TODAY’S STUDY: The Power Of A DER Portfolio

Capturing More Value from Combinations of PV and Other Distributed Energy Resources

John Shenot, Carl Linvill, et al., August 2019 (Regulatory Assistance Project)

Executive Summary

Much has been written about the value of solar photovoltaic (PV) generation, but less about the value of some of the other distributed energy resources (DER) — other forms of distributed generation (DG), energy storage, electric vehicles (EVs), demand response (DR), and energy efficiency (EE) — or how these resources can be combined. This paper considers the types of values (or “value streams”) that combinations of DERs can create, examines three “use cases,” and explores a path for capturing more of the full value of these combinations.

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Cost of Service, Value of Service, and Value Streams

To begin our analysis, we must clarify what we mean by “value.” The traditional cost-of-service model as used by monopoly utilities still governs some electric utility services, but a more diverse, competitive marketplace has emerged for other services — with independent power producers, energy service companies, and in some regions competitive retail electricity suppliers all in the mix. In this new marketplace, value-of-service procurement has emerged as a complement to cost-of-service ratemaking.

Valuation and cost-benefit analyses have been staples of policy and regulatory decisions regarding ratepayer-funded energy efficiency programs for more than 30 years, and the evaluation, measurement and verification (EM&V) approaches applied to these programs are instructive in considering the value of combinations of DERs. Two key principles of EM&V approaches are to consider a broad range of value streams and to consider the parties to whom each value stream accrues. (Ultimately, any question about the value of an electricity service must consider “value to whom?”) The seminal document for cost-effectiveness (C-E) testing, California’s Standard Practice Manual, defines five ways to test C-E using various methodologies to assess a program’s effect on costs and benefits for utilities, customers, program administrators, and related policy goals. The recently produced National Standard Practice Manual proposes a sixth test, one that considers societal costs more widely. Although these tests were developed to evaluate energy efficiency programs, they are often also used to evaluate DER programs and resources.

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DERs are capable of providing a wide range of value streams, which include:

• Reducing energy costs for participants and utilities;

• Helping utilities avoid generation capacity costs, such as through peak-shaving DR;

• Reducing the need for utility investment in transmission and distribution capacity; and

• Lowering prices via the demand reduction induced price effect (DRIPE).

Quantifying the economic value of each value stream from each perspective can be difficult, inexact, and controversial. At the most basic level, quantitative values can be estimated using market prices as proxies, or the values can be administratively determined by utilities or regulators. In addition, the economics of many value streams can be time-dependent, location-dependent, or interdependent.

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Potential Value of Combinations of DERs

A PV system installed in isolation is limited in the services and value streams it can provide. But when PV is combined with other DERs, the resources’ total value can be greater than the sum of the values of each component in isolation. Examples of the benefits of these combinations include:

• PV + Storage: When storage is added to a PV system, the primary limitation of PV — that it only provides power when the sun shines — is alleviated. This allows customers to plan storage and use around high-value times and reduce demand charges. With further investment in microgrid technology, this combination can also enable resilience by powering critical loads during outages.

• PV + EV: When an EV replaces a fossil-fueled vehicle, the environmental impacts depend on the fuel mix and emissions of the power system from which the vehicle is drawing energy (a measure that is likely to change over time). An EV that is charged with power generated by PV — a zero-emissions fuel — will have maximum environmental benefits. For utilities, combining an EV with PV may also reduce the need for capacity upgrades to the transmission and distribution systems.

• PV + DR: The same technologies and techniques used for DR in isolation can be combined with PV to create even more value. For example, flexible loads such as electric water heating, air conditioning, electric space heating, and pool pumps can be programmed to take advantage of times when the generation from a customer’s PV system exceeds their momentary demand for other end uses. From a utility or independent system operator (ISO) perspective, this combination can be especially valuable in terms of flexibility…

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Current Mechanisms for Capturing the Value of DERs…Examples of Use Cases for Combining PV With Other DERs…A Path Toward Capturing More Value From DER Combinations…

…The specific actions that can be taken fall into five broad categories, explored here. Technology, Metering, Communications, and Data Systems…Smart Retail Rate Design (Tariffs)… Markets…Planning…Utility Procurement…

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Conclusion

The rapid growth in distributed PV and storage systems, and the projected growth in EVs, offers clear evidence that participants are realizing value from DERs — but this alone doesn’t imply that they are capturing as much value as they could or should. The past five years have seen technology developers racing to meet growing consumer demand for DERs, states filling their traditional role as “the laboratories of democracy,” and ISOs testing different market products and market rules. Although much work remains, some innovations have already proven to be successful in terms of overcoming barriers to deployment and the capture of value.

To unlock value, the highest priority actions will vary by stakeholder and by location, and there is no reason to wait for someone to develop a comprehensive action plan. Suggested priorities include our technology, metering, communications, and data system recommendations, as well as updating rate design and prioritizing NWAs…

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