Compensation Mechanisms for Distributed PV – Types and Trends

Naim Richard Darghouth, Ph.D.

Lawrence Berkeley National LaboratoryStakeholders’ Workshop

Ranchi, Jharkand | September 18, 2019

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• A “Compensation Mechanism” is the instrument designed to reward the DG customer for any DG generation that is exported to the utility grid.

• It strongly influences the value proposition of DG to both the customer and the utility.

What are compensation mechanisms?

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Why do compensation mechanisms matter?

PV System Owners

• Strongly influence value proposition of DPV investment

• Impact PV adoption

Utilities

• Determines how much utility is paying for DPV exports

• Impacts revenues and operating costs

Ratepayers

• Can impact retail rates, depending on compensation and cross-subsidies (if any)

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What is happening behind the meter?

Source: Designing Distributed Generation Tariffs Well. http://www.raponline.org/wp-content/uploads/2016/05/rap-linvillshenotlazar-faircompensation-2013-nov-27.pdf

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#1: Net Metering

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Pros

• Simple

• No new rates

• Existing metering infrastructure is usually sufficient

Net metering: Pros and cons

Cons

• Reduces sales

• Potential changes to net revenues

• Can lead to changes in utility profits or rates

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#2: Net Billing

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Pros

• More precise approaches to export compensation level

• Can encourage self-consumption

Net Billing / Net FiT: Pros and cons

Cons

• Similar issues to net metering, though more easily controlled by setting export rate

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#3: Buy all, sell all

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Pros

• Simple

• No potential for fixed cost recovery or cross-subsidization issues

• No need for retail rate re-design or creation of specialized solar rate classes

• Sell rate for new customers can be changed as needed

Feed-in tariff: Pros and cons

Cons

• Difficult to determine what the appropriate sell rate should be

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Compensation Can Balance Costs and Benefits of DG for Consumers and the Utility

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DPV Customer Compensation Rate Accrued Benefits - Incurred Costs

Relatively simple to calculate/predict Relatively difficultto calculate/predict

Value to Utility

Value to Consumer

Reduced electricity billsAdditional power availability*

Avoided generation costsReduced line lossesDeferred investmentsRegulatory compliance

Program administrationDistribution network upgradesLost fixed cost recoveryLost power re-sale margin

System costMeter costInterconnection cost

+ +

––

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For net metering and net billing schemes, PV compensation is intrinsically linked to underlying retail rates…

… so it’s important to understand how retail rate designs are changing to understand the impacts on PV compensation

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A few notes on retail rate reforms globally

Satchwell 2018

Utilities are deploying advanced metering infrastructure (AMI)

Distributed energy resource (DER) cost declines and technological innovations

Concerns about utility fixed cost recovery and revenue sufficiency

Desire for fair and equitable compensation for DER electricity generation

Variable renewable energy (VRE) integration issues (e.g., over-generation and net load shape impacts)

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Recent retail rate design trends

Increased pursuit of residential time-varying pricing

• Default vs voluntary

Introduction of energy pricing and programs for midday load building

• Off-peak midday

• Reverse demand response pilot

Increased application of residential three-part rates

• All residential customers or DG-customers only

Reforms to DG compensation

• Net metering → Net billing or Buy-all/sell-all rates

Development of electric-vehicle specific rates

• Private/public charging – EV only

• Multi-unit dwelling charging – EV only

Satchwell 2018

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Compensation mechanisms vary worldwide

FIT: levels dependon system size

Net Metering FIT

Net billing+ certificates forsmall-scale technologies

Net Metering< 100 kW

Net Metering, Net billing buy all/sell all

* Rodrigues S., et.al (2016) Economic feasibilityanalysis of small scale PV systems in differentcountries. Solar Energy.; BNEF.

Historcially Net Metering, but in

transition (details varyby state)

Net billing

Net Metering

Net Metering

FIT: levelsdepend on size

FIT: levelsdepend on size

Net billing

Net billing