Regulatory Focus: Design Sell Rate for DERs | Clean Power Hub

Regulatory Focus: Design Sell Rate for DERs

Sell rates define the exact level of compensation a DER system owner receives for electricity exported to the distribution grid. The sell rate applies to distinct quantities, depending on the metering and billing arrangement selected.

The most important characteristic of a sell rate is that, when considered together with the metering and billing arrangement, it provides fair compensation for the services provided by the DER. Overcompensation can accelerate deployment but increase cost shifting to non-DG-system owners; conversely, undercompensation can limit DG deployment and shift additional costs to DG system owners.

What You Need To Know

  • DERs provide a broad range of services and values for which they should be fully compensated. These can include avoided energy and capacity cost, avoided generation, distribution, and transmission, avoided line losses, avoided price and supply risks, as well as environmental benefits.
  • A value of solar rate is an example of a rate derived from an analysis of these considerations.
  • Other important considerations include designing different sell rates for different DER technologies, and policy stability regarding both sell rates and program caps to provide greater certainty about project economics.

First, Read This

You may see the term feed-in tariff (FIT) used instead of sell rate. Though these terms refer to the same thing, FITs are potentially confusing because they were initially associated with buy all, sell all schemes. This has changed as early adopters have moved to new metering and billing arrangements, but be cautious to make sure you understand the arrangement being describe in any report that refers to FITs.

Now, Read This

You may see references to a "Value of Solar" rate. Though this is a methodology implemented in a few locations specifically for solar PV, the principles employed for determining the sell rate are applicable to any DG technology.

And See This

Austin Energy implemented a value of solar rate using an algorithm that captures many of the factors to be considered.

Finally, Read This

There are a few additional considerations in sell rate design that are important for ensuring program success.

  • Utilities and regulators should design different FITs for different types of resources that reflect the specific attributes and values provided by those resources.
  • Policy makers should commit to a stable, long-term FIT policy, allowing for the possibility that prices and other tariff terms may change over time but not unpredictably or radically.
  • After regulators ensure that FIT prices reflect value and are no higher than necessary, they should make sure that program caps are not unreasonably restrictive so as not to interfere with the goal of policy stability.

Text excerpts of page 52 from the Regulatory Assistance Project: Designing Distributed Generation Tariffs Well: Fair Compensation in a Time of Transition

Suggested Actions & Next Steps

  • Look at the details of sell rate/FITs used in your country. Consider how well the rates are meeting policy goals and distributing benefits and impacts across stakeholder groups.
  • Review the rate setting principles and sources of funding for FITs used thus far in ASEAN countries in Section 2.3.1 and Section 2.3.4 of Designing Renewable Energy Incentives and Auctions: Lessons for ASEAN by USAID Clean Power Asia.
Want to ask questions or share ideas about sell rates for DERs?Join the Discussion in the Clean Power Hub Community.
  • Explore options for analyzing the impact of DPV on various power system stakeholders using the Greening the Grid Analysis Guide. The types of analysis and tools in the guide can be applied to other DERs as well.
  • Understand the detailed methodology for implementation of a Value of Solar rate in Designing Austin Energy's Solar Tariff.
Need help getting started in designing sell rates for DERs?You may want to talk to an expert. We can connect you.

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