PNNL

Abstract

This white paper can help guide a state as it considers issues associated with distributed generation valuation and compensation. States may address a common set of questions and issues in the valuation process, but differences in market expectations, policy priorities, and regulations result in different responses. Key issues include: •Context is important. Valuations and compensation strategies will vary based on goals and objectives they are being designed to achieve. Goals and objectives should be made clear up front and will drive the perspective used in performing valuations and how outcomes are applied. •Utilities and stakeholders can have different interpretations of how value elements should be calculated. In some states, the objective of standardized calculators and methods is to reduce ambiguity and inconsistencies in how valuations are performed. •Certain value elements are difficult or impossible to quantify and most efforts to establish workable value of solar or value of distributed energy resource tariffs are emerging and nascent. Assessing locational and temporal value of distributed generation and applying that in compensation schemes is a new and emerging field of study, being explored by a handful of research organizations and advanced states and utilities. •The most advanced states, such as California, are using demonstration projects to test valuation and compensation methodologies or are applying valuation and compensation strategies to a subset of customer projects, such as for community solar projects (e.g., Oregon and New York) before rolling out programs to the full customer base. •A variety of states are moving away from full net metering, in many cases substituting avoided cost rates (sometimes with an adder) in lieu of full retail rate compensation, instead of pursuing valuation of distributed energy resource approaches. For example, in Indiana a 25% adder is applied to average wholesale electricity prices and in Mississippi a 2.5 cents/kWh adder is applied to avoided cost rates. These adders appear to have been established through policy directives rather than a comprehensive cost of service valuations.