4 min read

Which is Easier to Understand - VDER or Wookie?

January 4, 2019


For years, on-site power producers (i.e. solar panel systems) in New York were compensated by utilities for excess electricity they injected into local grids (instead of being used on-site) based on a Net Energy Metering (NEM) rate equal to the utility’s all-in electric rate.

On March 9, 2017, that changed when the Public Service Commission (PSC) ordered re-pricing of that power based on its Value of Distributed Energy Resources (VDER) process. Under VDER, NEM was replaced by the Value Stack, a group of prices focused on “the actual, calculable benefits that such resources provide.” An exception was made for residential solar systems installed over the next 2 years.

Distributed energy resources (DER) include power generated by the sun and wind, combined heat and power (CHP), and power storage systems (primarily batteries). Not all DER are created equal, some may reduce peak grid load, while others may produce carbon emissions. The Value Stack rewards each type based on the worth of characteristics appropriate to it.

Since photovoltaic (PV) systems do not generate power at all desired times, their value to the grid differs from power plants that run as needed and/or when prices are highest. However, those same PV systems, provide benefits unavailable from standard plants, (e.g., no carbon emissions), reduced load on existing local distribution grids (called “distribution relief”), and savings from avoided construction of new distribution capacity.

If the end result creates any net costs to the utility, all customers pick up the tab via the VDER Cost Recovery charge included in the Energy Delivery Charge seen on all Con Edison power delivery bills.

Since the PSC’s order, solar developers and system owners have scrambled to deal with the complex and nuanced VDER process, which includes a lot of new lingo.

Like Pieces in A Puzzle

The Value Stack’s components stack up as follows:

  • Energy Value is the energy commodity cost offset by each kWh injected into the grid.
  • Demand Reduction Value (DRV) reduces kW load on the grid, which is the avoided costs of transmission and distribution costs that were not built by the utility.
  • Capacity Value stems from the offset of Installed Capacity (ICAP) costs on the grid.
  • Locational System Relief Value (LSRV) reduces load at specific points in the distribution system designated by the utility. As a Non-Wires Alternative (NWA), a DER system could avoid the need to dig up streets or string new power cables on utility poles. This also benefits the consumer who will see the avoided costs of localized distribution as a result of this initiative.
  • Environmental Value is based on the avoided cost to comply with the State’s Clean Energy Standard (CES).

As such, utility payments to a given DER may vary based on the type of generating system, its carbon emissions, the local distribution network to which it is connected, its performance on high load days, and the prevailing wholesale grid price for power that it displaces.

Feeling trapped in carbonite yet? We are not done with the lingo just yet. Small customers (i.e., residential and commercials not charged for peak demand) that participate in Community Distributed Generation (CDG) projects do not receive the DRV. Instead, they receive the Market Transition Credit (MTC), an added value designed to moderate the transition from net metering to the Value Stack.

VDER’s Early Impacts

For commercial/industrial PV systems, VDER pricing became effective shortly after the PSC order. Almost immediately, some PV developers pulled back on proposals made under the assumption that NEM would be available for decades. One solar developer compared VDER to Darth Vader, saying “I’m not sure which is scarier”. In Westchester County, it canceled offerings to municipal governments planning to solarize their facilities’ rooftops. Projected revenues were suddenly too low, and future revenue too uncertain. Subsequently, PSC Staff proposed that, due to this fall-off in participation, it may be advisable for the Commission to reinstitute NEM for systems up to 750 kW. On the other hand, solar systems are being implemented aggressively in the Central Hudson as well as Orange and Rockland utility service areas.

VDER impacts even the smallest residential PV systems: for those already built (or in operation before the end of 2019), NEM will continue for 20 years from their startup dates. Those starting up later will instead receive Value Stack pricing, which is likely to remain below NEM pricing for the foreseeable future.

A Moving Target

The Value Stack is expected to change every few years. The DRV component will be updated every 3 years, based on new utility marginal cost studies, with no guarantee as to the size of those changes. The Distribution System Implementation Plan (DSIP) that determines utility marginal costs by locale will be updated every 2 years. Compensation could also change annually due to a system’s output during the top 10 load hours in the prior year in the utility network to which it is connected.

Various changes to compensation are also being proposed: CHP systems that produce emissions above a stated level, which are currently ineligible for the Value Stack, may be allowed in but could be denied the Stack’s Environmental Value. PV systems as large as 5 MW (up from the prior limit of 2 MW) may now access Value Stack pricing.

In the world of long-term financing and contracting, all that is a bit like jumping to light speed while the door to the Millennium Falcon is still open.

The move from NEM to VDER has been a big change, and not without some bumps in the road. We can expect that the VDER process will continue to be refined and that additional changes will be proposed. Among these will be the development over the next year of rules stipulating whether and under what conditions CHP will be allowed to participate.

In some ways, it appears that there is some nostalgia for the Old Republic…


Han: I know buddy. Maybe Yoda can make some sense out of it.

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.