Value and Cost of Distributed GenerationACC Staff Workshop #1 – May 7, 2014Docket No. E-00000J-14-0023

DG Valuation ─ Lessons from the APS Distributed Energy and Net Metering Technical Conference

Bob DavisPrincipal and Executive ConsultantnFront Consulting LLC

Conference Overview

APS Distributed Energy and Net Metering Technical Conference

33

APS Distributed Energy and Net Metering Technical Conference

ACC decision 73636 ordered that “APS shall conduct a multi-session technical conference to evaluate the costs and benefits of Distributed Renewable Energy and Net Metering” Six workshops and forums held February 21, 2013 through

May 28, 2013 Over 180 registered stakeholders and presenters included

representatives from local and national solar industries, environmental groups, consumer groups, regulatory interests, and electric utilities

Presentations provided by content experts enlisted by the stakeholders, APS and the conference Facilitator

Cost-benefit matrix developed summarizing stakeholder perspectives on costs and benefits of DE

Facilitator’s Report issued July 8, 2013

44

APS Distributed Energy and Net Metering Technical Conference

Major topics covered: DE and net metering activities and regulatory trends

throughout the U.S. Concepts of electric utility retail ratemaking Review of APS rates and potential cost shifting caused

by solar DE Electric utility avoided cost concepts and APS

planning for solar DE Solar DE evaluation models and approaches Stakeholder studies of costs and benefits of net

metering and DE costs and benefits for APS SAIC update of the 2009 R. W. Beck Study of DE value

55

DE Cost and Benefit CategoriesStakeholder Agreement

Stakeholders, including APS, reached agreement on categories of costs and benefits that should be considered when evaluating DE Avoided utility costs (benefits):

Fuel and purchased power Variable operations and maintenance Environmental compliance Avoided generation capacity investment Fixed operation and maintenance costs for avoided generation

capacity Electric system losses Avoided transmission and distribution investments

Incurred utility costs: Utility integration costs Program administration costs

66

DE Cost and Benefit CategoriesStakeholder Disagreement

Fuel hedging Market price mitigation Cost of ancillary services Value of ancillary services

provided by DE RES avoided costs Non-compliance

environmental impacts Decommissioning costs Ratepayer cross-

subsidization Utility systems costs

Grid security Marginal value of reduced

water consumption Health effects Economic development

and jobs Civic engagement /

conservation awareness Energy subsidies Technology synergies Ratepayer / consumer

interest

Stakeholders could not agree that the following should be included when computing utility benefits of DE

77

DE Costs and Benefits – Methodologies

Stakeholders generally did not reach agreement on methodologies for computing costs and benefits (even when agreeing on categories) Computation of avoided generation capital and fixed

O&M costs Generic or avoided planned facilities Incremental capacity reduction or size of avoided facilities Timing (current year or date of avoided facilities)

Computation of transmission and distribution avoided facilities/costs Average embedded costs/rates or avoided planned facilities Size and timing (similar to generation avoided costs) System-wide assessment or analysis of specific circuits

88

DE Costs and Benefits – Methodologies (cont.)

Stakeholders generally did not reach agreement on methodologies for computing costs and benefits (even when agreeing on categories) Avoided energy costs (simulated dispatch or market price) Electric system losses (average or marginal losses) Integration costs / ancillary services:

Incremental operating costs to respond to intermittent solar DE production

Value of voltage control from solar DE Treatment of avoided costs in current APS rates:

APS rates set through embedded not marginal cost treatment Life-cycle benefits produced by DE installations are not

permitted in rate setting

Technical Considerations

DG Valuation

1010

Comparison of Value of Solar DE Presented at APS DE/NEM Technical Conference

Value of Solar for APS System – Expected / Base Case (¢/kWh)

Cost-Benefit CategorySAIC Update Nominal $ Crossborder

Study2014 $2020 2025

Avoided Fuel, Var. O&M, Purchase Power 3.6 4.7 7.1

Avoided Emission Costs 0.8 1.2 0.1Avoided Gen. Capacity, Fixed O&M, NG Trans. 2.8 2.3 8.3

Avoided Transmission Costs 0.0 0.0 2.1

Avoided Distribution Costs 0.0 0.0 0.2

Renewable Benefits n/a n/a 4.5

Integration Cost n/a n/a - 0.2

Total Value of Solar DE 7.2 8.2 22.1

1111

Comparison of Value of Solar DE (cont.)Differences in Assumptions and Methodology

Avoided Cost Crossborder Study SAIC Update

All Categories

Projected 20 year levelized cost Single year avoided cost

Generation Energy Costs

Market energy cost (blend of CT and CC energy costs) APS generation simulation

Emission Costs Does not include CO2 costs Includes avoided CO2 costs

Generation Capacity Costs

ELCC at 50%, 15% capacity reserves,avoided ancillary services

ELCC at 30% (2020) and 21% (2025), includes capacity reserves

Transmission Facility Cost

Assumes marginal cost of transmission all years, 50% ELCC

Small deferred expansion project in 2025

Distribution Facility Cost

Assumes marginal cost of distribution all years, 50% ELCC

No deferred expansion projects

Renewable Benefits

Includes incremental value of RPS, portfolio diversity, grid security, etc.

No incremental RPS benefits

1212

Technical Modeling Issues

Effective Load Carrying Capability (ELCC) is expected to decline with additional DE/DG installations ELCC is specific to the DE/DG technology being added Capacity reserves should be added only if ELCC approach

does not already encompass impact on reserves Avoided energy cost can be less than the average

operating cost of CT and CC resources Other lower-cost resources can contribute to a utility’s

marginal costs (e.g., coal generation, purchased power) Marginal operating costs of generating units are less than

average operating costs Significant DE/DG implementations can introduce

inefficiencies in utility operations

1313

Technical Modeling Issues (cont.)

Avoided transmission and distribution costs require detailed study Specific expansion/upgrade projects should be considered

(do projects exist that can be deferred or avoided) T&D facility costs should be segregated costs that can be

avoided (e.g., wires) and those that cannot (e.g., metering)

ELCC or Peak Load Reduction (PLR) for T&D should be evaluated by feeder or line

System reliability and security must be considered (the impact of DE/DG intermittency at a feeder level should be evaluated)

Voltage control and other distributed grid benefits of DE/DG should be investigated

1414

Coincidence of Solar DE Shapewith Utility Loads

1515

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

1616

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

1717

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

1818

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

1919

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

2020

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

2121

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

2222

Dependable Capacity Diminisheswith Increasing Solar DE Penetration

2323

ELCC Decreases with Increasing Solar DE Penetration

0 500 1000 1500 2000 2500 30000%

10%

20%

30%

40%

50%

60%

Installed Solar DE

ELCC

Expected Penetrati

on in 2025

2424

Rate Design Considerations

One size does not fit all Costs and benefits of DE/DG will vary by technology and application Rate design, whether NEM or “value of” tariffs, need to

accommodate different DE/DG technologies DE/DG impacts some areas of utility operations and costs

more than others Rates (or offsets) should be matched to the value received from

DE/DG Fixed and variable costs avoided through DE/DG are more readily

assigned through energy and demand rates Unbundled rates permit more direct assignment of DE/DG benefits

Incremental impacts of DE/DG may need to be considered Future DE/DG installations may reduce utility fixed costs less than

installations made today (due to lower ELCC) Rate design will need to consider whether to treat DE/DG customers

on an average or incremental basis