Understanding Impacts of Distributed Solar Generation IAMU Annual Energy Conference Preconference Seminar David A. Berg, PE Principal November 3, 2015
Your Presenter David Berg, PE Principal Dave Berg Consulting
Customer View of Utilities Chipotle napkin 3
Overview and Objectives Understanding and appreciation of cost implications of distributed generation and how it impacts retail rate design How do we treat distributed generation customers fairly while protecting regular non-generating customers? 4
Overview and Objectives What are your objectives for being here? 5
Increase in Solar Options Solar costs have declined 60% in the last 10 years Further cost reductions are expected Traditional utility rates continue to rise Environmental stewardship strengthening States are mandating increased renewables Many states have mandated net metering Developers are offering solar lease options to customers Large solar installations offer greater efficiencies 6
U.S. Solar Generation 7
Solar Prices vs. Installations 8
U.S. Generation Mix 9
Forecasted Solar Capacity 10
Evaluation of Competitive Alternatives Who is Your Competition? Neighboring Utilities Alternative Fuels Retail Competition Conservation Distributed Generation
Definition of Net Metering Net metering is a utility resource usage and payment scheme in which a customer who generates their own power is compensated monetarily. Net metering originated with electric companies as a way to encourage consumers to invest in renewable energy sources such as solar or wind power. In a net metering program, the electric company allows a customer's meter to actually run backwards if the electricity the customer generates is more than they are consuming. At the end of the billing period, the customer only pays for their net consumption: the amount of resources consumed, minus the amount of resources generated. Key Provision Many jurisdictions require utilities to treat net metering customers the same as regular customers relative to rates. 12
Net Metering Legislative Requirements Many states have legislation requiring utilities to offer net metering programs to their customers. Iowa currently has no such requirement applicable to municipals. 13
Solar Net Metering Perspectives Distributed solar generation is worth more than its retail power price. Minnesota Department of Commerce (March 2014) Net metering policies provide an implicit subsidy to all forms of distributed generation that is not given to grid-scale generators. MIT The Future of the Electric Grid Study (2011) 14
U.S. Department of Energy Potential Economic Benefits of Distributed Generation Reduced costs associated with power losses Deferred investments for generation, transmission or distribution upgrades Lower operating costs due to peak shaving Reduced fuel costs due to increased overall efficiency Reduced land use for generation 15
Discussion What special challenges do solar installations present for rate design? 16
Cost of Service Considerations
Revenue Requirement Definition Revenue Requirement For a utility system, the revenue requirement equals the total cost of serving customers in various rate classes For the utility, rates need to generate total revenue to meet total revenue requirements For each rate class, properly designed rates will generate sufficient revenues to equal the allocated revenue requirement
Revenue Requirements What are examples of your revenue requirements? 19
Functionalize Costs Typical cost functions include: Production (generation and/or purchased power) Transmission Distribution Customer Care
Basic Cost Categories Fixed Cost Variable Cost
Fixed Costs Do not vary materially with electricity use or number of customers Examples: Labor Insurance Depreciation Interest
Variable Costs Vary with production or electricity use Examples: Fuel Variable production costs
Demand-Related Costs Costs driven by the kilowatt demand imposed on the system Examples: Demand portion of production Transmission Demand component of distribution plant
Energy-Related Costs Costs that vary with the energy or kilowatt-hours provided by the utility Examples: Fuel Variable production costs Transmission in certain RTO/ISOs
Customer-Related Costs Costs that are related to the number of customers Examples: Customer billing Meter reading Customer service Capital cost of meters and services O&M costs of meters and services Meter Data Management (MDM)
Cost of Service basics Demand and customer costs are primarily fixed Customer load factor impacts per kwh cost to serve 27
Rate Classes What retail rate classes do you have? 28
Why Have Rate Classes? Different load characteristics Different service voltages Different costs to serve Load density Reliability requirements
Cost of Service Study Output Various allocators used to assign costs To classes To rate components Useful in rate design Basis for fairness 30
Subsidization Definition Subsidization The act of financially supporting service to one group of customers through excess collection of revenues from another group of customers. Where do subsidies currently exist at your utility?
Load Factor Load factor is average demand (energy) divided by peak demand during a specific period of time Higher % load factor spreads fixed costs over more energy Load Factor (%) = Energy (kwh) Demand (kw) * hrs 32
Load Factor examples 5 kw peak customer 730 kwh = 20% load factor 2920 kwh = 80% load factor 6 5 Monthly load factor Demand (kw) 4 3 2 1-0 100 200 300 400 500 600 700 Hour 80% load factor 20% load factor 33
Load Factor Load Factor is the single most important factor behind average cost to serve per kwh Why? 34
Load Factor Impact on Cost to Serve Residential Customer Total Cost vs. Load Factor $/kwh 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Monthly Load Factor Total Cost/kWh 35
Residential Rates Residential class typical rates Customer charge (ie. $5/month) Energy charge (ie. 10.5 /kwh) No demand charge 36
Residential cost vs. revenue Residential Customer Total Cost vs. Total Revenue $/kwh 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Monthly Load Factor Total Cost/kWh Total Revenue/kWh 37
Residential cost vs. revenue Residential Customer Total Cost vs. Total Revenue $/kwh 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Monthly Load Factor Total Cost/kWh Total Revenue/kWh 38
Midwestern Utility Case Study Utility Statistics Total Customers Annual Peak Annual Energy Generation 5,900 32,000 kw 150,000,000 kwh 100% Wholesale Purchase Peak Time Summer 39
Utility Peak Day (August) 35,000 30,000 Demand kw 25,000 20,000 15,000 10,000 5,000-1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour Load 40
Midwestern Utility Case Study Solar Installations Residential Customers Installed Demand Annual Energy 2,500 3 kw/customer 7500 total kw 4,200 kwh/unit/yr 10,500,000 kwh total 41
Total Solar Output 6,000 5,000 Demand kw 4,000 3,000 2,000 1,000-1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour Solar Output 42
Seasonal Solar Output Demand 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour Summer Winter 43
Residential Duck Curve 2 1.5 1 kw 0.5 0 1 5 9 13 17 21-0.5-1 Hour
Solar Impact on Utility Load 35,000 30,000 Demand kw 25,000 20,000 15,000 10,000 5,000-1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Hour City Load Net City Load 45
Solar Impact on Utility Load 7500 kw of solar capacity resulted in 1500 kw of peak mo. reduction and 750 kw in avg. mo. reduction 8000 7000 6000 5000 kw 4000 3000 2000 1000 46 0 Solar Capacity Peak Reduction Avg Month Reduction
Cost Impacts of Solar Generation Reduction in energy (fuel) costs Minimal reduction in capacity (fixed) costs Potential increase in system operational costs Transmission Minimal reduction in system (fixed) costs Potential increase in system operational costs Distribution Minimal reduction in system (fixed) costs Potential increase in customer related costs 47
Solar customers may be self supplying most of their own energy requirements, but they still place a demand on the system This drives down their effective load factor Which drives up their cost per kwh to serve 48
Revised Residential Curves with Solar Installations Residential Customer Total Cost vs. Total Revenue $/kwh 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Monthly Load Factor Total Cost/kWh Total Revenue/kWh 49
MIT Study Our main concern here is with the efficiency of solar deployment subsidies, i.e., with the value of electricity produced per dollar of subsidy spending. 50
MidAmerican Energy Net Metering Example
Eligible Distributed Generation Alternate energy production facility Single location on customer premises Nameplate capacity of 500 kw or less Intended to primarily offset customer use 52
Approved Alternate Energy Technologies Technologies as defined in Iowa Code Solar Wind Waste management Resource recovery Refuse derived fuel Agricultural crops or residues Wood burning Small Hydro 53
Restrictions No sales to neighboring customers No credits for other customer owned accounts Over 500 kw portion subject to QF rules Over generation is carried over as a kwh credit No cash payment for carried over credits 54
Rate Provisions Customer must pay fixed charges Net usage billed at regular rate 55
Other Options
Feed in Tariffs Typically make use of long-term agreements Pricing tied to costs of production for renewable energy producers Pricing typically guaranteed Pricing may have a step down feature with costs front loaded Producers are sheltered from some of the risks Purchasers are sheltered from price unknowns Key is to establish a Value of Solar based on both parties cost realities 57
Value of Solar How would you quantify the value of solar? Generation Transmission Distribution Customer Society/Environment 58
Community Solar A solar generation project built to allow a group of people to own a stake or subscribe to its energy output and share in the value based on their ownership. 59
Solar Implementation Options Utility Owned and Operated Utility/Developer Agreement Customer Owned/Leased Utility Sponsored Community Solar Developer Sponsored Community Solar 60
Utility Owned and Operated Utility finances construction Utility operates facility Actual ownership costs become part of utility revenue requirement All utility customers share in costs/benefits 61
Utility/Developer Agreement Developer finances construction Developer operates facility Developer and utility agree on power purchase arrangement Purchased power costs become part of utility revenue requirement All utility customers share in costs/benefits 62
Customer Owned/Leased Customer/developer finance construction Customer/developer operates facility Under developer model, customer pays for project over time Facility located on customer premises Customer operates under net metering provisions Level of subsidies dependent on retail rate provisions 63
Utility Sponsored Community Solar Utility finances construction Utility operates facility Utility invites customers to participate in project Customers either pay up front or agree to flat per kwh purchase price Customers receive retail credit for kwhs purchased/generated Level of subsidies dependent on retail rates versus cost of credits 64
Developer Sponsored Community Solar Developer finances construction Developer operates facility Developer and utility agree on power purchase arrangement Developer invites customers to participate in project Customers receive payment based on their ownership For customers, it is more of a financial transaction 65
Potential Residential Rate Impacts
Midwestern Utility Case Study Solar Installations Residential Customers Installed Demand Annual Energy 2,500 3 kw/customer 7500 total kw 4,200 kwh/unit/yr 10,500,000 kwh total 67
Solar Impact on Rates How does high penetration of residential roof-top solar installations impact the recovery of costs through rates? 68
Existing Retail Rates Residential Rates Customer Charge Energy Charge Total Residential Revenue $5.00/mo 10.5 /kwh $4,500,000 69
Residential Class Billing Units/Revenue Impact Item Before Solar After Solar Customers 5,000 5,000 Energy 40,000,000 kwh 29,500,000 kwh Billing Demand 120,000 kw-mo 100,000 kw-mo Total Revenue $4,500,000 $3,397,500 Wholesale Savings n/a $686,200 Net Revenue Reduction n/a $416,300 (9.3%) 70
Residential Class Customer Types Peak Month Small User Average User Average w/ Solar Energy 300 kwh 1000 kwh 580 kwh Demand 1 kw 3.2 kw 2.5 kw Total Bill $36.50 $110.00 $65.90 Solar Savings n/a n/a $44.10 (40%) 71
Rate Increase Options General Rate Increase (12.3%) All Local Costs in Customer Charge All Local Costs in Energy Charge All Local Costs in Demand Charge 72
Rate Options Rate Current Rate General Increase Local in Customer Customer ($/mo) Energy (cents/kwh) Demand ($/kw-mo) $5.00 10.5 /kwh n/a $5.62 11.8 /kwh n/a $23.00 8.25 /kwh n/a Local in Energy n/a 12.93 /kwh n/a Local in Demand n/a 8.25 /kwh $13.80/kW 73
Impact on Bills Rate Small User Average User Average w/ Solar General Increase $4.49 (12.3%) $13.52 (12.3%) $8.10 (12.3%) Local in Customer $11.25 (30.8%) $(4.50) (4.1%) $4.95 (7.5%) Local in Energy $2.29 (6.3%) $19.30 (17.6%) $9.09 (13.8%) Local in Demand $2.05 (5.6%) $16.66 (15.2%) $16.45 (25.0%) 74
Adverse Rate Impacts Without New Approaches, Who s Left Holding the Bag? Low income Elderly Renters High density housing Location/structure limited customers We need to get it right, before we get it wrong. 75
Other Rate Options Fixed monthly fee based on solar capacity Per kwh fee for solar generation to compensate for access to distribution system Impact of rebates to pay down capital cost for homeowner Other ideas? 76
Energy Storage
Energy Storage - Discussion Applications? Retail Wholesale 78
Energy Storage Useful life/# of cycles how many times can the unit be charged and depleted Depth of discharge how much of the capacity is useful Efficiency how much energy is lost in charging/discharge 79
Retail Energy Storage example calculation Cost - $5,000 Capacity 7 kwh # of cycles 5000 (13.7 years) Depth of discharge/efficiency 83% Annual carrying charge 10% Cost per kwh based on 1 year 365 days x 7 kwh x 83% = 2121 kwh per year $5,000 x 10% = $500 per year $500/2121 kwh = $0.236/kWh 80
Questions/Discussion Dave Berg Consulting David A. Berg, PE Principal 15213 Danbury Ave W Rosemount, MN 55068 Tel: 612-850-2305 Email: dave@ 81