It’s official: The New York Public Service Commission has adopted a new rate structure to credit solar projects for communities, commercial, and industrial customers according to the benefits they provide. Based on our initial assessment, we are optimistic that the order adopting the new rates will provide a foundation for continued growth of the solar industry, while helping to guide investments to the areas where they provide the most benefits. While there is certainly more work to do to advance community solar at the scale that is necessary, the Commission’s order provides a framework under which further progress can be made.
The Commission's new rate structure is a critical component of New York’s strategy to create a cleaner, more affordable electricity system (known in regulatory circles as the Reforming the Energy Vision initiative, or “REV” (discussed here and here)). Solar projects built based on the revenues from these new rates will contribute to the achievement of New York’s 50 percent by 2030 renewables goal, which is enforced through the state’s Clean Energy Standard.
Importantly, the new rates will initially apply only to new larger local solar arrays, including community, industrial, and large commercial projects. These solar projects, the kind you see atop big box stores, factories, apartment buildings, or adjacent to communities in previously vacant land, fall in the mid-range of size. They’re bigger than those on individual houses, but smaller than the huge, utility scale projects akin to more traditional power plants. Community solar enables residents who don’t own their own homes to share in the output from these projects. Many such projects have stalled due to uncertainty regarding future rates as this issue has been hashed out. Now that the Commission has finalized the new rates, a significant number of projects should quickly move forward, expanding the reach of the clean economy.
At the same time, the Commission’s order does not require any immediate modifications to the rates currently provided to residential or smaller commercial customers with rooftop solar panels. Instead, unless they choose to opt into the new rates (which might be more lucrative if a customer’s solar array is combined with a storage project and thereby provides more value to the system), those customers will continue to receive credit through a policy known as net metering.
‘Net Metering’ vs. ‘Value of Distributed Energy Resources’
Net metering allows customers to pay only for the electricity they consume minus their on-site production. By requiring customers to pay for net use only, this policy effectively credits customers at the retail rate of electricity for the energy produced by their arrays and sent to the grid, so long as the customer eventually uses an equivalent amount of energy from the grid at night or during other times when the array isn’t producing electricity. Net metering has been adopted by 41 states and the District of Columbia, and has proven to be a simple and effective policy to advance distributed (i.e. local) solar generation. Numerous reports have demonstrated that the current value of solar provided by projects in various states exceeds the credit they are given under net metering.
Because net metering relies solely on retail rates, which tend not to vary based on grid constraints that occur in particular areas or during certain times of day, net metering doesn’t necessarily incent solar investments to be located in the areas where they are most needed or to combine with other technologies like storage to provide maximum value to the electricity system. Further, at very high levels of solar penetration (i.e. when a significant fraction of a state’s customers have installed solar panels), net metering may become a less accurate measure of the value provided by those solar arrays.
New York’s new ‘value of distributed energy’ rate structure is a bold experiment that attempts to credit projects according to a more granular assessment of the benefits they provide, aligning incentives more closely with the system’s needs. Thus, rather than offsetting the retail rate, projects will generate credits according to an estimate of the value they provide to New York customers. This includes energy value (the electricity offset by the projects, credited at the wholesale electricity rate), avoided carbon and other environmental benefits, capacity value (the ability to address the needs of the bulk electricity system at times of peak electricity demand), and distribution value (the ability to offset the need for infrastructure like substations and local power lines, which would otherwise be necessary to transmit electricity from power plants located farther from customers).
Establishing such a rate structure is challenging for a number of reasons. Unlike net metering, it is complex. There is little agreement surrounding how best to calculate each of these sources of value and for some of them, such as distribution value, more data is needed regarding electricity system needs. Too much variation or uncertainty in an untested formula, for instance, could prevent investors from having sufficient confidence in future revenues to support new projects. Only one other state, Minnesota, has designed a rate that is based on similar building blocks of value.
The Commission's Order
Fortunately, in adopting its new rate, the Public Service Commission has done several things right. It has:
- Grounded the policy in a larger context of support for clean energy, including the 50 percent by 2030 renewables framework, the New York State Energy Research and Development Authority’s NY-SUN incentives program, and a commitment to advance a community solar market so that all New Yorkers can access solar;
- Worked through a collaborative process that brought utilities, developers, consumer and environmental advocates together to provide input;
- Committed to phase in the policy in a step-wise manner, providing market stability by letting rooftop customers continue under existing (and successful) net metering policies as the state experiments with new rates for larger projects;
- Paired its decision with another important regulatory change to advance community solar by eliminating a requirement that at least 10 customers participate in a community solar project in response to a petition from New York City, NRDC and others (this change will facilitate smaller projects, like those on small apartment buildings, allowing community solar to better serve dense urban areas and low-income customers); and
- Provided projects with a market transition credit in recognition of the uncertainty in moving to a new crediting system and the difficulty of establishing a fully accurate value within a short timeline.
The Public Service Commission also appropriately recognizes that its first ‘value-based’ rate is not and should not be the final pronouncement on this topic. Accordingly, it is committed to a process to continue to improve the rate, and the order requires utilities to get to work in developing better data regarding their distribution system needs so as to inform more accurate rates. The order identifies key areas for future work, including:
- Adapting the Commission's rate design structure to apply to non-solar technologies, like stand-alone batteries;
- Refining its methodology for calculating value to the distribution system based on better data;
- Adopting further policies to ensure that community solar projects serve low- and moderate- income customers; and
- Exploring additional policies to complement the new rate, such as Green Bank financing mechanisms, to further drive down project costs.
We look forward to working with the Public Service Commission and other stakeholders as the state wrestles with these important topics while ensuring New York continues to scale up renewable projects of all sizes to stay on track to 50 by ’30.
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