Distributed Generation Benefits and Planning Challenges CREPC/SPSC Resource Planners’ Forum October 3, 2012 Arne Olson

Energy and Environmental Economics, Inc. E3 has operated at the nexus of planning, policy and markets since it was founded in 1989 E3 advises utilities, regulators, government agencies, power producers, energy technology companies, and investors on a wide range of critical issues in the electricity and natural gas industries Offices in San Francisco, CA and Vancouver, B.C. Developed “High DG” cases for CPUC, SPSC 2

Agenda 1.What is DG, and what does it do for us? 2.Is DG more cost- effective than central station generation? (Hint: it depends on your perspective.) 3.Challenges in harvesting DG values: how current planning practices account for DG (or not). 4.Concluding Thoughts 3

What is DG, and what does it do for us?

What is DG? 5 distributed adjective spread out or scattered about or divided up [ant: concentrated]concentrated WordNet® 3.0, © 2006 by Princeton University. DG has been defined in many different ways depending on the context DG dimensions: Size: 1 kW up to … 50 MW? Location: customer side vs. utility side of meter Interconnection point: distribution, sub-transmission, bulk transmission Proximity to load: behind-the-meter, same distribution feeder, in a load pocket, remote from load Technology type: PV, CHP, micro wind, fuel cells, microturbines, reciprocating engines

Which of These are DG? 6 20 MW near substations Large commercial rooftops Residential rooftops Illustrative Example of Distributed Solar PV Remote 20 MW sites identified by California’s RETI

Why DG? Ratepayer benefits: High locational energy value in load pocket Reduced losses (~7% average, up to 15% on peak) Reduced need for new transmission Reduced need for new distribution Non-ratepayer benefits: Reduced electricity bills for customer-side DG Reduced land-use footprint in sensitive ecological regions Local jobs in economically- depressed areas? Increased consumer choice & autonomy? More tangible/real than remote RE? 7 DG has a number of potential benefits relative to central station generation

Spectrum of DG Interconnection Points 8 Since DG can have many definitions, it is better to focus on the benefits that generation can provide at different interconnection points DG Interconnection Points Home NeighborhoodCommunity Remote, new transmission Remote, existing transmission

DG Benefits Depend on Interconnection Point Interconnection Point DG BenefitHome Neighbor- hoodCommunity Remote, existing transmission Remote, new transmission Locational energy value ●● ●-- Reduced Losses ●● ●-- Reduced need for distribution ●● --- Reduced need for transmission ●● ●-- Environmental/other benefits ●● ●●? Reduced bills for DG system owners ● Ratepayer Benefits Other Benefits

Is DG More Cost-Effective Than Central Station Generation?

Solar PV Costs Can Vary Dramatically by Location $105 $121 $154 $231 Source: CPUC 33% RPS Calculator, April 2012 Residential rooftop (4 kW) Large, ground-mount (150 MW) Small, ground-mount (5-20 MW) $167 Small, ground-mount (1-5 MW) Installed cost varies due to resource quality, size, installation type (shown as levelized $/MWh) 11

Example Values by Interconnection Point Interconnection Point DG Benefit Home (5 kW) Neighbor- hood (1-5 MW) Community (5-20 MW) Remote, existing Tx (150 MW) Remote, new Tx (150 MW) Levelized Cost$231$167$154$121$105 Locational energy value-$39 -$34 Reduced Losses-$3 -$1-- Capacity Value-$35 -$38 Reduced need for distribution -$ Reduced need for transmission -$7 -+$20 Net Ratepayer Cost$121$57$72$49$53 Environmental/ other benefits ????? 12 Values using CPUC “net cost” approach ($/MWh) Values based largely on CPUC RPS Calculator

DGPV Can Be Cost-Effective for Net Metered Customers Typical California residential rates 13 South Coast Rooftop PV LCOE

Challenges in Harvesting DG Values

Accounting for DG in Resource Planning DG is typically considered as a load modifier Base load forecast developed via econometric estimation Load modifiers to reflect demand-side policies and programs Remaining net load served with least-cost portfolio of supply-side resources Wires savings and other locational values of demand-side resources frequently not considered 15 Utility-side DG has not historically been cost-competitive enough to merit full consideration in IRP

Accounting for DG in Transmission Planning Transmission planning is done for multiple purposes, not all of which reference local value of DG Interconnection: respond to service requests (DG does not help) Economic: relieve congestion (DG can help) Reliability: serve load in local area (DG can help) DG not considered as transmission option, but may be reflected in load forecast 16 Local area studies are typically based on meeting NERC criteria (N-1, G-1)

Accounting for DG in Distribution Planning Distribution planning typically done with “small area” study Focuses on peak demand on distribution elements (feeders, transformers) in a defined area Trends that affect small area growth may be different from trends affecting utility- wide growth Utility might forecast “terminal load” based on land use plan Harvesting distribution deferral value requires that investments actually be deferred Distribution engineers may be reluctant to consider effects of DG due to asymmetric risk (cost vs. blackout) DG investments may not be occurring outside of fast-growing areas 17 DG must be serving load downstream on distribution feeder in order to defer distribution investments

Concluding Thoughts

Dramatic reduction in cost of PV has made DG a “live” option for the first time We can now plausibly ask the question “Is it cost-effective to develop distributed resources close to load that do not require new transmission infrastructure?” However, PV module cost reductions also affect cost of central station solar resources DG can have significant additional value relative to central station resources in specific situations Highest locational value occurs where resources are serving load downstream in a fast-growing area There are challenges in harvesting these values due to utility planning and procurement practices 19

Thank You! Energy and Environmental Economics, Inc. (E3) 101 Montgomery Street, Suite 1600 San Francisco, CA Tel Web Arne Olson