A marvelous presentation on the many complicated factors involved in calculating the value of solar to an electric utility. Presented on 9/20/13 by Lena Hansen and Virginia Lacy of the Rocky Mountain Institute to a Value of Solar Workshop hosted by the Division of Energy Resources of the Minnesota Department of Commerce. Part 1 of the stakeholder process for establishing the state's value of solar methodology for utilities.

1. 1820 Folsom Street | Boulder, CO 80302 | RMI.org
A REVIEW OF SOLAR PV
BENEFIT & COST STUDIES
Lena Hansen
lhansen@rmi.org
Virginia Lacy
vlacy@rmi.org
17 SEPTEMBER 2013 | SAINT PAUL, MN

2. ABOUT RMI AND E-LAB
2
Rocky Mountain Institute works across
industries on challenging energy issues to
drive the efficient and restorative use of
resources with market-based approaches
e-Lab brings together leading electricity
sector actors to solve regulatory, business,
and economic barriers to the economic
deployment of distributed resources

3. TABLE OF CONTENTS
3
1. Framing the need
2. Setting the stage
3. Overview of studies
4. Key findings about benefits and costs
5. Takeaways and implications

4. 01
MODULE 1:
FRAMING THE NEED

5. SOLAR PV COSTS CONTINUE TO DECLINE...
5
$-
$2
$4
$6
$8
$10
$12
2000 2004 2008 2012 2016 2020
$/W
Historical (!10 kW)
RMI RF (2011)
Sunshot Target (2011)
Black and Veatch
McKinsey-EERE (2009)
Germany
BNEF Q2 2013
(!20 kW)
TOTAL INSTALLED COST FOR <10 KW SYSTEMS
Source: LBNL, DOE, BNEF, RMI Analysis

6. ...ENABLING INCREASING ADOPTION AROUND THE COUNTRY...
6
0
140
280
420
560
700
PN
M
(N
M
)SM
U
D
(C
A)
N
V
Energy
(N
V)
Atlantic
C
ity
Elec.(N
J)
SDG
&E
(C
A)Xcel(C
O
)JC
P&L
(N
J)APS
(AZ)PSE&G
(N
J)SC
E
(C
A)PG
&E
(C
A)
0%
2%
4%
6%
8%
10%
20
47 53
126 124 138
204
237
370
437
615
CumulativeSolarGenerationCapacity(MW)
MWSolarasa%ofPeakDemand
MW Installed Distribued Solar as a % of Peak
DISTRIBUTED SOLAR INSTALLED, BY UTILITY (END OF YEAR 2012)
Sources: PNM 2012 10k, PNM 2013 & 2014 Resource Procurement Plans, CSI data, Xcel 2012 10-k, APS 2012 10-k, PSE&G 2012 10-k, SEPA Utility Solar Ranking
Data 2013, SMUD board of directors 2013 agenda, RMI Analysis.

7. ...AND DRIVING HEADLINES.
7

8. THESE ISSUES ARE ROOTED IN DISTRIBUTED PV’S CHARACTERISTICS,
WHICH CONTRAST WITH HISTORICALLY CENTRALIZED SYSTEM
Siting OwnershipOperations
Large plants located
far from load
Small, modular, scalable
units located close to load
Centralized operations
controlling dispatchable
supply resources
Currently operate outside of
centrally controlled dispatch;
resources are variable and
require no fuel
Financed, built and
owned by the utility
Can be financed, installed,
or owned by either the
customer or third party
8
Conventional
Generation
Distributed
Solar PV

9. 9
END-USE EFFICIENCY FLEXIBILITY
DISTRIBUTED GENERATION GRID INTELLIGENCE
• Solar PV
• Combined heat & power
• Small-scale wind
• Others (i.e. fuel cells)
• Demand Response
• Electric Vehicles
• Thermal Storage
• Battery Storage
• Smart inverters
• Home-area networks
THESE CHARACTERISTICS EXTEND BEYOND DPV TO ALL
FORMS OF DISTRIBUTED ENERGY RESOURCES

10. MECHANISMS DESIGNED FOR AN HISTORICALLY CENTRALIZED
SYSTEM ARE NOT WELL-ADAPTED TO THE INTEGRATION OF DPV
DPV SERVICE PROVIDERS
DPV CUSTOMERS
NON-DPV
CUSTOMERS
4. VALUE
RECOGNITION
AND ALLOCATION
5. SOCIAL EQUITY
Service$$
1. FLEXIBILITY & PREDICTABILITY
3. SOCIAL PRIORITIES
UTILITY/GRID
2. LOCATION & TIME
10
SOCIETY

11. 11
Power from DPV fluctuates with the weather, adding variability, and requires smart
integration to best shape output system needs.
Source: Lovins, Amory B. and the Rocky Mountain Institute, “Reinventing Fire: Bold Business Solutions for the New Energy Era,” Chelsea Green Publishing Company, Vermont, 2011.
MISALIGNMENT 1: FLEXIBILITY & PREDICTABILITY
Illustrative

12. 12
There is a limited feedback loop to customers that the costs or benefit of any electricity
resource, especially DERs, vary by location and time.
GEOGRAPHICALLY VARYING PRICES
Source: correspondence from Jon Wellinghoff.
MISALIGNMENT 2: LOCATION...
High Price Area
Low Price Area

13. MISALIGNMENT 2: ...AND TIME
13
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&$ '$ ($ )$ %$ *$ +$ ,$ -$ &"$&&$&'$&($&)$&%$&*$&+$&,$&-$'"$'&$''$'($')$
./0123412$56782$ 9:264;2$<237=2>?41$<4@2$
!"#$%&
'()*&
TIME VARYING PRICES
There is a limited feedback loop to customers that the costs or benefit of any electricity
resource, especially DERs, vary by location and time.
Sources: http://www.iso-ne.com/markets/mkt_anlys_rpts/whlse_load/estimator/index.action, and http://www.bls.gov/ro1/cpibosap.pdf

14. MISALIGNMENT 3: SOCIAL PRIORITIES
?
$/kWh
Security and Reliability Value
Environmental Value
• Carbon Emissions Reductions
• Air Quality Improvements
• Water Usage & Pollution Reductions
• Land Use & Impact Reductions
Social Value
• Economic Development
SOLAR GENERATION VALUE EXTERNALIZED VALUE TO SOCIETY
14
Other
Transmission
Distribution
Generation
Society values the environmental and social benefits that DPV could provide, but those
benefits are often externalized and unmonetized.

15. MISALIGNMENT 4: BENEFIT AND COST RECOGNITION & ALLOCATION
Conventional
Situation
What if a DPV customer
does not pay full cost to
serve demand?
What if a DPV customer is
not fully compensated for
service they provide?
15
Other Costs
Transmission Cost
Distribution Cost
Generation Cost
$/yr
Mechanisms are not in place to transparently recognize or compensate service provided
by the utility or the customer.
cost to
serve
customer
bill
cost to
serve
customer
bill
cost to
serve
customer
bill

16. MISALIGNMENT 5: SOCIAL EQUITY
If a DPV customer does not
pay full cost to serve
demand...
Uncovered
Costs
Cost Reduction /
Societal Savings
...the remaining costs must
be covered by...
Other
Customers
Utility
$
16
Other Costs
Transmission Cost
Distribution Cost
Generation Cost
If costs are incurred by DPV customers that are not paid for, those costs would be
allocated to the rest of customers. Conversely, DPV customers also provide benefits to
other customers and society.
cost to
serve
customer
bill

17. THESE MISALIGNMENTS RAISE KEY QUESTIONS
• What benefits and costs does DPV actually create?
• How should those benefits and costs be assessed?
• How can benefits and costs be more effectively allocated and
priced?
17

18. 02
MODULE 2:
SETTING THE STAGE

19. A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
FINANCIAL
19
•Basic framework for discussing
value at highest level
•Categories are agnostic to
ultimate value
(value = benefit - cost)
•Does not reflect who incurs
benefit or cost

20. SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENERGY
• energy
• system
losses
CAPACITY
•generation capacity
•transmission & distribution
capacity
•DPV installed capacity
GRID SUPPORT
SERVICES
•reactive supply & voltage
control
•regulation & frequency
response
•energy & generator imbalance
•synchronized & supplemental
operating reserves
•scheduling, forecasting, and
system control & dispatch
FINANCIAL
20
Grid services includes the
direct benefits and costs
that are incurred in the
generation and delivery of
electricity from operations
to resource planning.
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES

21. SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
FINANCIAL
FINANCIAL RISK
• fuel price hedge
• market price response
21
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
Financial risk includes areas
of typical risk exposure or
mitigation in electricity, such
as volatility of fuel prices or
market prices.

22. SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
SECURITY RISK
• reliability & resilience
FINANCIAL
22
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
Security risk includes all
aspects of grid reliability and
resiliency, including effects on
the system reduce the
occurrence of outages, or
respond to (“bounce back”
from) outages.

23. SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENVIRONMENTAL
•carbon emissions
•criteria air pollutants (SOx,
NOx, PM10)
•water
•land
FINANCIAL
23
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
Environmental includes
impacts on carbon emissions,
air emissions, water, land use.

24. SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
SOCIAL
•Economic development
(jobs and tax revenues)
FINANCIAL
24
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES
The net impact on jobs and
local economic development
in the form of tax revenue.

25. 25
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENERGY
• energy
• system losses
CAPACITY
• generation capacity
• transmission & distribution capacity
• DPV installed capacity
GRID SUPPORT SERVICES
• reactive supply & voltage control
• regulation & frequency response
• energy & generator imbalance
• synchronized & supplemental operating reserves
• scheduling, forecasting, and system control & dispatch
SECURITY RISK
• reliability & resilience
ENVIRONMENTAL
• carbon emissions
• criteria air pollutants (SOx, NOx, PM10)
• water
• land
SOCIAL
• Economic development (jobs and tax revenues)
FINANCIAL
FINANCIAL RISK
• fuel price hedge
• market price response
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES

26. STAKEHOLDERS HAVE DIFFERING PERSPECTIVES THAT
AFFECT CONSIDERATION OF BENEFITS AND COSTS
26
“I want to do the right thing for the environment while reducing my
electricity bill. I want to be fairly compensated for the benefits I
provide.”
SOLAR CUSTOMER
UTILITY
OTHER CUSTOMERS
“I want to serve my customers reliably and safely at the
lowest cost, provide shareholder value and meet regulatory
requirements.”
“I want reliable power at the lowest cost.”
“We want improved environmental quality as well as an
improved economy.”
SOCIETY

27. BENEFITS AND COSTS ACCRUE TO DIFFERENT STAKEHOLDERS
AVOIDED COST
SAVINGS
TOTAL RESOURCE COST
PV Cost $
ENVIRONMENTAL BENEFITS
ELECTRIC GRID
SOCIETAL COST
UTILITY COST
$
$
$
RATE IMPACT
PARTICIPANT COST
$
INTEGRATION &
INTERCONNECTION
COSTS
INCENTIVE,
BILL SAVINGS
LOST REVENUE,
UTILITY NET COST
SOCIAL BENEFITS
27

28. STAKEHOLDER PERSPECTIVE: SOLAR CUSTOMER
28
• Reduction in utility bill
• Financial incentives
• Utility or other program administrator
• Federal, state, or local tax incentives
• Cost of solar equipment and
installation
• Ongoing system operations and
maintenance costs
Benefits Costs
“I want to do the right
thing for the environment
while reducing my
electricity bill. I want to be
fairly compensated for the
benefits I provide.”
PV Cost
INCENTIVE,
BILL SAVINGS
$

29. STAKEHOLDER PERSPECTIVE: UTILITY
“I want to serve my customers
reliably and safely at the lowest
cost, provide shareholder value and
meet regulatory requirements.”
29
• Avoided energy costs
• Reduced system losses
• Avoided generation capacity costs
• Avoided transmission and distribution
costs
• Avoided grid support services costs
• Avoided financial risk and
environmental compliance costs
• Decreased revenue
• Increased utility administrative costs
• Financial incentive costs
• Integration (including grid support)
and interconnection costs
Benefits Costs
AVOIDED COST
SAVINGS
$
$
$
$
INTEGRATION &
INTERCONNECTION
COSTS
INCENTIVE,
BILL SAVINGS
LOST REVENUE,
UTILITY NET COST

30. “I want reliable power
at the lowest cost.”
STAKEHOLDER PERSPECTIVE: OTHER CUSTOMERS
• Rebates / incentives for PV
passed through to customers
• Decreased utility revenue that is
offset by increased rates
• Increased utility administrative
costs passed through to
customers
• Integration and interconnection
costs passed through to
customers 30
Benefits Costs
$
LOST REVENUE,
UTILITY NET COST
• Avoided energy costs
• Reduced system losses
• Avoided generation capacity costs
• Avoided transmission and distribution
costs
• Avoided grid support services costs
• Avoided financial risk and
environmental compliance costs

31. “We want improved
environmental quality
as well as an
improved economy.”
STAKEHOLDER PERSPECTIVE: SOCIETY
• The sum of all benefits accrued
to all stakeholders
• Environmental (air quality, water,
land) benefits
• Social (jobs and economic
development) benefits
• Security (reliability and
resilience) benefits
• The sum of all costs accrued to all
stakeholders
31
Benefits Costs
TOTAL RESOURCE COST
ENVIRONMENTAL BENEFITS
SOCIETAL COST
SOCIAL BENEFITS

32. THE NATURE OF DPV IN TODAY’S SYSTEM CREATES A DIVIDE BETWEEN
WHO PAYS AND WHO BENEFITS
PV
Customer
Other
Customers
Society at
Large
Benefits
and Costs
Energy
Capacity:
Gen/T&D
Grid
Support
Services
Financial
Risk
Security Risk
Environmental
Social
32
Financial
Incentives
+
— —
+ +
+ +
+ + +
+
+
+
+
Capacity:
DPV cost —
+/—+
+ —Bill Savings

33. 03
MODULE 3:
OVERVIEW OF
STUDIES

34. 34
RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS

35. RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS
35
The Value of Distributed Solar Electric
Generation to New Jersey and Pennsylvania
(CPR (NJ/PA) 2012)
Energy and Capacity Valuation of Photovoltaic
Power Generation in New York
(CPR (NY) 2008)

36. 36
The Value of Distributed Solar Electric
Generation to San Antonio
(CPR (TX) 2013)
The Value of Distributed Photovoltaics to Austin
Energy and the City of Austin
(AE/CPR 2006)
Designing Austin Energy’s Solar Tariff Using A
Distributed PV Calculator
(AE/CPR 2012)
RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS

37. 37
The Benefits and Costs of Solar Distributed
Generation for Arizona Public Service
(Crossborder (AZ) 2013)
Distributed Renewable Energy Operating
Impacts and Valuation Study
(APS 2009)
Updated Solar PV Value Report
(APS 2013)
Costs and Benefits of Distributed Solar Generation
on the Public Service Company of Colorado System
(Xcel 2013)
RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS

38. 38
Value of Variable Generation at High Penetration Levels
(LBNL 2012)
Quantifying the Benefits of Solar Power for California
(Vote Solar 2005)
Accelerating Residential PV Expansion
(R. Duke 2005)
Evaluating the Benefits and Costs of Net Energy
Metering for Residential Customers in California
Crossborder (CA) 2013
Technical Potential for Local Distributed
Photovoltaics in California
(E3 2012)
California Solar Initiative Cost-Effectiveness Evaluation
(E3 2011)
RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS

39. 39
Photovoltaics Value Analysis
(NREL 2008)
Value of Variable Generation at High
Penetration Levels
(LBNL 2012)
The Value of Distributed Solar Electric Generation to
San Antonio
(CPR (TX) 2013)
Quantifying the Benefits of Solar Power
for California
(Vote Solar 2005)
Accelerating Residential PV Expansion
(R. Duke 2005)
The Benefits and Costs of Solar Distributed
Generation for Arizona Public Service
(Crossborder (AZ) 2013)
Distributed Renewable Energy Operating
Impacts and Valuation Study
(APS 2009)
Updated Solar PV Value Report
(APS 2013)
Evaluating the Benefits and Costs of
Net Energy Metering for Residential
Customers in California
Crossborder (CA) 2013
The Value of Distributed Solar Electric
Generation to New Jersey and Pennsylvania
(CPR (NJ/PA) 2012)
Technical Potential for Local Distributed
Photovoltaics in California
(E3 2012)
The Value of Distributed Photovoltaics to Austin Energy
and the City of Austin
(AE/CPR 2006)
Energy and Capacity Valuation of
Photovoltaic Power Generation in New York
(CPR (NY) 2008)
California Solar Initiative Cost-
Effectiveness Evaluation
(E3 2011)
Designing Austin Energy’s Solar Tariff Using A
Distributed PV Calculator
(AE/CPR 2012)
Costs and Benefits of Distributed Solar Generation on
the Public Service Company of Colorado System
(Xcel 2013)
RMI REVIEWED 16 STUDIES THAT ASSESSED DPV’S COSTS AND BENEFITS

40. STUDIES SHOW WIDELY VARYING RESULTS, ALTHOUGH IT IS POSSIBLE TO DISTILL
INSIGHTS AND IMPLICATIONS FOR MINNESOTA’S VOS PROCESS
40
BENEFITS AND COSTS OF DISTRIBUTED PV BY STUDY
AZ NY, NJ, PA TX U.S.CACO
APS
2013
APS
2009
Cross-
border
(CA)
2013
Vote
Solar
2005
R. Duke
2005
LBNL
2012*
CPR (NJ/
PA) 2012
CPR
(TX)
2013
AE/CPR
2012
AE/CPR
2006
CPR
(NY)
2008
Xcel
2013
!"#$
!%#$
!&#$
#$
&#$
%#$
"#$
(cents/kWhin$2012)!
Cross-
border
(AZ)
2013
E3
2012**
NREL
2008***
MonetizedMonetized
Energy
System Losses
Gen Capacity
T&D Capacity
Average Local Retail Rate****
(in year of study, per EIA)
DPV Technology
Grid Support Services
Solar Penetration Cost
Financial: Fuel Price Hedge
Financial: Mkt Price Response
Security Risk
Env. Carbon
Env. Criteria Air Pollutants
Env. Unspecified
Social
Avoided RPS
Customer Services
Inconsistently Unmonetized

41. THREE FACTORS DRIVE DIFFERENCES IN SOLAR VALUE
41
1. Local Context
3. Methodologies
2. Input Assumptions
Local system conditions that
shape or bound the net value
that solar can provide
Data assumptions used in
deriving the results
Approaches to calculating
benefits and costs

42. 1. LOCAL CONTEXT: SOLAR RESOURCE
42
Source: NREL
SOLAR INSOLATION AVERAGE SOLAR RADIATION BY AREA
Source: NREL PV Watts

43. 1. LOCAL CONTEXT: SOLAR GENERATION PROFILE
43
GENERIC SOLAR GENERATION PROFILE
Average summer (top) and winter (bottom) daily PV output
(Example from CPR/AE 2006 study)
DIFFERENCES IN GENERATION PROFILE
DUE TO PV ORIENTATION/ CONFIGURATION
Normalized
Power(%)
100%
50%
0%
0:00 12:00 00:00
System Demand
PV South Facing Orientations
PV West-Facing

44. 1. LOCAL CONTEXT: SYSTEM CHARACTERISTICS
44
SYSTEM OR LOCAL DEMAND PROFILE
Power(%)
100%
50%
0%
0:00 12:00 00:00
System Demand
PV South Facing Orientations
PV West-Facing
COINCIDENCE OF DPV SOLAR
PRODUCTION WITH APS SYSTEM PEAK
(10% PENETRATION OF SYSTEM PEAK)
(APS 2009 study)

45. 1. LOCAL CONTEXT: GENERATION MIX
45
TYPICAL SUMMER DAY
(APS 2009 study)
TYPICAL WINTER DAY

46. 1. LOCAL CONTEXT: ORGANIZED MARKET ACCESS &
STRUCTURE
46
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'!"
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)!"
*+," -./01" /2340" ,340"
!"#$%&
156789:88:;7"4<5=:><"
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340"/;8A";B"0C<56D;78"
27>:EE65F"4<5=:><8""
GCE:H"
/6C6>:AF"
-7<5@F"
Capacity
market
Ancillary services
market
E
2011 ALL-IN WHOLESALE COST

47. 2. INPUT ASSUMPTIONS: A PREVIEW
47
Value: Energy
System: Arizona Public Service
• APS 2013: $9.00/MMBtu in 2008,
$9.61 in 2025, based on NYMEX
• APS 2009: $3.50/MMBtu in 2012,
$7.66 in 2025, based on NYMEX
Several input assumptions consistently and significantly drive specific components
of solar value. For example, the price of fuel makes up a large portion of energy
value; therefore, assumed fuel price forecast is important.
!"!!#
$"!!#
%"!!#
&"!!#
'"!!#
(!"!!#
($"!!#
(%"!!#
)*+,#$!(-# )*+,#
$!!.#
!"#$%&'()*+#*,-.,/*
/01#23435678#
9:;:<3=>;#23435678#
?@:57<65678#
Energy
value
$.025
$.10

48. 3. METHODOLOGIES: A PREVIEW
48
Value: Generation capacity
System: California
• E3 2012: In the long-run, value is based
on the fixed cost of a new CT less
expected revenues from real-time energy
and ancillary services markets. Prior to
the resource balance year, value is based
on a resource adequacy value.
• Crossborder (CA) 2012: Does not use
E3’s resource balance year approach,
which means that value is based only on
long-run avoided capacity costs.
!"#
$#
"#
%$#
%"#
&$#
&"#
'()**+),(-.(#
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&$%2#
324#
&$%&55#
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06)7-.-#8.9.:,+;.*#
<=<#
09>7;;,(?#@.(67>.*#
/>)*A1#
BCD#',E,>7A?#
<.9.(,F)9#',E,>7A?#
G79.#G)**.*#
3;.>A(7>7A?#
Generation
capacity
Different methodologies used to calculate benefits and costs lead to different
results. For example, generation capacity value can be calculated in multiple
ways, driving differences across studies.
$.04
$.02

49. STUDY DESIGN: STRUCTURAL CHOICES
49
• Discount rate
• Timeframe
• System evolution over time
• solar penetration (current levels, increasing levels)
• load profiles (demand response, electric vehicles, smart grid)
• generation profiles (variable renewables, storage)
• Stakeholder perspective considered

50. 04
MODULE 4:
KEY FINDINGS ABOUT
COSTS AND BENEFITS

51. 51
SOCIAL
SECURITY
GRID
SERVICES
ENVIRONMENTAL
ENERGY
• energy
• system losses
CAPACITY
• generation capacity
• transmission & distribution capacity
• DPV installed capacity
GRID SUPPORT SERVICES
• reactive supply & voltage control
• regulation & frequency response
• energy & generator imbalance
• synchronized & supplemental operating reserves
• scheduling, forecasting, and system control & dispatch
SECURITY RISK
• reliability & resilience
ENVIRONMENTAL
• carbon emissions
• criteria air pollutants (SOx, NOx, PM10)
• water
• land
SOCIAL
• Economic development (jobs and tax revenues)
FINANCIAL
FINANCIAL RISK
• fuel price hedge
• market price response
A VARIETY OF CATEGORIES OF SOLAR BENEFITS OR COSTS ARE
RECOGNIZED (NOT ALWAYS QUANTIFIED) IN REVIEWED ANALYSES

52. 52
WHAT IT IS
ENERGY
The cost and amount of energy that would have otherwise been
generated to meet customer needs, largely driven by the variable costs of
the marginal resource that is displaced.
ENERGY
KEY POINTS
• Frequently the most significant source of benefit
• General agreement on approach, but several differences in
methodological detail
• Sometimes reported values include system losses and carbon price

53. 53
ENERGY
* = value includes losses
03691215Xcel2013APS,2013*
C
rossboarder(AZ),2013*
C
PR
(TX),2013*
C
rossborder(C
A),2013
AE/C
PR,2012*
C
PR
(N
J/PA),2012*
LBN
L,2012E3,2012APS,2009*N
REL,2008
C
PR
(N
Y),2008
AE/C
PR,2006*
Vote
Solar,2005
R.Duke,2005
(cents/kWh$2012)
WHAT THE STUDIES SAY
ENERGY

54. 54
ENERGY
APPROACH AND KEY CHOICES
How much energy will DPV
provide?
What is the value of that
energy?
• Solar data: TMY vs. time/
load correlated
• Marginal resource: discrete
asset vs. hourly assessment
• Fuel price forecast: EIA vs.
NYMEX, and approach to
extending
Other drivers of value include: market structure, power plant efficiency, and
operating and maintenance costs
ENERGY

55. 55
ENERGY
CHOOSING SOLAR DATA
Taking a more granular approach to determining energy value requires a more detailed DPV
generation model which should be matched with the same year’s load profile.
TMY Data Time/Load Correlated Data
Typical Meteorological Year
based on 30 years of data, from
NREL
Actual hourly load and solar
generation, correlated
“TMY data tracks well with the
actual solar data”
“A technical analysis based on
anything other than time- and
location-correlated solar data may
give incorrect results”
ENERGY

56. 56
ENERGY
DEFINING THE MARGINAL RESOURCE
Accurately defining the marginal resource that DPV displaces requires an increasingly
sophisticated approach as DPV penetration increases, but at low levels of penetration, a
simpler approach is likely adequate.
Approaches to Marginal
Resource Characterization
Single power plant assumed to be
on the margin (typically gas CC)
Plant on the margin on-peak/plant
on the margin off-peak
Hourly dispatch or market
assessment to determine marginal
resource in every hour
Moreaccurate,morecomplex
ENERGY

57. 57
ENERGY
FORECASTING FUEL PRICES
Although the NYMEX natural gas forward market is a reasonable basis for a natural
gas price forecast, it is not apparent from studies reviewed what the most effective
method is for escalating prices beyond the year in which the NYMEX market ends.
Forecasts change dramatically with every iteration.
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ENERGY

58. 58
WHAT IT IS
The value of the additional energy generated by central plants that would
otherwise be lost due to the inherent inefficiencies (electrical resistance) in
delivering energy to the customer via the transmission & distribution system.
SYSTEM LOSSES
SYSTEM LOSSES

59. 59
KEY POINTS
• Avoided losses usually represent a small, but not insignificant, source
of value
• Included in all studies; some methodological differences but relatively
straightforward
• Acts as a magnifier of value for capacity and environmental benefits
SYSTEM LOSSES
SYSTEM LOSSES

60. 60
WHAT THE STUDIES SAY
SYSTEM LOSSES
012345
Xcel,2013
C
rossborder(C
A),2013
AE/C
PR,2012
E3,2012
N
REL,2008
AE/C
PR,2006
Vote
Solar,2005
R.Duke,2005
(cents/kWh$2012)
SYSTEM LOSSES

61. 61
APPROACH AND KEY CHOICES
What are the system’s loss
factors?
When and where does solar
reduce losses?
What types of avoided losses
are included?
SYSTEM LOSSES
Other drivers of value include: level of system congestion and whether losses
are included as an adder of other values or stand alone
• Average vs. marginal
• Degree of geographic granularity
• Solar data: TMY vs. time/load
correlated
• Energy, capacity, environment
SYSTEM LOSSES

62. 62
Because losses are driven by the square of current, losses are significantly higher during
peak periods. Therefore, when calculating losses, it’s critical to reflect marginal losses,
not just average losses.
ESTIMATING SYSTEM LOSSES
(APS 2009 study)
SYSTEM LOSSES

63. 63
WHAT IT IS
The value of deferring or displacing other generation investments by providing
capacity that can meet demand at the same system level of reliability.
GENERATION CAPACITY
GENERATION
CAPACITY
KEY POINTS
• More complex undertaking than energy or system losses
• Some philosophical agreement on capacity value approach, although there remain
key differences in methodology
• Estimation of marginal resource and value can differ based on system characteristics,
e.g. capacity market
• Factors driving largest differences of value:
• Correlation of solar generation with periods of system peak demand
• Calculation of effective capacity or capacity credit
• Whether there is an assumption of a minimum DPV level required to defer capacity

64. WHAT THE STUDIES SAY
* = value takes into account loss savings
03691215
Xcel,2013
APS,2013
Crossborder(AZ),2013*
CPR(TX),2013
Crossborder(CA),2013
CPR(NJ/PA),2012
LBNL,2012
E3,2012
AE/CPR,2012*
APS,2009
NREL,2008
CPR(NY),2008
AE/CPR,2006
VoteSolar,2005
R.Duke,2005
(cents/kWh$2012)
GENERATION
CAPACITY
GENERATION CAPACITY

65. 65
APPROACH AND KEY CHOICES
1) How much capacity can solar provide?
GENERATION
CAPACITY
•Capacity credit: Effective load
carrying capability (ELCC)
•Over time: decreasing
2) How much is that capacity worth?
•Marginal resource: market
value vs. fixed costs of a
marginal generator (typically at
CT or CCGT)
•Deferral value: every MW vs.
only in minimum increments
based on system needs
Other drivers of value include: load growth, inclusion of system losses
GENERATION CAPACITY

66. Generation capacity value is highly dependent on the correlation of DPV generation
to load. While all studies assess that correlation using an ELCC approach, varying
results indicate possible different formulations of ELCC.
66
DETERMINING DPV’S EFFECTIVE CAPACITY
GENERATION
CAPACITY
Normalized
Power(%)
100%
50%
0%
0:00 12:00 00:00
System Demand
PV South Facing Orientations
PV West-Facing
Study ELCC*
APS 2009 ~45-49%
APS 2013**
45.9% (2015)
30.5% (2020)
21% (2025)
CPR (NJ/PA) 2012 28-45%
Xcel 2013 33%
AE/CPR 2006 46-63%
CPR (TX) 2013 71-97%
Crossborder (APS)
2013
50-70%
* Most studies do not indicate whether ELCC is AC/DC
** expected penetration scenario (242, 768, 1504 MWac)
GENERATION CAPACITY

67. 67
GENERATION
CAPACITY
Some studies credit every unit of dependable DPV with capacity value, whereas
others require a certain minimum amount to be installed to defer an actual planned
resource. It’s important to assess what capacity would have been needed without any
additional DPV.
ESTIMATING DEFERRAL VALUE
Demand with PV
MW
Demand without PV
GENERATION CAPACITY

68. 68
ELCC(%INSTALLEDPVCAPACITY)
LOAD PENETRATION
DIMINISHEDDEPENDABLECAPACITY
SOLAR PV AS PERCENT OF SYSTEM PEAK
As more DPV is added to the system, the underlying load shape could begin to shift as DPV
generation shifts the net-demand peak to other periods of the day.
RW Beck/ Arizona Public Service 2009
The Value of Distributed Photovoltaics to
Austin Energy and the City of Austin (2006)
UNDERSTANDING CHANGING VALUE WITH INCREASING PENETRATION
GENERATION CAPACITY
GENERATION
CAPACITY

69. 69
WHAT IT IS
The value of the net change in transmission and distribution infrastructure
investments due to the addition of DPV, which is installed closer to load,
relieving capacity constraints upstream and deferring or avoiding upgrades.
TRANSMISSION & DISTRIBUTION CAPACITY
TRANSMISSION &
DISTRIBUTION
CAPACITY
KEY POINTS
• Value (especially distribution) is site specific, making accurate assessments difficult,
necessitating more granular data, and driving significant differences in results
• There are widely varying methodologies using data of differing quantity and quality as
studies seek a balance between accuracy and analytical simplicity
• Factors driving largest differences in value:
• T&D investment plan characteristics and assumed load growth
• calculation of solar capacity credit
• minimum DPV required to defer capacity

70. 70
036912
Xcel,2013
APS,2013
Crossborder(AZ),2013
CPR(TX),2013
Crossborder(CA),2013
CPR(NJ/PA),2012
E3,2012
AE/CPR,2012
APS,2009
NREL,2008
AE/CPR,2006
VoteSolar,2005
(cents/kWh$2012)
WHAT THE STUDIES SAY
TRANSMISSION & DISTRIBUTION CAPACITY
TRANSMISSION &
DISTRIBUTION
CAPACITY

71. 71
How much capacity can solar provide?
TRANSMISSION &
DISTRIBUTION
CAPACITY
APPROACH AND KEY CHOICES
What (and where) is the potential for
capacity deferral and how much is that
capacity worth?
• Distribution: Screen feeders
followed by technical load
matching analysis
• Transmission: Value less
location dependent
• Deferral value: Every MW vs.
only in minimum increments
based on system needs
• ELCC for transmission and/or
distribution; some chose 90%
confidence benchmark for
distribution
• Potential to target deployment
TRANSMISSION & DISTRIBUTION CAPACITY

72. 72
TRANSMISSION &
DISTRIBUTION
CAPACITY
INSIGHTS AND IMPLICATIONS
Most important methodological choices, unresolved across studies, are:
• Most studies use ELCC to determine effective transmission capacity, some use the
level at which there is a 90% confidence of that amount of generation
• Some require a minimum amount of solar before any T&D value is recognized,
whereas others credit every unit of reliable capacity with T&D savings
The values of T&D are often grouped together, but are unique when considering DPV’s
costs and benefits.
• The ability to defer or avoid transmission is less locational dependent than
distribution
• The distribution system requires more geographically specific data
Strategically targeted DPV deployment can relieve T&D capacity constraints, but
dispersed deployment has been found to provide less benefit. Accessing DPV’s T&D
deferral value requires proactive planning.
TRANSMISSION & DISTRIBUTION CAPACITY

73. 73
WHAT IT IS
The value of the net change in grid support services (also known as ancillary
services) required to insure the reliability and availability of energy with the
addition of DPV.
GRID SUPPORT SERVICES
GRID SUPPORT
SERVICES
Grid Support Services
The potential for DPV to provide grid support services
(with technology modifications)
REACTIVE SUPPLY AND
VOLTAGE CONTROL
(+/-)
PV with an advanced inverter can inject/consume VARs, adjusting to control voltage
FREQUENCY
REGULATION
(+/-)
Advanced inverters can adjust output frequency; standard inverters may
ENERGY IMBALANCE
(+/-)
If PV output < expected, imbalance service is required. Advanced inverters could adjust output
to provide imbalance
OPERATING RESERVES
(+/-)
Additional variability and uncertainty from large penetrations of DPV may introduce operations
forecast error and increase the need for certain types of reserves; however, DPV may also
reduce the amount of load served by central generation, thus, reducing needed reserves.
SCHEDULING /
FORECASTING
(-)
The variability of the solar resource requires additional forecasting to reduce uncertainty

74. GRID SUPPORT SERVICES
74
WHAT THE STUDIES SAY
-1012
Crossborder(AZ)2013
Crossborder(CA)2013
LBNL2012
E32012
NREL2008
APS2009
(cents/kWh$2012)
Decreased
operating & capacity
reserve requirement
Based on CAISO
2011 Market
Values
Market value of non-
spinning reserves,
spinning reserves,
and regulation
1% of avoided
energy value

75. GRID SUPPORT SERVICES
75
• Studies varied in their assessments of grid support services; controversy over
determining the net change in ancillary services due to DPV
• To date, studies have generally focused on the impacts to operating reserves
• Key difference: whether necessary amount decreases by DPV’s effective
capacity
• Areas with wholesale AS markets enable easier quantification of AS value; regions
without markets have less standard methodologies
• Key drivers of value include: estimated effective capacity of PV, how reduced load
is correlated with AS need, and the potential of PV to provide grid support with
technology coupling
INSIGHTS AND IMPLICATIONS

76. 76
WHAT IT IS
The net impact to the price of electricity and fuel prices. Benefits occur if DPV reduces
the demand for central electricity, thereby lowering electricity and fuel prices. Benefits
could be reduced in the longer term as energy prices decline, which could result in higher
demand. Additionally, depressed prices in the energy market could have a feedback
effect by raising capacity prices.
FINANCIAL: MARKET PRICE RESPONSE
FINANCIAL:
MARKET PRICE
RESPONSE
Price
(before PV)
Price
(after PV)
Load
(before PV)
Load
(after PV)
Market Price Reduction
MARKET PRICE VS. LOAD
02468
C
PR
(N
J/PA)2012
N
REL
2008
(cents/kWh$2012)
WHAT THE STUDIES SAY

77. FINANCIAL: MARKET PRICE RESPONSE
77
• Only a few studies attempt to quantify the market price response; assumptions and
methodologies differ.
• Assesses the initial market reaction of reduced price, not subsequent market dynamics
(e.g. increased demand in response to price reductions, or the impact on the capacity
market), which has to be studied and considered, especially in light of higher
penetrations of DPV.
• One study represented a potential feedback effect between energy and capacity by
assuming an energy market calibration factor. It assumed:
• In the long run, the CCGT's energy market revenues plus the capacity payment
equal the fixed and variable costs of the CCGT, i.e. the CCGT is made whole.
• The energy market calibration factor provides that a decrease in energy costs would
result in a relative increase in capacity costs.
INSIGHTS AND IMPLICATIONS

78. 78
WHAT IT IS
The cost that a utility would otherwise incur to guarantee that a portion of
electricity supply costs are fixed.
FINANCIAL: FUEL PRICE HEDGE
FINANCIAL: FUEL
PRICE HEDGE
KEY POINTS
• Many studies acknowledge the fuel price hedge value, but few quantify it
• Based on assumption that natural gas is the marginal resource (which is
generally the case)
• NYMEX futures as a proxy for hedge value

79. 79
WHAT THE STUDIES SAY
FINANCIAL: FUEL
PRICE HEDGE01345
Xcel,2013
C
PR
(TX),2013C
PR
(N
J/PA),2012
N
REL,2008
R.Duke,2005
(cents/kWh$2012)
APPROACH AND KEY CHOICES
What is the value to the utility and its
customers of hedging natural gas
prices?
• NYMEX futures market prices vs.
stand alone estimation
How much natural gas can DPV hedge?
• Level of annual solar generation
FINANCIAL: FUEL PRICE HEDGE

80. 80
WHAT IT IS
Increased system reliability and resilience because of 1) reducing T&D
congestion and therefore outages, 2) increasing the diversity of the
generation portfolio with smaller, more dispersed resources, and 3) providing
backup power when DPV is coupled with storage.
SECURITY: RELIABILITY AND RESILIENCY
SECURITY
KEY POINTS
• While a number of studies acknowledged security value, only two
attempted to quantify it.
• There is no consistent or agreed-upon methodology.

81. 81
What is the value of increased reliability
and resilience?
• Economic value of reduced
blackouts
How much can DPV increase reliability
and resilience?
• By itself vs. combined with
storage and islandable
SECURITY
Sector Min Max
Residential 0.028 0.41
Commercial 11.77 14.40
Industrial 0.4 1.99
Source: The National Research Council, 2010
Disruption Value Range by Sector
(cents/kWh $2012)
0123
C
PR
(N
J/PN
)2012
N
REL
2008
(cents/kWh$2012)
WHAT THE STUDIES SAY APPROACH & KEY CHOICES
SECURITY: RELIABILITY AND RESILIENCY

82. 82
WHAT IT IS
The value from reducing carbon emissions and therefore mitigating climate
change, driven by the emission intensity of the displaced marginal resource
and the price of emissions.
ENVIRONMENT: CARBON
ENVIRONMENT:
CARBON
KEY POINTS
• Most studies acknowledge carbon reduction value and many quantify
it; when included, carbon reduction value can be significant
• The approach is straightforward but studies diverge in the carbon price
used

83. 83
WHAT THE STUDIES SAY
ENVIRONMENT:
CARBON
0246
C
rossborder(AZ)2013
C
PR
(TX)2013
AE/C
PR
2012
C
PR
(N
J/PA)2012
AE/C
PR
2006
Vote
Solar2005
(cents/kWh$2012)
Studies that Evaluate Carbon Separately Studies that Group All Environmental Values
0246
Xcel,2013
C
rossborder(C
A),2013
E3,2012
N
REL,2008R.Duke,2005
(cents/kWh$2012)
ENVIRONMENT: CARBON

84. 84
APPROACH AND KEY CHOICES
ENVIRONMENT:
CARBON
How much carbon will DPV
reduce?
What is the value of that
carbon?
• Marginal resource: discrete
asset vs. hourly assessment
• Solar data: TMY vs. time/load
correlated
• Carbon price forecast:
Analyst forecast vs. existing
global market vs. other
Other drivers of value include: power plant efficiency, market structure & rules
around carbon valuation
ENVIRONMENT: CARBON

85. 85
As with energy value, carbon value depends heavily on what the marginal resource is
that is being displaced. The same determination of the marginal resource should be
used to drive both energy and carbon values.
DETERMINING CARBON REDUCTION
ENVIRONMENT: CARBON
ENVIRONMENT:
CARBON

86. 86
While there is little agreement on what the $/ton price of carbon is or should be, it is
likely non-zero.
ESTIMATING CARBON COST
ENVIRONMENT: CARBON
ENVIRONMENT:
CARBON
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Sources: E3 avoided cost calculator; White House 2013 interagency report
Example only

87. 87
WHAT IT IS
The value from reducing impacts or creating benefits around non-carbon
environmental factors, including criteria air pollutants (NOX, SO2, and
particulate matter), water consumption and pollution, and land footprint or
property value.
ENVIRONMENT: OTHER FACTORS
ENVIRONMENT:
OTHER FACTORS
KEY POINTS
• While a number of studies acknowledged these environmental values, only
a few attempted to quantify them
• Values beyond compliance (e.g., health impacts) are notoriously hard to
quantify and there is no consistent or agreed-upon methodology
• These values generally accrue to society and have not been historically
reflected in rates except via the cost of abatement technologies

88. CRITERIA AIR POLLUTANTS
• Pollution control costs vs.
estimated cost of health damages
VALUE:
• Crossborder (AZ) 2013: $0.37/MWh
• NREL 2008 as $0.2-14/MWh
• CPR (NJ/PA) 2012 and AE/CPR
2012 estimate cost based on a
combined environmental value
AVOIDED RENEWABLE
PORTFOLIO STANDARD (RPS)
88
• What the utility would have
otherwise spent vs. RECs
VALUE:
•Crossborder (AZ) 2013: $45/MWh
•Crossborder (CA) 2013 $50/MWh
APPROACH AND KEY CHOICES
ENVIRONMENT:
OTHER FACTORS
What is the value of reduced criteria
air pollutants?
What is the value of avoiding RPS
expenditures?
ENVIRONMENT: OTHER FACTORS

89. WATER LAND
• Cost or value of water in competing
sectors, potentially including municipal,
agricultural, and environmental/
recreational uses
• Change in property value with the
addition of DPV vs. reduced land
requirement vs. reduced ecosystem
impacts
WATER CONSUMPTION BY TECHNOLOGY
0
0.5
1.0
1.5
Coal
CSP
Nuclear
Oil/Gas
NaturalGas
Biomass
PV
Wind
(gals/kWh)
0
10
20
30
NaturalGas(CC)
Wind,arrayspacing
SolarCSP
PV(Ground)
Coal
Nuclear
Geothermal
Wind,footprint
LIFE-CYCLE LAND USE BY TECHNOLOGY
(acres/MW)
Source: Fthenakis Source: Goodrich
89
ENVIRONMENT:
OTHER FACTORS
APPROACH AND KEY CHOICES
What is the value of reduced water
consumption and pollution?
What is the benefit or reduced cost
of land impact?
ENVIRONMENT: OTHER FACTORS

90. 90
WHAT IT IS
The value of a net increase in jobs and local economic development in the
form of increased tax revenue.
SOCIAL: ECONOMIC DEVELOPMENT
SOCIAL:
ECONOMIC
DEVELOPMENT
KEY POINTS
•Only two studies attempted to quantify this metric, although several more
acknowledged it.
• This value is hard to quantify and there is no consistent or agreed-upon
methodology
• This value generally accrues to society and has not been historically
reflected in rates

91. 91
WHAT THE STUDIES SAY
SOCIAL:
ECONOMIC
DEVELOPMENT
Sources: Wei, 2010
012345
C
PR
(N
J/PA)2012
N
REL
2008
(cents/kWh$2012)
0
0.25
0.5
0.75
1
Solar
EE
Wind
Nuclear
Coal
NaturalGas
SmallHydro
Job Multipliers by Industry
How many jobs are created?
Where are those jobs created?
How will tax revenues increase?
APPROACH AND KEY CHOICES
SOCIAL: ECONOMIC DEVELOPMENT

92. 05
MODULE 5:
TAKEAWAYS AND
IMPLICATIONS TO
CONSIDER FOR
MINNESOTA

93. FOR CONSIDERATION IN MOVING FORWARD
93
Energy value
•Hourly, time-correlated generation profiles, with simulated data
verified as possible with empirical data
•What’s on the margin matters
•Market based data where possible
Transmission and distribution line losses
•Marginal, not average
•Assess transmission and distribution losses separately

94. 94
Generation capacity
•Effective load carrying capability (ELCC) to determine DPV’s
capacity credit
Transmission and distribution capacity
•Assess appropriate metric for DPV’s effective capacity (ELCC or
higher bar?)
•Assess whether every MW get capacity credit
FOR CONSIDERATION IN MOVING FORWARD

95. 95
FOR CONSIDERATION IN MOVING FORWARD
Environmental value
•Carbon: generally included and more consistently monetized; many
approaches to estimation
•Other environmental values: real; compliance costs sometimes included,
but health and ecosystem impacts not because they are external to the grid
system and challenging to quantify

96. OVERALL PROCESS
96
• Be transparent around assumptions, perspectives, sources, and methodologies
• Explicitly decide if and how to account for each broadly recognized source of value
• Be as analytically rigorous as needed, but not more so
• Apply widely accepted tools to estimate value that are credible and instill confidence
in results
• Use (or develop!) best practices to help ensure accountability and verifiability of
benefit and cost estimates
• Looking forward:
• Studies have implicitly assumed historically low penetrations of DPV, and have
largely focused on DPV in isolation, but a confluence of factors will require a
consideration of DPV’s benefits and costs in the context of a changing system
• With better recognition of the costs and benefits, pricing structures and
business models can be better aligned to enable greater economic deployment
and lower overall system costs

97. THANK YOU