Combined optimal retail rate restructuring and value of solar tariff

Abstract

Net Energy Metering (NEM) is the most common form of compensation for distributed PV and currently 46 states and the District of Columbia have NEM policies. This “easy to understand and implement” policy allows customers with distributed generation to be compensated at the retail electricity rate for any excess generation fed into the grid. However, NEM has recently come under strong criticism from consumer advocates and utilities alike for being unfair. The underlying issue is that current residential rates bundle generation, transmission and distribution costs into a single “per kilowatt-hour” charge. Thus, NEM customers provide generation but avoid generation, transmission and distribution costs. Because this can lead to unfair cost shifting, some are calling for the implementation of value of solar tariffs (VOST). Unlike NEM, a VOST credits PV based on the actual value it contributes to the utility. In this paper, we propose a methodology to co-optimize the retail rate structure with the VOST such that network, societal, and policy objectives are fully considered. We test the proposed method on a prototypical utility in Washington State. The resulting retail rate has minimal negative customer impact, while the VOST maintains the simplicity of NEM, but also ensures that PV is only credited for the benefits it provides.