Value of DER: Pricing Distributed Resources

Benefit-cost analysis (BCA) is a structured, transparent process for evaluating DER. Using BCA, utilities will analyze and assess DER for their incremental benefits to the grid and to customers. To ensure the utilities achieve REV Objectives cost effectively, they must perform a BCA when considering and evaluating proposals across four expenditure categories:

• Energy efficiency programs
• Investments in distributed system platform (DSP) capabilities
• Procurement of DER through competitive selection
• Procurement of DER through economically efficient tariffs

New York State adopted the societal costs test as the primary measure of cost effectiveness under its BCA framework.

Each utility has developed and filed a BCA handbook that ranks the value of societal costs and benefits of a DER investment to society as whole. This includes the avoided carbon emissions from DER and the net impact on grid reliability. The BCA helps compare these net benefits against conventional utility investments.

New York has undertaken a comprehensive approach to determine the value of distributed energy resources (VDER). A market-based mechanism, VDER will ultimately lead to better understanding of the benefits of DER. More importantly, this holistic approach will encourage the deployment of DER in a manner that maximizes overall value to utility customers.

With VDER, utilities will compensate DER owners for the benefits their resources provide to the energy system based on prices that reflect specific values. Collectively, these values make up what is known as the value stack. Values include:

• Energy (kWh) is the market value for kWh delivered, inclusive of electrical losses
• Capacity (kW) is the market value for capacity delivered
• Environmental impact is value of reduced emissions as a result of using DER
• Demand reduction is the value of avoiding new distribution system capacity by reducing distribution system peak demand
• Locational System Relief is the location-specific value of the DER to a given utility location, for example due to voltage support or avoiding infrastructure upgrades.

The Public Service Commission is defining and delivering VDER in two phases. The new Phase One methodology takes the first step in moving beyond Net Energy Metering (NEM) to a more accurate valuation and compensation for defined categories of DER.  The Commission set the Phase One VDER compensation values in the fall of 2017.

Technologies Eligible for VDER Compensation Under Phase One

The second phase will further refine the values that DER provide to the energy system. Phase Two Stakeholder Working Groups are advancing work around the Value Stack, Rate Design, and Low- and Moderate-Income customers, with materials available at www.dps.ny.gov/VDER/.