Valuing Distributed Energy Resources (DER) is the key to properly integrating them into the grid. It is an important, yet difficult task. Current methods of compensation, including net energy metering and feed-in tariffs, are very poor ways of identifying the value of distributed resources. They are over-simplified methods that do not connect the true value provided to compensation. This is because they are based on straight kWh energy exchange. The value of DER comes in many different forms including storage, reduced peak demand, and variability smoothing. The different DERs of energy efficiency, demand response, solar generation, and storage each have their own characteristics. They each benefit or tax the grid in different ways beyond a simple energy transaction. It is no longer as simple as reading a meter for kWh energy used, but becomes much more complicated with no elegant solution. However, it is important to get right as it’s the mechanism for achieving our goals. Compensation signals need to be correctly linked to the true value provided ensuring that resources are appropriately allocated.
The first step is clear delineation of the values. The worth of DER needs to be broken apart into its constituent pieces. Clearly identifying the values rendered helps us understand them. Some of these values are easier to identify than others and they will not always be mutually exclusive. DER’s value varies from micro to macro and between areas of grid support, finance, and environment. The Rocky Mountain Institute does a good job of numerating them in the Electricity Innovation Lab’s paper A Review of Solar PV Benefit & Cost Studies.
The next step is coming up with metrics for which to measure the values. There needs to be a way to quantify the benefit or cost. This could be a rate unit, as with the kWh for energy. It could be a count, as in the number of times a voltage threshold is breached. Or it could be a threshold, as in when a maximum capacity load is breached. It will not be easy to put a number on a vague concepts such as a gain in grid resiliency. Quantifying the benefit helps us make decision between competing DERs.
The last step is to put a price on the value. This means packaging the value in a way which will allow it to be bought or sold in a market or as a bilateral deal. Putting a price on the DER’s value will send the proper signals to spur investment where needed. It allows the operator to take action on decisions around them. This is where the true cost of the value is defined.
Valuing DER more appropriately will ensure that the correct incentives are in place for accomplishing laid out goals. It is a difficult, but important task. The delineation, measurement, and pricing of the value allows for better incorporation of DER into the electricity grid. These signals can tip the balance towards either the utility or DER owner (although the utility could be the DER owner). The net result may either help or hurt DER. In the end, improved valuation of DER will strengthen the system as a whole.