New York PSC Staff Issues Report on Value of Distributed Energy Resources, Outlines First Steps beyond Net Metering
On October 27, 2016, the New York Public Service Commission (PSC) Staff issued its Report and Recommendations in the Value of Distributed Energy Resources (DER) Proceeding. The report defines a proposed compensation methodology for DER, and it lays out how the first phase of that methodology should be applied to various categories of DER in the near term specific to each utility. The recommendations are designed to be a first step in moving beyond retail rate net energy metering (NEM) and toward an accurate valuation of all the benefits DER provides.
- The Value Stack is the proposed Phase One compensation methodology for customers based on net exported generation from a DER host account
- Components include energy value, installed capacity value, environmental value, and demand reduction/locational system relief values
- A valuation methodology for what DER provides to the distribution system has not yet been developed and is expected in Phase Two
- Existing Projects would be grandfathered into the compensation methodology in effect when they were brought online and for 20 years after their in-service dates
- On-Site Mass Market and Small Wind Projects online before January 1, 2020 would continue to be compensated using the current NEM methodology
- Phase Two methodology will define compensation for projects installed post January 1, 2020
- Community Distributed Generation (CDG) Projects brought online after the Phase One Order would not be eligible for NEM and would fall under the new Phase One tariff (barring exceptions for some projects already in development)
- Until a more granular distribution value is determined in Phase Two, a market transition credit (MTC) will be temporarily employed for CDG projects, the value of which will be determined by the tranche in which the project resides
- Tranches would be specific to each utility, stepping down compensation from 100% of the NEM rate to 80%
- Utilities would be required, following the Phase One Order, to begin to develop demand reduction and locational system relief values
- Compensation would be based on performance during the 10 highest usage hours
- The foundation of a demand reduction value by would be developed by “deaveraging” marginal cost-of-service values used for demand response tariffs
- To create locational system relief values, utilities would identify “high-value” locations and assign a dollar/kW-year compensation reflecting the value provided in those locations, on top of the MTC or demand reduction value compensation
- Additionally, the utility would develop fee-based, aggregated virtual generation portfolios where the participants are compensated for value demand reduction and locational system relief values and the utility is compensated for the service provided
While the PSC Staff’s report and recommendations do not fully address the value of DER to the distribution system, they do outline the first steps away from NEM and lay the foundation for the methodology and mechanisms for valuation into future rates. The most immediate impact of a Phase One Order, assuming adoption, would likely be changes to the economics for future CDG projects. Depending on results of other proposed reforms to the interconnection queues in New York, there could be a rush for existing CDG applications to move forward and begin paying for upgrade costs necessary for interconnection within 90 business days of the Phase One Order issuance, in order to ensure a spot in the first tranche and thus retaining full retail rate NEM. In addition, the wide variation in tranche sizes between the different utilities could result in future CDG development shifting to specific utility service territories.
Following the Phase One Order, utilities may be expected to start developing the demand reduction and locational system relief values, essentially putting the onus on the utilities to begin to develop a more granular value of DER. Also, while details are scant, the proposed requirements relating to virtual generation aggregation are significant as it would be a very early instance of utilities being directly ordered to execute and be compensated for a core distributed system platform function. Comments and reply comments on the Staff Report are due by December 5, 2016 and December 19, 2016 respectively, with an expected Phase One Order to be issued by the PSC during the January 24, 2017 Commission session. Additionally, the report recommends immediate development of a more granular Phase Two tariff to be considered by the PSC by the end of 2018.
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