Download Bridges to New Solar Business Models: Opportunities to Increase and Capture the Value of Distributed Solar Photovoltaics
When I pass through the residential and commercial areas of a city, it’s interesting to note which homes and businesses have solar panels on their roofs, and then to think about why those particular buildings are the ones with solar. Are the owners or occupants simply more environmentally conscious or climate concerned than their neighbors? Or perhaps they’re interested in self-sufficiency and energy independence? Or maybe they just had the financial means to jump on a solid economic investment with a higher upfront cost but compelling long-term ROI?
Reasons like these aren’t unique to solar. The same could be said about why some properties have lawns and others have drought-tolerant landscaping, or why some buildings have energy-efficient windows while others have single-pane. What’s different here is that with solar PV we’re talking about an interconnected piece of the electric grid, with the ability to directly influence the operation of everything from a transformer down the street to a power plant hundreds of miles away. There’s an opportunity to use distributed PV to better utilize the existing electricity system, which not only makes that PV more valuable to the individual customers who install it but also by reducing the cost to operate the grid, thus benefiting all customers.
Assessing the Opportunity
In practical terms, it’s fair to say that the deployment of distributed PV today is fairly arbitrary. PV panels are installed wherever there’s a customer who wants them. Make no mistake—that’s a good thing! It’s important that anyone who wants it has access to solar PV, whether on a homeowner’s own roof or through a shared solar project. But there’s also an untapped opportunity to strategically deploy distributed PV so that it provides the right service, in the right place, at the right time. Distributed PV can create benefits and costs to the electric grid in numerous ways, and there are many potential strategies for optimizing those benefits and costs to maximize PV’s usefulness as an electricity system resource. In particular, two such strategies that can be implemented today are:
- Siting in hot spots. Some areas of the grid—hot spots—are more congested than others. Just like a highway, when everyone is using the grid at the same time (such as when turning on the A/C on a hot afternoon) electricity “traffic” can build up and create problems. Utilities eventually have to add capacity (like adding a lane to a highway), which is expensive. But distributed PV can often be installed in a hot spot to offset load (which is like taking some of those cars off the highway). When done right (so that the PV takes enough cars off the road at the right time of day), this can defer or obviate the need for that expensive capacity investment.
- Aligning with load. Demand for electricity tends to peak at different times in different areas. This is true at both a macro scale (for example, think about how weather can differ between Oregon and Texas on a given day) and a micro scale (like if one side of a city consists of residences where everyone gets home and turns on their oven at 5:00 p.m., while on the other side are factories that run from 7:00 a.m.–4:00 p.m.). Meanwhile, the amount of power a PV panel produces at a given time depends on the angle of its tilt (i.e., flat vs. upright) and orientation (i.e., east vs. south vs. west). Just as installing solar PV in the right places on the distribution grid can relieve the most congested “highways,” so can solar PV reduce the electric grid’s “rush hour” by taking electron cars off the road at the right time of day by matching the tilt and orientation of our PV with the needs of the grid (locally and/or system-wide). This can help not only with capacity investments, but can also offset high-cost “peaking” power plants (and numerous other benefits).
Deploying Solar as a Grid Resource
To capture the value from these opportunities to increase operational benefits, utilities and solar companies will need to collaboratively optimize distributed PV deployment. RMI’s recent report Bridges to New Solar Business Models helped to explain how:
- Identify optimal timing and locations. To successfully increase value, utilities and solar companies can proactively work together to identify the specific sites and PV configurations that would be most beneficial. Solar companies can contribute their experience with PV projects to help screen for project economic viability and installation feasibility, while utilities can leverage their knowledge of grid operations and the broader system’s needs to screen for operational compatibility. Once identified, optimal locations can be communicated in a variety of ways; for instance, the utility could issue a request for proposal (RFP) for individual projects, or could send pricing signals to direct development.
- Incorporate multiple project types. A model that incorporates strategic deployment of PV needn’t be limited to a single type of project. These concepts are equally applicable for projects ranging from rooftop solar installations to large shared solar arrays at a distribution substation, and for customer-, utility-, and third-party-owned arrangements. In practice, physical limitations, system needs, and existing regulations may constrain the range of possible projects, but pricing signals and RFPs should be designed to allow for a variety of project types.
- Provide physical assurance. To realize the opportunities at the identified locations, it’s important that PV projects meet the performance expected of them. Utilities must ensure that distributed PV systems designed to optimize operational benefits are able to perform as expected with a high level of certainty, and that they won’t compromise reliability. Pricing signals or RFPs should make these expectations explicit, providing solar companies clear targets as they design, procure equipment for, and install projects. The utility can then manage grid integration and monitor project performance to ensure that projects meet stated performance specifications.
- Prioritize education and outreach. Because of the complexity inherent in the process of identifying optimal locations and configurations for PV deployment, clear and transparent communication is critical to the success of this model. As a trusted voice, it will be incumbent on the utility to educate both customers and solar companies on project design features that optimize the temporal aspects of distributed PV generation. Possibilities range from direct outreach to specific customers, to developing maps that highlight the targeted areas and soliciting applications from interested parties. Solar companies can similarly explain to customers the benefits of hosting a project, including revenues, public relations, and educational opportunities.
Several existing utility efforts have included some of these components. For example, Con Edison (Con Ed)—at the behest of the New York Public Service Commission (PSC)—has proposed to avoid a $1 billion substation investment by instead using a portfolio of demand- and utility-side resources (including PV). The Brooklyn-Queens Demand Management (BQDM) program will combat projected load growth by procuring 52 MW of non-traditional solutions within the Brooklyn-Queens hot spot to reduce the area’s peak load. The BQDM program also includes 6 MW of traditional utility-side measures, two new substation transformers, and 91 MW of load transfers. In total, the program and related measures are slated to cost roughly $505 million. While a $500 million reduction in investment might not normally be very appealing to a regulated utility, the NY PSC (recognizing the BQDM program’s consistency with the state’s Reforming the Energy Vision proceeding goals) has offered a 100-basis-point adder to Con Ed’s return on equity (dependent on performance).
Turning Concepts into Action
All of the strategic deployment concepts outlined here can be implemented today in much of the U.S., without additional regulatory reform. To get started, utilities and solar companies should begin to discuss how to design new solar business models that incorporate these concepts while addressing any concerns. Through this collaborative process they can determine how best to shape several specific aspects of the business model to fit their situation. These situation-specific aspects include the mechanism used to direct deployment, data collection and sharing, and company roles in long-term operation and maintenance of installations.
There are, however, several actions that stakeholders can take to streamline this process and ensure that the needs of all stakeholders are met. In some situations, regulatory mechanisms will need to be implemented to incentivize the utility to prioritize distributed PV where it is the least-cost option, and must do so in a way that ensures the utility optimizes both grid value and customer value together. Elsewhere, both utilities and solar companies can provide guidance to regulators regarding rules to govern reasonable physical assurance. In addition, utilities may need to develop or procure new tools that enable holistic planning and operational management of distributed PV resources, and must take steps to work across internal and external silos.
There are clear pathways to using distributed solar as a grid resource to benefit the grid and society. But to realize—and maximize—the value that distributed PV provides to the grid it will be important for utilities and solar companies to collaborate as they fine tune new solar business models. Ultimately, distributed PV can be used to operate the grid more efficiently, reducing the cost to operate the system and benefitting everyone.
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