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New York’s Stopgap Proposals Offer Improvements to VDER, Create Strong Starting Point for Further Discussions

Thursday, Aug 02 2018

Blog Post

By David Gahl

The solar industry and its allies welcomed the release of two New York Department of Public Service (DPS) draft white papers last week that present stopgap changes to the Value of Distributed Energy Resources (VDER) Phase 1 tariff for commercial and industrial projects, and address compensation for community distributed generation facilities, also known as community solar projects.

Among its many recommendations, the first paper proposes modifications to the calculation of the demand reduction value (DRV) as part of the value stack and recognizes several flaws of the tariff that need to be fixed. The second paper proposes increases to the interim Market Transition Credit (MTC) values for community solar projects, which should create significant expanded opportunity for development in many utility territories across New York, and broaden access to solar to those who cannot access it today.

Both documents mark forward progress in the case. You can read each proposal item by item here:

Faster Action on Tariff Needed

The first paper on value stack changes is a “pre-proposal.” The DPS is soliciting early comments as it prepares another paper for formal notice and comment later this year. The two-step nature of the process is not likely to result in Public Service Commission action until the end of 2018 at the earliest. That’s a very long fuse for much needed changes to the tariff.

On the paper regarding community solar, comments are not due until October 15, 2018. Releasing that paper for formal public comment now would speed up the timeline for a PSC Order considerably, and create more market stability for both solar companies and consumers in New York. The faster the Commission acts, the faster community solar developers can begin planning new projects.

Fixing Demand Reduction Value

The most anticipated recommendation is a proposal to fix the broken DRV element of the value stack. As the “Avoided Distribution Cost Whitepaper” paper recognizes, the current methodology for calculating the DRV and LSRV lack “the necessary certainty and predictability to structure projects in VDER.” DPS staff recommend two solutions. The first alternative uses a longer period (460 hours) to assign a $/kWh value for demand reduction. This proposal mirrors an industry recommendation and much better reflects actual distribution system needs. However, there are two new wrinkles. The first is that DPS proposes to replace the current “de-averaged DRV with system wide marginal cost estimates used generically for energy efficiency cost benefit calculations.” This requires further analysis.

The second establishes a maximum adjustment band of 5 percent of this value in any direction during a two-year period. While this mechanism does provide more opportunity to predict long-term values, there are questions about the impact of such a mechanism and what it means for solar; more importantly, it also provides unequal treatment for distributed energy resources vis-à-vis utility investment. The second alternative is largely based on the previous proposal, but incorporates a call signal for resources. Recognizing the fundamental differences in dispatchable and intermittent energy resources, creating the two alternatives make a great deal of sense.

Credit for Community Solar Headed in Right Direction

The MTC, a specific transition credit for only community solar projects, was intended to be a proxy to help build this market. The papers recognize the success of the MTC as a mechanism. But project uptake has been very uneven on a utility-by-utility basis, based in part on power prices and many other factors. Some utility territories have seen considerable interest with their MTC “tranches” for projects filling up faster than others.

The paper recommends reallocating capacity in New York State Electric and Gas (NSYEG), Rochester Gas & Electric (RG&E), and National Grid’s territory with higher MTC values, and enhancing values in Con Edison’s territory. The paper doesn’t propose new tranches for Orange and Rockland and Central Hudson, but recommends an additional upfront incentive through NY Sun, provided there are funds available. Upon initial analysis, many of these values would appear to drive significant new solar development, but there are questions about whether the modest increases in NYSEG are sufficient and whether there is additional opportunity to expand solar access in Central Hudson.

More Work Needed on VDER Tariff Phase 2

Both papers are silent on the long-term prospects for a revised VDER tariff. We shouldn’t lose sight of the need for a long-term tariff that more accurately values the benefits DER brings to the electric system and that brings DER on par with utility investments. Better avoided environmental damages calculations, better calculations that avoid the costs of additional transmission lines, and methodologies that compensate for grid services should be developed in future stakeholder meetings.

In brief, regulators should resist the temptation to check the VDER box and walk away. Simply acting on the stopgap recommendations would be insufficient to achieve the Commission’s and the Cuomo Administration’s larger Reforming the Energy Vision (REV) policy goals.

DPS Leadership, DPS Staff and NYSERDA staff put considerable time and effort into thinking through these issues. We appreciate the responsiveness of NY DPS to the concerns raised by the solar advocates on short-term measures needed to move the solar market forward. The solar industry and its allies will be submitting formal comments on the papers. We look forward to continued work with DPS to ensure that the final VDER tariff sets a sustainable path for DERs and establishes a model for other states.

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