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Jul 22, 2013

The Devil Is In the Details (And So Is the Solution)

Assessing the benefits and costs of distributed solar PV

 

Earlier this month, the decision of APS—Arizona’s largest electric utility—to propose two major changes to its net metering program, one which would do away with the program entirely, has become the latest lightning rod fueling the growing tension between utilities and solar PV. In California, there is significant debate about whether to raise net metering caps. In Texas, CPS Energy—the largest municipally owned utility in the country—has proposed a net metering alternative that some fear will substantially reduce the value of solar.

What is driving these conflicts? One major factor is that distributed energy resources, including distributed solar photovoltaics (DPV), have different physical, operational, and economic characteristics than conventional power plants. Such differences create potentially significant misalignments when they are added into a system designed for decades around the characteristics of conventional power plants.

Lack of understanding a barrier

At the root of all this is the lack of a clear understanding of the actual costs of integrating DPV onto the grid, and likewise, of the actual values that solar can provide to the grid. Without that foundation of understanding, it’s impossible to fairly evaluate policies such as net metering or its alternatives, and debates become based on opinion rather than fact.

An early step in creating that solid foundation is gleaning collective insight from the plethora of individual studies that have sought to identify and quantify the values DPV provides and, to a lesser extent, the costs it imposes on the system. Over the past several months, a team from the Electricity Innovation Lab (eLab) has done just that—reviewing more than 15 studies and synthesizing the results and implications in a new report, A Review of Solar PV Benefit & Cost Studies, released today. Here’s what we found:

  1. 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.
     
  2. There is a significant range of estimated value across studies, driven primarily by differences in local context (such as the generation mix and demand projections), input assumptions (such as natural gas price forecasts), and methodological approaches (especially granularity of data and analysis and approaches to calculations).
     
  3. 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.
     
  4. While detailed methodological differences abound, there is some agreement on overall approach to estimating energy and capacity value. There is significantly less agreement on overall approach to estimating grid support services and currently unmonetized values, including financial and security risk, environmental risk and value, and social value.

Overall, methods for identifying, assessing and quantifying the benefits and costs of distributed resources are advancing rapidly, but important gaps must 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 distributed resources.

One of the most important take-aways is the critical importance of transparency about assumptions, perspective, and methodologies so that stakeholders can more readily compare studies, develop best practices, and understand drivers of results. While it may not be feasible to quantify or assess sources of benefit and cost comprehensively, those working on this topic must explicitly decide if and how to account for each source of value and state which are included and which are not.

Individual utilities or states will always have to adapt approaches based on their local context, but greater standardization of categories, definitions, and methodologies should be possible and will help ensure accountability and verifiability of benefit and cost estimates that provide a foundation for policymaking.

Closing remaining gaps an important next step

Because of DPV’s unique characteristics, there are several potential sources of value that are not yet adequately understood:

  • 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 is still 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.

Today’s electricity system is constantly changing, driven largely by the growth in distributed energy resources at the distribution edge, and the benefits and costs of DPV will likewise change over time as more and more solar is added to the grid, customer demands change, and utilities face needed infrastructure investments. Thus far, most studies have implicitly assumed relatively low levels of distributed PV. But those levels are rising, and as they do, more sophisticated, granular analytical approaches will be needed and the total value will likely change. Studies have also largely focused on distributed PV alone, but a confluence of factors will likely drive increased adoption of the full spectrum of renewable and distributed resources, requiring consideration of solar’s benefits and costs in the context of a changing system.

Looking ahead, it’s likely that the distributed solar market will continue its impressive growth, driving increasing uncertainty and conflict. While successfully navigating through to the other side will require a holistic approach to a complex problem, better recognition of the actual benefits and costs is an important place to start. From there, pricing structures and business models can be better aligned, enabling greater economic deployment of distributed resources and lower overall system costs for ratepayers.

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