New York’s Reforming the Energy Vision initiative just took a wrong turn, according to solar groups.
Last week, the New York Public Service Commission approved an order for setting the Value of Distributed Energy Resources, or VDER -- the complex metric that the state wants to use to replace net metering for larger-scale community solar projects in the short term, and eventually, for all distributed energy resources across the grid.
But last week’s order is drawing fire from solar groups, including the Natural Resources Defense Council, the Solar Energy Industries Association, Vote Solar and the Acadia Center. According the NRDC, the PSC’s order could allow “flawed utility proposals that undercount the value of solar resources” to become part of the record and “make it impossible for many solar projects to predict part of their revenues from the policy and obtain financing on that basis.”
That’s frustrating, these groups say, because they jointly filed comments with the PSC in July that laid out the specific flaws within each utility’s proposal in fine detail and suggested ways to fix the discrepancies. But these suggestions were made on a compressed timeline, after difficulty getting discovery responses from the utilities on a timely basis, they noted.
We’ll be covering the ins and outs of New York’s REV implementation at next week’s New York REV Future 2017 conference in Brooklyn, where and the PSC’s latest order will likely be a major topic of discussion.
The reaction this week has been markedly different from the cautious support given by solar groups to the PSC’s first big ruling on valuing DERs back in March -- largely because it allowed most classes of solar to remain grandfathered in under current net metering rules.
But the March order also put community solar -- one of the state’s fastest-growing solar segments -- on notice that they should expect to earn money based on an emerging VDER value, and not on net metering.
The problems with calculating VDER in the PSC's new order are multiple, these groups say, but can generally be separated into two classes: the issue of wildly different utility values for DERs on the grid and the issue of long-term financial certainty.
On the first, the order has allowed utilities to move forward with plans that have wildly different calculations for Utility Marginal Cost of Service, or MCOS -- the base measure of what it costs for utilities to serve customers at different points on the grid.
MCOS figures are meant to be used to derive two key values for VDER. The first is demand reduction value (DRV), or the averaged-out value for reduced energy delivery costs that come from DERs on a system-wide basis. The second is locational system relief value (LSRV) -- the value tied to specific locations where DERs could help utilities avoid forecasted distribution system investments.
But according to a filing from solar groups, “utilities take varying approaches to interpreting their MCOS studies to determine DRV/LSRV. This results in wildly varying estimates of the delivery value provided by DERs,” as evidenced by this chart below, which shows that the state’s utilities have come up with kilowatt-hour values ranging from $226 for Con Edison to $15 for Central Hudson.
Not surprisingly, the solar groups are most critical of the utilities whose methodologies have yielded the lowest MCOS rates. Both New York State Electric & Gas Corporation and Rochester Gas & Electric, for example, limit their analysis to “growth-related network investments primarily involving expansion or reinforcement of upstream distribution, distribution substation and trunkline feeders in growth areas," according to solar groups. "This method ignores several other system needs, most notably in areas not undergoing growth, and those below trunkline feeders. This also arbitrarily excludes the ability of DERs to extend equipment life, increase reliability and resiliency, and improve power quality.”
The second big problem that solar advocates have with the PSC’s order is its lack of long-term certainty for rates that solar projects can receive under the emerging regime. In simple terms, financial backers are looking for proof that solar projects can earn a steady and predictable set of revenues over the long term, for 10 years or more. But the PSC’s order would allow at least some of these calculations to be revisited every three years, leaving open the possibility that future revenues could be drastically changed three times within that 10-year window.
According to the solar groups’ July filing, “the VDER Order provides that DRV and LSRV rates/values shall be determined every three years. Any project that receives LSRV compensation shall receive the specific compensation rate for a period of 10 years. The DRV rate/value, however, is only fixed for the three-year period prior to the time at which it is reset.”
“We cannot emphasize enough the reality that lenders and other financial parties that are essential to the functioning of the DER market will heavily discount or assign no value to components of the value stack that cannot be forecasted or predicted. Predictability and consistency in calculation methodology must be a touchstone of the VDER DRV and LSRV methodologies. Without it, these portions of the value stack will not be viewed as bankable sources of value and will not meaningfully contribute to the construction of new projects,” the groups wrote.
With last week’s order set, solar advocates are now turning their attention to Phase 2 of the REV proceeding, in which the PSC will fine-tune its VDER methods as it seeks to extend them to smaller rooftop projects on homes and small businesses, as well as technologies such as stand-alone energy storage and, potentially, combined heat and power systems.
Many of these smaller projects will be cushioned from the most drastic changes through a predetermined "market transition credit" set out in the March order. But, as the Natural Resources Defense Council's Miles Farmer wrote, “if the utility methodologies are used as a basis for Phase 2, that would create a bigger problem.”
***Building on last year’s sold-out conference, NY REV Future 2017 will bring together key stakeholders, technology providers, utilities and state policymakers to discuss actionable business strategies to operationalize the ongoing initiative for a clean, resilient and affordable system in New York. We're asking the tough questions, recognizing the advances in New York's energy future to date and advancing the conversation into how REV becomes second nature for the business of energy. Join us.