar 2005) Accelerating Residential PV Expansion (R. Duke 2005) The Benefits and Costs of Solar Distributed Generation for Arizona Public Service (Crossborder (AZ) 2013) Distributed Renewable Energy Operating Impacts and Valuation Study (APS 2009) Updated Solar PV Value Report (APS 2013) Evaluating the Benefits and Costs of Net Energy Metering for Residential Customers in California Crossborder (CA) 2013 The Value of Distributed Solar Electric Generation to New Jersey and Pennsylvania (CPR (NJ/PA) 2012) Technical Potential for Local Distributed Photovoltaics in California (E3 2012) The Value of Distributed Photovoltaics to Austin Energy and the City of Austin (AE/CPR 2006) Energy and Capacity Valuation of Photovoltaic Power Generation in New York (CPR (NY) 2008) California Solar Initiative Cost- Effectiveness Evaluation (E3 2011) Designing Austin Energy’s Solar Tariff Using A Distributed PV Calculator (AE/CPR 2012) Costs and Benefits of Distributed Solar Generation on the Public Service Company of Colorado System (Xcel 2013) RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
  40. 40. STUDIES SHOW WIDELY VARYING RESULTS, ALTHOUGH IT IS POSSIBLE TO DISTILL INSIGHTS AND IMPLICATIONS FOR MINNESOTA’S VOS PROCESS 40 BENEFITS AND COSTS OF DISTRIBUTED PV BY STUDY AZ NY, NJ, PA TX U.S.CACO APS 2013 APS 2009 Cross- border (CA) 2013 Vote Solar 2005 R. Duke 2005 LBNL 2012* CPR (NJ/ PA) 2012 CPR (TX) 2013 AE/CPR 2012 AE/CPR 2006 CPR (NY) 2008 Xcel 2013 !"#$ !%#$ !&#$ #$ &#$ %#$ "#$ (cents/kWhin$2012)! Cross- border (AZ) 2013 E3 2012** NREL 2008*** MonetizedMonetized Energy System Losses Gen Capacity T&D Capacity Average Local Retail Rate**** (in year of study, per EIA) DPV Technology Grid Support Services Solar Penetration Cost Financial: Fuel Price Hedge Financial: Mkt Price Response Security Risk Env. Carbon Env. Criteria Air Pollutants Env. Unspecified Social Avoided RPS Customer Services Inconsistently Unmonetized
  41. 41. THREE FACTORS DRIVE DIFFERENCES IN SOLAR VALUE 41 1. Local Context 3. Methodologies 2. Input Assumptions Local system conditions that shape or bound the net value that solar can provide Data assumptions used in deriving the results Approaches to calculating benefits and costs
  42. 42. 1. LOCAL CONTEXT: SOLAR RESOURCE 42 Source: NREL SOLAR INSOLATION AVERAGE SOLAR RADIATION BY AREA Source: NREL PV Watts
  43. 43. 1. LOCAL CONTEXT: SOLAR GENERATION PROFILE 43 GENERIC SOLAR GENERATION PROFILE Average summer (top) and winter (bottom) daily PV output (Example from CPR/AE 2006 study) DIFFERENCES IN GENERATION PROFILE DUE TO PV ORIENTATION/ CONFIGURATION Normalized Power(%) 100% 50% 0% 0:00 12:00 00:00 System Demand PV South Facing Orientations PV West-Facing
  44. 44. 1. LOCAL CONTEXT: SYSTEM CHARACTERISTICS 44 SYSTEM OR LOCAL DEMAND PROFILE Power(%) 100% 50% 0% 0:00 12:00 00:00 System Demand PV South Facing Orientations PV West-Facing COINCIDENCE OF DPV SOLAR PRODUCTION WITH APS SYSTEM PEAK (10% PENETRATION OF SYSTEM PEAK) (APS 2009 study)
  45. 45. 1. LOCAL CONTEXT: GENERATION MIX 45 TYPICAL SUMMER DAY (APS 2009 study) TYPICAL WINTER DAY
  46. 46. 1. LOCAL CONTEXT: ORGANIZED MARKET ACCESS & STRUCTURE 46 !" #!" $!" %!" &!" '!" (!" )!" *+," -./01" /2340" ,340" !"#$%& 156789:88:;7"4<5=:><" /?65@<" 340"/;8A";B"0C<56D;78" 27>:EE65F"4<5=:><8"" GCE:H" /6C6>:AF" -7<5@F" Capacity market Ancillary services market E 2011 ALL-IN WHOLESALE COST
  47. 47. 2. INPUT ASSUMPTIONS: A PREVIEW 47 Value: Energy System: Arizona Public Service • APS 2013: $9.00/MMBtu in 2008, $9.61 in 2025, based on NYMEX • APS 2009: $3.50/MMBtu in 2012, $7.66 in 2025, based on NYMEX Several input assumptions consistently and significantly drive specific components of solar value. For example, the price of fuel makes up a large portion of energy value; therefore, assumed fuel price forecast is important. !"!!# $"!!# %"!!# &"!!# '"!!# (!"!!# ($"!!# (%"!!# )*+,#$!(-# )*+,# $!!.# !"#$%&'()*+#*,-.,/* /01#23435678# 9:;:<3=>;#23435678# ?@:57<65678# Energy value $.025 $.10
  48. 48. 3. METHODOLOGIES: A PREVIEW 48 Value: Generation capacity System: California • E3 2012: In the long-run, value is based on the fixed cost of a new CT less expected revenues from real-time energy and ancillary services markets. Prior to the resource balance year, value is based on a resource adequacy value. • Crossborder (CA) 2012: Does not use E3’s resource balance year approach, which means that value is based only on long-run avoided capacity costs. !"# $# "# %$# %"# &$# &"# '()**+),(-.(# /'01# &$%2# 324# &$%&55# !"#$%&'()*+#*,-.,/* 06)7-.-#8.9.:,+;.*# <=<# 09>7;;,(?#@.(67>.*# />)*A1# BCD#',E,>7A?# <.9.(,F)9#',E,>7A?# G79.#G)**.*# 3;.>A(7>7A?# Generation capacity Different methodologies used to calculate benefits and costs lead to different results. For example, generation capacity value can be calculated in multiple ways, driving differences across studies. $.04 $.02
  49. 49. STUDY DESIGN: STRUCTURAL CHOICES 49 • Discount rate • Timeframe • System evolution over time • solar penetration (current levels, increasing levels) • load profiles (demand response, electric vehicles, smart grid) • generation profiles (variable renewables, storage) • Stakeholder perspective considered
  50. 50. 04 MODULE 4: KEY FINDINGS ABOUT COSTS AND BENEFITS
  51. 51. 51 SOCIAL SECURITY GRID SERVICES ENVIRONMENTAL ENERGY • energy • system losses CAPACITY • generation capacity • transmission & distribution capacity • DPV installed capacity GRID SUPPORT SERVICES • reactive supply & voltage control • regulation & frequency response • energy & generator imbalance • synchronized & supplemental operating reserves • scheduling, forecasting, and system control & dispatch SECURITY RISK • reliability & resilience ENVIRONMENTAL • carbon emissions • criteria air pollutants (SOx, NOx, PM10) • water • land SOCIAL • Economic development (jobs and tax revenues) FINANCIAL FINANCIAL RISK • fuel price hedge • market price response A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
  52. 52. 52 WHAT IT IS ENERGY The cost and amount of energy that would have otherwise been generated to meet customer needs, largely driven by the variable costs of the marginal resource that is displaced. ENERGY KEY POINTS • Frequently the most significant source of benefit • General agreement on approach, but several differences in methodological detail • Sometimes reported values include system losses and carbon price
  53. 53. 53 ENERGY * = value includes losses 03691215Xcel2013APS,2013* C rossboarder(AZ),2013* C PR (TX),2013* C rossborder(C A),2013 AE/C PR,2012* C PR (N J/PA),2012* LBN L,2012E3,2012APS,2009*N REL,2008 C PR (N Y),2008 AE/C PR,2006* Vote Solar,2005 R.Duke,2005 (cents/kWh$2012) WHAT THE STUDIES SAY ENERGY
  54. 54. 54 ENERGY APPROACH AND KEY CHOICES How much energy will DPV provide? What is the value of that energy? • Solar data: TMY vs. time/ load correlated • Marginal resource: discrete asset vs. hourly assessment • Fuel price forecast: EIA vs. NYMEX, and approach to extending Other drivers of value include: market structure, power plant efficiency, and operating and maintenance costs ENERGY
  55. 55. 55 ENERGY CHOOSING SOLAR DATA Taking a more granular approach to determining energy value requires a more detailed DPV generation model which should be matched with the same year’s load profile. TMY Data Time/Load Correlated Data Typical Meteorological Year based on 30 years of data, from NREL Actual hourly load and solar generation, correlated “TMY data tracks well with the actual solar data” “A technical analysis based on anything other than time- and location-correlated solar data may give incorrect results” ENERGY
  56. 56. 56 ENERGY DEFINING THE MARGINAL RESOURCE Accurately defining the marginal resource that DPV displaces requires an increasingly sophisticated approach as DPV penetration increases, but at low levels of penetration, a simpler approach is likely adequate. Approaches to Marginal Resource Characterization Single power plant assumed to be on the margin (typically gas CC) Plant on the margin on-peak/plant on the margin off-peak Hourly dispatch or market assessment to determine marginal resource in every hour Moreaccurate,morecomplex ENERGY
  57. 57. 57 ENERGY FORECASTING FUEL PRICES Although the NYMEX natural gas forward market is a reasonable basis for a natural gas price forecast, it is not apparent from studies reviewed what the most effective method is for escalating prices beyond the year in which the NYMEX market ends. Forecasts change dramatically with every iteration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
  58. 58. 58 WHAT IT IS The value of the additional energy generated by central plants that would otherwise be lost due to the inherent inefficiencies (electrical resistance) in delivering energy to the customer via the transmission & distribution system. SYSTEM LOSSES SYSTEM LOSSES
  59. 59. 59 KEY POINTS • Avoided losses usually represent a small, but not insignificant, source of value • Included in all studies; some methodological differences but relatively straightforward • Acts as a magnifier of value for capacity and environmental benefits SYSTEM LOSSES SYSTEM LOSSES
  60. 60. 60 WHAT THE STUDIES SAY SYSTEM LOSSES 012345 Xcel,2013 C rossborder(C A),2013 AE/C PR,2012 E3,2012 N REL,2008 AE/C PR,2006 Vote Solar,2005 R.Duke,2005 (cents/kWh$2012) SYSTEM LOSSES
  61. 61. 61 APPROACH AND KEY CHOICES What are the system’s loss factors? When and where does solar reduce losses? What types of avoided losses are included? SYSTEM LOSSES Other drivers of value include: level of system congestion and whether losses are included as an adder of other values or stand alone • Average vs. marginal • Degree of geographic granularity • Solar data: TMY vs. time/load correlated • Energy, capacity, environment SYSTEM LOSSES
  62. 62. 62 Because losses are driven by the square of current, losses are significantly higher during peak periods. Therefore, when calculating losses, it’s critical to reflect marginal losses, not just average losses. ESTIMATING SYSTEM LOSSES (APS 2009 study) SYSTEM LOSSES
  63. 63. 63 WHAT IT IS The value of deferring or displacing other generation investments by providing capacity that can meet demand at the same system level of reliability. GENERATION CAPACITY GENERATION CAPACITY KEY POINTS • More complex undertaking than energy or system losses • Some philosophical agreement on capacity value approach, although there remain key differences in methodology • Estimation of marginal resource and value can differ based on system characteristics, e.g. capacity market • Factors driving largest differences of value: • Correlation of solar generation with periods of system peak demand • Calculation of effective capacity or capacity credit • Whether there is an assumption of a minimum DPV level required to defer capacity
  64. 64. WHAT THE STUDIES SAY * = value takes into account loss savings 03691215 Xcel,2013 APS,2013 Crossborder(AZ),2013* CPR(TX),2013 Crossborder(CA),2013 CPR(NJ/PA),2012 LBNL,2012 E3,2012 AE/CPR,2012* APS,2009 NREL,2008 CPR(NY),2008 AE/CPR,2006 VoteSolar,2005 R.Duke,2005 (cents/kWh$2012) GENERATION CAPACITY GENERATION CAPACITY
  65. 65. 65 APPROACH AND KEY CHOICES 1) How much capacity can solar provide? GENERATION CAPACITY •Capacity credit: Effective load carrying capability (ELCC) •Over time: decreasing 2) How much is that capacity worth? •Marginal resource: market value vs. fixed costs of a marginal generator (typically at CT or CCGT) •Deferral value: every MW vs. only in minimum increments based on system needs Other drivers of value include: load growth, inclusion of system losses GENERATION CAPACITY
  66. 66. Generation capacity value is highly dependent on the correlation of DPV generation to load. While all studies assess that correlation using an ELCC approach, varying results indicate possible different formulations of ELCC. 66 DETERMINING DPV’S EFFECTIVE CAPACITY GENERATION CAPACITY Normalized Power(%) 100% 50% 0% 0:00 12:00 00:00 System Demand PV South Facing Orientations PV West-Facing Study ELCC* APS 2009 ~45-49% APS 2013** 45.9% (2015) 30.5% (2020) 21% (2025) CPR (NJ/PA) 2012 28-45% Xcel 2013 33% AE/CPR 2006 46-63% CPR (TX) 2013 71-97% Crossborder (APS) 2013 50-70% * Most studies do not indicate whether ELCC is AC/DC ** expected penetration scenario (242, 768, 1504 MWac) GENERATION CAPACITY
  67. 67. 67 GENERATION CAPACITY Some studies credit every unit of dependable DPV with capacity value, whereas others require a certain minimum amount to be installed to defer an actual planned resource. It’s important to assess what capacity would have been needed without any additional DPV. ESTIMATING DEFERRAL VALUE Demand with PV MW Demand without PV GENERATION CAPACITY
  68. 68. 68 ELCC(%INSTALLEDPVCAPACITY) LOAD PENETRATION DIMINISHEDDEPENDABLECAPACITY SOLAR PV AS PERCENT OF SYSTEM PEAK As more DPV is added to the system, the underlying load shape could begin to shift as DPV generation shifts the net-demand peak to other periods of the day. RW Beck/ Arizona Public Service 2009 The Value of Distributed Photovoltaics to Austin Energy and the City of Austin (2006) UNDERSTANDING CHANGING VALUE WITH INCREASING PENETRATION GENERATION CAPACITY GENERATION CAPACITY
  69. 69. 69 WHAT IT IS The value of the net change in transmission and distribution infrastructure investments due to the addition of DPV, which is installed closer to load, relieving capacity constraints upstream and deferring or avoiding upgrades. TRANSMISSION & DISTRIBUTION CAPACITY TRANSMISSION & DISTRIBUTION CAPACITY KEY POINTS • Value (especially distribution) is site specific, making accurate assessments difficult, necessitating more granular data, and driving significant differences in results • There are widely varying methodologies using data of differing quantity and quality as studies seek a balance between accuracy and analytical simplicity • Factors driving largest differences in value: • T&D investment plan characteristics and assumed load growth • calculation of solar capacity credit • minimum DPV required to defer capacity
  70. 70. 70 036912 Xcel,2013 APS,2013 Crossborder(AZ),2013 CPR(TX),2013 Crossborder(CA),2013 CPR(NJ/PA),2012 E3,2012 AE/CPR,2012 APS,2009 NREL,2008 AE/CPR,2006 VoteSolar,2005 (cents/kWh$2012) WHAT THE STUDIES SAY TRANSMISSION & DISTRIBUTION CAPACITY TRANSMISSION & DISTRIBUTION CAPACITY
  71. 71. 71 How much capacity can solar provide? TRANSMISSION & DISTRIBUTION CAPACITY APPROACH AND KEY CHOICES What (and where) is the potential for capacity deferral and how much is that capacity worth? • Distribution: Screen feeders followed by technical load matching analysis • Transmission: Value less location dependent • Deferral value: Every MW vs. only in minimum increments based on system needs • ELCC for transmission and/or distribution; some chose 90% confidence benchmark for distribution • Potential to target deployment TRANSMISSION & DISTRIBUTION CAPACITY
  72. 72. 72 TRANSMISSION & DISTRIBUTION CAPACITY INSIGHTS AND IMPLICATIONS Most important methodological choices, unresolved across studies, are: • Most studies use ELCC to determine effective transmission capacity, some use the level at which there is a 90% confidence of that amount of generation • Some require a minimum amount of solar before any T&D value is recognized, whereas others credit every unit of reliable capacity with T&D savings The values of T&D are often grouped together, but are unique when considering DPV’s costs and benefits. • The ability to defer or avoid transmission is less locational dependent than distribution • The distribution system requires more geographically specific data Strategically targeted DPV deployment can relieve T&D capacity constraints, but dispersed deployment has been found to provide less benefit. Accessing DPV’s T&D deferral value requires proactive planning. TRANSMISSION & DISTRIBUTION CAPACITY
  73. 73. 73 WHAT IT IS The value of the net change in grid support services (also known as ancillary services) required to insure the reliability and availability of energy with the addition of DPV. GRID SUPPORT SERVICES GRID SUPPORT SERVICES Grid Support Services The potential for DPV to provide grid support services (with technology modifications) REACTIVE SUPPLY AND VOLTAGE CONTROL (+/-) PV with an advanced inverter can inject/consume VARs, adjusting to control voltage FREQUENCY REGULATION (+/-) Advanced inverters can adjust output frequency; standard inverters may ENERGY IMBALANCE (+/-) If PV output < expected, imbalance service is required. Advanced inverters could adjust output to provide imbalance OPERATING RESERVES (+/-) Additional variability and uncertainty from large penetrations of DPV may introduce operations forecast error and increase the need for certain types of reserves; however, DPV may also reduce the amount of load served by central generation, thus, reducing needed reserves. SCHEDULING / FORECASTING (-) The variability of the solar resource requires additional forecasting to reduce uncertainty
  74. 74. GRID SUPPORT SERVICES 74 WHAT THE STUDIES SAY -1012 Crossborder(AZ)2013 Crossborder(CA)2013 LBNL2012 E32012 NREL2008 APS2009 (cents/kWh$2012) Decreased operating & capacity reserve requirement Based on CAISO 2011 Market Values Market value of non- spinning reserves, spinning reserves, and regulation 1% of avoided energy value
  75. 75. GRID SUPPORT SERVICES 75 • Studies varied in their assessments of grid support services; controversy over determining the net change in ancillary services due to DPV • To date, studies have generally focused on the impacts to operating reserves • Key difference: whether necessary amount decreases by DPV’s effective capacity • Areas with wholesale AS markets enable easier quantification of AS value; regions without markets have less standard methodologies • Key drivers of value include: estimated effective capacity of PV, how reduced load is correlated with AS need, and the potential of PV to provide grid support with technology coupling INSIGHTS AND IMPLICATIONS
  76. 76. 76 WHAT IT IS The net impact to the price of electricity and fuel prices. Benefits occur if DPV reduces the demand for central electricity, thereby lowering electricity and fuel prices. Benefits could be reduced in the longer term as energy prices decline, which could result in higher demand. Additionally, depressed prices in the energy market could have a feedback effect by raising capacity prices. FINANCIAL: MARKET PRICE RESPONSE FINANCIAL: MARKET PRICE RESPONSE Price (before PV) Price (after PV) Load (before PV) Load (after PV) Market Price Reduction MARKET PRICE VS. LOAD 02468 C PR (N J/PA)2012 N REL 2008 (cents/kWh$2012) WHAT THE STUDIES SAY
  77. 77. FINANCIAL: MARKET PRICE RESPONSE 77 • Only a few studies attempt to quantify the market price response; assumptions and methodologies differ. • Assesses the initial market reaction of reduced price, not subsequent market dynamics (e.g. increased demand in response to price reductions, or the impact on the capacity market), which has to be studied and considered, especially in light of higher penetrations of DPV. • One study represented a potential feedback effect between energy and capacity by assuming an energy market calibration factor. It assumed: • In the long run, the CCGT's energy market revenues plus the capacity payment equal the fixed and variable costs of the CCGT, i.e. the CCGT is made whole. • The energy market calibration factor provides that a decrease in energy costs would result in a relative increase in capacity costs. INSIGHTS AND IMPLICATIONS
  78. 78. 78 WHAT IT IS The cost that a utility would otherwise incur to guarantee that a portion of electricity supply costs are fixed. FINANCIAL: FUEL PRICE HEDGE FINANCIAL: FUEL PRICE HEDGE KEY POINTS • Many studies acknowledge the fuel price hedge value, but few quantify it • Based on assumption that natural gas is the marginal resource (which is generally the case) • NYMEX futures as a proxy for hedge value
  79. 79. 79 WHAT THE STUDIES SAY FINANCIAL: FUEL PRICE HEDGE01345 Xcel,2013 C PR (TX),2013C PR (N J/PA),2012 N REL,2008 R.Duke,2005 (cents/kWh$2012) APPROACH AND KEY CHOICES What is the value to the utility and its customers of hedging natural gas prices? • NYMEX futures market prices vs. stand alone estimation How much natural gas can DPV hedge? • Level of annual solar generation FINANCIAL: FUEL PRICE HEDGE
  80. 80. 80 WHAT IT IS Increased system reliability and resilience because of 1) reducing T&D congestion and therefore outages, 2) increasing the diversity of the generation portfolio with smaller, more dispersed resources, and 3) providing backup power when DPV is coupled with storage. SECURITY: RELIABILITY AND RESILIENCY SECURITY KEY POINTS • While a number of studies acknowledged security value, only two attempted to quantify it. • There is no consistent or agreed-upon methodology.
  81. 81. 81 What is the value of increased reliability and resilience? • Economic value of reduced blackouts How much can DPV increase reliability and resilience? • By itself vs. combined with storage and islandable SECURITY Sector Min Max Residential 0.028 0.41 Commercial 11.77 14.40 Industrial 0.4 1.99 Source: The National Research Council, 2010 Disruption Value Range by Sector (cents/kWh $2012) 0123 C PR (N J/PN )2012 N REL 2008 (cents/kWh$2012) WHAT THE STUDIES SAY APPROACH & KEY CHOICES SECURITY: RELIABILITY AND RESILIENCY
  82. 82. 82 WHAT IT IS The value from reducing carbon emissions and therefore mitigating climate change, driven by the emission intensity of the displaced marginal resource and the price of emissions. ENVIRONMENT: CARBON ENVIRONMENT: CARBON KEY POINTS • Most studies acknowledge carbon reduction value and many quantify it; when included, carbon reduction value can be significant • The approach is straightforward but studies diverge in the carbon price used
  83. 83. 83 WHAT THE STUDIES SAY ENVIRONMENT: CARBON 0246 C rossborder(AZ)2013 C PR (TX)2013 AE/C PR 2012 C PR (N J/PA)2012 AE/C PR 2006 Vote Solar2005 (cents/kWh$2012) Studies that Evaluate Carbon Separately Studies that Group All Environmental Values 0246 Xcel,2013 C rossborder(C A),2013 E3,2012 N REL,2008R.Duke,2005 (cents/kWh$2012) ENVIRONMENT: CARBON
  84. 84. 84 APPROACH AND KEY CHOICES ENVIRONMENT: CARBON How much carbon will DPV reduce? What is the value of that carbon? • Marginal resource: discrete asset vs. hourly assessment • Solar data: TMY vs. time/load correlated • Carbon price forecast: Analyst forecast vs. existing global market vs. other Other drivers of value include: power plant efficiency, market structure & rules around carbon valuation ENVIRONMENT: CARBON
  85. 85. 85 As with energy value, carbon value depends heavily on what the marginal resource is that is being displaced. The same determination of the marginal resource should be used to drive both energy and carbon values. DETERMINING CARBON REDUCTION ENVIRONMENT: CARBON ENVIRONMENT: CARBON
  86. 86. 86 While there is little agreement on what the $/ton price of carbon is or should be, it is likely non-zero. ESTIMATING CARBON COST ENVIRONMENT: CARBON ENVIRONMENT: CARBON !"#!!!! !"$%&%%!! !"'%&%%!! !"(%&%%!! !")%&%%!! !"*%&%%!! !"+%&%%!! !",%&%%!! '%$(! '%$-! '%'(! '%'-! !"#$"%&'()*+,(-., /-('.012,34",3-5(,6-)'+15(5, ./0123451/6785/9:;! <=1>;!?3@:;! Sources: E3 avoided cost calculator; White House 2013 interagency report Example only
  87. 87. 87 WHAT IT IS The value from reducing impacts or creating benefits around non-carbon environmental factors, including criteria air pollutants (NOX, SO2, and particulate matter), water consumption and pollution, and land footprint or property value. ENVIRONMENT: OTHER FACTORS ENVIRONMENT: OTHER FACTORS KEY POINTS • While a number of studies acknowledged these environmental values, only a few attempted to quantify them • Values beyond compliance (e.g., health impacts) are notoriously hard to quantify and there is no consistent or agreed-upon methodology • These values generally accrue to society and have not been historically reflected in rates except via the cost of abatement technologies
  88. 88. CRITERIA AIR POLLUTANTS • Pollution control costs vs. estimated cost of health damages VALUE: • Crossborder (AZ) 2013: $0.37/MWh • NREL 2008 as $0.2-14/MWh • CPR (NJ/PA) 2012 and AE/CPR 2012 estimate cost based on a combined environmental value AVOIDED RENEWABLE PORTFOLIO STANDARD (RPS) 88 • What the utility would have otherwise spent vs. RECs VALUE: •Crossborder (AZ) 2013: $45/MWh •Crossborder (CA) 2013 $50/MWh APPROACH AND KEY CHOICES ENVIRONMENT: OTHER FACTORS What is the value of reduced criteria air pollutants? What is the value of avoiding RPS expenditures? ENVIRONMENT: OTHER FACTORS
  89. 89. WATER LAND • Cost or value of water in competing sectors, potentially including municipal, agricultural, and environmental/ recreational uses • Change in property value with the addition of DPV vs. reduced land requirement vs. reduced ecosystem impacts WATER CONSUMPTION BY TECHNOLOGY 0 0.5 1.0 1.5 Coal CSP Nuclear Oil/Gas NaturalGas Biomass PV Wind (gals/kWh) 0 10 20 30 NaturalGas(CC) Wind,arrayspacing SolarCSP PV(Ground) Coal Nuclear Geothermal Wind,footprint LIFE-CYCLE LAND USE BY TECHNOLOGY (acres/MW) Source: Fthenakis Source: Goodrich 89 ENVIRONMENT: OTHER FACTORS APPROACH AND KEY CHOICES What is the value of reduced water consumption and pollution? What is the benefit or reduced cost of land impact? ENVIRONMENT: OTHER FACTORS
  90. 90. 90 WHAT IT IS The value of a net increase in jobs and local economic development in the form of increased tax revenue. SOCIAL: ECONOMIC DEVELOPMENT SOCIAL: ECONOMIC DEVELOPMENT KEY POINTS •Only two studies attempted to quantify this metric, although several more acknowledged it. • This value is hard to quantify and there is no consistent or agreed-upon methodology • This value generally accrues to society and has not been historically reflected in rates
  91. 91. 91 WHAT THE STUDIES SAY SOCIAL: ECONOMIC DEVELOPMENT Sources: Wei, 2010 012345 C PR (N J/PA)2012 N REL 2008 (cents/kWh$2012) 0 0.25 0.5 0.75 1 Solar EE Wind Nuclear Coal NaturalGas SmallHydro Job Multipliers by Industry How many jobs are created? Where are those jobs created? How will tax revenues increase? APPROACH AND KEY CHOICES SOCIAL: ECONOMIC DEVELOPMENT
  92. 92. 05 MODULE 5: TAKEAWAYS AND IMPLICATIONS TO CONSIDER FOR MINNESOTA
  93. 93. FOR CONSIDERATION IN MOVING FORWARD 93 Energy value •Hourly, time-correlated generation profiles, with simulated data verified as possible with empirical data •What’s on the margin matters •Market based data where possible Transmission and distribution line losses •Marginal, not average •Assess transmission and distribution losses separately
  94. 94. 94 Generation capacity •Effective load carrying capability (ELCC) to determine DPV’s capacity credit Transmission and distribution capacity •Assess appropriate metric for DPV’s effective capacity (ELCC or higher bar?) •Assess whether every MW get capacity credit FOR CONSIDERATION IN MOVING FORWARD
  95. 95. 95 FOR CONSIDERATION IN MOVING FORWARD Environmental value •Carbon: generally included and more consistently monetized; many approaches to estimation •Other environmental values: real; compliance costs sometimes included, but health and ecosystem impacts not because they are external to the grid system and challenging to quantify
  96. 96. OVERALL PROCESS 96 • Be transparent around assumptions, perspectives, sources, and methodologies • Explicitly decide if and how to account for each broadly recognized source of value • Be as analytically rigorous as needed, but not more so • Apply widely accepted tools to estimate value that are credible and instill confidence in results • Use (or develop!) best practices to help ensure accountability and verifiability of benefit and cost estimates • Looking forward: • Studies have implicitly assumed historically low penetrations of DPV, and have largely focused on DPV in isolation, but a confluence of factors will require a consideration of DPV’s benefits and costs in the context of a changing system • With better recognition of the costs and benefits, pricing structures and business models can be better aligned to enable greater economic deployment and lower overall system costs
  97. 97. THANK YOU
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