NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Distributed Solar Regulatory and Policy Issues: U.S. Experience

Lori Bird, NREL

Clean Energy Policy and Regulatory Workshop

New Delhi, India

April 8-9, 2015

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Presentation Overview

• Context: Trends in PV Installations

• Regulatory Challenges with higher penetrations of PV

o Rate design and compensation of PV (net metering and alternatives)

o What is the value of PV to the utility?

• Business Models for PV

o Utility and 3rd party ownership

o Community solar

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0 0 1 2 3 5 6.4 9 12 9

12.5

9.0 1.0

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8.1

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2008 2009 2010 2011 2012 2013 2014E 2015P 2016P 2017P

PV

An

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s (G

WD

C)

Europe ROW India Japan China U.S.

Global PV Demand

Note: E=estimate; P = projection. Sources: data displayed represents the median figures from the following sources: BNEF (11/04/14), Deutsche Bank (01/08/15), Goldman Sachs (01/06/15), GTM/SEIA SMI (Q3 ‘14); Mercom (12/29/14).

Historic Projection

• Analysts estimate that approximately 46 GW of PV was installed globally in 2014

• China installed approximately 28% of capacity, Japan 20%, and the U.S. 14%

• Global demand is projected to grow above 50 GW in 2015 and above 60 GW in 2016

• U.S. demand is projected to peak at 12GW in 2016; however several analysts still project a robust demand in 2017

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NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Compensation of PV: Net Metering vs. Alternatives

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Emerging U.S. Distributed PV Regulatory Issues

• Regulatory proceedings in many states to: o consider modifications to

residential rates for distributed PV (fixed charges, demand charges, etc.)

o modify net metering o study value of PV to utility o evaluate siting PV in optimal

grid locations o address feeder impacts and

how to assess costs o examine need for advanced

inverters

o What is the impact of distributed PV

on utility revenues? (lost revenues)

o Is net metering a cross subsidy? Are residential customers paying for fixed utility costs?

o What is the appropriate rate for crediting solar generation?

U.S. Context and Trends Key Issues

Pending/introduced legislation

Enacted legislation

PUC activity

PUC and legislative activity

No activity

Wash., DC

2014 State Solar Regulatory/Legislative Activity

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Options and Considerations for Regulators

• Net metering

• Fixed charges

• Demand charges

• Minimum bill

• Two-way rates

o Value of solar

o Cost of service-based rates

• Time-based rates

• Decoupling; performance incentives

• Ensuring sufficient revenues collected to maintain the grid

• Fair and equitable rates

• Customer choice

• Ensuring policy goals are achieved

• Level playing field for new technologies

• Competition and provision of customer services

Options for DG Rates Regulatory Considerations

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Net Metering Status and Issues

• 43 states have net metering

• Some states are nearing or exceeded aggregate caps

• “Virtual net metering” increasing available o Allows customers to

aggregate meters (for multi-tenant buildings etc.)

• Several states have considered customer fees to cover utility fixed costs

Net metering status

Source: Data from individual states or utilities updated as of August, 2014. Percentages represent the latest data available at the time of data collection.

Cap often defined as fraction of utility peak demand (e.g., 1-5%). Some states have triggers

where they can review net metering

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Notable U.S. State Activity

Arizona: Utilities have adopted standby charges or demand charges for PV customers to cover utility fixed costs • Nov 2013, the public utilities commission decided to add a $0.70/kW monthly charge (~$5/month for

average customer) for new rooftop solar customers starting 2014 . To be reconsidered in next rate case; the commission decided that NEM does create a cost-shift from solar to non-solar customers

• In Dec. ‘14 Salt River Project, a municipal utility that does not need ACC approval, proposed adding fee for solar customers, capacity charges $12.5/month service fee; peak demand charge of ~$8/kW; decrease of kWh charges from about $0.10/kWh to $0.04/kWh

California: Nearing net metering cap and exploring alternatives to net metering • Oct 2013, state law AB 327 extends net metering until the 3 IOUs hit 5% of aggregate customer peak

demand cap or 2017, whichever is first. • CPUC tasked with designing a standard contract or tariff for eligible customer-generators once net

meting is no longer available. • Law allows the utilities to seek a fee of up to $10/month for grid costs

Wisconsin: Increased fixed charges for PV customers • In Nov. ‘14 Wisconsin PSC voted to significantly increase fixed charges on customers’ bills from state’s

largest utility (WE Energies); $3.8/kW per month for new systems AND increased all customer charges from $9/month to $16/month while decreasing /kWh fees (effectively making solar less competitive)

• PUC denied WE Energies proposal to ban 3rd-party owned systems from connecting to grid

• Decision is being appealed

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Rate Structure Impacts on PV Economics

$565

$745 $625

$1,165

$568 $602

$0

$400

$800

$1,200

StandardRate

DemandCharge

FixedCharge

$5

FixedCharge

$50

MinimumBill$10

MinimumBill$20

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lect

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ill (

$)

Rate Mechanism

PV CustomerElectricity Payments

Annual Customer Electricity Bill with a 5 kW System Under Various Rates

Does not include cost of PV system

• Increasing number of U.S. utilities proposing changes to residential rates with rationale that they need to cover fixed system costs

• Rate design and implementation of charges has important implications for PV economics

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Hawaii – High Concentrations of PV on Circuits

• For circuits above 100% Daytime Minimum Load (DML), an interconnection study is necessary to connect additional net-metered capacity and may result in delays

• PUC ordered HECO to devise action plan for improving interconnection process in high penetration areas

Source: "Solar Photovoltaic Interconnection", informational powerpoint briefing to the Hawai'i State Legislature, October 14, 2013.

% distributed generation of circuit daytime minimum load, HECO

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What is the value of distributed PV?

• Generation value

• Capacity value

• T&D deferrals

• Line loss savings

• Fuel price hedge

• Environmental benefit

Costs

• Administrative costs

• Interconnection costs

• Integration costs

Benefits

Source: Rocky Mountain Institute, Review of Solar PV Benefit and Cost Studies, 2013

Many utilities and states are studying the value of PV to the utility grid and society to understand benefits/impacts and appropriate compensation levels

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Value of Solar Tariffs

• Rather than retail rate, price for providing solar back to the grid based on its value

• Challenge is gaining consensus on how to calculate the value. • What benefits/costs to include? What methodology?

• If designed to be calculated annually can create uncertainty for solar development.

• If solar owner is considered to be selling the energy, can they obtain ITC?

Cre

dit

: Cra

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DO

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Examples: Minnesota; Austin Energy

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Increasing Value of PV to the Grid

• Regulators/utilities are examining how to increase the value of PV to the grid

• Optimal siting to reduce congestion, avoid necessary T&D upgrades o Utility studies in NY, CA, etc.

• Through use of advanced inverters, PV could provide grid support (e.g., voltage) o Proceedings in CA

• Orientation of panels can be aligned to utility peaks; requires customer compensation

Utility Business Models for PV

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Distributed Generation Business Models

• Customer-owned model

• 3rd-party leasing model

• Community solar model

• Customer demand aggregation

• Utility build-own-operate

• Utility-led community solar projects

• Utility partnership and investments in 3rd-party leasing companies

• Value added consulting services

• Virtual power plant operator

• Energy services utility model

Customer or 3rd-Party Owned

Utility Investments

Distributed generation results in a revenue loss for the utility under traditional ratemaking; lost kWh sales to customers; concern about paying for T&D system

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Utility Ownership of PV: Arizona Pilots

• In Dec. ‘14 Arizona Corporation Commission (ACC) voted that it had “no objections” to APS’s plan of owning rooftop solar, and approved TEP’s plan of owning rooftop solar

• Arizona Public Service (APS) PV Ownership Plan

• APS must still prove that plan is economically beneficial in subsequent rate case

• APS has proposed installing 10MW on 1,500 customer roofs, compensating them $30/month or around 2 cents/kWh

• Tucson Electric Power PV Ownership Plan • TEP proposed 3.5MW of rooftop solar, in which customers are charged $250 to lock

in rates for 25 years (as long as their energy use doesn’t change by more than 15%)

• Unlike APS they can do additional 3.5MW blocks each year

• Both plans are limited in scope and designed for “research” purposes • 3rd party operators do not support utility ownership of solar and have offered to

provide system-level data in lieu of “research”

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3rd-Party System Ownership by Region

• 3rd-party ownership continues to dominate residential sector in several markets

• However, TPO market share appears to be declining in some markets

• 3rd-party ownership in the commercial market varies by system size

• Self-financed large systems represented a larger percentage of Q2 ‘14 commercial market in CA & NJ, however TPO still represented a significant part of many markets

Sources: Arizona Public Services, & Salt River Project, accessed 10/06/14; CSI Database, accessed 10/01/14; MA SREC Program I & II, accessed 10/07/14 & 10/08/14; Maryland Energy Administration, accessed 09/23/14; NYSERDA, accessed 10/06/14. Note: MA does not report whether a system is 3rd-party owned therefore it was estimated using the “applicant entity” or “installer” for the following organizations: SolarCity, CPF Capital, SunRun, Vivint, Sungevity.

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Commercial Systems

AZ (0 kW - 25 kW) AZ (25 kW - 2 MW) CA (0 kW - 25 kW)

CA (25 kW - 2 MW) NJ (0 kW - 25 kW) NJ (25 kW - 2 MW)

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Community Solar (Shared-Solar)

• Customers participate in solar project not located on their property

• Customers receive some of the project’s power or financial benefits

• Varied ownership, management models o Utility, business, school, nonprofit

• Benefits: o Increase access to solar (for customers

without on-site access) o Deliver solar at a competitive price;

economies of scale with larger projects o Utility can play role in offering program

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Community Solar Program Design Options

Capacity-based

Virtual ownership or lease of pro-rata portion of solar panels. Various participation credit designs:

• Divide actual generation

• Divide estimated generation

• Credits based on estimated total life generation

Generation-based

Customer purchases set number of periodic kWh

• Utility must ensure sufficient solar generated energy is produced

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Conclusions

• Emerging distributed PV issues/challenges: o Fair compensation of the PV output while covering utility costs; how to

transition from net metering at high penetrations? o Broader rate reform for changing technology and utility business models o Emerging issues of residential PV penetrations that overload existing

feeders and require upgrades – who pays? o How quickly will battery storage deploy? o At high penetrations, timing of the PV output and rapid ramping in

sunrise, sunset can cause challenges for grid operators o Advanced metering and advanced inverters deployment enable new

solutions

• How to maximize the value of PV to the grid? o Win-win solutions for utilities and PV market (e.g., optimal siting)

• New business models can enable PV deployment to various market segments and through multiple market actors o Regulatory concerns are balancing competition, utility issues, and

customer access

Methods for Analyzing the Benefits and Costs of Distributed PV Generation to the U.S. Electric Utility System http://www.nrel.gov/docs/fy14osti/62447.pdf Regulatory Considerations Associated with the Expanded Adoption of Distributed Solar http://www.nrel.gov/docs/fy14osti/60613.pdf Status of Net Metering: Assessing the Potential to Reach Program Caps ttp://www.nrel.gov/docs/fy14osti/61858.pdf