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New cost-benefit framework needed to assess value of distributed energy -- report

by

Julia Pyper, E&E reporter

Published: Wednesday, September 24, 2014

The New York State Public Service Commission (PSC) has embarked on a mission to fundamentally transform its electricity sector to promote wider deployment of distributed energy resources, such as energy efficiency, demand response and distributed generation, such as rooftop solar.

In a new report, a group of organizations pushing for grid modernization called for the state to embrace new cost-benefit analysis techniques that place a higher value on the public-interest benefits of distributed energy resources in order to meet the state's energy goals.

The report, produced by Synapse Energy Economics Inc., a consulting firm based in Cambridge, Mass., was commissioned by the Advanced Energy Economy Institute (AEEI), a nonprofit arm of the Advanced Energy Economy (AEE) business association. AEEI and AEE submitted the report in a filing to the PSC on Sunday in partnership with the Alliance for Clean Energy New York and the New England Clean Energy Council.

According to the authors, traditional cost-benefit analyses are too narrow and, therefore, overlook some of the hard-to-quantify benefits distributed energy resources have to offer, such as reduced carbon emissions, avoided unnecessary power generation or the ability for customers to better regulate their load.

"What most states have done in the past, including New York, is they've said if we can't put it into monetary terms, we're going to ignore it; basically, we're going to put it at zero value," said Tim Woolf, vice president of Synapse Energy Economics and principal author of the report. "We're saying that just can't continue."

"Even though these benefits are difficult to quantify and monetize, they must be accounted for somehow," he added.

Several innovative screening mechanisms are proposed in the report to help determine if distributed energy resources deserve to receive ratepayer support that makes them easier to adopt.

Synapse Energy recommends abandoning the traditional "total resource cost test" in favor of a "societal cost test" that takes into account a broader set of benefits. The group also recommends a "societal discount rate" for financial accounting of benefits over time. According to Woolf, standard discounting practices downplay long-term benefits in favor of shareholder interests.

N.Y. leads other states with utility reform

New York's "Reforming the Energy Vision," or REV, initiative launched in April seeks to give customers more options in how they manage and consume electricity, and to improve system reliability and resilience, particularly in light of weaknesses exposed by Superstorm Sandy (ClimateWireApril 29).

"There's no question Sandy was one of the key driers of REV, but I think it's also the fact that business as usual can't continue," said Lisa Frantzis, senior vice president of AEE and AEEI.

"You have a lot more intermittent renewables coming on the grid; you have investments that need to be made in the transmission and distribution infrastructure; there's a need for more cybersecurity on the grid; and people are demanding more resiliency," she said. "A lot of variables are driving the need to do something different."

New York's vision for utility-sector reform is arguably the most comprehensive of any state in the country. As part of the shift, REV would open markets for third-party competition, which could threaten the business model of traditional utilities.

But according to Frantzis, it could also be a revenue opportunity for utilities, which in recent years have seen flat or declining load growth.

"The goal is to provide more products and services, engage the customers more," she said. "In some cases, maybe the utility might be best at providing those; in others, it might be a third-party provider that comes in and provides more innovative products and services."

The advent of the Internet, computers and smart home appliances is creating new ways to manage energy that simply didn't exist before, said Woolf. Utilities can either get on board or get left behind.

The "electricity industry is constantly evolving, but I would say the past decade and the next one, we will see advanced evolution, with a lot of changes due to infrastructure aging," he said. "Utilities have to replace the current transmission and distribution and have the option of replacing it with the technology of today and yesterday or the technology of tomorrow."

Copyright 2014 E&E Publishing LLC. This article was reprinted from ClimateWire with Permission of E&E Publishing.