Establish DER Compensation Mechanisms Consistent with Policy Goals | Clean Power Hub

Establish DER Compensation Mechanisms Consistent with Policy Goals

Compensation mechanisms are the means through which DERs that include power flows back to the grid, like distributed generation (DG) and battery energy storage, are paid for the power they provide. Compensation mechanisms are a core component of programs to achieve power sector policy objectives with DERs, but their design is complicated and includes determining what power flows should be allowed and metered as well as what adjustments to interconnection processes may be necessary.

First, Read This Overview

There are three core components of DG compensation mechanism design. Decisions about each of these components have a strong influence on where DERs are adopted and which customer classes adopt them. These are described briefly below and in more detail in the sections that follow.

1. Metering & billing arrangements. This element defines how consumption- and generation-related electricity flows are measured and billed. The three options for metering & billing are net energy metering; buy all, sell all; and net billing. The selection of a metering & billing arrangement does not in itself imply an amount of compensation for the DG system owner.

2. Sell rate design. This element defines the exact level of compensation a DG system owner receives for electricity exported from the DG system to the utility grid. The sell rate applies to distinct quantities, depending on the metering & billing arrangement selected (this will be described in more detail below). Sell rates can be static, remaining fixed over the length of an interconnection contract. They can also be more dynamic in nature, changing with time or by location with various degrees of granularity.

3. Retail rate design. This component defines the retail tariff structure and exact purchase rates the DG system owner must pay for electricity from the grid, and thus which costs the DG system owner can avoid if they self-consume the electricity produced by their DG system.

Text excerpt from page 2 of NREL: Grid-Connected Distributed Generation: Compensation Mechanism Basics

Now See the Details in These Sections

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