The Hunt for the Value of Distributed Solar
A new ICF study shines light on net energy metering and solar valuation efforts across the United States.
Finding the value of distributed solar has led state regulators and utilities into unknown territory. States across the country have undertaken studies to determine the locational value of additional solar resources, but there’s no clear consensus on the best way forward.
Our meta-analysis for the Department of Energy, “Review of Recent Cost-Benefit Studies Related to Net Metering and Distributed Solar,” takes an in-depth look at recent efforts in 15 states. Together the studies demonstrate an evolution of diverse approaches for assessing the costs and benefits of distributed solar.
Table 1. Studies Analyzed
What’s new in studying the value of solar?
Not much has changed since earlier comparisons of solar cost-benefit studies. ICF and other organizations have conducted similar reviews in the last five to 10 years and many of the same variables continue to cause studies to draw conflicting conclusions about the net benefits of solar and how they should be applied to compensate customers who sell/inject their solar power back onto the grid.
Among the most significant drivers for disparate results are choices about which costs and benefits (i.e., value categories) to include and monetize in a study. Another big influencer is the perspective taken by the research—whether to examine value categories from the view of customers, the utility, the grid, or society at large.
One apparent trend is a clear shift away from net metering policies (NEM) toward NEM successor tariffs and broader technology-neutral frameworks, including the value of distributed energy resources (DER) beyond solar. This change enables stakeholders to better align compensation for DER with the value they create.
Two examples from the meta-analysis exhibiting this shift are New York’s BCA Framework and Value of DER (VDER) methodology and frameworks currently undergoing refinement based on California’s Locational Net Benefit Analysis (LNBA), while additional efforts in Hawaii, Michigan, and a number of other states show similar changes.
Can valuation become more standardized in the future?
All signs point to more standardization in the future. However, of the value categories common across two or more of the studies (see Table 2), only three components—all on the bulk power system—were included in every single study: avoided energy generation, avoided generation capacity, and avoided transmission capacity.
More complex value components, such as those on the distribution system, are challenging to standardize and are thus incorporated in fewer studies. Most studies took the first step, starting with avoided distribution capacity because it is one of the largest and most readily quantifiable distribution-level values, although it also raises the significant question of rate differentiation amongst consumers.
As a second step, stakeholders can work toward including the additional value of increasingly complex components such as resilience and reliability, voltage and power quality, and avoided operations and maintenance costs. A few studies mentioned these values but did not venture to quantify them.
Table 2. Summary of value categories used in studies
Further standardization could help improve distributed solar valuation practices, especially across the cost-benefit categories. Because the distribution grid and retail service are regulated at the individual state level and valuation of distribution (D) is an inherently location-specific activity, it’s no surprise that a common valuation framework has not emerged. However, a set of standard elements with agreed-upon definitions and common value categories could offer a shared starting point and allow for variables that account for changing factors. In New York, for example, a recent proposal by regulatory staff to eliminate the Locational System Relief Value, which applied to specific locations, in favor of a Distribution Relief Value, which applies to entire distribution systems, shows how challenging it can be to achieve consensus and how states may look toward more standardized approaches as solutions.
Several stakeholders have called for a national framework and efforts are now underway to develop a standard model to address other DERs, based on extending the cost-effectiveness principles used to assess energy efficiency in the National Standard Practice Manual.
Which valuation framework is best?
Selecting the right valuation framework ultimately comes down to state-specific policy goals and local grid needs. Currently, it is difficult for regulators, utilities, and other stakeholders to select a model because of the quantity and diversity of available options.
New approaches to more accurately assess the costs and benefits of deploying DERs on the electricity system are still rapidly developing and best practices. Our comprehensive assessment shows the commonalities and differences of how the latest efforts across the country apply these concepts and affirms that the quantification of locational value is continuing to evolve.