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Valuation of Distributed Energy Resources under New York State’s REV Initiative

Solar Developers and Utilities Propose Valuing CO2 Emissions

Valuing Renewable Energy:  New York State’s Renewing the Energy Vision (REV) Initiative sets an aggressive goal where 50% of the State’s electricity will be provided by renewable resources by 2030. Several agencies are proactively advancing REV’s objectives, with the New York State Public Service Commission (PSC) taking a lead role in advancing necessary structural changes to the regulatory regime governing electric generation and distribution.  Not surprisingly, the PSC has identified achieving a “more precise articulation of the full value” of the benefits of Distributed Energy Resources (DER) as a “cornerstone REV issue.” 

The agency took a more concrete step on this issue in late December 2015, when it initiated a new proceeding on the value of DER.  Recognizing that implementing an approach to achieve full valuation of DER is likely a long term effort, the agency wants to pursue an “interim approach to valuing DER including a transition plan for moving from net metering to DER valuation that can be adopted prior to December 31, 2016.”

Currently, Net Energy Metering (NEM) provides individualized reduced rates for distribution charges, accounting for power exported onto the grid. Costs incurred by utilities for buying back exported power are shifted to those customers who do not participate in NEM. Adopting a staff recommendation, the PSC in October 2015 had approved, as a starting point, a valuation system for DER with the formula “LMP + D,” where LMP is the location-based marginal price of energy, and D represents the “full range of additional values provided by the distribution-level resource.”  The agency explained: 

This “value of D” can include load reduction, frequency regulation, reactive power, line loss avoidance, resilience and locational values as well as values not directly related to delivery service such as installed capacity and emission avoidance. (emphasis added)

Solar Companies and Utilities Submit Interim Proposal to PSC: On April 18, 2016, three leading solar power developers – SunEdison, Inc., SolarCity, Inc., and SunPower, Inc. – and five of New York’s major electricity utilities (Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, Inc., New York State Electric & Gas Corporation, Niagara Mohawk Power Corporation d/b/a National Grid, Orange and Rockland Utilities, Inc., and Rochester Gas and Electric), collectively, the “Partnership,” submitted a proposal to the PSC for an interim successor to move away from NEM. The Partnership’s proposal offers a system for gradually phasing out NEM while introducing a compensation rate and developer payments drawn from Community Distribution Generation (CDG) and Grandfathered Monetary Crediting Remote Net Metering (GRMN) projects.

Of particular significance, the Partnership applies the LMP + D equation, but introduces a price point for “externalities” (E) – to reflect the social benefits of DER.  Specifically, the Partnership proposes E to be the constant value of carbon dioxide emissions reductions, as determined by the U.S. Environmental Protection Agency’s Social Cost of Carbon, minus the value of carbon as set by the Regional Greenhouse Gas Initiative. This value will be gradually introduced as a cost to customers for the economic value of carbon-free electricity.  By placing a value on E, the Partnership would create a visible stream of cash flow that enables developers to invest in CDG. Moreover, according to the Partnership, the transition from NEM to CDG would evolve the credit counter-party risk from single homes to an entire community, lowering the cost of financing and reducing the cost of electricity.

Initial DSIP Deadline Looming:  The PSC has issued an Order that requires utilities to submit by June 30 individual Initial Distributed System Implementation Plans (DSIPs) that identify changes utilities can immediately implement to advance REV’s goals. Joint and supplemental DSIPs that outline utilities’ cooperative efforts are due November 1, 2016.

© 2020 Beveridge & Diamond PC National Law Review, Volume VI, Number 117
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Stephen L. Gordon Environment & Land Use Attorney Beveridge & Diamond New York, NY
Principal

Steve’s practice includes providing legal services to local government, energy, real estate development, natural resource, manufacturing and waste management companies in all aspects of environment and land use law.

Representative matters during the past several years include numerous administrative and judicial proceedings relating to hazardous waste and sanitary landfill issues, environmental impact statements and public hearings for the siting of major electric generating facilities, large commercial and industrial real estate developments, major industrial waste disposal...

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Michael G. Murphy Energy & Land Use Attorney Beveridge & Diamond New York, NY
Principal

Michael provides concrete, pragmatic advice that helps clients solve problems and achieve their goals in matters involving energy, land use, permitting, compliance, contracts, and litigation.

He worked for several years in construction before earning his undergraduate degree in Environmental Science and making a decision to enter the practice of environmental law. Today, he follows a similar non-traditional path in advising his clients—eschewing cookie-cutter approaches. He dives into the factual and legal issues, learning what is unique about his client, and tailors his advice to...

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John H. Paul Environmental & Energy Attorney Beveridge & Diamond New York, NY
Principal

John's practice focuses on environmental and energy law, project development, and environmental quality review of project proposals.

He assists clients in permitting, regulatory compliance, and enforcement matters involving waste management and disposal, hazardous wastes, bulk storage, wastewater, and air emissions. He advises clients with regard to remediation of contaminated properties and brownfield development, particularly on properties involving multiple ownership interests and complicated histories. He also advises and represents property owners and...

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Sarah A. Kettenmann Environmental Attorney Beveridge & Diamond New York, NY
Associate

Sarah uses her knowledge of environmental law and the physical sciences to help clients solve complex problems in a conservation-minded manner.

She maintains a diverse environmental practice, which includes litigation matters involving toxic torts and products liability and class action litigation concerning environmental and regulatory claims. Her regulatory practice includes advising clients on compliance with, and enforcement of, land use restrictions and remediation, and due diligence for waste facility permits under federal and state statutes. She also counsels clients on...

212-702-5425
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