# Value of Solar (VOS) Tariff



## jebatty (Mar 22, 2014)

Minnesota now has net metering based on the average retail rate, but MN is moving towards an alternative VOS tariff for investor owned utilities applying to grid tied systems. The analysis indicates that the rate payable to owners of grid tied system likely will increase substantially over the current net metering rate. A final rule is expected to be published in the next few months.

In a nutshell, an approved VOS tariff will "take into account the following values of distributed PV: energy and its delivery; generation capacity; transmission capacity; transmission and distribution line losses; and environmental value. The legislation also mandated a method of implementation, whereby solar customers will be billed for their gross electricity consumption under their applicable tariff, and will receive a VOS credit for their gross solar electricity production."

"While NEM [net metering] effectively values PV-generated electricity at the customer retail rate, a VOS tariff seeks to quantify the value of distributed PV electricity. If the VOS is set correctly, it will account for the real value of the PV-generated electricity, and the utility and its ratepayers would be indifferent to whether the electricity is supplied from customer-owned PV or from comparable conventional means. Thus, a VOS tariff eliminates the NEM cross-subsidization concerns. Furthermore, a well-constructed VOS tariff could provide market signals for the adoption of technologies that significantly enhance the value of electricity from PV, such as advanced inverters that can assist the grid with voltage regulation."

It will be very interesting to see how this finally plays out. Participants in the VOS process have involved a wide spectrum of interests, from large utilities to ratepayers, and including a variety of interest organizations. Minnesota is the first state to move in this direction. 

For more info see: https://mn.gov/commerce/energy/topic...odology%20.jsp

Or search "value of solar tariff" for even more info.


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## Where2 (Mar 23, 2014)

Good luck with that. I'd start thinking about Off-grid.


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## jebatty (Mar 23, 2014)

I'll let you know when and if it happens. My buy back rate now is $0.108 and the preliminary estimate is that the rate will nearly double to about $0.20.


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## woodgeek (Mar 23, 2014)

Very Interesting.  Skimmed the document. On the one hand, it jibes with my thinking that the savings to the utility are currently higher than the retail generation rate (since they avoid transmission costs and YOU are paying for generator financing).  All seems to be reflected in the document.

One thing to watch, was the line item 'costs of solar integration', which was labelled 'TBD' in this version (and never mentioned again), and may be like the proverbial camel's nose entering the tent.  At low PV penetration, that figure is basically squat.  As penetration grows to the point that the transformers/grid has to be backfed during peak production (rather than your electrons running your neighbors houses through the low voltage distribution system), the utility could decide it needs to replace a lot of that hardware (which is generally quite old) and they are going to get the PV owners to pay for it in reduced buyback rates.

The other thing to watch, is this is all compatible with time of use rates.  If Minnesota goes to TOU, you get paid for something like spot wholesale generation prices during production.  Right now, that would favor you big time during summer peak production, when rates spike.  So, of course, they wouldn't do that.  In a future high penetration PV period, however, there is so much juice being backfed, it shaves the daytime peak load for the conventional generators, and could actually invert it (i.e. conventional generators have to spin down during sunny days).  The net effect of this is to invert the normal curve....and have daytime, sunny day electrons, esp on weekends, become almost worthless.  In this scenario, the utility switches to TOU rates, and your buyback rate plummets.

This sort of thing is exactly what is happening in other high penetration PV markets: Germany, Hawaii, Southern Cal, etc.  As PV keeps getting cheaper, penetration grows exponentially, and the fair value of solar electrons in any market scheme starts dropping relentlessly toward zero (after starting at the peak TOU rate).  At low penetration, there is no need or incentive for the utility to work this stuff out, the $$ numbers are too small, just buyback at some version of the retail rate and call it close enough (with the utility knowing it is clearing some profit on your electrons).  Once the utilities see high penetration on the horizon (seeing it happen in other markets) and know it can COST them money, they will do the accounting.  The net effect is that your buyback rates in the near term will go up (as the utility fesses up to the true value of your electrons).  But when/if the value of those electrons crashes (relative to new hardware required for integration or storage), they want you to be holding the bag, not them.

In summary, I think you will be 'ok' since your investment will get payed back faster, but in 5-10 years folks will be opting to install PV at a fraction of your install cost, and would do so logically at even a fraction of your current 10 cent buyback rate.  That's how the market endgame for distributed solar adoption, at 20% total energy or 100% peak power will play out, and you should be payed off by the time that happens.  IOW, if a deal looks good (20 cents buyback rates at $2-3/W installed prices in a couple years) the resulting wave will grow to the point where the deal breaks down, when the peak load curve gets inverted.


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## jebatty (Mar 23, 2014)

Might there be other, especially future storage technology advances, that must be considered. Let's say a storage technology, a big box available for a utility to buy and scale up, but also a box a homeowner could buy/lease to store excess PV and then play it out when the sun doesn't shine, and the boxes being much less costly than current battery technology. At the same time, PV efficiency may approach 30%+ and at low cost. And, power management in homes and in the grid also improves greatly to even out usage much more than now is done. What effect might things like this have?

For me personally, a relatively inexpensive advanced storage technology might go along ways to get me off the grid completely or at least substantially. A large portion of my grid usage usage is simply absorbing excess solar and then delivering power right back again when the cloud has passed over or at night when solar isn't available. There are things I can do right now to even this out quite a bit, I talked to the power company about this, and it wasn't interested at all. Probably a too small fish in a big pond due to very limited homeowner PV penetration. But certainly could be a big deal in the future.

MN has limited TOU rates for homeowners as best as I know. A reduced interuptible rate for electric heat, with electric ceramic storage unit heaters or another heat source to cover interrupts; a reduced cycling rate used for a/c to cycle demand on/off to reduce/even out peak usage; and a reduced off-peak rate used both for heating and domestic hot water heating (generally at night when grid power usage drops). The general service rate covers everything else and may go up or down at higher usage rights, and vice versa, depending on things I don't know.


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## Former Farmer (Mar 23, 2014)

https://www.edockets.state.mn.us/EF...3A-30CA4BDC54F0}&documentTitle=20141-96033-01

"Docket No.E999/M-14-65
Analyst assigned: Holly Lahd
Page 2

(3) charges the customer for all electricity consumed by the
customer at the applicable rate schedule for sales to that
class of customer;
(4) credits the customer for all electricity generated by the
solar photovoltaic device at the distributed solar value
rate established under this subdivision;
(5) applies the charges and credits in clauses (3) and (4) to
a monthly bill that includes a provision so that the
unused portion of the credit in any month or billing
period shall be carried forward and credited against all
charges.In the event that the customer has a positive
balance after the 12-month cycle ending on the last day
in February, that balance will be eliminated and the
credit cycle will restart the following billing period
beginning on March 1;"

Please explain this part.  As I read it, you loose all credits in the end of February and start over again.  Do they pay you for the credits or are they just lost?


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## jebatty (Mar 23, 2014)

Probably subject to multiple interpretations. Will wait to see the final rule. No need to speculate.


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## woodgeek (Mar 23, 2014)

FF, I think it reads pretty clearly that a homeowner can't turn a profit on an annual basis.  IOW, any electricity you make beyond financial break-even is given to the utility free of charge.

I don't mean to be negative about all this, just that the utility is trying to define a viable business model for a high-penetration PV scenario before it arrives.  I thought the law looked very reasonable, included every imaginable cost/credit and looked to be aiming for no net profit or loss to the utility due to residential PV.  And since the utility is currently getting a very good deal on PV (at low penetration) they are willing to give some of that back to Jim for the time being, to ensure that they will not lose big money in the future.

But when Jim is counting his array revenue, it obviously can't be greater than his total kWh usage*residential rate.  Might cut into the 20 cent buyback rate unless he increases his consumption.


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## woodgeek (Mar 23, 2014)

jebatty said:


> Might there be other, especially future storage technology advances, that must be considered. Let's say a storage technology, a big box available for a utility to buy and scale up, but also a box a homeowner could buy/lease to store excess PV and then play it out when the sun doesn't shine, and the boxes being much less costly than current battery technology. At the same time, PV efficiency may approach 30%+ and at low cost. And, power management in homes and in the grid also improves greatly to even out usage much more than now is done. What effect might things like this have?
> 
> For me personally, a relatively inexpensive advanced storage technology might go along ways to get me off the grid completely or at least substantially. A large portion of my grid usage usage is simply absorbing excess solar and then delivering power right back again when the cloud has passed over or at night when solar isn't available. There are things I can do right now to even this out quite a bit, I talked to the power company about this, and it wasn't interested at all. Probably a too small fish in a big pond due to very limited homeowner PV penetration. But certainly could be a big deal in the future.
> 
> MN has limited TOU rates for homeowners as best as I know. A reduced interuptible rate for electric heat, with electric ceramic storage unit heaters or another heat source to cover interrupts; a reduced cycling rate used for a/c to cycle demand on/off to reduce/even out peak usage; and a reduced off-peak rate used both for heating and domestic hot water heating (generally at night when grid power usage drops). The general service rate covers everything else and may go up or down at higher usage rights, and vice versa, depending on things I don't know.



So, what you are talking about for a homeowner is an EV, at some future date where the battery (and its cycles) is cheap.  In a future high PV scenario where you get charged (and paid) on TOU rates, and daytime rates are super cheap, of course you would store electrons (if your EV was home), and either use them yourself later, or sell back later in the day....the peak in these scenarios is usually more like 6 PM rather than 2 PM.

More generally, you would set up scheduled loads (like a HPWH, or an EV parked at work) to use cheap daytime power, either your own, or from a PV energized grid.

The discussion in policy circles is whether these high PV scenarios arrive in 5, 10 or 15 years.  In Hawaii, its today.  In Southern CA and the Southwest, 5 years is plausible.  10 years could reach a lot of the Rockies and other places with incentives, etc.  There is a good chance your array will still be going strong when these changes have rolled through.  You could imagine jacking it up to rotate the azimuth 60° 15 years from now, to get more $$ money later in the day.  Etc.

In CA, they are rolling out grid storage devices now, to be scaled up in a few years to store excess solar PV.  According to your pending agreement, if your utility decided it needed to do the same thing, they could deduct the costs of their storage equipment from your VOS tariff, and take the money out of your pocket.

There's going to be a lot of engineering, and >90% of folks (even those with PV on their rooves) will have zero awareness of what is going on or care.


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## jebatty (Mar 23, 2014)

On the other hand, MN limits the amount of homeowner PV solar to prevent the homeowner from becoming a utility. Wait and see still is my position. But, if I should run a surplus, there are things I can do to use the electricity and get some value rather than lose it, especially during the winter.


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## woodgeek (Mar 23, 2014)

I approve of your attitude, and will wait for it to shake out, but I think theproblem is when you run a $$, not kWh surplus....if you get 20 c/kWh, you will get there.


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## jebatty (Mar 23, 2014)

That might be the time to buy the all electric car!


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## jebatty (Mar 23, 2014)

And on a dollar surplus basis ... there also likely will be other strategies by that that time that will solve the issue. 

Today for the first time my system hit the 1 MW - 30 day production point.


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## jebatty (Mar 23, 2014)

> I think the problem is when you run a $$, not kWh surplus....if you get 20 c/kWh, you will get there.


Let me make sure I understand what you are saying. For simplicity, let's say I'm buying at $0.10/kwh and selling at $0.20/kwh for my system at 9,000 kwh/yr. Assume also I'm using 12,000 kwh/yr. My electric bill will be $1200 and I will have credits of $1800, $600 of which "will be eliminated" [assume means canceled, not paid out by the utility].

I haven't lost anything from current net metering (I buy and sell at the same rate), because with net metering I will only have offset $900 of my $1200 bill. But the consequence is that either I will need a lower capacity system to offset my electric use, if that is my goal (so I can retire some panels) or I can buy that electric car, use more electricity, and still offset my bill.

Do I understand your point correctly?


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## woodgeek (Mar 23, 2014)

That is indeed my reading of the text cited by FormerFarmer.

On the bright side, I would only expect the high VOS tariff to last for a few years.  

Indeed, an electric car or minisplit would make sense, if they penciled out with 'free electricity'.  If not, I'd just run a space heater on a timer to make up the kWh in January and February.  I'd then retire it if the VOS dropped back down so the $$ surplus disappeared.


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## jebatty (Mar 24, 2014)

So, I put a number on the economic payback for a VOS rate on my NPV spreadsheet. I understand the VOS rate proposal to be a level rate of buy/sell, so I think that means it's a faster rate of payback on the front end and slower on the back end. A VOS buy/sell level rate of $0.17 utility buy and $0.115 utility sell (my current rate) has the same period of payback as a $0.115 rate (my current rate) inflation adjusted payback. Anything above that pays back faster and vice versa. A really big factor will be the setting of the VOS rate. The rate inflation factor I'm using is 5%, which is the historical 20 year average yearly increase in electric rates. 

But, as woodgeek points out, there may be a $$ surplus which, if eliminated and not paid back, blows the economic payback. In the event of a possible eliminated $$ surplus, proper sizing of the array and/or making valuable use of more electricity to soak up the surplus will be important considerations if a VOS rate becomes reality.

I didn't look at the comments or study the VOS setting factors close enough to determine if this analysis was considered and built into the factors.


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## jebatty (Mar 24, 2014)

There has been nothing yet to define what "eliminated" means with regard to an unused annual credit. I am advised that it likely will be a long time before the first VOS rate tariff will be presented by a utility seeking to implement the methodology and at that time this will be dealt with. A number of other issues come to my mind, but discussing them now probably is premature.


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## DBoon (Mar 24, 2014)

I've been reading this thread and VOS proposal with a lot of interest.  It seems like a really rational way to price the purchase/sale of electricity that fully values the distributed electricity generation and demand reduction of distributed solar.  I would certainly expect the rate paid to go down over time as more solar systems are installed.  I could also imagine a scenario where the more complex VOS calculation setting process (as opposed to simple net metering) would be hijacked by the investor-owned utilities over time and become very unfavorable to the solar producer.


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## Circus (Mar 26, 2014)

I know it's off topic but the word "tariff" in the title brought up some questions. Do you folks in Canada have to pay the 30% tariff on Chinese panels?  Can I come visit?


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## jebatty (Mar 26, 2014)

> I could also imagine a scenario where the more complex VOS calculation setting process (as opposed to simple net metering) would be hijacked by the investor-owned utilities over time and become very unfavorable to the solar producer.


This definitely is a concern. Public policy in MN is pretty strong on renewable and sustainable energy, and the solar industry is very active in coming to a consensus on the methodology. Need to pay attention and stay involved.


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## Clarkbug (Mar 27, 2014)

woodgeek said:


> CA, they are rolling out grid storage devices now, to be scaled up in a few years to store excess solar PV. According to your pending agreement, if your utility decided it needed to do the same thing, they could deduct the costs of their storage equipment from your VOS tariff, and take the money out of your pocket.



Funny you mentioned that, as I just saw this article.

http://www.sfgate.com/business/article/SolarCity-accuses-utilities-of-slowing-5325791.php


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## CaptSpiff (Apr 11, 2014)

I'm learning a lot just by lurking on these Solar and Behind the Meter Electric Generation discussions. Living in one of the highest electric cost regions (0.23 $/kwh retail) in the US make many of the items very "real & current".

One discussion point missed in this thread, but definitely not missed by our local legislators, is that the Utilities are one of the primary tax revenue generators/collectors. Between 10-20% of my total electric bill is taxes/fees. Some are line itemed, but many are hidden, and the PV'ers are creating a shortfall of $10-50/month per PV household at the state & local level. Now it is not yet severely impacting govt operations, but is being noticed, and will become even more important as we approach that residential PV tipping point.


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