Investigators: Prof. Daniel S. Kirschen
Ph.D. students: Ahlmahz Negash
Project Summary and Background
Figure 1. Traditional vs. non-traditional benefits of distributed energy resources
The goal of this research is to develop novel valuation techniques that integrate distributed energy resources (DER) into both the planning and real time operation processes. In particular, we explore the value of demand response (DR) and distributed solar generation. Over the past two decades, several studies have been conducted to assess and quantify the benefit of various DER projects. The Kerman PV power plant, built in 1993, was the first power plant designed and built specifically to measure non-traditional benefits overlooked in traditional resource planning. The project's main objective was to determine the value provided by the Kerman PV plant to Pacific Gas & Electric (PG&E). The results showed that the non-traditional benefits (emissions reduction, reliability, loss savings, substation equipment upgrades, transmission capacity, and power plant dispatch savings) can have a combined value almost equal to traditional benefits of energy and capacity. Thus, a valuation approach that considers both types of benefits can potentially double DER value when compared to traditional approaches .
Review of the Literature: Methodologies for DER Valuation
A report detailing current valuation methodologies was prepared on 12/1/12 and is available here.
Valuing Demand Response
During the course of this research major legal changes occurred at both state and federal level concerning DR compensation and debated whether DR is by nature a retail level resource or possibly a wholesale level resource. We have proposed various methodologies for valuing demand response depending upon whether DR is compensated at the wholesale level or retail level. The chart below is a high level illustration and classification of each of these methods. More information on the proposed methodologies can be found in the publications listed at the end of this page.
Figure 2. Proposed methodologies to value DR.
Valuing Distributed Solar Generation
This research examines the role of rate design in valuing distributed solar. In particular, we consider two rate-based means of compensating distributed solar generation: net energy metering and value of solar tariffs.
Option 1: Net Energy Metering
Net energy metering (NEM) is the most common form of compensation for distributed PV and currently 46 states and the District of Columbia have NEM policies. Net energy metering is a policy that allows customers with distributed generation to be compensated for feeding excess generation to the grid. With NEM, customer's meters run backwards during times of excess generation and thus, the customer only pays for the net energy taken from the grid. In theory, if customers feed back to the grid as much as they draw from the grid, then they pay nothing at all. This policy was initially developed in order to stimulate growth in distributed solar and has the advantage of being simple for customers to understand and also simple for the utility to implement. However, NEM has recently come under strong criticism from consumer advocates and utilities alike for being unfair. The underlying issue is that current residential rate design bundles generation, transmission and distributions costs into a single 'per kilowatt-hour' charge. Thus, NEM customers provide generation but avoid transmission and distribution costs. Since NEM customers still use the grid 24 hours a day (Fig. 2), it is clear that current residential rate structure must be redesigned if NEM is to continue. Figure 3 illustrates possible ways the retail rate can be redesigned by unbundling the energy component and adding new fixed or variable rate elements. The primary goals of this project will be to explore novel residential rate structures that
- properly allocate benefits to PV owners for the value they bring to the grid
- allocate costs to the PV owners in proportion to the services they take from the grid
Figure 3. Illustration of NEM customers' dependence upon grid infrastructure (Arizona Power Service)
Figure 4. Proposed rate structure redesign.
Option 2: Value of Solar Tariff
Because of the unsustainability and potentially unfair cost shifting from NEM customers to non-NEM customers, several states have begun to show signs of a shift away from NEM:
- In California, lawmakers let net metering continue but directed its PUC to devise a new program by 2017 to ensure that non-solar customers aren't burdened unfairly in paying for the grid.
- In Arizona, regulators voted in November to allow the largest utility to tack a monthly fee of $5 onto the bill of customers with new solar installations. (Arizona Public Service originally sought a $50 surcharge.)
- Colorado's PUC is considering a proposal to halve credits for solar energy households. Other states, including Louisiana and Idaho, are also contemplating changes in net metering rates
- In Oklahoma, Senate Bill 1456 would allow regulated utilities to apply to the Commission to charge a higher base rate to DG customers through a partial decoupling of rates, to better assign fixed charges for DG.
Currently, VOST is emerging as a contender to NEM. VOST is a tariff that is based on the actual value that solar brings to the utility and is defined as a sum of several distinct, individually calculated value components. Unlike NEM, VOST accounts for and quantifies the economic value of PV generation. In 2014, Minnesota became the first state to implement and mandate VOST methodologies and policy statewide. As part of this research, we are investigating a region-appropriate method for a VOST in Washington.
-  Negash, A., Kirschen, D., 'Optimizing demand response price and quantity in wholesale markets', IEEE PES General Meeting, July 2014 (Prize Paper)
-  Negash, A., Kirschen, D., 'Compensation of demand response in competitive wholesale markets vs. retail incentives', IEEE 11th International Conference on European Energy Market, May 2014 (Prize Paper)
-  Negash, A., Kirschen, D., 'Optimally designed retail rates to incentivize demand response'', IEEE Conference on Technologies for Sustainability, June 2014
-  Vanderkley, T., Negash, A, Kirschen, D., 'Analysis of dynamic retail electricity rates and domestic demand response programs', IEEE Conference on Technologies for Sustainability, June 2014