{"id":17334,"date":"2018-03-06T13:25:46","date_gmt":"2018-03-06T18:25:46","guid":{"rendered":"http:\/\/blogs.edf.org\/energyexchange\/?p=17334"},"modified":"2018-03-06T13:42:40","modified_gmt":"2018-03-06T18:42:40","slug":"compensating-distributed-energy-resources-for-environmental-attributes","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/energyexchange\/2018\/03\/06\/compensating-distributed-energy-resources-for-environmental-attributes\/","title":{"rendered":"Compensating distributed energy resources for environmental attributes"},"content":{"rendered":"

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By Elizabeth B. Stein<\/a>, Ferit Ucar<\/a><\/em><\/p>\n

Small distributed energy resources, cutting carbon emissions, and making sure people pay appropriately for participating in the electric system: These have been pillars of Reforming the Energy Vision<\/a> (REV), New York\u2019s comprehensive initiative to re-think utility regulation and reduce carbon in the power sector.<\/p>\n

Cutting carbon pollution \u2013 decarbonization \u2013 will be difficult as long as a carbon price is in effect only for large generators. That approach creates a risk of shifting emissions from large generators to small ones and creates a disincentive for environmentally-beneficial electrification.<\/p>\n

Setting a robust price on carbon and applying it to fossil fuel users of all sizes and types would avoid such results and enable the market to drive down emissions efficiently. But in a world without such a broadly-applied price, designing an appropriate compensation mechanism for small generators that produce both environmental benefits and<\/em> emissions is an interesting economic policy challenge.<\/p>\n

There\u2019s a lot to consider. Let\u2019s unpack the issues.<\/p>\n

[Tweet “New lessons in compensating distributed energy resources for environmental attributes”]<\/p>\n

Compensating distributed energy resources appropriately<\/strong><\/p>\n

Since 2015, New York\u2019s Public Service Commission, the state\u2019s utility regulator, has engaged in the Value of Distributed Resources (VDER) proceeding to push for the compensation of distributed energy resources to more accurately account for their value by \u201cmonetizing externalities,\u201d including \u201cemissions avoidance.\u201d<\/p>\n

The initial phase of VDER involved developing a new compensation method<\/a> exclusively for resources that had traditionally been net metered \u2013 or received full retail rate in exchange for the unused electricity they sell back to the grid.

\u00a0 \u00a0 \u00a0 \u00a0Value=LMP+D+E<\/p>\n<\/div><\/p>\n

This method, called the \u201cvalue stack,\u201d includes an energy value (LMP), a distribution system value (D), and an environmental value (E). The E value is based on carbon emissions that are avoided when non-emitting distributed energy resources like solar rooftops meet demand instead of large, centralized resources — including many that produce emissions.<\/p>\n

But we find that although the value stack method developed in the first phase of VDER was a great start as long as it was applied mostly or exclusively to the non-emitting resources, such as rooftop solar, applying it to emitting generators could create a host of problems.<\/p>\n

Small emitting distributed generators don\u2019t fit the framework<\/strong><\/p>\n

The most obvious problem is that the \u201cE value\u201d in the original value stack was calculated based on the difference between carbon emissions from resources on the central electric system from large generators and the carbon emissions from distributed rooftop solar, which is zero-emission. When a distributed generator does produce emissions, this E value is not easily calculated because an emitting resource that starts out with a positive E value (when that resource\u2019s carbon emission rate is lower than that of the central system) could have a negative E value in the future as the central electric system gets cleaner over time.<\/p>\n

Still, because of the potential energy and distribution system benefits of certain distributed emitting generators, parties have been trying to find a way to fit them into this initial value stack. One idea has been to give them the benefit of the value stack other than the E value<\/em>.<\/p>\n

Unfortunately, this doesn\u2019t solve the entire problem \u2013 because there\u2019s also an issue with the LMP value: The value stack compensates clean distributed resources for \u201cenvironmental benefit\u201d of being emission-free not just through E value, but also through the LMP value. It would be dysfunctional for a distributed resource that emits to be paid through the LMP value for zero emissions, an environmental benefit that they don\u2019t provide. Here\u2019s how the problem plays out:<\/p>\n