Value-of-Solar Tariffs

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Value-of-Solar Tariffs

A value-of-solar (VOS) tariff is a rate design policy that gives customers with solar installations credit for the electricity generated by a photovoltaic (PV) system.

Utility customers with distributed PV panels on their homes or businesses can give power to and take power from the grid. A VOS tariff clarifies how much energy is sold in each direction (customer to utility and utility to customer) and at what rate the energy is valued. A VOS tariff should not be confused with the broadly used term "value of solar," which refers to methods used to determine the market value of distributed photovoltaic projects.

Under the current implementation of VOS tariffs, of which there are two (Minnesota and Austin, Texas), customers continue to purchase all of their energy at the utility's retail rate, but are compensated for solar PV generation at a separate VOS rate in dollars per kilowatt hour ($/kWh). The VOS rate accounts for solar PV's benefits to stakeholders net its costs.

Factors that affect VOS rate may include:

  • Utility variable costs (fuel and purchased power)
  • Utility fixed costs (generation capacity, transmission, and distribution)
  • Distribution system and transmission line losses
  • Ancillary services (to maintain grid reliability)
  • Environmental impacts (carbon and criteria pollutant emissions)

These factors and others may be included in VOS methodologies to calculate the VOS rate. Although analyses of distributed solar PV value share common trends, no standard methodology currently exists.

Background

A VOS tariff is a policy alternative to net energy metering (NEM), which is the most common form of valuing distributed generation (DG) interactions with and contributions to the electricity grid. Currently, 43 states have some form of NEM; only two jurisdictions have adopted VOS alternatives: Austin, Texas (2006) and Minnesota (2014).

Benefits

  • Utilities can better understand customer load, timing, and volume because a VOS tariff separates electricity generated by the consumer from electricity consumed.

  • Customers receive compensation based on utility-specific benefits and costs of their electricity generation, instead of fixed retail rates that may span many regions.

  • Customers pay for transmission and distribution services embedded in the retail rate of the electricity they purchase, thereby addressing cross-subsidization concerns associated with NEM policies.

Implementation Issues

  • Gaining consensus on value of solar methodology and determining compensation rate can be challenging.

  • The recalculation of the VOS rate on an annual basis can produce revenue uncertainty for PV owners.

Design Best Practices

Market interest and discussion of VOS tariffs are increasing. There is limited experience, and therefore published literature, associated with standardizing VOS rates and VOS design best practices. Currently, Austin and Minnesota are the only jurisdictions that have implemented this policy.

Sources

Aznar, A.; Doris, E.; Nobler, E.; Truitt, S.; Hurlbut, D.; Bird, L.; Cory, K. 2014. Considerations for Value-of-Solar Methods. National Renewable Energy Laboratory.

Bird, L.; McLaren, J.; Heeter, J.; Linvill, C.; Shenot, J;, Sedano, R.; Migden-Ostrander, J. 2013. Regulatory Considerations Associated with the Expanded Adoptions of Distributed Solar. National Renewable Energy Laboratory.

Denholm, P.; Margolis, R.; Palmintier, B.; Barrows, C.; Ibanez, E.; Bird, L.; Zuboy, J. 2014. Methods for Analyzing the Benefits and Costs of Distributed Photovoltaic Generation to the U.S. Electric Utility System. 86 pp.; NREL Report No. TP-6A20-62447.

Taylor, M.; McLaren, J.; Cory, K.: Davidovich, T.; Sterling, J.; Makhyoun, M. 2015. Value of Solar: Program Design and Implementation Considerations. NREL Report No. TP-6A20-62361.

Additional Resources

Clean Power Research. 2006. The Value of Distributed Photovoltaics to Austin Energy and the City of Austin. Austin Energy.

Clean Power Research. 2014. Minnesota Value of Solar Methodology. Minnesota Department of Commerce, Division of Energy Resources.

Keyes, J. and K. Rbago, 2013. A REGULATOR'S GUIDEBOOK: Calculating the Benefits and Costs of Distributed Solar Generation. Interstate Renewable Energy Council.

Hansen, L.; Lacy, V.; & D. Glick. 2013. A Review of Solar PV Benefit and Cost Studies: Second Edition. Rocky Mountain Institute.

Deployment of Renewables to Support Regional Economic Development meeting transcript for the NREL Solar Technical Assistance Working Group, February 24, 2015

Value of Solar: Methodology & Program Design Considerations Working Group meeting transcript, February 12, 2015

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