Identify and Prioritize Policy Objectives for DER | Clean Power Hub

Identify and Prioritize Policy Objectives for DER

Policymakers can pursue many different policy objectives for DERs, including the role they play in the power system (e.g., self-consumption vs. addressing power system issues), who to target for adoption, or potential economic or environmental benefits. Because policy objectives can sometimes conflict with each other, policymakers should prioritize these objectives and provide guidance to regulators to ensure that they develop appropriate regulatory frameworks.

What You Need To Know

  • The primary role of DERs can range from meeting customer-facing demands (bill savings, backup power) to becoming integrated more fully into the broader power system (reducing peak demand, providing ancillary services), with greater integration requiring additional planning and investment.
  • Policymakers need to balance the many competing interests of DER adopters, non-adopting customers, and utilities. For instance, without well-designed compensation mechanisms, efforts to increase DER adoption could potentially impact utilities’ ability to earn sufficient revenue and lead to cost-shifting between customer groups.
  • Decisions about which power system objectives to pursue with DERs will influence how the DER is metered, how it can interact with the power system, how the customer will be compensated for exports to the grid, what the customer pays for electricity from the grid, and what technical capabilities the DER must have to be allowed to interconnect.

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Policymakers may have many different objectives for DERs, and the ones they choose will often reflect their current or desired power system context. These choices will drive downstream decisions for developing DER policies and regulations. Multiple objectives are possible, but may occasionally conflict, so it is important to prioritize them appropriately.

The types of decisions that must be made are described below for DPV-plus-storage systems, but many of these considerations apply to other DERs as well. Though framed as decisions for regulators, policymakers must be aware of these choices and prioritize according to their desired outcomes.

Desired Role of DPV-Plus-Storage Systems

DPV-plus-storage systems can play a variety of roles in power systems, from exclusively serving customer needs, to being fully grid-interactive assets that provide a range of services to the distribution and/or transmission system, with many options in between.

• Encourage self-consumption for DPV-plus-storage systems—Regulators may wish to see DPV-plus-storage systems deployed to...serve a customer’s own energy demand, and/or for backup purposes during grid outages. They may also wish to reduce the likelihood or scale of net exports to the grid and/or mitigate major peaks in grid injection and withdrawal, which can cause challenges for certain utilities and their power systems.... At a high level, an objective to encourage self-consumption from DPV-plus-storage systems will have implications for the technical configuration requirements of systems and may prove consequential for the future ability of DPV-plus-storage systems to become grid-interactive.

• Utilize DPV-plus-storage to manage system peaks—Regulators may be particularly interested in enrolling DPV-plus-storage customers to manage system peaks, particularly in regions or on specific feeders that regularly experience steep ramps in net load and/or load shedding. This can be enabled through retail tariff design that encourages reductions in grid consumption and/or grid injections during times of peak demand, as well as demand response programs that rely on customer-sited storage. Utilizing DPV-plus-storage to manage system peaks is a commonly discussed form of grid interactivity.

• Enable full grid interactivity of DPV-plus-storage systems—Regulators may wish to enable and/or preserve the option for DPV-plus-storage systems to provide a range of valuable grid services to the power system. Such grid interactivity could be as simple as allowing DPV-plus-storage customers to participate in energy arbitrage activities, such as by reducing demand, or increasing DPV-plus-storage exports during peak demand periods in response to TOU price signals (see previous objective). It could also involve the provision of a range of other services (e.g., congestion management, frequency regulation), enabled through “virtual power plants,” where third-party aggregators sell grid services from multiple distributed systems directly to distribution companies and/or on wholesale power markets. Encouraging grid interactivity can spur the deployment of DPV-plus-storage systems by increasing the value streams available to them, while helping to contribute to power system operations.... In any case, the extent of desired grid interactivity has significant implications for a wide range of regulatory decisions, including those relating to compensation mechanism design, metering, as well as technical configurations. In particular, decisions related to whether or not the storage system should be allowed to charge from and export to the power system have important implications for DPV-plus-storage grid interactivity objectives.

Fairness and Equity Considerations

Regulators may be presented with various fairness and equity considerations as they deliberate regulatory design options. Some common objectives pertaining to fairness and equity include:

• Balance the financial interests of utilities, DPV-plus-storage customers, and nonparticipating customers—Similar to dialogues surrounding DPV, regulators designing DPV-plus-storage programs typically attempt to balance the financial interests of utilities, adopting customers, and nonadopting customers, while attempting to not upset existing balances of cross-subsidization between customer classes. In practice, this means regulators must deliberate how to ensure that utilities’ fixed costs continue to be adequately recovered through electricity sales, even as these sales are reduced through DPV-plus-storage, as well as through customer self-consumption occurring under any self-supply scheme. Regulators must also consider how to protect nonadopting customers from cost-shifting if utilities are granted retail tariff increases to recover lost revenue due to DPV-plus-storage deployment. The balance that regulators ultimately strike will have implications for compensation mechanism design, and in particular the design of retail tariffs and metering and billing arrangements....

• Create fair and reasonable metering and interconnection requirements for customers and utilities—Complying with metering and interconnection requirements typically comes at an incremental cost that is typically born by DPV-plus-storage customers. As these incremental costs can reduce the economic viability of DPV-plus-storage systems, regulators can help to ensure that they are of an appropriate scale relative to the overall system’s cost....

• Preserve the integrity of DPV compensation mechanisms—Compensation mechanisms have historically been implemented to reward exported energy that is generated from eligible DG systems (e.g., DPV). Some regulators may wish to place an increased emphasis on ensuring that grid-supplied energy later exported by the storage system does not yield a financial reward that is intended for clean DG. The extent of a regulator’s emphasis on this goal will influence decisions surrounding compensation mechanism design, metering, and technical configurations.

Program Administration

Regulators, along with utilities, may be interested in ensuring that program administration tasks are not overly cumbersome or expensive for utilities and customers. Some common objectives in this realm include:

• Reduce administrative requirements for utilities—The implementation of DPV-plus-storage programs may drive new administrative requirements for utilities, in particular associated with processing interconnection applications and implementing new billing procedures. Different approaches to designing interconnection processes or metering requirements may have implications for the administrative workload for utilities. For instance, encouraging utilities to transition to standardized online portals for processing interconnection applications can drastically reduce the amount of time and labor needed for each application compared to processing applications individually by hand.

• Avoid new requirements on existing systems—Changing metering or other technical requirements after systems are already installed can be expensive and administratively burdensome. Regulators may wish to consider decisions surrounding metering requirements, technical configurations, and interconnection requirements in light of not only the current role of DPV-plus-storage systems on the power system, but also how that role may change over time, particularly if that future role may involve more grid interactivity. Along similar lines, regulators may wish to design rules such that existing regulations for grid-tied DPV systems also apply to DPV systems that are retrofitted with storage, which can reduce uncertainty and burdens for customers seeking to add storage to their existing DPV systems. Particularly in jurisdictions with large amounts of existing grid-tied DPV systems, creating clear and streamlined “on-ramps” for customers adding storage to an existing DPV system may be an important regulatory consideration.

Transparency, Monitoring, and Safety

Regulators, along with utilities, may be interested in promoting additional visibility into the operation of DPV-plus-storage systems to support greater safety and reliability in the power system, policy compliance, and/or improved power sector planning exercises. This is typically achieved through the deployment of supplementary metering and information and communication technologies that collect, store, and transmit relevant real-time power system operational data, which comes at an additional cost to customers and/or utilities. Thus, the following objectives are often in tension with objectives to minimize unfair cost burdens.

• Promote real-time intelligence and transparency—Regulators may wish to ensure utilities have access to high quality operational data and/or the ability to remotely island DPV-plus-storage systems during outages. Having access to data about—and perhaps even remote control over—the DPV-plus-storage system can help ensure reliable service delivery by enhancing operational awareness on individual feeders of the distribution network, while reducing safety risks to utility line workers. This objective may influence decisions relating to communications and control requirements that are placed on DPV-plus-storage systems through metering configuration rules and interconnection requirements.

• Track clean energy production—For regulatory compliance with clean energy goals, such as mandates and Renewable Portfolio Standards (RPS),..some regulators may wish to have increased visibility into the production of the DPV component of the DPV-plus-storage system. This objective may influence metering requirement decisions.

• Track users’ gross electricity demand—Understanding a customer’s electricity demand patterns independently of the DPV-plus-storage system can help inform utility planning and operations and may be a stated objective for regulators and/or utilities. Like the previous objective, this may influence metering requirement decisions.

Text excerpts from pages 15-17 of NREL: An Overview of Behind-the-Meter Solar-Plus-Storage Regulatory Design - Approaches and Case Studies to Inform International Applications

Suggested Actions & Next Steps

  • Review the policy objectives listed above. Which of these are most important for your power system and customers? Are there other objectives that aren’t included in the resource but are still important?
  • Looking at the objectives you selected, how might some objectives conflict with others? (For instance, preventing cost-shifting between adopting and non-adopting customers while accelerating distributed generation adoption.) Keep these in mind as you consider developing the policy instruments and compensation mechanisms discussed in the sections that follow.

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