Valuing solar power has become one of America’s hottest energy policy debates. Fights over net energy metering, the method utilities use to compensate customers for the power they generate from rooftop solar panels, have erupted in states like Nevada and Arizona — but it’s just one example of the difficulty valuing customer-sited electricity, or distributed energy resources (DER).
For instance, net energy metering compensates rooftop solar at a retail rate, simply crediting rooftop solar customers at the same rate we all pay for power in our utility bills, but solar power may actually be worth a much different amount. Utilities pay a fraction of the retail rate when they buy power from large generators, which take advantage of economies of scale, and generating power right where it’s used saves costs utilities would otherwise incur to transmit and distribute central power. These discrepancies create a rather complicated picture.
It turns out distributed solar and other DER options like efficiency or energy storage provide a whole stack of benefits that varies by time of day, technological sophistication, and location. But many of these benefits, like reduced emissions or avoided investments in new power lines make comparing centralized and distributed investments on an apples-to-apples basis nearly impossible without new tools.
Most utilities have no meaningful method to compare the value of traditional power plants with distributed resources providing the same services as big plants. This means utilities, consumers, and third-party power providers need much more granular information about local needs to effectively operate a modern grid while understanding and capturing the precise value of DER.
For example, to understand how DER can avoid maintenance and upgrade costs to local power lines, utilities and their regulators require precise information about the value DER provides to a particular location — its locational value.
Think of locational value this way: Local power line upgrades are driven by local power demand growth and congestion on the lines, which threaten power reliability. This means utilities must accumulate and process customer usage data and compare DER potential with alternative infrastructure investment needs — a challenge for utilities that have historically acted under the safe assumption traditional investments always yielded economies of scale.
This challenge is playing out today in California, where the California Public Utilities Commission’s Distributed Resource Planning proceeding demonstrates the heavy lifting required by utilities to acquire this information. The effort aims to “provide a roadmap for integrating cost-effective DERs into the planning and operations of [regulated utilities’] electric distribution systems with the goal of yielding net benefits to ratepayers. . . . To that end, the [utilities] are required to define the criteria for determining what constitutes an optimal location for the deployment of DERs, and then identify specific locational value.” Turns out identifying this value requires a lot more data than utilities currently collect and analyze on their systems.
In their proposed investment roadmaps, California’s three major utilities indicated they needed around five years to accumulate this data and complete demonstration projects to accommodate higher shares of DER while accurately comparing DER deployment against traditional investments. The utility plans call for approximately $1–2 billion to improve data collection, indicating significant costs are necessary to enable fair DER valuation.
It sounds pricey and complicated, but these efforts have enormous potential to generate billions in benefits for consumers. DER can make electricity demand more flexible, reducing the cost of integrating new renewable energy sources, particularly wind and solar. Energy storage, efficiency, and rooftop solar all provide zero-carbon electricity to the grid while reduced power outages reduce the negative impacts blackouts have on residents and the economy. Over the long term, upfront investment in data can allow utilities to invest more efficiently in infrastructure.
Of course even with the data available, utilities, regulators, customers, and third-party providers still face the tall task of synthesizing it to maximize customer value. Regulatory resources to understand and process data are not a given, and likely require additional budgeting in most states. Data access for customers and third-party providers will be key to driving innovation in the DER marketplace. Once known, locational value enables DERs to compete to provide cost-effective alternatives to utility poles and wires.
A data-driven approach recognizing and appropriately valuing DER attributes goes a long way towards ensuring a more distributed energy future is also cleaner, cheaper, and more reliable. With vast swaths of the right data, regulators can ensure utilities fully consider their options for optimizing the electricity system while increasing choices and savings for their customers.