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PV Valuation Methodology - Recommendations for Regulated Utilities in Iowa

Valuation, Analysis, BCA   
Introduction Clean Power Research (CPR) was engaged by the Midwest Renewable Energy Association to develop a methodology for valuing distributed solar energy resources. Many studies have been performed by CPR and others over recent years to in which methodologies have been developed to perform these valuations. Distributed solar differs from conventional generation in several respects. First, it is not dispatchable and therefore requires a means for evaluating its “effective” capacity to put it on a comparable economic footing with in-market resources. Second, it is distributed, meaning that it avoids the losses associated with long-distance transmission, voltage step down at distribution substations, and the distribution lines. This requires that a loss savings factor be incorporated into the study. Third, its production profile varies considerably, depending upon the orientation (azimuth and tilt angle) of the system and its location. As a practical approach, the concept of an aggregate “fleet” of resources is introduced to address this, and the valuation is designed to value output of the fleet. Finally, solar provides a number of societal benefits, such as the ability to produce energy without harmful air emissions and protection against uncertainty in fuel price fluctuations. These benefits are “out of market” in the sense that the societal costs of conventional generation are not included in conventional ratemaking. It is left to the user of the methodology as to whether such benefits should be included in a valuation study.

Purpose This report describes in general terms a methodology that may be used for such a valuation. For readability, the report is devoid of detailed equations and tables, and it does not include an actual valuation example based on this methodology. However, it does incorporate the lessons learned in a number of such valuation studies performed by CPR over the years. In addition to the methodology, the report describes some options for implementation. These include the use of the methodology in evaluating existing net energy metering cross-subsidies, considerations for community shared solar, the adaptation of methods for energy exports and other DER technologies, and the use of results in value-based compensation schemes. It is hoped that such a valuation exercise could be conducted using the methods described here.