New York regulators last week finalized a landmark order approving the first phase of a new compensation structure for distributed energy resources, initially focused on community solar systems but with an eye towards the ultimate grid-integration of standalone energy storage and other small, local clean energy resources.

The new pricing mechanism, dubbed the the Value Stack, adjusts for four separate pricing components for distributed resources and is a first step away from retail rate net metering, particularly for larger installations such as solar arrays on big box retail stores and warehouses.

The Value of Distributed Energy Resources (VDER) proceeding won't apply any time soon to residential solar and smaller commercial systems. Those would continue to be compensated under a settlement reached between utilities and solar developers last year, should it be approved by regulators.

Instead, its more immediate impact will be to promote the growth of larger capacity solar, such as community and commercial installations, to help New York reach its goal to supply half of retail electricity from renewables by 2030.

The order was one of multiple decisions that regulators approved as part of the Reforming the Energy Vision (REV) proceeding, with another focused on Distributed System Implementation Plans (DSIP) for investor-owned utilities to help evolve their electric grids into platforms allowing third-party service providers access to power customers.

The DSIP order weighed in at a scant 36 pages, and some renewable energy advocates argue it did not go far enough in giving actionable information to projects. Those comments mirror similar concerns made last summer when distributed resource providers pressed for more cost data.

Sara Baldwin Auck, regulatory program director for the Interstate Renewable Energy Council, called the orders a "milestone in a long and multifaceted proceeding," but ultimately said the DSIP decision could have done more.

"It fell short of the blueprints needed to really build the grid if the future," she said.

But the VDER order, by comparison, runs almost 300 pages and includes an extensive, if initial, description of a new tariff structure.

William Acker, executive director of New York Battery and Energy Storage Technology Consortium said the orders came out largely as expected, the result of a series of working groups in late 2016. Both the VDER and DSIP orders are "very important," he said, in addressing hosting capacity, non-wires alternatives, and directing utilities to implement storage projects.

The order is "certainly a good first step" to get the community solar market off the ground, said Coalition for Community Solar Access (CCSA) Executive Director Jeff Cramer. But he added, "I think it’s going to be a gradual process, which has some companies concerned that the business reality does not match expectations set out at the beginning of this process.”

The state's utilities, meanwhile, say they are still reviewing the order but are encouraged by the direction of the proceeding.

"We appreciate the collaborative process of the Commission and its staff and recognize more work is ahead," said Allan Drury, spkesperson for Consolidated Edison, the utility serving New York City.

Community solar gets a boost

New York Gov. Andrew Cuomo, in his 2017 State of the State report, said that over 325 MW of "community-owned solar has advanced in the pipeline and is slated for support from the Governor's $1 billion NY-Sun program." The PSC's order will give a boost to 70 projects right off the bat.

New York's community solar interconnection queue is bloated, with north of 2 GW of capacity — largely proposed and not yet constructed — asking to come onto the utility grid. But the reality is, the majority of those projects won't be economical and when the queue is refreshed in April, that volume of solar capacity is expected to drop precipitously.

"It will go from 2 GW to a small fraction of that," said Cramer. "When you have a low barrier of entry, it made sense for a number of developers to put in projects.

But while the rates may push a wide range of speculative projects off the drawing board, it will put other more plausible installations on firmer ground. "The first thing you need is certainty," said Cramer.

While it has been residential rooftop solar making most of the news in recent years, Cramer said it's vital to have community solar developers at the table when developing new rates. About 80% of homes in New York simply aren't suitable for rooftop installations, and so community developers are aiming to offer the benefits to consumers who want to go solar but cannot.

"The goal here is to provide enough value for the projects, so the community solar provider can offer the benefits of solar with a positive economic value," said Cramer.

The new DER rates

In its order, the PSC notes that retail rate net metering is “unsustainable” over the long term in New York.

The issue, primarily, is that while retail net metering is a simple and straightforward way to compensate distributed resources, it is not effective in locating resources where they can do the most good. When every project gets the same rate, the incentive is simply to build projects where it's cheapest, regardless of the benefits or costs to the grid.

"By failing to accurately reflect the values provided by and to the DER they compensate, these mechanisms will neither encourage the high level of DER development necessary for developing a clean, distributed grid nor incentivize the location, design, and operation of DER in a way that maximizes overall value to all utility customers," the commission wrote.

The new VDER rates will be essentially made up of four components, beginning with the base locational marginal price of energy (LMP). Above that is a capacity value, then a credit for the environmental benefits of carbon-free energy. A market transition credit, essentially a placeholder for distribution-level benefits, will help smooth introduction of the new rates.

"The VDER Phase One tariffs will provide immediate improvements in granularity in understanding and compensating for the value of DER to the electric system," the PSC concluded.

Phase two kicks off for many projects built after 2019. This first tranche of projects to come online under the new rates will run for two years.

The commission's order notes work still must be done to incorporate standalone battery storage, though storage tied to solar and wind generation will be eligible for the new rates. Additional policies will be considered to ensure community solar projects are serving low-income customers.

Storage eligibility

The commission's order allows for battery storage to take advantage of the new rates, but with some restrictions, and makes clear that there is work left to be done on including more storage.

"Energy storage is a key component of our energy future," the PSC said. "Integration of storage into DER deployments and the utility system has the potential to substantially enhance DER’s capability."

Battery storage tied to an eligible generation facility is eligible for the value stack rates, and any new community solar installations that include batteries will need to use the new rates. Existing systems will retain their net energy metering tariffs, however.

A battery installed at an eligible generation project should not change the compensation, except that staff recommended compensation for environmental value and the market transition credit should only be provided for net monthly exports.

But those restrictions, aimed at "inappropriately providing compensation for those elements for non-green energy stored and then discharged," may not be necessary, the commission said.

"Because of current federal tax credit rules, most energy storage systems are only charged with renewable power, and therefore the net monthly injection restriction may be unnecessary," the commission concluded. The order directs staff and stakeholders to identify an alternate option for consideration by the commission in implementing the Value Stack, "such as a commitment by the customer to only charge using the eligible VDER resources, that still avoids uneconomic arbitrage while better reflecting actual storage configurations and value."

Standalone storage is not included in the first phase of the VDER rates, however, but staff recommended a methodology for their inclusion should be developed for implementation "at or before Phase Two."

A work in progress

Despite the significance of the order — former PSC Chair Audrey Zibelman said the decision would "finally give distributed energy resources their due" — it is just a first step.

The VDER order is already the result of a year-long collaboration between state agencies, environmental advocates, utility representatives, consumer advocates solar developers. And the commission said in a statement that over the coming months these same parties will participate in a second phase "to further refine the values that DER provide to the energy system."

There will be a couple of smaller steps this spring and summer for utilities to file final tariffs, and Cramer said there is a "little ambiguity" on some of the timing.

The new order is "seen as a two-year interim tariff," he said. "The next big process is the Phase 2 tariff, which kicks off in May and is supposed to result in the next tariff being ready to go into effect by the end of 2018."

Residential solar installer praised the order but also noted in a statement, "there is still work to do." The company is "committed to continued collaboration with stakeholders in VDER Phase 2 proceedings,” it said. “We need look no further than recent avoided utility costs to be excited about realizing more long-term benefits of distributed resources."

Along with smoothing out any difficulties with rate design, Cramer said there "needs to be an aggressive effort to reduce soft costs." As the price of solar panels continues to drop, that means permitting, property taxes and filing fees will make up an increasing portion of a solar project's cost.

"It's the equivalent of red tape," he said.

He also stressed the need for more financing solutions, stronger funding at the state's green bank, and a close look at the solar economics in the upstate region of New York, where low rates will make it more difficult to develop projects.

New York has a goal of reaching 50% clean energy, and Gov. Cuomo has called for 3 GW of solar in the state by 2023.

“It’s a laudable goal and very achievable, but there is substantial work to be done on the regulatory level to achieve these goals and substantively expand access to solar," Cramer said.

Stakeholder meetings for the second phase will begin in May, aiming for a Phase Two tariff to be in place by the end of 2018. All projects that qualify under the Phase One program will have the option to receive the Phase One tariff for 25 years; projects that qualify under the Phase Two program will be on the new Phase Two tariff.  

The DSIP order

There are a lot of interlocking parts to REV, and to some extent they are being discussed discretely. The VDER and DSIP orders are distinctly different but essential to one another, and some advocates say they need to be more aligned.

"The fundamentals of grid planning are essential to what they're trying to accomplish," said Auck, adding that discussion of those details was more apparent in the proceeding comments than in the order. "The commission did not address many of the issues touched on in comments," she said. "They probably could have dug a little deeper."

What is missing, she said, are details on the capacity available for distributed interconnection at the circuit level, and the value of that capacity. Those concerns are similar to ones voiced last year.

"It's not just how many DERs can be located at the circuit level, but also, how are you doing that analysis ... and incorporating that into longer term planning," she said.

ConEd, for its part, says it is already “well along” in efforts to integrate “confirm the viability of front-of-the-meter storage, to adopt non-wire alternatives ... and to share data.”

“We have provided details on these and other initiatives in our Distributed System Implementation Plan and other filings.” Drury wrote in an email. “We will continue to work with the Commission and other parties to create an energy future that will benefit our customers.”

Miles Farmer, a clean energy attorney with Natural Resources Defense Counsel, echoed some of those concerns, particularly on the energy efficiency side. The VDER order, he said, was "a compromise after a long process ... it's tough to arrive at something perfect, but it does seem to be a reasonable tariff that will drive the market."

The DSIP order does some things very well, said Farmer. "It requires utilities to screen for non-wires alternatives as part of their planning process ... that part is really great and is kind of leading the country."

But looking ahead, he said he hopes the commission will issue an order address energy efficiency in particular.

"To date, that's something that is maybe the last key ingredient of REV that hasn't been established yet," said Farmer.