1 filename, version fair rate setting for a renewable future renewable cities forum, vancouver bc,...
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Filename, Version
Fair Rate Setting for a Renewable Future
Renewable Cities Forum, Vancouver BC,
May 2015
• Requires forecasting the future, balancing competing interests, and meeting financial goals.
• Involves both economic analyses and public policy decision making.• Rates should be sufficient to meet the utility's revenue requirements,
while providing lowest possible cost to the ratepayer over the long run.• Rates should be based on the actual costs of service, and reflect changes
in costs of service over time. • Rates should fairly allocate the different costs of providing service among
groups of customers.• Customers are grouped in “classes” with similar characteristics, e.g.
quantity, type, and pattern of energy use• Customers within a class should be treated equally• No class or customer should be unduly discriminated upon
Basic Principles of Electric Rate Setting
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Objectives for Rate Design
Revenue adequacyRevenue stability and predictability
Price stability and predictabilityEconomic efficiency in supply and consumption
Recognition of positive and negative externalitiesFairness in apportionment of cost of service
Avoidance of undue discriminationFreedom from controversy as to proper interpretation
Convenience of payment Economy of collectionFeasibility
Simplicity Certainty Understandability Acceptability
Rate Setting Process
Step 1: Revenue Requirements Analysis
The analysis of the revenues required to meet the Utility's operating and maintenance expenses, and to finance upcoming capital improvements.
Step 2: Cost of Service and Cost Allocation
The analysis of distributing the revenue required by the utility to customer classes so that the revenues recovered from each customer class are based on the cost to serve it.
Step 3: Rate Design
The process of shaping rates, charges and credits for each customer class so that the customers in each class not only contribute their portion of revenue requirements but also receive appropriate price signals consistent with policy goals.
Revenue Requirements Analysis: Common Electric Utility Embedded Costs
• Power Plants & Fuel (Capital & O&M)• Energy Purchases • Reserve Capacity Requirements• Transmission & Distribution (Capital & O&M)
– wires, poles, transformers, substations, relays, meters, etc.
• Regulatory Costs• Customer Assistance Programs
– e.g. low-income programs, efficiency incentives
• Customer service – call centers, interconnection, billing, payment processing, collections
• Other staff – management, regulatory, legal, engineering, maintenance, admin...
• Financing Costs / Debt Service
Embedded Cost Characteristics
These costs have different characteristics, that have implications for forecasting and cost allocation:
– Fixed vs Variable / Volumetric– Sunk vs Future Investments– Certain vs Uncertain (w/varying levels of risk)– Average vs Marginal– Linear or Non-linear (scale economies)– Flat vs Time Dependent (temporal)
Customer Characteristics
• Energy over time (kWh)– How Much – When – Level of Variability
• Energy Demand at a point in time (kW)– Average – Maximum – Level of Variability
• Elastic vs Inelastic Demand, ability to load shift• Size of Service required• Reliability level required• Location
Rate Setting Options
Possible Components:Customer ChargeMinimum Bill requirementDemand ChargesStandby Charges Energy ChargesFuel ChargesTransmission & Delivery ChargesRegulatory ChargesCustomer Assistance Program
Charges
Possible Structures:Fixed chargesLinear tariffNon-linear tariffs (Inverted or Declining Blocks)Peak pricingTime-of-Use PricingDynamic Pricing
Common Residential Electric Tariff Structure
• Low Fixed Customer Charge ($5-12)• Volumetric Energy Charge (often inclining)• Volumetric T&D Charges• Volumetric Regulatory, CAP, etc.• Taxes
No demand chargeNo standby chargesNo minimum bill
Most costs are recovered through
volumetric charges
Solar Customer Energy Profile
Source: Regulatory Assistance Project
Solar Customers (aka “Prosumers”)
• Generate renewable energy (and no pollution / GHGs)• Reduce amount of energy that must be distributed across wires • Reduce demand while operating, but...• Increase variability of demand• Reduce daytime peak loads, but not evening peak loads• Increase speed and rate of ramp requirements• Increase voltage and frequency fluctuation• Increase need for reactive power• Need the grid available and reserve capacity at all times to meet
all home electric needs if sun not shining / system down• Need extra metering and billing services
System Benefits from Distributed Solar
Utility looks at avoided long run marginal costs:Avoided generation / market purchasesAvoided line lossesAvoided transmissionAvoided distributionAvoided reserve requirementsAvoided environmental compliance costs
Costs of Distributed Solar
Costs to Solar Owner:Equipment: modules, inverters, racking, conduitInstallation labor & maintenance
Costs to Utility:Interconnection StudiesMeter(s) and service upgradesSystem integration: frequency regulation, voltage regulation,
reactive power management, reserve capacity, weather monitoring & performance modeling
Program costs: metering, billing, customer service, incentivesLost Revenue from reduced sales
Common DG Compensation Models
Net Metering:Customer is billed on the “net” of their kWh
consumption vs production over a billing cycle:
Net excess generation may roll over month by month, be credited at wholesale rate, or surrendered to the utility
Home consumes 800 kWh– Rooftop PV system produces 500kWh
Customer pays for the difference: 300 kWh
Challenges of Net Metering
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• If the retail rate exceeds the value of local solar generation to the system, the utility under-recovers the cost of service, having to spread that cost across all customers– If customers net to zero, they do not contribute anything to
distribution, fixed costs
• Under net metering in a tiered rate structure, customers with higher consumption are compensated at a higher value per kWh than customers in lower tiers– Doesn’t encourage energy efficiency / conservation– Disincentive for energy efficient homes to go solar– Equity issue between solar customers– Regressive
PG&E Tier Structure
Common DG Compensation Models
Feed In Tariffs (FIT)The solar generator is paid for every kWh produced,
and the power goes directly onto the grid.
Options:• Fixed rate• Floating rate: wholesale rate (variable) + fixed premium• Wholesale rate / avoided cost• Escalating or declining over time• May differ by technology, size or location
Proposed [DG] Tariff Structures
Customer Charge and/or Fixed Distribution ChargeFlat charge per account to cover fixed costs, distributionDisproportionately affects low-income and low-energy
consumersReduces volumetric (per kWh) charges, reducing value of net
metering and incentive to conserve energy
Minimum BillEvery customer must pay a minimum amount each month,
regardless of net usageProvides greater revenue certainty to utility and investorsEnsures customers who net meter to zero still pay something for
fixed costs and grid services
Proposed [DG] Tariff Structures
Demand ChargesApplied to peak or average residential demand, or only based
on solar capacity (flat $X/kW/mo charge)Approximates cost to serve customers with greater grid
impacts and service requirements
TOU Rates and Dynamic RatesTime-variant rates based on cost of power during peak and
off-peak periods, or actual real-time market pricesAligns actual costs of energy with customer rates in real timeEncourages customers to peak shift, reducing costsWith NEM, provides solar generators with higher value for
solar generation that aligns with peak demand/prices
Proposed [DG] Tariff Structures
Bidirectional Distribution RateConsumer pays full retail rate for energy consumed from the
gridConsumer credited for energy exported to the grid, but also
pays distribution charge or grid access charge for exported energy
So what is a fair solar tariff?
1. What components should be included/considered in setting solar tariffs, and residential tariffs at large?
2. What utility costs should solar customers still bear?3. How should we pay for costs to maintain T&D grids?4. How should we value local solar? Who should bear costs of PV?5. How to we maintain affordable rates for all? 6. Should non-energy societal benefits (e.g. health and
environmental) be incorporated into solar tariffs?7. Should leasing/PPA companies get the same compensation as
homeowners for solar DG?8. How does DG differ from home energy efficiency, and how
should that be reflected in rates?
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Filename, Version
Residential Value of Solar
Tariff
Renewable Cities Forum, Vancouver BC, May 2015
• Serving Austin Since 1895• 8th largest publicly owned electric utility in US
– 420,000 customer accounts (serving >1 million residents in Greater Austin)
– Peak Demand: 2,700 MW – Owns & operates 11,398 miles of
distribution grid• 20.7% renewable, 43.5% GHG-free energy
supply (FY 2013)• Transfers $105 million/yr to City of Austin
Austin Energy At-A-Glance
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Austin Energy serves 4% of Texas residents, yet
accounts for 30% of Texas’ solar capacity
How’d we get here?
Austin – the Solar Capital of Texas?
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• Early market development efforts– US DOE Solar America City– 40 local solar companies
• 100% green power for municipal operations – Onsite solar PV (>50 sites)– GreenChoice participation
Municipal commitment to renewable energy
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10 year rebate history:$43M for 3,477 residential
projects to date
$21M for 191 commercial projects committed to date
Among lowest installed costs in the country
Pioneered Value of Solar, promoting conservation and improving equity among customers
40% of Texas’ distributed solar is in AE territory!
Developed strong local solar market, with 40+ solar companies
AE Solar Highlights
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2020: Austin Energy Resource, Generation & Climate Protection Plan
200 MW solar goal adopted from 2007 Climate Protection Plan
October 2013: Council Resolution 53
Amended Generation Plan to include 100MW carve out for local solar, half of which “customer-owned”
August 2014: Council Resolution 157 increased renewable energy and solar goals
Increased local solar goal to 200 MW by 2020, with at least 100 MW “customer-controlled” (behind-the-meter)
Local Solar Goals
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30
7153
0
40
80
120
160
200
Capa
city
(MW
)
Progress Toward Local Goals*
Municipal, Schools, and Non-Rebated
Residential
Commercial
Webberville
2013 Resolution 53
2014 Resolution 157
*MW-ac installed & In Progress as of 12/1/14
Commercial: 7 MW
Residential: 15 MW
Municipal, Schools, and Non-Rebate: 3 MW
Webberville PPA: 30 MW
Signed W. Texas PPA: 150 MW
Needed to Reach Customer Owned Local Goal: 75 MW
Needed to Reach Utility Owned Local Goal: 70 MW
Needed to Reach Utility Owned Non-Local Goal:
600 MW
Austin’s Solar Goal: 950 MW by 2020
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Including 750 MW utility scale, 200 MW local (at least 100 MW customer-sited)
Includes systems installed and in process. Data as of Oct 1, 2014
Currently Installed or Planned: 205 MW-acRemaining: 745 MW-ac
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY140
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
24000
Schools Municipal Non-Rebated Commercial CBI Commercial PBI Residential
Customer-Sited Solar 2004 to 2014 (MW-ac)
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• Avoided cost study– Attempts to quantify value at which the utility is “neutral” to
paying for locally generated PV
• First study conducted in 2006 by Clean Power Research, value used internally
• Value has fluctuated historically based on market changes• Alternative to net energy metering• Integrated into residential solar tariff in 2012• Reviewed annually and value adopted by Council through
budget process
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What is Value of Solar (VoS)?
• Meter consumption and production separately• Customer billed for whole house consumption
– All energy consumed onsite, whether from grid or solar system
• Customer credited for solar production– Credited for all solar generation, whether used onsite
or sent back to grid, at VoS rate• Solar credit = [Total kWh produced] x [VoS factor]
– Balance applied to electric bill until it zeroes, remaining credits roll over month-to-month
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Residential Solar Tariff Approach
Understanding the Residential Solar Bill
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The solar customer is billed on Whole House Consumption under five tier rate schedule. Whole House Consumption is calculated by adding the net energy consumed from the grid to the PV production.
The solar customer is then credited for their PV production at the Value of Solar Rate.
If the Total Current Charges result in a negative amount, a credit will roll forward to the next month’s bill.
Residential Solar Rate Benefits
• Austin Energy Recovers Full Cost of Service• Solar residential customer subject to same billing structure for consumption
and applicable charges as non-solar residential customers • Solar customer can easily assess their total energy consumption• Five tier rate encourages energy efficiency
• Customer Compensation Tied to an Objective “Value of Solar” • The Value of Solar is adjusted yearly as market values change• Solar energy production value does not decrease if customer saves energy• Low and high energy users compensated equally for solar production • Solar energy value consistent, helps customers understand their investment
• Able to Implement in Billing System• Consumption calculated by adding net grid consumption to solar production• Billing design for consumption remains unchanged
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Value of Solar Assessessment Components
Value Component BasisGuaranteed Fuel Value Avoided cost of fuel to meet electric loads and
transmission and distribution losses, based on the solar production profile. This is inferred from ERCOT market price data & guaranteed future natural gas prices.
Plant O&M Value Avoided costs associated with natural gas plant operations and maintenance by meeting peak load through renewable sources.
Generation Capacity Value
Avoided capital costs of generation by meeting peak load through renewable sources, inferred from ERCOT market price data.
Transmission and Distribution Capacity Value
Avoided transmission costs resulting from the reduction in the peak load by renewable sources.
Environmental Compliance Value
Avoided cost to comply with environmental regulations and local policy objectives
VoS & Natural Gas
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Actual Residential Expenditure
• The avoided fuel cost component accounts for over half of the VoS• This component is driven by the projected future price of natural gas• Natural gas futures prices have dropped each of the last 4 years
Natural Gas Futures Prices used for VOS, 2011-2014
VoS addresses several challenges of Net Metering
• Recovers fixed costs
• Improves equity– Between solar
customers– Between solar and
non-solar customers
• Better reflects value of local generation
• Promotes efficiency & conservation
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under NEM