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Is Courage Needed to Pursue DER?

July 18, 2017


Energy efficiency and renewable projects are no longer skipping down the same yellow brick road as they were this time last year. Similar to the Cowardly Lion, some are inching courageously forward despite doubts from customers and the industry, while others have stepped off the road until the way forward becomes clearer.

Changes at both the federal and state levels are creating a less certain future, but Dorothy assures me that the basic reasons for pursuing distributed energy resource (DER) projects remain viable, regardless of which federal policies remain intact.

While relatively little federal energy grant money is distributed directly to commercial and industrial (C&I) customers that implement energy projects, some of it was routed to them in the past via state agencies and utilities receiving federal funding. If that earlier support is cut back, some programs may not be renewed, or remain robust.

As New York State (NYS) pushes its Clean Energy Standard (under which programs like NY-SUN are supported), the NY Public Service Commission (PSC) and NYSERDA have been “resetting the table” on how future incentives and rebates for DER may be provided. For instance, support for Combined Heat and Power (CHP) projects is now limited to systems with capacities of 3 MW or less. The imminent shutdown of the Indian Point nuclear power plant has created uncertainty regarding forward capacity and power pricing after 2020, even as two nearby gas-fired plants and a 1,000 MW power line from Canada may be arriving at about the same time. Add to that the recent PSC order re-valuing various aspects of DER, and it is as if a flock of flying monkeys is swirling around your head.

While local utility DER rebates are almost as high as a year ago, new tariffs for all NYS utilities are appearing that re-define the value of excess power from such resources such as Photovoltaics (PV), CHP, and energy storage. Recently, net metering rewarded owners of such systems at the full supply value of utility electricity regardless of when that excess was fed back into the grid. That process created an incentive to build large systems that could provide much of the valuable power beyond what is needed by a host facility for many hours each year.

However, now a “value-stack” that consists of separate variable values for energy, capacity, demand reduction, societal benefits, among others, will determine the level of remuneration to each DER system. For example, under one alternative, if a PV system produces low kW due to a heavy rainstorm that is coincident with the grid-wide peak, it will be paid for only the capacity it produced at that particular hour, for each month in the following year. The energy it produced will now be paid at the hourly locational-based marginal price (LBMP), rather than the utility’s monthly billed supply price. Fearing that its financial positions could suddenly go “underwater”, one local PV developer has pulled back on several community solar projects.

Despite these uncertainties, others are pushing ahead, finding ways to quantify, and where necessary, financially hedge any potentially negative impacts. With a little luck and a great deal of number crunching, we may all finally get to a truly “green” Emerald City.

Luthin Associates

Written by Luthin Associates

Founded in 1994, Luthin Associates provides energy advisory services to all industry sectors in the New York Tri-state region and beyond. In 2019, Luthin Associates joined forces with 5, an innovative energy advisory firm comprised of energy innovators, commodity traders, analysts, engineers, and former energy supplier executives. As part of the 5 family of companies, Luthin Associates provides strategic advice on energy-related matters including procurement, demand-side management, rate optimization, regulatory intervention, benchmarking, bill auditing, RFP management, sustainability planning services, renewable power, and distributed generation.