Assessing The Real Value of Distributed Energy Resources

New frameworks for cost-benefit analysis are needed to accurately assess the value of distributed energy resources.
Published: Tue 07 Oct 2014

For some time now, the electric industry has been looking for a way in which to fully assess the value of distributed energy resources.

The value of distributed energy

Utility regulators need a new framework for benefit-cost analysis to accurately assess the value of distributed energy resources such as energy efficiency, demand response, distributed generation like rooftop solar, and energy storage, according to a report by Synapse Energy Economics, submitted to New York's Public Service Commission (PSC) as part of its "Reforming the Energy Vision" (REV) regulatory proceeding.

The Advanced Energy Economy Institute (AEEI), the nonprofit charitable arm of the Advanced Energy Economy (AEE) business association who commissioned the report, made the filing along with its state and regional partners Alliance for Clean Energy New York (ACE NY) and New England Clean Energy Council (NECEC).

Benefit-cost analysis technique is limited

The benefit-cost analysis techniques traditionally used to evaluate energy-efficiency resources in New York State and many other states around the country are increasingly seen by the PSC and other utility regulators around the country as too limited. Many say that the benefits, important for meeting state energy goals, are overlooked.

In response, the report proposes various screening mechanisms to determine whether various distributed energy resources deserve ratepayer-funded support to meet electric power system, economic, and societal objectives.

"The Public Service Commission is blazing a trail to open up the electric power system in New York State to vital new resources that will make the system more efficient, more resilient, and more responsive to consumer desires," said Lisa Frantzis, senior vice president of AEE and AEEI lead on the "Reforming the Energy Vision" proceeding. "To get the most out of these resources, for the grid and for consumers, we need to fully assess their benefits as well as costs. States around the country are looking at this same question. New York can provide the answer."

Recognising the wider benefits of distributed energy resources

The report recommends abandoning the traditional Total Resource Cost Test, which undercounts many benefits for meeting state policy goals, in favor of a Societal Cost Test, which takes a wider range of benefits into account and is currently used in Arizona, Vermont, and Washington, D.C. A specific Societal Cost Test would have to be developed for New York based on the state's policy objectives.

The Synapse report also recommends an innovative approach to assessing customer impacts, which considers the ways in which impact can be measured, including rate impacts applying to all customers; bill impacts which could vary between distributed energy resource participants and non-participants; and participation impacts, which would show the distribution of customers enjoying lower bills due to participation versus higher bills because they don't participate.

Tim Woolf, principal author of the Synapse report says, “Our recommendations give New York’s Public Service Commission the benefit of the latest thinking on measuring value to consumers, the grid, and society as a whole.”

Further reading

Synapse Energy - Benefit-Cost Analysis for Distributed Energy Resources

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