Regulatory Focus: Balance Policy Objectives for DER | Clean Power Hub

Regulatory Focus: Balance Policy Objectives for DER

Regulators are often tasked with achieving multiple, potentially competing, DER objectives. There are several regulatory tools that can be used when developing DER programs to achieve these objectives and ensure all stakeholders benefit from DER adoption. Additional tools exist to help manage the overall costs associated with DER programs, which can mitigate budget constraints and cost-shifting concerns. Stakeholder engagement regarding these regulatory tools is important for DER programs to be successful.

What You Need To Know

  • Requiring additional infrastructure for DERs (e.g., smart meters) or placing restrictions on how they interact with the power system (e.g., preventing exports to the grid) can be necessary to achieve objectives, but can place a significant burden on certain customers and thereby limit adoption.
  • Customizing DER restrictions and requirements can help ensure the burden for customers is reasonable relative to their potential to impact power system operation, utility revenues, and non-adopting customers.
  • Additional regulatory tools, such as program caps, can make sure that DER adoption does not create a burden for utilities or program budgets.
  • Engaging various power system stakeholders early in the process of developing DER programs can help ensure all viewpoints are incorporated and reduce the potential for conflict between competing visions of how DERs should be integrated into the power system.

First Read This

One example of placing restrictions on DERs to preserve policy objectives relates to supporting clean energy generation with energy storage. Because energy storage can charge from clean energy generators (like DPV) and the grid, it is important to ensure that budgets set aside to reward clean energy are not instead used to reward exports from energy storage that originally came from the grid.

As an example, in California, regulators determined three methods to preserve their policy objective of rewarding clean energy generation without overly burdening customers, based on the size of the associated system.

Using Estimation Methods for DPV-Plus-Storage Export Crediting

One method to ensure DPV-plus-storage system owners are fairly compensated without the need for additional metering is to set a cap on export credits available to these systems based on an estimation of expected DPV generation. At the end of each billing cycle, the customer’s metered exports are compared against an estimation of generation conducted by the utility using a prespecified methodology, and the customer receives the lower of the quantities as a bill credit. In practice, these approaches can be used when the cost of additional metering represents a large proportion of overall project costs (i.e., for smaller systems) or when the risk/scale of compensation mechanism integrity violations (i.e., gaming and arbitrage activities) is low.

Although not as accurate as direct metering, this simplified method gives an approximate value for generation from the eligible DPV system without the need for customers to install additional metering equipment beyond what is required for a grid-tied DPV system. Given an adequately granular estimation of the solar resource available in a specific time period and the size of the generating system in question, utilities can use technoeconomic performance analysis tools (e.g., NREL’s System Advisor Model) to estimate the output of a qualifying generating system. Utilities can also use more simplified approaches, such as determining a rough kWh per kW factor for energy production for systems within a given region. The values estimated from these methods can then be used to grant the customer credit for their generation based on the size of their DPV system, regardless of the charging or discharging of their paired storage system. While estimation approaches are the least expensive approach to preserving compensation mechanism integrity, they are also likely the most inaccurate and may entail an administrative burden for utilities who must develop estimation methodologies and integrate them into bill processes

Ensuring Accurate Metering Through Design Configuration Limitations

An alternative method to ensure more accurate measuring and appropriate crediting for energy exports is to limit the types of DPV-plus-storage design configurations eligible for interconnection. These approaches typically involve limiting the ability of the storage system to import from or export to the grid using system controls. Common design configuration limitations include:

  1. Storage can only charge from DPV, no storage exports allowed—a limited configuration that constrains the use of stored DPV energy for self-consumption only, and does not allow grid charging of the battery; the only energy eligible for credit under the DPV compensation mechanism is DPV energy that is produced and immediately exported to the grid.
  2. Storage can charge from DPV and grid, no storage exports allowed—this configuration allows the customer to charge from both the DPV system and the grid, but the storage system is not able to export to the grid. Only DPV energy that is not immediately used or stored is exported to the grid and credited.
  3. Storage can only charge from DPV, storage exports allowed—a less limited configuration where the storage device is allowed to export stored DPV-originated energy to the grid and receive credit under the DG compensation mechanism.
  4. Storage can only charge from the grid, storage exports allowed—a limited configuration where the storage device is allowed to charge from and export to the grid, but is not allowed to interact with the DPV system.

In general, design configuration limitations ensure that any customer exports to the grid come exclusively from on-site generation, eliminating concerns of compensation mechanism integrity and energy arbitrage using grid-supplied energy. But only allowing the storage system to charge from the paired DPV system limits the ability of the energy storage system to become grid-interactive and provide valuable system services to the utility distribution system (e.g., congestion management) or the transmission network (e.g., frequency regulation). As opportunities expand for DPV-plus-storage systems to derive value from providing the broader power system with energy services (see Section 8.6), these limited design configurations may result in a lost opportunity in the future for both system owners and utilities—thus, limited design configurations should be considered through both a short-term and long-term lens.

Require Adequate Metering to Track All Quantities Relevant for Preserving Compensation Mechanism Integrity

A final method for ensuring compensation mechanism integrity is requiring additional metering equipment. Installing additional metering to track the flow of energy within DPV-plus-storage systems is undoubtedly a robust method for preserving compensation mechanism integrity. It may also enable grid interactivity and participation in (likely not-yet-developed) grid services schemes (e.g., a virtual power plant scheme); however, a requirement for additional metering beyond what is needed for grid-tied DPV systems may incur significant costs, depending on the customer, particularly in the case of retrofitting existing systems with new meters. These costs may outweigh the benefits associated with more accurate measurements, particularly for smaller residential systems, which have a limited capacity to engage in energy arbitrage activities or to profit from selling grid-supplied energy back to the grid using DG compensation mechanisms.

Excerpt from pages 32 - 36 of NREL: An Overview of Behind-the-Meter Solar-Plus-Storage Regulatory Design

Now, Look at This Table

The table below explores the various dimensions along which regulators can customize rules and regulations in order to balance potentially competing policy objectives. Customization is important to ensure that each customer is not unnecessarily burdened or insufficiently restricted by rules that may impact the ability to achieve objectives. Customization is also a critical tool to help balance various, potentially competing, policy objectives for DERs.

Now, Read This

Deployment caps and compensation linked to deployment levels helps to reign in budgets for programs to promote DPV-plus-storage.

Although the text below focuses on DPV-plus-storage, similar strategies are viable for other types of DERs.

Deployment Caps and Tools

Program caps are limits on the total capacity or number of systems eligible for a DER program, or can be stated as a total budget allotted for a DER program, regardless of any individual system’s size, and can be an important tool in the development and deployment of rebate and financial incentive programs, and even compensation mechanisms and tariff offerings. Program caps are a simple but effective tool to ensure cost containment for utilities administering the program, as well as to limit the impact such DPV-plus-storage systems may have on a utility’s revenue, or on the level of cross-subsidization borne by nonparticipating customers. These caps can be differentiated among subregions or staggered across periods of time. Program caps can be calculated in a number of ways, including as an absolute capacity limit or as a percentage of peak demand. Program caps can also be used to trigger changes in the program, and in some jurisdictions in the United States, program caps are used to initiate proceedings to reevaluate incentive programs and compensation mechanisms. Most often these caps are established upfront to clearly state program goals, and they can be adjusted over time as different deployment caps are met.

Deployment-based payment adjustments are a means to adjust compensation mechanism offerings as cumulative deployment of a DER technology increases and have been commonly used in the context of DPV. As opposed to a program cap, which more plainly sets a ceiling for deployment levels, cumulative deployment ratchets might reduce the DPV-plus-storage sell rate or make adjustments to retail tariffs once certain deployment levels are achieved. For instance, Germany’s feed-in tariff program set a predetermined schedule for how the sell rate for DPV-plus-storage would decrease as cumulative deployment increased. In Israel, the regulator implemented a new tariff component on retail customers once cumulative solar capacity (including both utility-scale and distributed resources) in the country achieved 1.8 GW of deployment to reflect growing grid integration costs.

System size caps are absolute limits on the size of individual distributed generation (DG) or storage systems, and are typically stated in terms of capacity (e.g., kW or MW) or an annual ratio of DG production to customer load (known colloquially as the PV-to-Load ratio). Capacity-based caps tend to be implemented to limit compensation mechanism eligibility (e.g., NEM is only available for systems under 100 kW) and to ensure that interconnection requirements are appropriately rigorous given the size of the system (e.g., systems under 10 kW are granted a fast- track screening process). System size caps based on the PV-to-Load ratio tend to be implemented to encourage self-consumption behavior (as opposed to utilizing DPV-plus-storage customers as grid-interactive resources)....[S]ystem size caps are a useful tool for segmenting the retail customer base to offer customized compensation mechanisms and interconnection requirements.

Text excerpt from pages 13-14 by NREL: An Overview of Behind-the-Meter Solar-Plus-Storage Regulatory Design

Finally, Read This

It is important to engage various power system stakeholders early in the process of developing DER programs to help reduce the potential for conflict and encourage future involvement in DER programs.

This table below outlines an approach to engaging with the community to establish objectives, commitments, and outcomes. It was created for DER developers, but can be used more generally for engagement alongside utilities and developers. Community engagement can be a critical element of successful DER development.

Suggested Actions & Next Steps

  • From a regulatory perspective, think about the policy objectives you have been tasked with meeting (achieving clean energy targets, improving reliability, increasing energy accesses, affordability). How might these objectives compete with one another? As best as possible, try to order the objectives from most critical to least critical (recognizing that each one is important).
  • How do policy objectives change depending on region or customer class? What is the most important objective for rural customers vs urban customers? What is most important for industrial vs residential customers (from the regulator's and customers’ perspectives)?
  • Identify how existing or forthcoming DER programs might differentiate compensation levels and requirements based on the type of customer. What customer classes should receive additional remuneration in order to bolster adoption? Where or among what customers would DER adoption be the most beneficial to the power system?

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