POWER September 2017 - 18

Nicholas A. Giannasca Carlos E. Gutierrez
New York Net
Metering Is Not
" Smart " Enough for
the Grid of the Future
O
n March 9, 2017, the New York Public Service Commission
(NYPSC) issued an order announcing a transition from a
traditional net energy metering (NEM) compensation
mechanism for certain energy resources to a new compensation
scheme referred to as " Value of Distributed Energy Resources "
(VDER). The VDER order is an integral piece of the NYPSC's grid
and market modernization initiative called Reforming the Energy
Vision (REV).
REV represents New York's efforts to reinvent the state's energy
regulatory structure in order to modernize the grid and introduce
a new energy economy with more distributed energy resources
and customer choice. New York is not the first state to pivot from
NEM. Since 2013, Hawaii, Nevada, Arizona, Maine, and Indiana
have moved away from net metering. As other states grapple with
upgrading aging grid infrastructure, the continuation of NEM will
surely be a topic of heated debate.
Net Metering
Traditional NEM compensation awards an end-use customer with
a credit for each kilowatt-hour that the customer's generating
unit injected into the grid. This one-to-one offset of kilowatthours,
that is, volumetric crediting, proved to be a simple and
attractive incentive for users to add generation to their premises.
If the generation source was of a certain type, customers could
also avail themselves of other incentive programs such as renewable
energy credits, tax credits and, rebates.
NEM's critics argue the offset of kilowatt-hours means that the
customer is not responsible for the " delivery " of the power being
offset and, thus, the customer is not paying distribution charges.
Because the grid nonetheless needs to be maintained for all customers,
critics argue those who do not enjoy NEM benefits effectively
pay a higher share of distribution system maintenance.
In the order, the NYPSC acknowledged that NEM played an important
role in growing the distributed generation market in the
state. According to the order, the state must move to a smarter,
more information-based compensation mechanism in order to
foster the continued growth of DERs. The NYPSC stated that NEM
does not provide sufficient information to serve as a basis of efficient
investment decisions or to identify and compensate for the
values that can be provided to the system or costs imposed on
the system. In an effort to mitigate the potential market disruption
of the shift to VDER, the order grandfathers certain projects
utilizing NEM under existing tariffs.
VDER Methodology
The VDER order establishes the " Phase One " foundational policies
of the VDER methodology to be utilized in the " VDER Phase One
Tariff. " The complex VDER compensation methodology will rely on
the calculation of certain values applied to hourly net injections
18
at the utility meter. Such values make up the " Value Stack " that
includes the following: energy value, installed capacity value,
environmental value, demand reduction value, and locational system
relief value.
Phase One Value Stack compensation will be available to all
projects and technologies that are presently eligible for NEM as
well as energy storage when paired with an eligible VDER resource.
Thus, on-site generation that is exported to the grid on
a net-hourly basis will receive compensation in accordance with
the Value Stack methodology. Behind-the-meter generation that
is instantaneously consumed on-site (that is, not exported to
the grid) will be treated as load reduction and will offset the
customer's consumption and volumetric charges associated with
that consumption. Importantly, if a customer seeks to avail itself
of the Phase One Value Stack compensation, that customer must
have a meter capable of recording net-hourly injections to the
grid. If a customer has an insufficient meter, it will need to work
with the interconnecting utility to obtain one.
The order also grandfathers in the eligibility of existing projects
enrolled in NEM to retain the ability to bid into the Renewable
Energy Standard Tier 1 solicitations issued by the New
York State Energy Research and Development Authority. However,
projects that earn compensation from the Value Stack will not be
so eligible.
The reason is that the environmental value of the generation
is already a component of the Value Stack and VDER compensation.
As such, the interconnected load-serving entities who compensate
customers for such environmental value will receive the
environmental credits.
Implications
There are important, but opposing, implications related to the
order. First, New York's efforts will certainly resonate with other
states that are also grappling with the continuation of NEM, and
some may adopt a VDER approach as a compromise to outright
abandonment of NEM. Thus, this could facilitate the continued
development of DERs in such states.
On the other hand, a move away from NEM to a more economically
justifiable model such as VDER could discourage development
in renewable power as customers, developers, and
financiers become disenchanted with the complexity and variability
of the Value Stack and resulting VDER values.
How these two opposing influences ultimately impact renewable
energy development remains to be seen. In the interim, states
will continue to consider NEM when debating how to integrate
renewable energy resources into an aging electric grid. ■
- Nicholas A. Giannasca is a partner and Carlos E. Gutierrez
serves as counsel at Davis Wright Tremaine in the practice's
New York office.
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