Neil McAndrews and Larry Lawrence, Enterprise Risk Consulting, LLC
Austin, Texas
Our utility consulting clients offer varying responses when the topic of local residential solar is raised, ranging from disdain to enthusiastic acceptance. Regardless of attitude, local residential solar is here to stay and will be coming to a municipality near you. Residential solar can provide many benefits to distribution utilities, and we suggest that it is more productive and beneficial to embrace the inevitable than to ignore or fight it.
(Note: the following discussion is ERCOT-specific but many of the general principles are applicable to other regions.)
Residential solar installation provides measurable savings that accrue to the distribution utility under today’s regulatory and pricing environments. The savings are from multiple sources and include peak shaving, lower energy costs and environmental credits.
Our perspective in this piece is from the utility acting as a passive interest in the solar investment. It is in utilities’ interest for residential solar to be installed up to a penetration limit. Our objective is to summarize the benefits to help provide a framework for developing incentives, or rate reductions, that are costless to the utility. Most importantly, our summary shows that current incentives offered by many electric utilities to install solar are likely to increase solar penetration in Texas.
The benefits can be divided into the following categories.
Peak Shaving
• Avoids 4 CP demand charges
• Avoids Congestion Revenue Right purchases
Cost Saving
• Avoids on peak higher power purchase prices
Environmental Credits
• Produces Renewable Energy Credits (RECs) or avoids the purchase of RECs
Transmission Savings. The largest potential savings are avoided transmission costs. In ERCOT, four coincident peak (4 CP) 15-minute intervals, one for each summer month, are averaged and then multiplied by the total annual transmission cost rate. Peak shaving from local solar production will reduce the total eligible amount of summer peak load.
Energy Savings. Local solar production can offset the need for higher cost energy purchases during solar production hours. Off-peak energy will be at a lower cost but will still be purchased by the utility, resulting in a lower average power purchase price for the utility.
Congestion Savings. Solar helps avoid congestion costs and thus it avoids the purchase cost of Congestion Revenue Rights (CRRs). This is very similar to energy savings in that the same outcome occurs because the utility would avoid the risk and the number of CRRs that need to be purchased. Less on-peak demand drives lower load amplification, and leads to a more uniform load profile and an increased load factor. The cost for CRRs declines because on-peak CRRs are avoided.
Environmental Savings. Local solar production can reduce load that will be removed from consideration for carbon allowance requirements, avoiding environmental costs. You do not have to pay if load is not measured because of net metering. And even if a net metering process is not involved, the load is served by a zero emission resource.
The result of these savings is that a utility could provide a substantial energy subsidy that at worst would be cost neutral. Our estimates are that subsidies of 2.0 to 2.5 cents per kWh could be achieved. Detailed calculations for our estimation process are beyond the scope of this piece, so please contact us for more details and assistance in integrating these incentives into a proactive renewable energy development plan and rate structure.
© Copyright 2015 Enterprise Risk Consulting, LLC
Austin, Texas
Our utility consulting clients offer varying responses when the topic of local residential solar is raised, ranging from disdain to enthusiastic acceptance. Regardless of attitude, local residential solar is here to stay and will be coming to a municipality near you. Residential solar can provide many benefits to distribution utilities, and we suggest that it is more productive and beneficial to embrace the inevitable than to ignore or fight it.
(Note: the following discussion is ERCOT-specific but many of the general principles are applicable to other regions.)
Residential solar installation provides measurable savings that accrue to the distribution utility under today’s regulatory and pricing environments. The savings are from multiple sources and include peak shaving, lower energy costs and environmental credits.
Our perspective in this piece is from the utility acting as a passive interest in the solar investment. It is in utilities’ interest for residential solar to be installed up to a penetration limit. Our objective is to summarize the benefits to help provide a framework for developing incentives, or rate reductions, that are costless to the utility. Most importantly, our summary shows that current incentives offered by many electric utilities to install solar are likely to increase solar penetration in Texas.
The benefits can be divided into the following categories.
Peak Shaving
• Avoids 4 CP demand charges
• Avoids Congestion Revenue Right purchases
Cost Saving
• Avoids on peak higher power purchase prices
Environmental Credits
• Produces Renewable Energy Credits (RECs) or avoids the purchase of RECs
Transmission Savings. The largest potential savings are avoided transmission costs. In ERCOT, four coincident peak (4 CP) 15-minute intervals, one for each summer month, are averaged and then multiplied by the total annual transmission cost rate. Peak shaving from local solar production will reduce the total eligible amount of summer peak load.
Energy Savings. Local solar production can offset the need for higher cost energy purchases during solar production hours. Off-peak energy will be at a lower cost but will still be purchased by the utility, resulting in a lower average power purchase price for the utility.
Congestion Savings. Solar helps avoid congestion costs and thus it avoids the purchase cost of Congestion Revenue Rights (CRRs). This is very similar to energy savings in that the same outcome occurs because the utility would avoid the risk and the number of CRRs that need to be purchased. Less on-peak demand drives lower load amplification, and leads to a more uniform load profile and an increased load factor. The cost for CRRs declines because on-peak CRRs are avoided.
Environmental Savings. Local solar production can reduce load that will be removed from consideration for carbon allowance requirements, avoiding environmental costs. You do not have to pay if load is not measured because of net metering. And even if a net metering process is not involved, the load is served by a zero emission resource.
The result of these savings is that a utility could provide a substantial energy subsidy that at worst would be cost neutral. Our estimates are that subsidies of 2.0 to 2.5 cents per kWh could be achieved. Detailed calculations for our estimation process are beyond the scope of this piece, so please contact us for more details and assistance in integrating these incentives into a proactive renewable energy development plan and rate structure.
© Copyright 2015 Enterprise Risk Consulting, LLC
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