TODAY’S STUDY: HOW TO COMPARE VALUE OF SOLAR STUDIES

A Review of Solar PV Benefit & Cost Studies

Lena Hansen, Virginia Lacy and Devi Glick, July 2013 (Rocky Mountain Institute)

Executive Summary

The Need

The addition of distributed energy resources (DERs) onto the grid creates new opportunities and challenges because of their unique siting, operational, and ownership characteristics compared to conventional centralized resources.

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Today, the increasingly rapid adoption of distributed solar photovoltaics (DPV) in particular is driving a heated debate about whether DPV creates benefits or imposes costs to stakeholders within the electricity system. But the wide variation in analysis approaches and quantitative tools used by different parties in different jurisdictions is inconsistent, confusing, and frequently lacks transparency.

Without increased understanding of the benefits and costs of DERs, there is little ability to make effective tradeoffs between investments.

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Objective Of This Document

The objective of this eLab discussion document is to assess what is known and unknown about the categorization, methodological best practices, and gaps around the benefits and costs of DPV, and to begin to establish a clear foundation from which additional work on benefit/cost assessments and pricing structure design can be built.

This discussion document reviews 15 DPV benefit/cost studies by utilities, national labs, and other organizations. Completed between 2005 and 2013, these studies reflect a significant range of estimated DPV value.

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Key Insights

No study comprehensively evaluated the benefits and costs of DPV, although many acknowledge additional sources of benefit or cost and many agree on the broad categories of benefit and cost. There is broad recognition that some benefits and costs may be difficult or impossible to quantify, and some accrue to different stakeholders.

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There is a significant range of estimated value across studies, driven primarily by differences in local context, input assumptions, and methodological approaches.

Local context: Electricity system characteristics—generation mix, demand projections, investment plans, market structures —vary across utilities, states, and regions.

Input assumptions: Input assumptions—natural gas price forecasts, solar power production, power plant heat rates—can vary widely.

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Methodologies: Methodological differences that most significantly affect results include (1) resolution of analysis and granularity of data, (2) assumed cost and benefit categories and stakeholder perspectives considered, and (3) approaches to calculating individual values.

Because of these differences, comparing results across studies can be informative, but should be done with the understanding that results must be normalized for context, assumptions, or methodology.

While detailed methodological differences abound, there is general agreement on overall approach to estimating energy value and some philosophical agreement on capacity value, although there remain key differences in capacity methodology. There is significantly less agreement on overall approach to estimating grid support services and currently unmonetized values including financial and security risk, environment, and social value.

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Implications

Methods for identifying, assessing and quantifying the benefits and costs of distributed resources are advancing rapidly, but important gaps remain to be filled before this type of analysis can provide an adequate foundation for policymakers and regulators engaged in determining levels of incentives, fees, and pricing structures for DPV and other DERs.

In any benefit/cost study, it is critical to be transparent about assumptions, perspectives, sources and methodologies so that studies can be more readily compared, best practices developed, and drivers of results understood.

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While it may not be feasible to quantify or assess sources of benefit and cost comprehensively, benefit/cost studies must explicitly decide if and how to account for each source of value and state which are included and which are not.

While individual jurisdictions must adapt approaches based on their local context, standardization of categories, definitions, and methodologies should be possible to some degree and will help ensure accountability and verifiability of benefit and cost estimates that provide a foundation for policymaking.

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The most significant methodological gaps include:

Distribution value: The benefits or costs that DPV creates in the distribution system are inherently local, so accurately estimating value requires much more analytical granularity and therefore greater difficulty.

Grid support services value: There continues to be uncertainty around whether and how DPV can provide or require additional grid support services, but this could potentially become an increasingly important value.

Financial, security, environmental, and social values: These values are largely (though not comprehensively) unmonetized as part of the electricity system and some are very difficult to quantify.

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Looking Ahead

Thus far, studies have made simplifying assumptions that implicitly assume historically low penetrations of DPV. As the penetration of DPV on the electric system increases, more sophisticated, granular analytical approaches will be needed and the total value is likely to change.

Studies have largely focused on DPV by itself. But a confluence of factors is likely to drive increased adoption of the full spectrum of renewable and distributed resources, requiring a consideration of DPV’s benefits and costs in the context of a changing system.

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With better recognition of the costs and benefits that all DERs can create, including PDV, pricing structures and business models can be better aligned, enabling greater economic deployment of DERs and lower overall system costs for ratepayers.

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