New York Moves Forward with New Net Metering Strategy

Building on its prior conclusion that existing net energy metering (NEM) protocols do not reflect the true value of solar power and other distributed energy resources (DERs), the New York Public Service Commission has adopted a new compensation structure for calculating the level of payments due DER providers for their contributions to the grid. 

Denoting the new approach a "Value Stack" system, the commission averred that the revised strategy would more accurately measure the value of DER facilities to the grid than do present NEM payments, which are tied to tariffed retail rates. The commission affirmed that given the emphasis placed on clean energy technologies by the state's Reforming the Energy Vision (REV) initiative, it is imperative that solar, wind, and other DERs be properly valued so as to stimulate ongoing investments in renewable energy platforms and energy-efficiency programs. 

The commission therefore directed all of the state's major electric utilities to file implementation proposals along with revised tariffs. The commission said the amended tariffs to be submitted by the utilities should continue to use existing surcharges and deferred accounting mechanisms for recovering any costs incurred in transitioning to the new compensation regime. 

As background, the commission discussed the REV policy, saying that it was targeted at increasing reliance throughout New York on clean, green sources of energy, such as solar and wind. But, the commission said, the REV endeavor also encompasses conservation, demand response, and energy efficiency. 

The commission noted that earlier this year, it had issued a series of rulings in which it reported its technical findings on net metering of DER output and the need to change to a method of compensation based on the value of DER (see Letter No. 4311). The commission observed that one of those previous orders was aimed at increasing the size and scope of community solar projects, while another had looked at compensation values for energy storage (battery) systems when those systems are combined with eligible forms of DER. 

According to the commission, although NEM has been considered a key driver behind the growing interest in renewable energy and distributed generation systems over the past decade, the new pricing mechanism will be more accurate in ascertaining the value that such systems actually bring to the grid as well as society. In particular, the commission said, the new pricing method will, for the first time, include factors for locational and environmental benefits. 

Moreover, the commission added, the Value Stack approach offers compensation based on the value that net hourly injections by DER create for utilities, including avoided distribution-level infrastructure costs. Elaborating on that point, the commission stated that under the new plan, the component for avoided distribution-level infrastructure costs will cover such specific system value elements as demand reduction value (DRV), locational system relief value (LSRV), and capacity values. 

The commission explained that the DRV element will apply to all projects in a utility's territory and is to be based on the utility's average cost of service. By comparison, the LSRV will be project-specific, premised on the project's location and individual characteristics. As the latter may contribute to meeting a particular utility need, it therefore provides a specific, higher value to the distribution system. 

In adopting the new Value Stack strategy, the commission paid special attention to the methodology used to determine the value of capacity associated with power provided by DER facilities. To that end, the commission endorsed a method developed by Orange & Rockland Utilities, Inc., which the commission found would yield a capacity credit that is closest to the actual market value provided by each DER generator and would thereby minimize the impact on nonparticipating ratepayers. 

The commission acknowledged that implementation of the Value Stack mechanism gives rise to several questions, including how to account for the environmental value to the grid from a DER coming on-line. After reviewing the matter, the commission held that the environmental value should be based on the state's Clean Energy Standard Renewable Energy Credit (CES REC) price at the time a developer makes the 25% interconnection payment required under Standard Interconnection Rules. It said that if no payment is required, then the CES REC price used should be that in effect as of the time the developer signs an interconnection agreement. 

To ensure a smooth transition to the new value-based compensation model, the commission stated that solar and other DER projects installed before March 9, 2017, would continue to be compensated under the traditional NEM schedules, thus receiving for the life of their system the same net metering credits that they would have been afforded in the past. Re Value of Distributed Energy Resources, Cases 15-E- 0751, 15-E-0082, Sept. 14, 2017 (N.Y.P.S.C.).