To help states launch programs to compensate owners of distributed batteries for providing energy at peak times, Solar United Neighbors has developed model legislative language. Under one approach, the owner of a 5 kW battery could earn $1,100 per year.
The nonprofit group Solar United Neighbors (SUN) is working to help states move from “pilot project phases” for distributed power plants to “large scale programs in every state.”
SUN prefers the term distributed power plant (DPP) “as a more easily accessible term” to describe an aggregation of distributed resources that provides grid services, said Liz Veazey, policy and rural energy director at SUN. A DPP is also called a virtual power plant.
The group reports that 25 states have “small-scale” DPP programs, typically for distributed batteries that are charged by rooftop solar.
Based on “lessons learned” from those programs, SUN has drafted model state legislation that would require utilities in a state to implement a distributed power plant program. Any state legislature could adapt the model language as needed before adopting it.
The group has also drafted a model approach to fairly compensate owners of distributed batteries for supporting the grid during periods of peak demand.
A DPP can also benefit utility customers by substituting for a costly utility investment in capacity that remains available to meet peak system demand.
For example, a DPP that provides 400 MW of capacity can do so at a net cost of just $2 million per year, according to a U.S. Department of Energy (DOE) analysis cited by SUN. That compares to a net cost of $43 million per year for 400 MW of utility gas capacity or $29 million per year for 400 MW of utility battery capacity.
Compensation
Included in SUN’s model approach for compensating distributed battery owners enrolled in a DPP are placeholder values for several categories of payments.
Those amounts “are really just placeholders and not intended to be universally fair or unfair,” said co-author of the approach Mark Duda, a SUN Action Network board member and founder of Distributed Energy Partners. He said the policy’s lead author was Beren Argetsinger, a partner with the law firm Keyes & Fox.
But if a state were to use the placeholder values, Duda calculated that the owner of a solar-charged 5 kW battery system could earn $11,500 over 10 years of program participation, nearly all of which would be “performance payments.”
Performance payments would compensate a battery owner for providing the grid service known as “capacity” or “resource adequacy,” and could total $1,100 per year for each participant in a utility service area that faces peak demand in the summer. That’s based on a placeholder value of $275 per average rate of kW discharged during each defined peak period “grid event,” and an assumption that the participant discharges at an average rate of 4 kW across those events.
Duda said that $275 per average kW discharged is the summer performance payment for a DPP program in Massachusetts, “but the appropriate numbers in any given jurisdiction would reflect grid service needs and value in that jurisdiction, as well as an understanding of what’s required to motivate consumer participation.”
If a utility were to enroll participants to discharge during winter peak demand periods, the placeholder performance value in SUN’s model approach is about half the summer amount. Duda explained that for a summer-peaking utility in wintertime, “there are fewer calls” for battery participation so “we’d roughly plan on half the value and thus half the compensation rate.”
Signing up for the DPP program would also earn a battery owner a one-time payment, for which the model approach offers a placeholder value of $100/kW of committed capacity, or $500 for a 5 kW battery system.
The model approach specifies that energy exported during a grid event would also be compensated for its energy value, at the rate at which the utility sells electricity during the grid event. The compensation rate for energy exports outside of grid events would not be affected.
SUN envisions expanding its model approach for DPPs to include electric vehicles and other distributed resources that could help serve peak loads and provide other grid services.
According to a DOE analysis that SUN cited on the potential nationwide contribution of DPPs, if the capacity of DPPs across the U.S. nearly tripled to 80 to 160 GW of capacity, DPPs could provide for approximately 10 to 20% of peak demand.
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