An Evaluation of Solar Valuation Methods Used in Utility Planning and Procurement Processes

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As renewable technologies mature, recognizing and evaluating their economic value will become increasingly important for justifying their expanded use. This report reviews a recent sample of U.S. load-serving entity (LSE) planning studies and procurement processes to identify how current practices reflect the drivers of solar’s economic value. In particular, we analyze the LSEs’ treatment of the capacity value, energy value, and integration costs of solar energy; the LSEs’ treatment of other factors including the risk reduction value of solar, impacts to the transmission and distribution system, and options that might mitigate solar variability and uncertainty; the methods LSEs use to design candidate portfolios of resources for evaluation within the studies; and the approaches LSEs use to evaluate the economic attractiveness of bids during procurement. We found that many LSEs have a framework to capture and evaluate solar’s value, but approaches varied widely: only a few studies appeared to complement the framework with detailed analysis of key factors such as capacity credits, integration costs, and tradeoffs between distributed and utility-scale photovoltaics. Full evaluation of the costs and benefits of solar requires that a variety of solar options are included in a diverse set of candidate portfolios. The design of candidate portfolios evaluated in the studies, particularly regarding the methods used to rank potential resource options, can be improved. We found that studies account for the capacity value of solar, though capacity credit estimates with increasing penetration can be improved. Furthermore, while most LSEs have the right approach and tools to evaluate the energy value of solar, improvements remain possible, particularly in estimating solar integration costs used to adjust energy value. Transmission and distribution benefits, or costs, related to solar are rarely included in studies. Similarly, few LSE planning studies can reflect the full range of potential benefits from adding thermal storage and/or natural gas augmentation to concentrating solar power plants. Finally, the level of detail provided in requests for proposals used in procurement is not always sufficient for bidders to identify the most valuable technology or configurations to the LSE.

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