Optimizing Energy Procurement
Next Generation Solar Framework
Value of Solar to Ratepayers and Society
An important first step in setting policy for local solar generation is to understand the value, or benefits, solar provides to the grid and society. In Massachusetts, Acadia Center’s Value of Solar analysis found that the value of solar to ratepayers is 22.4 cents per kWh, and additional societal benefits like reduced GHGs and cleaner air provide an additional 6.7 cents per kWh.
Grid and Societal Value of Solar Photovoltaics (PV) in Massachusetts – 25-year Levelized Cost (2014$)
However, knowing the value of solar does not give all of the information needed to design an ideal policy. To achieve a consumer-friendly local clean energy future, a number of considerations must be balanced: legitimate ratepayer concerns, the needs of the solar market, and the costs of implementing new metering and billing systems.
Aligning Net Metering Credits with Ratepayer Value
Acadia Center’s Value of Solar studies, and many others, indicate that the ratepayer value of distributed solar is greater or equal to the retail rate of electricity. In other words, retail rate net metering is generally a fair policy that provides net benefits to ratepayers and society. However, as solar PV grows, balanced reforms that account for both long-term system benefits and costs to the grid are needed.
In the short term, adjusting net metering credit value is the best path forward. Adjustments can be applied to certain categories of projects, such as larger projects where any imbalances are more significant, and existing projects can be grandfathered under current frameworks. Changes can be incremental, while at the same time improving economic efficiency. Key concepts include the following:
- Two portions of the current solar net metering credits should stay the same, since they provide a good starting point for appropriate value:
- Retail energy supply credit to account for the value to energy and capacity markets
- Transmission credit to account for transmission expenditures avoided through local energy production
- Two new credits that apply to all solar PV:
- Distribution system benefit credit or charge to account for the net benefit or cost to the distribution system
- Energy system benefit credit to account for the value for energy and capacity from the generation profile of solar, reduction in line losses, wholesale energy and capacity market price suppression, fuel price risk mitigation, and avoided public health and environmental compliance costs
- Two new credits that only apply to certain categories of projects:
- West-facing solar credit to account for benefits of solar generation later in the day when demand peaks
- Distribution locational credit to account for supplying energy in constrained locations of the grid
More details are available in the document at the bottom of the page. Better aligning net metering credits with ratepayer value should also facilitate expansion or maintenance of virtual net metering and community shared solar policies by addressing arguments about cross-subsidies.
Minimizing the Cost of Incentives
Additional incentives for solar can be benchmarked to the societal benefits of distributed solar generation, but should be structured to minimize the additional cost necessary to build different types of projects. Additional key design features include:
- Performance-based payments based on actual generation;
- Open application processes that do not start and stop, or leave projects in limbo due to utility interconnection waiting times;
- Long-term, stable structure to lower overall costs and enable financing; and
- Public policy carve-outs for projects benefiting low-income residents and housing, community shared solar projects, landfill and brownfield projects, and municipal projects.
Over time, these incentives should be integrated into broader frameworks for promoting renewable energy – e.g. Class I renewable portfolio standard policies.
Local solar generation provides net benefits to the energy grid and society, and a balanced framework can ensure a vibrant solar market and reduce overall costs.