Standards needed to calculate cost and benefits of Distributed Solar

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As Distributed Solar Generation (DSG) system prices continue to fall and becomes more accessible, regulators, utilities, and other stakeholders are more and more interested in investigating the costs and benefits of DSG and associated policies, including Net Energy Metering (NEM). Several reports and news stories on this topic have widely varying outcomes, indicating an acute need for a standardized approach to determine the costs and benefits associated with DSG and related policies.

As Distributed Solar Generation (DSG) system prices continue to decrease and becomes more accessible, regulators, utilities, and other stakeholders are more and more interested in investigating the costs and benefits of DSG and associated policies, including Net Energy Metering.

The discussion on NEM is hot. Throughout 2013, several institutions and businesses have released a steady flow of reports and news stories covering costs and benefits of Net Metering, including VoteSolar and the California Public Utilities Commission (CPUC). Their outcomes, however, were in stark contrast with eachother. In fact, the difference between their studies’ outcomes is as big as $1.2 billion.

In a nutshell, VoteSolar’s report on Net Metering, ‘Evaluating the Benefits and Costs of Net Energy Metering in California’, claims the total economic benefits of NEM for nonparticipating ratepayers to be approximately $100 million per year once the 5% NEM cap has been reached. Contrary, CPUC’s report, ‘California Net Energy Metering (NEM) Draft Cost-Effectiveness Evaluation’, claims Net Metering to cost nonsolar customers approximately $1.1 billion annually at the 5% NEM cap.

Another stark example of widely varying DSG-related study outcomes came to light in early 2013 in Arizona, where two DSG benefit and cost studies were released by the state’s largest utility and the solar industry, respectively. The utility-funded study showed a net solar value of less than four cents, while the industry-funded study found a value in excess of 21 cents.

The stark contrast in outcomes is mainly due to differences in study assumptions, key parameters, and methodologies, and indicates an acute need for a standardized approach to determine the costs and benefits associated with distributed solar generation (DSG). In recognition of this need, the Interstate Renewable Energy Council (IREC) published its report ‘A regulators guidebook, calculating the benefits and costs of distributed solar generation’. 

The authors of the report, Jason Keyes and Karl. Rábago, commented: “Valuations vary by utility, but valuation methodologies should not.” The authors contend that standard methodology would be helpful as legislators, regulators, and the public attempt to determine whether to curtail or expand DSG policies such as Net Metering.

Only a thorough costs and benefits analysis can provide proper answers to questions as ‘who benefits, and who bears the cost of Net Energy Metering?’. In that light, the report suggests standardized approaches for the various benefits and costs, and explains how to calculate them, without considering of the structure of the program or rate in which this valuation is used. Whether the discussion is centered on net energy metering, value of solar tariffs, fixed-rate feed-in tariffs, or incentive programs, parties will always want to determine the value provided by DSG. Keyes and Rábago seek to fill that need, without endorsing any particular DSG policy in their report.

“As the simplicity and certainty of NEM have made it the vehicle for nearly all of the 400,000+ customer-sited solar arrays installed in the United States, changes to such a successful policy should only be made based on careful analysis,” says Keyes, who represents IREC before state utility commissions. “This is especially so in light of a body of studies finding that solar customers may actually be subsidizing utilities and other customers,” said Rábago.

Keyes added: “Understandably, regulators seek to understand whether policies, such as net energy metering, put in place to encourage adoption of DSG are appropriate and cost-effective.”

Three major conclusions in IREC’s report stand out based on their potential to impact valuations: 

  • Distributed Solar Generation primarily offsets combined-cycle natural gas facilities, which should be reflected in avoided energy costs.

  • DSG installations are predictable and should be included in utility forecasts of capacity needs, so DSG should be credited with a capacity value upon interconnection

  • The societal benefits of DSG policies, such as job creation and health and environmental benefits should be included in valuations, as these were usually among the reasons for policy enactment in the first place.


“With solar becoming a widespread, affordable option for more and more Americans, regulators and utilities are increasingly focused on assessing the impacts of this dynamic and growing energy resource,” says Annie Lappé, solar policy director at Vote Solar. “Correctly assessing the net impact of rooftop solar is imperative, as cornerstone polices encouraging the deployment of this resource, such as net metering, face increasing scrutiny from utilities. This report offers our country a standardized approach to evaluation that Vote Solar fully endorses,” she added.

Carrie Cullen Hitt, senior VP of state affairs for SEIA, commented: “Without question, distributed generation provides significant benefits to consumers nationwide. IREC’s guidebook offers critically important new tools for regulators, allowing them to make informed, effective decisions for their constituencies and ratepayers. Most importantly, SEIA is supportive of recommendations by IREC for a more standardized and thorough approach for valuing DG,” she adds. “This is something sorely needed and long overdue.”

IREC’s entire report can be viewed here.