E3 Nevada NEM Study Overview for New Energy Industry Task Force

April 14, 2017

Zach Ming, Consultant

1

About E3

• Founded in 1989, E3 operates at the nexus of

• 40 professional staff located in San Francisco, CA composed of

• Economists

• Engineers

• Resource planners

• Public policy experts

• E3 staff bring a deep understanding of analytical techniques and electricity

industry economics to solve high-level problems for a wide variety of clients

Energy Environment Economics

Consumer Advocates

Environmental Interests

Energy Consumers

State Agencies

Regulatory Authorities

State Executive Branches

Legislators

Utilities

System Operators

Financial Institutions

Project Developers

Emerging Technology

Companies

2

Nevada NEM Study Overview

• E3 commissioned by PUCN in 2014 to forecast the costs and benefits of NEM in

Nevada in response to Nevada AB 428

• Study completed under direction of PUCN with regular input throughout the process

from a stakeholder advisory group including

• PUCN staff

• Utility

• Solar industry

• Ratepayer advocates

• Study completed using publically available data where possible with a publically

available analysis tool (some confidential utility data redacted)

• Funded by the National Association of Regulatory Commissioners (NARUC)

and

many

others…

3

Key Study Questions

Costs and benefits of NEM in Nevada calculated from five

perspectives using an industry standard approach

• Participant

+ Bill credits & subsidies

- Installation cost

= Cost-effectiveness

• Non-Participating Ratepayer

+ Utility avoided costs

- Bill credits & subsidies

= Cost-effectiveness

• Program Administrator (Utility)

+ Utility avoided costs

- Integration and program costs

= Cost-effectiveness

• State of Nevada

+ Utility avoided costs

- Installation cost

= Cost-effectiveness

• Society

+ Utility avoided costs & societal benefits

- Installation cost

= Cost-effectiveness

Is NEM cost-effective for the

customers who install systems?

Does NEM raise or lower rates for

other customers?

Does total bill revenue collected

increase or decrease?

Is NEM a cost-effective resource

for Nevada?

Is NEM a cost-effective resource

when including societal benefits?

4

Ratepayer Impact Measure (the ‘RIM’ test)

• NEM provides value to the utility by reducing energy purchases, new power

plant purchases, etc… these are known as avoided costs

• If the bill savings to NEM customers exceed avoided costs, there is a cost-

shift that raises rates to non-participating customers

5

Input Assumptions and Major Sources

• Results are driven by study assumptions

• Used resource plans developed at the PUCN in 2012 and 2013

• NV Energy provided utility avoided cost data

• A number of factors have since changed which would impacts study

results

• Senate Bill 123

• Coal retirements

• New build of both

renewable and

conventional generation

• Market developments

• Natural gas price decline

• Solar price decline

6

Ratepayer Impact Measure Results – Base Case

Cost Benefit Cost Benefit Cost Benefit Cost Benefit

All Vintages ExistingInstallations

(through 2013)

2014/2015Installations

2016Installations

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

Leve

lized

Co

st-B

enef

it (

$/kW

h)

Integration Costs NEM Program CostsRPS Value Utility IncentivesUtility Avoided Costs NEM Customer Bill Savings

E3 separated NEM customers

into three vintage categories

1) Installations through 2013 •Policy and incentives in 2013

1) 2014/2015 vintage •Incentives reduced in 2014

1) 2016 vintage •RPS ‘multiplier’ reduced in 2016

E3 forecasts a cost-shift for

existing systems, but a net

benefit to ratepayers for

systems installed after 2014

7

RPS Value

• Incentivized NEM generation counts

towards RPS in NV

– For systems built before 2016, every MWh of

generation counts as 2.45 RPS credits

– NEM also reduces the RPS compliance obligation by

reducing net load (obligation: 25% of all generation by

2025)

– Result: 1 MWh of NEM PV generation in 2015 can be

banked until 2020, when it can replace almost 2.7

MWh (2.45 + 0.25) of utility-scale PV generation

– Note: this value only applies in future years when NV

Energy needs to procure renewable energy for

compliance (> 2020)

▫ SB 123 could change these results

Cost Benefit Cost Benefit Cost Benefit Cost Benefit

All Vintages ExistingInstallations

(through 2013)

2014/2015Installations

2016Installations

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

Leve

lized

Co

st-B

enef

it (

$/kW

h)

Integration Costs NEM Program CostsRPS Value Utility IncentivesUtility Avoided Costs NEM Customer Bill Savings

8

Participant Cost Test Results – Base Case

Cost Benefit Cost Benefit Cost Benefit Cost Benefit

All Vintages ExistingInstallations

(through 2013)

2014/2015Installations

2016Installations

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

$0.50

Leve

lize

d C

ost

-Be

nef

it (

$/k

Wh

)

Federal Incentives Utility Incentives

NEM Customer Bill Savings Pre-Incentive Capital Cost

Installing a NEM system was

historically beneficial to the

average participant

Based on solar cost forecasts

at the time of the study, NEM

is not cost-effective for

participants in 2014 and

beyond

9

Total Resource (Nevada) Cost Test – Base Case

Cost Benefit Cost Benefit Cost Benefit Cost Benefit

All Vintages ExistingInstallations

(through 2013)

2014/2015Installations

2016Installations

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

$0.50

Leve

lize

d C

ost

-Be

nef

it (

$/k

Wh

)

Pre-Incentive Capital Cost Utility Avoided CostsFederal Incentives RPS ValueNEM Program Costs Integration Costs

Overall, NEM installed through

2016 will cost NV about $100

million or $0.02/kWh

Note - adding emissions

related externalities adds

more costs because NEM

reduces total installed

renewable capacity

With the RPS multiplier,

2014/2015 NEM installations

save NV money

10

Sensitivity Results - Utility-Scale Solar Price

-$800 MM

-$400 MM

$0 MM

$400 MM

$800 MM

$1200 MM

RatepayerImpact Measure

ProgramAdministrator

(Utility) Cost Test

Total ResourceCost Test

Societal CostTest

NP

V N

et

Be

ne

fit

Low PPA Price Base Case PPA Price High PPA Price

The cost of utility-scale solar

impacts the cost-effectiveness

of NEM significantly since

NEM avoids purchases of

additional utility-scale solar

Actual publicly released costs

of utility scale solar are less

than $50/MWh for utility scale

solar

Based on these contracts, the

‘Low PPA’ price sensitivity is

more appropriate than the

base case assumption

11

What Has Changed Since the Study?

n/a New NEM tariffs

SB 123: 800 MW of coal retirements

SB 123: 350 MW of additional renewable capacity (+200 MW

conventional)

n/a Continued dramatic decreases in cost of solar (utility-scale

and NEM)

Decrease in natural gas prices

? ? Other utility resource planning changes

Ra

tep

aye

r

Pe

rsp

ec

tive

Ne

va

da

/So

cie

tal

Pe

rsp

ec

tive

benefits increase relative to costs

costs increase relative to benefits

Many changes have occurred since the study

We don’t currently know the magnitude of each

change or the net impact of all changes combined

12

Contact Information

For more information contact:

Zach Ming– zachary.ming@ethree.com

Energy and Environmental Economics, Inc. (E3)

101 Montgomery Street, Suite 1600

San Francisco, CA 94104

(415) 391-5100

www.ethree.com

Appendix

14 14

NEM PV Forecast

15

NV NEM Subsidies

15

16

Detailed Base Case Results

Benefit (cost) to customers who

participate in NEM

Installs through

2013

Installs in 2014-2015

Installs in 2016

All installs through

2016

Lifecycle NPV

($Million 2014) $23 ($115) ($43) ($135)

Levelized ($2014/kWh)

$0.02 ($0.03) ($0.04) ($0.02)

Benefit (cost) to non-participating

ratepayers

Installs through

2013

Installs in 2014-2015

Installs in 2016

All installs through

2016

Lifecycle NPV

($Million 2014) ($141) $168 $6 $36

Levelized ($2014/kWh)

($0.14) $0.05 $0.01 $0.01

Benefit (cost) to the state of

Nevada, including externalities

Installs through

2013

Installs in 2014-2015

Installs in 2016

All installs through

2016

Lifecycle NPV

($Million 2014) ($133) $90 ($36) ($75)

Levelized ($2014/kWh)

($0.11) $0.02 ($0.02) ($0.01)

Participants

Ratepayers

Nevada

17

Distribution Sensitivity

-$200 MM

$0 MM

$200 MM

$400 MM

$600 MM

$800 MM

$1000 MM

RatepayerImpact Measure

ProgramAdministrator

(Utility) Cost Test

Total ResourceCost Test

Societal CostTest

NP

V N

et

Be

ne

fit

Base Case Distribution Sensitivity

18

Rate Scenario Sensitivity

-$250 MM

-$200 MM

-$150 MM

-$100 MM

-$50 MM

$0 MM

$50 MM

$100 MM

$150 MM

Participant Cost Test Ratepayer ImpactMeasure

NP

V N

et B

enef

it

Current Rate Scenario Rule 9 Compliance + Primary

19

Rate Escalation Sensitivity

-$200 MM

-$150 MM

-$100 MM

-$50 MM

$0 MM

$50 MM

$100 MM

Participant Cost Test Ratepayer Impact Measure

NP

V N

et

Be

ne

fits

Low Rate Escalation Base Case Rate Escalation High Rate Escalation

20

Demand Charge Sensitivity

-$160 MM

-$120 MM

-$80 MM

-$40 MM

$0 MM

$40 MM

$80 MM

Participant Cost Test Ratepayer ImpactMeasure

NPV

Net

Ben

efit

Base Case Demand Charge Sensitivity

21

Utility-Scale PPS Sensitivity

-$800 MM

-$400 MM

$0 MM

$400 MM

$800 MM

$1200 MM

RatepayerImpact Measure

ProgramAdministrator

(Utility) Cost Test

Total ResourceCost Test

Societal CostTest

NP

V N

et

Be

ne

fit

Low PPA Price Base Case PPA Price High PPA Price