The locational value of distributed generation could be pivotal to its success in the marketplace, which is why efforts to determine how to reward it are expanding across the country.

Accurately compensating all the values of generation and services provided by distributed energy resources (DER) is fundamental to utility planning and to the customer value proposition. To determine those values more precisely, policymakers are focusing on when and where DER deliver.

There has been progress on the "when" and pilots are beginning to prove the potential of time varying rates. Progress on the "where" has been slower, but is now an emerging focus of policymakers, according to the Q3 2018 solar policy quarterly from the North Carolina Clean Energy Technology Center (NCCETC).

Work on DER locational value — previously limited to New York and California — is spreading. But it faces a challenge.

"The hypothesis is that the more accurate value of DER is locational and work has focused on distribution system investment deferrals," Pacific Gas and Electric (PG&E) Director of Grid Planning, Grid Integration and Innovation Mark Esguerra told Utility Dive. The conditions of the distribution grid change quickly, he said, which makes developing locational value challenging because the value of a location may change based on the grid's load demand.

As distribution system planning and solar compensation policy efforts merge in grid modernization work, efforts on locational value are growing, NCCETC reported. Pilots of DER as a non-wires alternative (NWA) to distribution system infrastructure upgrades are appearing and solicitations are emerging. But a way to precisely calculate locational value has not been found, and some say an estimated value may be more effective.

Location leaders and followers

Locational value is essential to grid planning so that utilities can use cost-effectively sited DER to defer capital expenditures for distribution system upgrades. Locational value is also expected to be an essential component in a successor DER compensation tariff that can replace retail rate net energy metering (NEM).

NCCETC's 50 States of Solar and 50 States of Grid Modernization Q3 2018 reports list hundreds of policy efforts and actions, which largely address planning and compensation that will eventually face the challenge of locational value.

A "resurgence" of work on locational value is coming, NCCETC Senior Policy Manager Autumn Proudlove, lead author of the policy updates, told Utility Dive.

The California Public Utility Commission (CPUC) DER Action Plan and the New York Public Service Commission (NYPSC) Reforming the Energy Vision (REV) efforts are farthest along, though both still face obstacles in fully utilizing locational value, Proudlove said. "Most states are just starting to make those connections."

Locational value is "an evolving tool, rather than an end-state that we will achieve at a date certain," Steve Wemple, general manager of the Consolidated Edison (ConEd) Utility of the Future team, emailed. The goal is to integrate an improved locational price signal with advanced DER control strategies that incorporate "more granular data available from our smart meter deployment."  

Alternative approaches that would simplify DER valuation are being considered, but most work is on complex and granular details "to more accurately compensate customers for DER," Proudlove said. "The more detailed approach to value will also address cross subsidization."

Oregon, Nevada, New Hampshire, Minnesota, Missouri and Washington are taking up efforts, and there are pilots on locational value in Connecticut and New Jersey, she said. New Hampshire's work, "which will inform their NEM successor tariff debate, may be the most fully developed study," she added.

New Hampshire could launch a study of DER locational value in Q1 2019 as part of value of DER and grid modernization proceedings, Conservation Law Foundation (CLF) Attorney Melissa Birchard emailed Utility Dive.

Ongoing work in California, New York and Illinois demonstrates approaches and lessons learned that can benefit policymakers in these states.

California's slow progress

"There has been no progress on a tariff with a locational value in California and I don't expect one soon because there are no clear answers for a system that changes so quickly," California Solar Plus Storage Association (CalSSA) Policy Director Brad Heavner told Utility Dive. "The only progress has been on compensation through competitive bidding when a MW for MW deferral is provided by an NWA."

A better approach would be identifying areas where needs will be ongoing and any additions of DER will have local benefits, such as transmission-constrained load pockets identified by the California Independent System Operator (CAISO), he said.

"The CAISO cancelled $2.6 billion in infrastructure upgrades this year because of the growth of distributed resources," Heavner said. "That shows there are areas with clear challenges to meeting peak demand spikes and any DER added will take weight off the system. Developers can focus on those locations."

Locational value is being driven almost entirely by capital project deferment opportunities in California, PG&E's Esguerra agreed. The utility has mapped its distribution system, and is working to identify sites where NWAs will defer expenditures. "But we are discovering that forecasting where those sites are on a dynamically changing system is not the only obstacle."

Customers and developers need to be clear about what they are contractually obligated to deliver and when and where they are obligated to deliver it, he said. "If an NWA does not meet its reliability obligation, it could lead to larger system failures."

PG&E is preparing solicitations for its first third party-provided NWAs, defining contractual obligations and monitoring milestones. For failures to meet obligations in the solicitation phase or milestones in the implementation process, "the utility could move to another solution," Esguerra said. "We will need contingency planning for the biggest risk, which is a failure after the NWA is in service."

PG&E has one other concern about relying on DER to meet system needs, he said. For multiple-use DER systems, there must be "rules to assure the contracted resources are available to the utility when it requires them."

The New York turnaround

New York utilities' system maps have resulted in NWAs, and policymakers there are also working to include locational value into the value of DER, Acadia Center's LeBel said.

Initially, there was an incentive for customers to build DER at locations where congestion was anticipated, LeBel added. But setting that locational value "has proved to be more administratively complicated than expected and commission staff has proposed eliminating it."

The utilities did "guesstimates and concluded congested locations should get 50% more than other locations," he said. "They are not coming to terms with the details."

ConEd's load growth is falling with customer adoption of energy efficiency and DER, and opportunities for NWA projects, like the Brooklyn-Queens Neighborhood Program, "will be infrequent," ConEd's Wemple said. "We're retooling our planning process to identify smaller projects."

ConEd also faces later evening peaks, he added. That means some DER, like distributed solar and more efficient commercial air-conditioning, "are not as well suited to an NWA, unless paired with energy storage."  

If the utilities need more time to work out and apply locational values, "they should say so and not back away from doing it right," LeBel said. "The big question remains whether a distribution level market is workable or whether pricing will need to come from administrative estimates of value."

California's difficulty determining a precise LNBA answers that question, according to Heavner. "Ratemaking is an exercise in system-wide averaging because customers, seasons, and time periods vary, and one size does not fit all. The next NEM credit can be an average system-wide tariff."

The Illinois reframe

Illinois' 2017 Future Energy Jobs Act requires the Illinois Commerce Commission to open a proceeding to determine DER value, including locational value, when DER is 3% of system peak load, Commonwealth Edison (ComEd) VP for Energy Acquisition Scott Vogt told Utility Dive. The value must be in place at 5% penetration. ComEd is developing its answer now.

"The NEM tariff will be only for the exported energy, and an upfront dollars per kW rebate will compensate DER owners for value to the distribution system when and where it is delivered," Vogt said. "It would be the equivalent cost of an infrastructure upgrade at a location where we anticipate a need."

The utility buys capacity to meet peak demand in dollars per kW and that is what it is buying from DER owners, Vogt said. "The rebate compensates for kWs the DER provides to meet peak demand of the circuit it is on. That is a time-based and location-based value."

ComEd expects to identify locations and rebate amounts in advance of its capacity need "for the market to take advantage of," Vogt said. Setting the amounts would be a compromise "between administrative ease and the perfect cost allocation, much like what is done in other rate designs."

"If the total rebates are not more than an infrastructure upgrade, the customers and the utility are indifferent and there is no cost shift," he added.

ComEd shares Esguerra's concern about risks associated with relying on DER, but "if it does not show up, we would meet the reliability concern with traditional measures," Vogt said.

The vision

"States are increasingly doing more visioning exercises and looking at the whole system," Proudlove said. "Grid modernization proceedings are aligning utility interests with customer interests. Locational value can align developer interests with system interests."

Highly capable digital technologies might eventually be able to assimilate specific locational values for every customer's DER at every moment in real time, Heavner acknowledged. Smart homes could someday respond to real time price signals and allow DER owners to benefit from their full range of services.

A transactive energy market could be a possible end point, Esguerra agreed. If that happens, "locational value would be key because we would need to prepare locations where those DER interconnections will be and validate that the value is being delivered," he said.

But to get to that precise locational value "utilities need to make public distribution system data about the capacities and needs at each feeder and circuit," Proudlove said. "They often consider it sensitive information because of security concerns or because of how much it reveals about their systems."

Lebel agreed. Getting to that vision "would be a massive change for the utilities," he said. "But it has happened. It took decades to get from PURPA to restructuring. Maybe, in the 2030s, we will look back at the 2014 start of the New York REV and see a similar transformation. And maybe things will still be changing."