Readers Please!![edit | edit source]
Any comments are welcomed on the Discussion page (tab on top left corner) including additional resources/papers/links etc. Papers can be added to relevant sections if done in chronological order with all citation information and short synopsis or abstract. Thank You.
LITERATURE REVIEW[edit | edit source]
The market value and cost of solar photovoltaic electricity production.[edit | edit source]
- Valuation of Solar
- Value greatly depends on time of production, location of installation, and the direction in which the panel is facing.
- Production peaks disproportionately with the peak demand.
- Advantages of solar
- Distributed PV installation does not require transmission and distribution infrastructure.
- Lack of transmission and distribution system reduces the losses that occur.
- As PV is a distributed system, it provides security to the entire network in the sense that the whole system won't be affected if the PV system is targeted or fails.
- No emissions of greenhouse gases and other pollutants.
- Reasons for Misvalue of PV
- Intermittency in supply
- A feeling that the transmission and distribution system would be required in the future and hence there is no saving in terms of cost in the real sense.
- Planning studies cannot be performed as there is no guarantee of how much solar power would be produced.
- If the output of PV changes then the second to second stability of the system changes rapidly.
- Time Varying Production of solar PV
- PV production varies with season, latitude and direction of tilt of panels.
- There are two approaches to conceptualize the time varying production
- With a detailed and wide sample of data.
- Simulation data from TRNSYS (Transient System Simulation Program)
- Real time prices for valuing the power from solar PV
- This can be done through two approaches
- Actual price from the market where it is used.
- The data would be credible as it is obtained from an actual market
- There could be regulation of prices, that is a price cap could be fixed.
- If there is excess production at peak demand period, the price would be relatively less as compared to if produced over time.
- Simulated data from a competitive market
- Here the model can be designed to decide the cap and hence there would be no regulation on the prices.
- This model is based on the import/demand supply as the production varies.
- It includes baseload cost+peakcost+mid-merit cost.
- Actual price from the market where it is used.
- Correlation between prices and PV production
- PV production depends on weather.
- Demand depends on weather.
- Hence production depends on demand.
- However, this correlation could be misleading as weather condition may vary for the same system.
- Time varying solar power
- The author calculates the results using 5 different price series, one is actual hourly spot price in the region, second is hourly spot price with the adjustment for low price caps, third is assumed demand and supply with some elasticity -0.025, fourth is with elasticity of -0.1 and fifth is when some capacity costs are recovered through non energy payments in whole sale market.
- The assumption of marginal cost never exceeding the highest cost of generation , shortfall being paid to generators, the revenue being recovered as uniform fee on KWh sold, is made.
- In comparison to the real time wholesale price , the simulated prices produce much larger differentials. In his simulations most of the generation costs are recovered through energy prices and not through capacity payments.
- He has concluded that value of electricity delivered from on site solar PV and its undervaluation depend on the direction of its orientation.
- Resource adequacy regulations assure that the system always has excess production capacity and consistent with this approach revenues for capacity payments to generators are collected from retail customers in a time invariant way, then wholesale prices will indicate that power at peak times is not much more valuable than off peak.
- Effect of location on solar PV
- Solar PV brings reduced investment in transmission and distribution infrastructure.
- Solar PVs are usually installed in areas where T&D is constrained.
- State incentives are given to customers for installing PVs that are not in the service territories and no greater incentive is offered to the customers in the service area who install PVs.
- A carefully planned location based incentive would reduce transmission congestion and need for transmission infrastructure.
- PV is not abundant in most valued locations.
- Economics of solar PV
- Two related issues in a cost analysis are the lifetime of the panels and the appropriate discount rate for evaluation of the project.
- The large cost that a owner would face for a PV installation would be replacing inverter.
- PV cell production declines eventually with the range of 1% of the original capacity per year.
- The soiling effect dirties the panel and it absorbs less solar radiation, hence less electricity.
- The net present cost of PV installation is more than the net present benefits of electricity it will produce.
- Key Takeaways
- Data considered in valuating Solar PV
- Reduction on Transmission losses
- Peak usage time saves
- Fluctuation in solar PV production throughout the day (requires available data or simulation) - account for specific conditions of the installation
- Environmental burden release and Social value (Not quantified in the paper)
- All above data are location dependent
- Analysis of solar value in residential homes (Bornstein 2007)
- Analysis of solar value for industry and businesses (Wiser 2007)
- Study is done in 2008 - Look for more recent articles in litterature on the subject.
Minnesota's Value of Solar[edit | edit source]
- What is Value of solar?
It is a concept of utilities paying fair and transparent price for solar energy produces by a domestic entity. The utilities in the US are pretty much doing that but not fairly. They are paying for the electricity that is being produced by the solar but not for the amount of pollution that is going down by not using the conventional source, the transmission and distribution capacity that is being avoided, the health issues that are declining, the operation and maintenance cost and many other aspects. The estimation of all these costs for 1 unit of electricity that is being supplied back to the grid by a producer is called the value of solar.
- Why value of solar?
It is a fair and transparent way of deciding on the cost of solar. It is the answer to both the utilities and customers problems. This will compensate the solar producers well and also bring a long term stability. The concept utilities comply to is net metering, which blocks the actual value of solar as it is based on retail price. Net metering will force consumers to go beyond their actual solar capacity and also increase the consumption of energy.
- What is net metering?
It is an arrangement where a customer receives full credit for whatever power they deliver to the grid.
- Why net metering or NEM not fair?
The customer who zero out or null out their electricity bill, do not pay their fair share for the transmission and distribution infrastructure that they are using and hence other customers end up paying this.
- Executive Summary
In March 2014, Minnesota became the first state to adopt a value of solar policy. It may fundamentally change the financial relationship between electric utilities and their energy-producing customers. It may also serve as a precedent for setting a transparent, market-based price for solar energy. This report explains the origins of value of solar, the compromises made to get the policy adopted in Minnesota, and the potential impact on utilities and solar energy producers.
- Difference between VOS and Net Metering
- Challenges encounter with the use of Net Metering
- Benefits of VOS for Customer and Utility
- Key Aspects and components of VOS
- Pollution sources avoided
- Peak energy needs furnished by supplemental power plants avoided
- Fixed price of long term energy provided
- Electric Grid Exhaustion reduction
Comparative assessment of net metering and feed in tariff schemes for residential PV systems[edit | edit source]
Feed-in-tariff (FIT) scheme provide a guaranteed price to the solar producer. The utility is under obligation to purchase the electricity from the producers.
- Net Metering
Net metering scheme employs a mechanism where producers are paid for the solar production based on whether electricity is being taken from the grid or it is being supplied to the grid. Time of the day net metering is based on the variation in rates during the day, month and season. Market rate net metering employs a rate which is some function of the market rate of electricity.
- Myths about Net metering
Revenue of the utility decreases. It represents a subsidy from one group of customers to another. It burdens the smaller utilities.
Study in Cyprus for a typical rooftop PV system concluded that net metering performs better than the feed-in-tariff under certain conditions and especially when the electricity bill is taken into account.
Treatment of Solar Generation in Electric Utility Resource Planning[edit | edit source]
- Integrated Resource Planning (IRP)
It is a planning process done by utilities where a comprehensive study is conducted. The supply and demand evaluations are done and whether the energy requirements, peak demand and reserve capacity are met are also evaluated. The utilities usually do these studies for the long term future, generally for a period of 20 years. Renewable energy sources are also being included in these studies as some utilities feel that the more diversified the sources, the more economical it is from the financial point of view. However, the methods the various utilities use to conduct these studies vary widely. The resource planning for a long term is basically done in the flowing detailed manner
- Evaluate State Policies and Mandates
- Review Existing Generation Fleet
- Forecast Load
- Plan Capacity Expansion
- Production Cost Modeling
- Select Portfolio
- Benefits and Challenges of Solar to include it in resource planning studies
- Meet renewable standard requirements
- Fuel diversification
- Cost stability
- Geographic dispersal benefits and modularity
- Partial correlation with peak demand
- Mitigation of environmental compliance risks
- Avoid line losses
- Variable and uncertain output
- Ramping issues
- Lack of current capacity need
- Reduced capacity benefit over time with increasing solar penetration
- Renewable Portfolio Standards (RPS)
Some states have a policy that they have to buy certain part of their total electricity sales from renewable sources.
- Inclusion of Solar into IRP
This requires credible data for the following
- Solar Profiles
- Solar Costs
- Solar Capacity value- The capacity value assigned to solar PV varies greatly from utility to utility. Some utility do not assign any capacity value to solar while others assign a value depending upon the type of PV system being used.
- Additional considerations- These include
Solar Integration Cost Customer sided generation- Whether DPV is to be considered as a net load or a source
- Procurement Plan
- Solar benefits according to Utilities
- Meeting renewable standards required
- Fuel Diversification
- Cost Stability
- Wide range of PV and its dispersal ability
- Partial correlation with peak demand
- Reduce environmental risks
- Avoided line losses
- Challenges according to Utilities
- Variable and uncertainty in output
- High ramp up and ramp down rates
- Lack of current capacity need- Due to RPS requirements by state, utilities are increasing capacity even though there is a load decrease
- Net Metering concerns
- Reduced value as the solar penetration increases
- Utility Identified Analysis Needs
- Credible PV price and performance data
- Analysis of how to incorporate geographically diversified resources into modeling
- Analysis of the potential relationship between energy storage and PV
- Easier ways to predict impacts of increased PV penetration
- Better risk/uncertainty analysis methods
- Improved commercial production cost models
- Translate distribution system impacts to long-term plans
- Clarity about when to include distributed generation in supply modeling
Designing Austin Energy's solar tariff using a distributed PV value calculator[edit | edit source]
- Consequences of Net Metering
Solar customers size their solar systems according to their base load as they feel that the excess generation given back to the grid is being paid for at a low rate. Or the solar customers tend to use more energy because they feel that it is free consumption and if they were to give back to the grid they would only be paid at a low rate.
Austin Energy designed a new 'Value of Solar' rate. It is still avoided cost calculation at heart but compensates the solar customers at a more competitive price. The calculation tool values the following components :
- Loss savings- Calculated on an hourly basis. Takes into account the benefits provided by distributed sources of energy by producing energy at the same location where required.
- Energy savings-This is the PV output plus the loss savings times the marginal energy price
- Generation capacity savings-It is the effective load carrying capacity of PV times the cost of capacity
- Fuel price hedge value- It is the amount that would be incurred to eliminate the fuel price uncertainty
- Transmission and Distribution capacity savings =(T & D upgrade cost/ load growth) X term X T& D Factor
- Environmental benefits = PV output X Renewable Energy Credit price
The energy and generation capacity costs are reflected when a study of the relation between PV output and nodal prices is done.
After concluding that the average nodal price does not accurately represent the actual value of solar, a new value of solar termed as 'solar premium' was calculated which gave accurate credit to the customers for solar power generation, which was found to be higher than if the same amount of generated power was credited at the marginal electricity price of the area.
Austin Energy came up with the following residential rebate policy on the basis of some assumptions. This rebate was formulated to provide a temporary boost to adoption of solar power.
- Rebate amount= PV rating (kWdc-stc) X Inverter Efficiency X Rebate level
This new value of solar approach is much more detailed and it gives fair incentives to the solar customers.
Rábago, Karl R, Leslie Libby, Tim Harvey, Austin Energy, Benjamin L Norris, Thomas E Hoff, and Soscol Ave. "DESIGNING AUSTIN ENERGY'S SOLAR TARIFF USING A DISTRIBUTED PV VALUE CALCULATOR," n.d., 6.
Austin Energy plans to offer residential customers a new solar net metering tariff based on the value of solar energy generated from distributed photovoltaic (PV) systems in the grid to the utility in place of traditional net metering. Austin Energy worked with Clean Power Research (CPR) to employ the algorithms from a utility value calculator to design the solar tariff. A rebate structure was also designed in order to ensure that customers still satisfy a key economic cost-effectiveness test and address first-cost barriers facing solar customers. These two revenue types – an ongoing credit for solar production, and a one-time rebate – begin a transition toward production-based incentives for residential customers based on actual value credits for solar generation and steadily declining up-front rebates.
- Key Takeaways
- Net metering under-represents the value of solar
- Difficulties inherent in accurate calculation of cost of solar:
- Modeling PV generation for locations without solar ground measurements
- Ensuring that the modeled outputs cover specific hours in which coincident electric loads have been measured by the utility
- Calculating marginal line loss savings during those same hours
- Forecasting fuel prices
- Determining the effective capacity of PV by calculating hourly loss of load probabilities
- Applying principles of engineering economics
A REGULATOR'S GUIDEBOOK: Calculating the Benefits and Cost of Distributed Solar Generation[edit | edit source]
Calculating utility avoided cost
- Avoided energy benefits
- Identifying the displaced marginal generation, which is the cost saved in avoiding the operation and maintenance of a simple cycle combustion turbine or combined cycle gas turbine for providing electricity. This unit would be produced by customer's solar generator.
- Value of avoided generation for the life period of a solar generation could be calculated by developing
- an hourly market price shape for each month.
- a forecast of annual average market prices in the future. This can be done by projecting the cost of marginal generation unit, O&M cost for it and degradation of heat rate. (Heat rate is the measure of efficiency by which a unit creates electricity by running fuel for heat to power a turbine)
- Calculating system losses
- Solar generation when near the load avoids losses with delivering power over long distances. The excess produced by solar would be exported to the grid or to the neighboring customers, there by avoiding losses in the electricity that would have come from the central unit.
- On an average line losses are in the range of 7% and higher and "lost and unaccounted for energy" loss, these two may be avoided by solar generation.
- Because the losses are not uniform, calculating it on a marginal basis would be more accurate. It says about the correlation of solar PV to heavy loading periods (congestion and transformer thermal conditions increase losses).
- Calculating generation capacity.
- Capacity value exists when a utility can rely on a generating unit to meet its peak demand there by avoiding purchasing of electricity to meet the peak load.
- The intermittency problem is solved by
- Recognizing a capacity value for intermittent resource and call it effective load carrying capability. This is a statistical method that provides reliable data to project the capacity of intermittent resources.(effective load carrying capability of a generating unit is load increase that system can carry while maintaining designated reliability criteria)
- EELC is very data extensive, so a simpler method like projection from utility's load duration curve, by looking at top 50 load hours.
- The valuation of incremental capacity is small when compared to the utility where one unit of combined cycle gas turbine can add 500MW at once. One solution to this is a mix of short run and long run avoided capacity costs are applied to renewable generators based on the fact that no additional capacity would be required until a year called resource balance year. It is the utilities job to predict load growth and involve the solar generations in the system.
- The best approach would be to determine the capacity credit by looking at the capital and O&M cost of the marginal generator. This resulting value is capacity credit i.e. a credit for the utility capacity avoided by solar generation.
- Once effective load carrying capability is determined for a solar generation for a given utility, the calculation of generation capacity becomes easy. The capacity credit is the capital cost of the displaced unit times the effective capacity provided by PV.
- Calculating transmission and distribution capacity.
- Solar generation is usually located at the site of load and helps reduce the congestion and wear&tear of transmission and distribution resources.
- To determine the ability of solar generation to defer T&D capacity conditions, we must have the current information on the system planning activities and periodically update this information. Also the investment trends must be extended to match the expected life of solar generation.
- With all this data in hand the T&D saving can be determined in two steps:
- First perform the economic screening of the areas to determine the cost of expansion and load growth rates for each area.
- Second would be to perform the technical load matching for most promising locations.
- By looking at the load profile for a year, peak days at the circuit and substation level can be isolated and capacity credit can be calculated. Reducing peak loads would sure avoid investments on overloading transformers, substations etc.
- Deferring an upgrade saves utility expenditures and atleast to some extent debt financed.
- Ideally the utilities will collect location specific data that support individual assessment of solar generation. In the absence of such data, system wide estimation of T&D deferral value is done.
- System wide deferral can be calculated by allocators to assign capacity value of specific hours in the year and then allocates estimates of marginal T&D costs to hours. T&D allocators are based on local loads and T&D cost would be allocated to the hours with the highest load. This approach lacks the potential to capture exact and location specific deferral potential but it does approximate some value without requiring extensive project planning cost and load data for specific feeders, circuits and substations.
- Calculating grid ancillary services.
- Ancillary services in the grid usually include VAR support and voltage ride through.
- A solar generation would have inverters to change DC to AC with output at a specified voltage and without reactive power.The functionality of inverters are to disconnect in the event of circuit voltage above or below limits, a voltage dip from the utility can cause thousands of inverters disconnecting the solar generations.
- Calculating financial services: fuel price.
- solar generation reduces the reliance on fuel sources that are at a risk of shortage and price volatility. It is also a fence against regulation of green house gases which greatly impact fuel prices.
- The risk of fuel price volatility is usually borne by customers as utilities are not doing enough to mitigate this risk. Reducing this risk has a value to utility customers even if utilities do nothing about it.
- For performing this calculation for each year that solar generation isolates the risk premium and helps avoid purchases that involve the risk premium.
- The risk premium of natural gas is the difference between major fuel price uncertainty and the one without any uncertainty.
- Calculating financial service: market price response.
- Solar generations reduce the demand in peak hours, when price of electricity is highest.It also reduces over all load on the system and the amount of energy and capacity purchased.
- The expenditure on energy and capacity is the current price of power times the current load at any given point in time. The amount of load affects the price of the power, a drop in load would mean reduced market price which could be the result of a distributed solar generation.
- The total value of market price reductions can be calculated by summing up all the savings made over all periods of time during which solar was operated.
- Calculating security services: reliability and resiliency.
- This value is difficult to quantify. It depends on a lot of assumptions made on risk of extended blackouts, cost to strengthen the grid, ability of solar to strengthen the grid.
- In a place crucial place like hospital in contingency situations, a traditional backup generator can be supported with a solar instead of relying entirely on traditional generation and fuel supply.
- Solar can be counted as a way of providing high reliability to vulnerable customers there by reducing the reliability costs of utility.
- Calculating environmental services.
- Utility avoided compliance cost:
- The cost of complying to the environmental requirements is a real operating expense and can be considered as avoided cost of generation.
- Utilities with renewable portfolio standards avoid compliance cost due to solar generations.
- Quantification of social benefits is difficult. For example if a utility avoids production of 20MWh of conventionally produced electricity with solar then it also avoid paying for the emission clean up. But even if it produces that 20MWh conventionally the emissions would have got past the required emission controls. Not emitting this pollution is a significant benefit for the environment and society.
- Airborne emissions other than carbon and health benefits:
- The public health impacts of fossil fuel generation have been well documented. Air pollution increases severity of asthma attacks and other respiratory illnesses. Also the crops and forest lands get destroyed due to these emissions.
- Solar reduces fossil fuel generation from plants that emit high pollution during startup.
- To capture the benefits of solar emissions of carbon and other matter based on green energy pricing programs cost can be done.
- Avoided water pollution and conservation benefits:
- Utilities consume a tremendous amount of water each year and will be increasing. With solar this risk can be avoided , safe and affordable supplies can be assured to the customers of utility.
- Calculating social services: economic development.
- Solar industry can create number of jobs and generate revenue locally. Growing demand of rooftop solar panels and supplies creates tax revenue at the state and local levels.
- Assumptions about construction of solar PV that it involves higher local jobs than a construction of CCGT plant and then net local benefit of solar on the economy can be calculated.
Keyes, Jason B., and Karl R. Rábago. "A REGULATOR'S GUIDEBOOK: Calculating the Benefits and Costs of Distributed Solar Generation." Interstate Renewable Energy Council, Inc., October 2013. https://irecusa.org/publications/a-regulators-guidebook-calculating-the-benefits-and-costs-of-distributed-solar-generation/.
Solar Valuation and the Modern Utility's Expansion into Distributed Generation[edit | edit source]
This paper discusses why the net metering scheme is unfair to the utilities as well as to the non-solar customers. Net metering cause cross subsidization, that is it imposes a higher cost on certain customers to reduce the cost of electricity of other customers. Here it is the non-solar customers that end up paying more. The irony is that most of the solar customers adopt DPV because they have a higher demand, and ultimately they end up paying lesser as compared to someone who has a lower demand. From the utility perspective, the recovery of fixed costs from the net metering scheme is not possible. The solar customers are being paid at the retail rate for the electricity that they generate. The PV penetration levels are also very important as a high penetration market would require some upgradation or building of the transmission and distribution infrastructure to supply the excess power to the grid. So how can the capital for such an investment be recovered from? Another aspect is most of the protection infrastructure has not been designed for bi direction flow of current. So again if high PV penetration levels exists, it could induce more expense rather than benefits. So the paper basically looks for an alternative approach to the unfair net metering approach. The paper does a survey to study the evolving relationship between NEM and solar valuation. The survey seeks to understand a given utility's
- service territory and its consumer base
- observed financial impact associated with residential solar generation
- methods for recovering fixed costs
The following relationships were explored:
- Utility perception of distributed solar's financial impact on the following aspects of the organization's infrastructure and operations
- Voltage variability—the cost versus savings impact on grid voltage
- Generation capacity—the cost versus savings impact on generation capacity to the system
- Line loss—the cost versus savings impact on system energy losses
- Wholesale energy purchases—the cost versus savings impact on wholesale energy purchases
- Transmission and distribution (T&D) capacity—the cost versus savings impact on capital investments to the T&D system
The survey shows the most of the utilities feel that they are attributing a higher value to solar that what is needed. Also the PV penetration levels greatly influence the value of solar. There is great uncertainty about the success of the solar valuation techniques currently being employed. More cost and benefit analysis needs to be done by utilities to evaluate the true value of solar just as they do for conventional sources. There is a long way to go in reaching a consensus on the actual value of solar and it is quite possible that the VOS tariff policy as implemented in Austin is the way to go.
Value of Solar: Program Design and Implementation Considerations[edit | edit source]
This paper basically investigates and discusses various methods through which a VOS policy can be designed. Various design consideration can be evaluated. However, first one must consider the type of market where the program is to be implemented.
- What is levelized cost of electricity (LCOE)?
It is defined as the project's total cost of operation divided by the energy generated. LCOE= total life cycle cost/ total lifetime energy production
So there can be three types of markets depending on the LCOE and VOS values
- Price support market ( LCOE > VOS)
- Transitional market (LCOE=VOS)
- Price competitive market (LCOE < VOS)
An analysis shown by NREL shows that without state and federal incentives for solar programs, all the states in USA fall in the price support market category.
The paper also discusses the case studies in Austin where a VOS policy has been implemented and the Minnesota VOS, where the policy has not yet been adopted by any utility. The one key difference between the two is that in Austin, the VOS rate will be reviewed annually while in Minnesota the VOS rate would be fixed for a period of 25 years. But the VOS rates would be reviewed annually for the new customers.
The paper also talks about possible changes and improvements that could be considered while adopting a VOS policy. VOS Program Design Considerations These can be broadly divided into the following
- Balancing design decisions: Setting objectives, understanding the design and stakeholders interest and placing the program needs in the context of what can be a rapidly changing market
- Installation details: Covering the installation rules for participants
- Rate and Contract treatment: Establish how VOS would be implemented over a long term project
- Price Supports: Considering an additional incentive on top of the VOS rate
- Administrative Issues: Thinking through the internal utility program operations and accounting
- VOS features
The VOS rate is determined by
- Identifying the categories in which solar provides both benefit and cost to the utility and society
- Calculation value of each category (could be negative or positive)
- Combining the above components into a single rate
Here the paper presents two hypothetical examples of utilities for each of the above points and does a thorough analysis of how the VOS design would change depending on the utility. The paper basically presents provides a framework for a VOS design for the customers, stake holders, utilities and interested parties.