by Katherine Tweed
November 07, 2016

When New York regulators set out to remake rates for distributed energy resources as part of the Reforming the Energy Vision proceeding, one of their guiding principles was to provide “clarity and simplicity to ensure customers and developers can use and respond to the methodology.”

For the average person reading through the proposal for the Phase 1 rate filed in October, it would seem as though the Department of Public Service (DPS) staff failed on that point. But many stakeholders who have been deep in the weeds on this process for the past year say the tariff proposal is far less complex than it was even a few weeks ago.

In the plan's current iteration, retail-rate net energy metering for new residential and small commercial projects will remain in place through 2020, and existing solar projects should receive the full net metering credit for 20 years from the date of installation.

The new rate affects community-scale and C&I projects and will go into effect in January, after the proposal is tweaked and finalized. Community solar projects make up the bulk of New York’s unwieldy interconnection queues and will be the most heavily impacted.

Although the rate isn’t simple, the solar industry is largely supportive, even if it presents challenges in the near term, especially for community solar projects involving low-income residents.

“We’re not improving on the economics,” Melissa Kemp, policy co-chair of the New York Solar Energy Industries Association, said of how the new rate would affect most community solar projects. “At best, we’re holding pace in most utility territories.”

The devil is in the details

Since the interconnection queue is such a mess, projects are moving along slowly anyway, and will likely continue to do so through at least the first quarter of 2017. That means that for the first half of next year, most projects will essentially be getting the current net metering rate, even if it’s calculated differently.

Current projects that will not come into service until January can be compensated under the current net metering policy if they pay 25 percent of the interconnection costs or execute an interconnection contract within 90 days of the Phase 1 order being issued.

In the territory of utility Central Hudson, which has one of the largest interconnection queues, the average cost of a 2-megawatt community solar project is about $1.2 million, but the range is significant, from just over $50,000 to nearly $4 million.

While some of the most expensive projects may not ever get built, a 25 percent payment is not insignificant, amounting to figures that could easily fall into the range of hundreds of thousands of dollars. Only a small number of developers may be willing and able to make a deposit at the time the Phase 1 interim rate goes into effect.

A complicated way to get to NEM

There is another way community projects could qualify for net metering rates, even though it will be calculated differently. One key element of the interim rate is a market transition credit (MTC).

For this Phase 1 interim tariff, regulators determined that a reasonable upper bound for possible net revenue impact is 2 percent of a utility's incremental net annual revenue. The different tranches are intended to be a step-down from net metering while protecting the impact to a utility’s bottom line.

The MTC is expected to make the estimated compensation for a project equal to the existing net metering in the first tranche, 10 percent less than net metering in the second tranche, and 20 percent less in the third tranche.  

A step-down sounds simple enough, but stakeholders are still digging into how the MTC was designed and how the staff even arrived at 2 percent as the acceptable number for net revenue impact.

In addition to the 2 percent figure, solar stakeholders are also digging into rationale behind the staff assumption of 80 percent residential, 20 percent commercial for community solar projects that is being used to calculate the MTC. That assumption was then used to calculate the tranche sizes.

It’s a reasonable assumption, using the median point between the minimum and maximum values allowed for commercial participation in community solar projects. Even so, “We’ll have to take a look at this and see how it’s reflected in the models,” said Sean Garren, regional manager for the Northeast at Vote Solar.

Even though the solar industry and utilities will be opening spreadsheets and running calculations, everyone agrees it’s something they can adapt to. “This is a workable solution that will lead to pretty substantial solar growth in the state,” said Garren.

Tranches 0 and 1 essentially preserve compensation at net metering values. For projects in most utility territories in New York, that will carry the utilities through this interim period. But Central Hudson and Orange & Rockland, two utilities with significant community solar pipelines, have defined Tranches 0 and 1 at 39 and 76 megawatts, respectively. By contrast, National Grid's Tranches 0 and 1 amount to more than 2,000 megawatts, while and NYSEG's amount to nearly 500 megawatts. 

“It’s really Central Hudson and O&R where these numbers come in,” said Garren. “So we’ll be looking into calculation and cap size to try to push those numbers up.”

Beyond tranches

The MTC is the most novel part of the rate, but it is just one piece -- and not the only one mired in complexity. The Phase 1 rate is essentially a blend of the MTC, an energy value, a capacity value and an environmental value.

The energy value will be calculated the same way that charges for mandatory hourly pricing customers are calculated. The environmental value will be defined using the price of Tier 1 renewable energy certificates in New York’s market. 

And then there’s the capacity value. After much negotiating, the DPS staff settled on a capacity value that consists of the capacity portion of a utility’s supply charge for the service class, with a load profile that is most similar to the solar generation’s load profile. “It’s basically a capacity value that could be predictable,” said Kemp.

That predictability is key, especially for the burgeoning community solar industry in New York. “The community solar industry is investing considerable resources to build a structure that works essentially without any revenue,” said Jeff Cramer, executive director of Coalition for Community Solar Access. GTM Research has forecasted that just 5 megawatts of community solar will come on-line this year in New York.

The Phase 1 proposal also offers an alternative that could put the predictability of the capacity value in peril. The alternative proposes that the capacity should be assigned to specific summer hours. The regulatory staff suggests it would ultimately come out to be a similar value as would be arrived at by using the supply charge, but the solar industry says it would bring a great deal of uncertainty into the market at a time when projects need a sustainable pathway to get completed.  

Smaller developers, in particular, could be hard hit if the values that go into the rate are too complicated to bring to financiers. Even though Vote Solar believes this rate could bring substantial solar growth in New York, “The issue is that as the system gets more complicated, it makes it harder for smaller companies and [low-income-area] projects to move forward,” said Garren.

Community solar projects with a low-income component are relatively new across the U.S., so figuring out the financing for these projects is still in its early days. But there is a real possibility that the added complexity of the new rate could stymie low-income solar projects in the near term.

To combat against that, the regulator might have to include additional support to bridge the financing gap for low-income projects. “A targeted approach is necessary to ensure [low- and moderate-income] solar deployment, such as an incentive or other market signal to ensure this customer base, which can most benefit from community and distributed solar, is prioritized as New York's community solar program evolves,” said Tom Figel, policy and regulatory manager for community solar at GRID Alternatives, a nonprofit which focuses on low-income communities.

The DPS maintains that the value proposition is still the same for low-income customers as it always has been. “Access to renewable power will not be limited to those who cannot afford their own system or who live in a dwelling or location that makes solar unfeasible,” said DPS spokesperson Jon Sorensen.

“They’re trying to create market efficiency while also preserving access,” said Cramer, “and I think it’s visionary.”

But not everyone agrees. “They are recommending a methodology that if adopted, will completely destroy the [community distributed generation] solar market in New York, which ensures that the state's goals will never be met for both achieving 50 percent renewables by 2030 and allowing [low-income] residents to benefit directly from renewable energy in a meaningful way,” said Robb Jetty, founder of the board of directors of Renovus Solar.

Most solar stakeholders, however, are confident that this framework can be a real step toward encouraging more distributed generation for all customers in the long term, especially as it evolves beyond Phase 1. “There is now a foundation to build upon,” said Garren.

Work on a Phase 2 proposal will start immediately. It will be filed in December 2018 and will go into effect in 2020.