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New Rate Revamp for Distributed Energy Resources (DERs)

  • March 13, 2017

On Thursday, March 9, 2017, the Public Service Commission (PSC) approved an order for a new “Value Stack” pricing structure for distributed energy resources (DER). This is “a major milestone” for New York’s Reforming the Energy Vision (REV) in support of “50 by 30” (50% renewable energy by 2030 in New York) “by beginning the actual transition to a distributed, transactive, and integrated electric system”. This “Value Stack” pricing structure would replace current DER business models based on net energy metering (NEM) due to NEM’s inability to “accurately reflect the values, services and other benefits provided by solar and other types of DER to the grid.”

What Is Net Energy Metering?

Net metering is a billing mechanism that incentivizes the installation of renewable energy systems by crediting owners for electricity they add to the grid (also termed ‘injections’). Both residential and commercial customers can install their own on-site solar energy systems and possibly generate more electricity than needed to meet demand. The ‘net-meter’ then provides a credit towards times when the system does not generate enough electricity to meet demand.

distributed energy resources net metering process

Current NEM rates are based on normal retail rates that do not change in accordance to when and where the customer uses the power. For example, compensation for injected energy for residential customers is equal to the entire per kWh retail rate, including the portions of that rate that reflect supply charges, delivery charges, and other charges that are billed on a per kWh basis, such as taxes, the System Benefit Charge (SBC), and the Merchant Function Charge (MFC).  For demand billed (i.e. commercial customers), net energy consumption is billed “with regard to the volumetric kWh portion of their monthly bill, which includes the supply charge and some other charges, including the SBC and MFC.  However, because their delivery charge is based on their peak monthly kW demand, injections of energy do not reduce their delivery charge.”  In other words, they are not compensated for the actual value they provide to the grid.

In the Order, the PSC called NEMs “inaccurate mechanisms of the past that operate as blunt instruments to obscure value and are incapable of taking into account locational, environmental and temporal values of the projects.” These current models do not maximize the overall value of DER to all utility customers because they exclude time, location, and grid needs in the calculation to decipher how much each customer should be paid per kilowatt-hour (kWh) of solar generation injected into the grid (i.e. not consumed by the customer). The Natural Resources Defense Council (NRDC) stated that “net metering doesn’t necessarily incent solar investments to be located in the areas where they are most needed, or to combine with other technologies like storage to provide maximum value to the electricity system.”

What is the “Value Stack”?

In order to “encourage the location, design, and operation of DER in a manner that maximizes benefits to the customer, the electric system, and society”, the Order outlines a shift from NEM, to Phase One NEM as a transition period, to a “Value Stack” model.  This new “Value Stack” compensation model would include:

  • Energy value– based on zonal LMPs including line losses
  • Capacity value– “based on retail capacity rates for intermittent technologies and the capacity tag approach for dispatchable technologies based on performance during the peak hour in the previous year”
  • Environmental Value– “based on the latest Clean Energy Standard (CES) Tier 1 renewable energy certificate procurement price or the federal government’s social cost of carbon
  • Demand reduction value (DRV) and locational system relief value (LSRV), based largely on utility marginal cost of service studies and performance during ten peak hours”

The Value Stack model will provide a more precise value of distributed energy resources (VDER) while simultaneously adjusting to meet the need for predictable prices. “Rather than offsetting the retail rate, projects will generate credits according to an estimate of the value they provide to New York customers,” says NRDC attorney Miles Farmer.

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On the contrary, some solar companies are concerned about the uncertainty of how the rates will be calculated.  The NRDC stated “there is little agreement surrounding how best to calculate each of these sources of value… too much variation uncertainty in an untested formula, for instance, could prevent investors from having sufficient confidence in future revenues to support new projects.” This type of rate structure is complex and challenging because utilities are still required to collect data to properly price these components. The PSC has stated that this new structure is not set in stone and will constantly be changing to account for new technologies like energy storage.

What’s the Timeline?

(Paraphrased from the Order)

During an initial period, commencing with the date of this order, new projects will continue to receive compensation based on NEM methodologies, except that those projects will be limited to receiving such compensation to 20 years before transitioning to new compensation mechanisms.  During this initial period, the Department of Public Service Staff will engage with utilities and stakeholders to finalize recommendations to implement a new compensation mechanism.  Once the recommendations have been filed and received public scrutiny, the Commission will take further action, as early as this Summer, to fully implement compensation for new projects that reflects the values created by those projects in a more accurate and granular manner.

  • March 2017 – filing of utility tariffs implementing Phase One NEM
  • April 2017 – utilities file work plan and timeline for developing locationally granular prices to reflect the full value to their distribution systems from DER additions
  • By May 1, 2017, each utility shall file an Implementation Proposal for public review and comment, followed by Commission consideration
  • May 2017 – a procedural conference or other meeting of interested parties will be convened to commence Phase Two
  • Summer 2017 – implementation of VDER Value Stack

State of New York Public Service Commission. Order on Net Energy Metering Transition, Phase One of Value of Distributed Energy Resources, and Related Matters.  https://s3.amazonaws.com/dive_static/paychek/15-E-0751_VDER_Order___final_1.pdf.  Accessed 10 March 2017.

John, Jeff St. Greentech Media. Solar Groups Support New York’s First Step Toward Distributed Energy Rates. https://www.greentechmedia.com/articles/read/solar-groups-support-new-yorks-first-step-toward-distributed-energy-rates. Accessed 10 March 2017.

Kuser, Michael. RTO Insider, Your Eyes and Ears on the Organized Electric Markets. NYPSC Adopts ‘Value Stack’ Rate Structure for DER. https://www.rtoinsider.com/nypsc-value-stack-rate-structure-der-39880/. Accessed 10 March 2017.

Ola, Danielle. PVTech. New York Public Service Commission scraps net metering and approves new rates structure to value DER. https://www.pv-tech.org/news/new-york-public-service-commission-scraps-net-metering-and-approves-new-rat. Accessed 10 March 2017.

SEIA- Solar Energy Industries Association. Issues & Policies- Net Metering. http://www.seia.org/policy/distributed-solar/net-metering. Accessed 10 March 2017.