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Background

Utilities are responsible for building and maintaining the power distribution system on which our society depends, and ensuring that safe, reliable, and affordable electric power is available at all times to all customers. Many utilities are now adding solar power to the mix of resources they own or manage. They also determine the retail rates that customers pay for electric service, and set the conditions that must be satisfied before solar projects can interconnect to the grid. This places utilities in a unique position to help develop and implement strategies for greater solar deployment.

As solar deployment grows, the economic impact on utilities and the challenges they face in managing the grid also increase. Thus, it becomes increasingly important for solar advocates and developers to understand those effects and challenges and work collaboratively with utilities to find equitable and practical solutions. Solar Market Pathways projects made progress toward that goal by:

  • Developing comprehensive strategies to integrate solar into a utility’s electricity supply.
  • Creating and refining utility-based community solar models.
  • Helping decision-makers, solar installers, and customers understand impacts to ratepayer costs as distributed solar grows in popularity.
  • Promoting best practices and greater consistency in utility interconnection policies and procedures.

Toolkit

The resources in this toolkit provide customers, third-party solar vendors, and non-utility solar program or project managers with guidance on engaging with electric utilities to accelerate solar deployment and maximize the value of solar resources. To achieve these goals, it’s crucial to understand how utilities operate, how they are regulated, what motivates them, and how distributed solar resources affect the utility. With this understanding, all parties will be better equipped to collaboratively pursue solutions that work for everyone.

How Utilities Function, How They Are Regulated, and What Motivates Them

Electric utilities play a central role in modern society, yet many people are largely unaware of how they are structured, how they are regulated, how they operate, and how they set prices for the essential services they provide to customers. The Regulatory Assistance Project’s (RAP) Electricity Regulation in the US: A (Brief) Guide provides a quick introduction to how utilities operate and how they are regulated, while the book-length version, Electricity Regulation in the US: A Guide, serves as a comprehensive reference on how electric utilities function and are regulated.

In order to effectively collaborate with a utility, customers and third parties need to understand how distributed solar systems affect the utility’s revenues and profits. The impacts of distributed solar can differ among utilities, affecting their willingness and ability to collaborate. This depends on whether the utility is a for-profit investor-owned utility or a nonprofit municipal, public power, or cooperative utility; whether the utility owns generation assets; and the status of wholesale and retail competition. Understanding Differences in Utility Views Toward Solar explores these ownership models and the presence or absence of competition, both of which affect a utility’s views on customer-owned or third-party-owned solar.

The Lawrence Berkeley National Laboratory produced a webinar examining the question of how high levels of distributed energy resources will affect the natural monopoly characteristic of an electric distribution utility, and what this might mean for the ability of utilities to profitably attract the capital needed to maintain their networks.

As part of its Solar Market Pathways project, Dominion Energy Virginia hosted four training sessions where the project’s advisory group received basic training in the areas of transmission and distribution grids, generation resources and technologies, solar program models, market and regulatory issues affecting deployment, and the current status of solar in Dominion’s service territory. The training modules offer a good example of how a utility can help stakeholders better understand the utility’s service obligations and operations, how solar deployment affects the utility, and how the utility is regulated. With this kind of training, stakeholders are better equipped to collaborate with utilities to get maximum value from solar deployments at minimum cost.

Resources

Tool:
Electricity Regulation in the US: A Guide (Second Edition) Electricity Regulation in the US: A Guide (Second Edition)
Author:  RAP

A detailed reference on how electric utilities function and are regulated, including broad perspectives on industry structure, regulation, ratemaking, low-income programs, and more.

Report:
A Primer on Electric Utilities, Deregulation, and Restructuring ... A Primer on Electric Utilities, Deregulation, and Restructuring of U.S. Electricity Markets
Author:  Pacific Northwest National Laboratory

This primer offers an introduction to utility restructuring and competitive electricity markets.

Report:
Disruptive Challenges: Financial Implications and Strategic Responses ... Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business
Author:  Edison Electric Institute

This report examines the potential of PV and other distributed energy resources to threaten utility finances and recommends an immediate focus on revising utility tariff structures.

Report:
Treatment of Solar Generation in Electric Utility Resource P... Treatment of Solar Generation in Electric Utility Resource Planning
Author:  NREL

This report focuses on how various utilities approach long-range resource planning, and how solar technologies are considered in the resource planning process.

Report:
Understanding Differences in Utility Views Toward Solar Understanding Differences in Utility Views Toward Solar
Author:  RAP

This document explores how the utility’s ownership model and the presence/absence of competition affects its views on customer-owned or third party-owned solar.

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Webinar:
Distributed Energy Resources, Industry ... Distributed Energy Resources, Industry Structure and Regulatory Responses
Author:  Lawrence Berkley National Laboratory

This webinar examines the question of what high levels of DERs will do to the natural monopoly characteristic of an electric distribution utility.

Tool:
Electricity Regulation in the U.S.: A (Brief) Guide Electricity Regulation in the U.S.: A (Brief) Guide
Author:  RAP

This guide provides an introduction to the structure of the U.S. utility industry and regulatory commissions, the fundamentals of rate regulation.

Rate Design and Why It’s Important

Utilities recover their costs and, in the case of investor-owned utilities, earn a return on their investments through the rates they charge for retail electricity services, making rate design issues vitally important to utilities. At the same time, rate design partially determines whether a customer can save money and earn a return on their own investment in solar power.

A publication from the Smart Electric Power Alliance titled Ratemaking, Solar Value and Solar Net Energy Metering—A Primer provides an introduction to state utility regulation (particularly rate-setting) and principles that are considered during the valuation of incremental resource additions, specifically distributed solar resources. It is designed to ensure stakeholders engaged in these conversations are more fully informed.

The National Renewable Energy Laboratory (NREL) produced a primer that summarizes the most common compensation mechanisms for grid-connected distributed generation. This publication graphically illustrates how net metering, net energy billing, and feed-in tariff rate designs work. NREL also produced a lengthier report that explains the impact various rate designs can have on the utility bills of customers with residential solar systems.

To support the Wasatch Solar Project, the Regulatory Assistance Project planned and delivered a series of workshops for Utah’s municipal utilities focused on the grid impacts of solar, solar valuation and cost-benefit analyses, and rate design issues with solar. These materials equip utilities and solar stakeholders with the tools needed to tackle the challenges and questions associated with deploying solar on the grid, including:

  • What to expect as solar systems are added to their service territories.
  • How to manage possible effects on the grid.
  • How to evaluate the costs and benefits of solar.
  • How to design residential utility rates that are fair to customers—both with and without solar—and to the utility itself.

Resources

Report:
Impact of Rate Design Alternatives on Residential Solar Customer ... Impact of Rate Design Alternatives on Residential Solar Customer Bills: Increased Fixed Charges, Minimum Bills and Demand-Based Rates
Author:  NREL

This study examines the electricity bill implications of various residential rate alternatives for multiple locations within the United States.

Report:
The Economics of Grid Defection The Economics of Grid Defection
Author:  Rocky Mountain Institute

This RMI paper looks at the possibility and the ramifications of customers with solar systems and energy storage disengaging from the utility grid

Report:
Smart Rate Design for a Smart Future Smart Rate Design for a Smart Future
Author:  RAP

This RAP report examines rate design issues, including rates for solar customers, and offers guiding principles and recommendations to regulators and utilities

Report:
Regulatory Considerations Associated with the Expanded Adoption ... Regulatory Considerations Associated with the Expanded Adoption of Distributed Solar
Author:  RAP & NREL

This report helps regulators understand the sources of costs and benefits from increased adoption of PV, how regulatory models indicate different roles and value propositions and more.

Report:
A Decade of Decoupling for US Energy Utilities: Rate Impacts, ... A Decade of Decoupling for US Energy Utilities: Rate Impacts, Designs, and Observations
Author:  RAP

This report summarizes the design and impact of decoupling mechanisms used by 25 U.S. electric utilities.

Tool:
Straight Talk About Net Metering Straight Talk About Net Metering
Author:  Edison Electric Institute

This document from EEI offers an investor-owned utility perspective on net metering and potential alternatives.

Report:
Net Metering and Market Feedback Loops: Exploring the Impact ... Net Metering and Market Feedback Loops: Exploring the Impact of Retail Rate Design on Distributed PV Deployment
Author:  Lawrence Berkley National Laboratory

This report demonstrates the significant impact that rate design can have on PV deployment.

 
Tool:
Rate Design Guiding Principles for Solar Distributed Generat... Rate Design Guiding Principles for Solar Distributed Generation
Author:  Solar Energy Industries Association

This document from SEIA offers a solar industry perspective on rate design for distributed generation customers.

Report:
Designing Distributed Generation Tariffs Well Designing Distributed Generation Tariffs Well
Author:  RAP

This RAP report focuses on rate designs for distributed generation, explaining the two main approaches in theory and practice and offering a range of possible alternatives

   
Presentation:
Rate Design Issues with Solar Rate Design Issues with Solar
Author:  RAP

This presentation discusses rate design principles, the types of charges that commonly appear on electricity bills, and rate design options for customers with distributed solar.

 
Presentation:
Solar Valuation and Cost Benefit Analyses Solar Valuation and Cost Benefit Analyses
Author:  RAP

This presentation includes reasons for doing a solar valuation or cost-benefit analysis, and a detailed look at valuation issues and examples.

 
Presentation:
Grid Impacts of Distributed Solar Grid Impacts of Distributed Solar
Author:  RAP

This presentation discusses the grid impacts of distributed solar for utilities.

   
Report:
Ratemaking, Solar Value and Solar Net Energy Metering—A Pr... Ratemaking, Solar Value and Solar Net Energy Metering—A Primer
Author:  Ratemaking, Solar Value and Solar Net Energy Metering—A Primer

This paper introduces state utility regulation and principles that are considered during the valuation of incremental resource additions, specifically distributed solar resources.

Understanding and Maximizing the Value of Distributed Solar Power

Utilities, customers, and regulators need to understand the costs and benefits associated with distributed solar in order to make informed decisions about policies, rates, and investment decisions. Costs and benefits—as well as the opportunities and strategies for maximizing value—can vary based on geographic location and the level of solar deployment on the grid, and will also change with time as the power system evolves.

A website maintained by the Solar Energy Industries Association provides a compendium of reports on solar valuation methodologies and case studies from around the country. Several Solar Market Pathways projects have substantially added to the literature on this topic:

Resources

Tool:
So You Have Questions About…Value of Solar Tariffs So You Have Questions About…Value of Solar Tariffs
Author:  NREL

This NREL postcard offers a brief explanation of value of solar tariffs, resources, and technical assistance on a single page.

Report:
A Review of Solar PV Benefit & Costs Studies A Review of Solar PV Benefit & Costs Studies
Author:  Rocky Mountain Institute

RMI summarizes and compares the methodologies and results of more than a dozen PV cost-benefit studies.

Report:
Shining Rewards: The Value of Rooftop Solar Power for Consumers ... Shining Rewards: The Value of Rooftop Solar Power for Consumers and Society
Author:  Environment America

This report offers a rebuttal to the argument that net metering tariffs overcompensate solar customers at the expense of other ratepayers.

 
Report:
Minnesota Value of Solar: Methodology Minnesota Value of Solar: Methodology
Author:  Clean Power Research

The Minnesota Department of Commerce developed this “value of solar” methodology that Minnesota utilities can use as an alternative to net metering.

 
Report:
Maine Distributed Solar Valuation Study Maine Distributed Solar Valuation Study
Author:  Clean Power Research

The Maine Public Utilities Commission published this assessment of the value of distributed solar generation in Maine.

 
Report:
Valuation of Solar + Storage in Hawaii: Methodology Valuation of Solar + Storage in Hawaii: Methodology
Author:  IREC

This report offers a method to quantify the added economic benefits that could result from adding behind-the-meter storage to supplement solar energy generation in Hawaii.

 
Report:
The Flexible Solar Utility: Preparing for Solar’s Impacts to ... The Flexible Solar Utility: Preparing for Solar’s Impacts to Utility Planning and Operations
Author:  NREL

This report seeks to identify ways that utilities can proactively prepare for solar growth on their system while maintaining a successful utility business.

 
Report:
Bridges to New Solar Business Models: Opportunities to Increase ... Bridges to New Solar Business Models: Opportunities to Increase and Capture the Value of Distributed Solar Photovoltaics
Author:  Rocky Mountain Institute

This report investigates opportunities to optimize and demonstrate the value of distributed solar as it is integrated into the grid to utilities, customers, and solar companies alike.

Report:
Teaching the Duck to Fly (2nd Edition) Teaching the Duck to Fly (2nd Edition)
Author:  RAP

This RAP paper suggests a variety of ways to mitigate the potential negative impacts of distributed generation on the grid and maximize the value of solar

Report:
Teaching the Duck to Fly (2nd Edition) Teaching the Duck to Fly (2nd Edition)
Author:  RAP

This RAP paper suggests a variety of ways to mitigate the potential negative impacts of distributed generation on the grid and maximize the value of solar

Report:
Methods for Analyzing the Benefits and Costs of Distributed Photovoltaic ... Methods for Analyzing the Benefits and Costs of Distributed Photovoltaic Generation to the U.S. Electric Utility System
Author:  NREL

This report describes current and potential methods that could be used to estimate the benefits & costs of distributed PV from the utility or electricity-generation system perspective.

Report:
A Regulator’s Guidebook: Calculating the Benefits and Costs ... A Regulator’s Guidebook: Calculating the Benefits and Costs of Distributed Solar Generation
Author:  IREC

This IREC report provides analysis and recommendations for key issues in solar valuation studies.

Report:
Value of Solar: Program Design and Implementation Considerat... Value of Solar: Program Design and Implementation Considerations
Author:  NREL

This report discusses value of solar tariffs and rate design options and considers how this rate design may impact future development of distributed PV projects.

Report:
Value of the Grid to DG Customers Value of the Grid to DG Customers
Author:  IEE

With so much attention being paid to determining the value of solar generation to the grid, IEE developed this report looking at the value of the grid to solar customers.

 
Report:
Incorporating Demand Response into Community Solar Programs Incorporating Demand Response into Community Solar Programs
Author:  Community Solar Value Project

This report assists utility solar program managers in including appropriate demand response measures to enhance the value of distributed solar.

Interconnection, Permitting, and Technical Standards

The feasibility and the costs of installing a solar energy system depend on more than just utility rates. Interconnection procedures establish standards and processes that must be met before solar or other resources can be connected to the grid. These procedures are absolutely necessary because they help ensure the safety, security, and reliability of the power system. But interconnection procedures can also increase the costs of deploying solar and can even pose barriers, as can local government permitting or zoning requirements.

Interconnection and permitting procedures vary by state and utility, but they generally specify timelines, fees, technical requirements, and steps in the review process. Some of the Solar Market Pathways projects sought to consolidate information on interconnection and permitting procedures for the benefit of project developers. For example, the Northeast Solar Energy Market Coalition project surveyed interconnection policies in nine Northeast states and published a report summarizing and comparing the results, and the City University of New York project published a guide on procedures for permitting and interconnecting energy storage systems in New York City.

Collaborating with utilities to satisfy and potentially improve interconnection and permitting procedures is crucial for successful solar deployment. Proactive, streamlined, best-practice standards and procedures can enhance the value of solar energy systems by ensuring they work with the grid. Several organizations associated with the Solar Market Pathways program have published useful guides on this topic:

Interstate Renewable Energy Council  

National Renewable Energy Laboratory 

Regulatory Assistance Project 

Smart Electric Power Association 

Resources

Report:
Interconnection of Distributed Generation to Utility Systems: ... Interconnection of Distributed Generation to Utility Systems: Recommendations for Technical Requirements, Procedures and Agreements, and Emerging Issues
Author:  RAP

Recommendations on technical requirements, procedures, and agreements for interconnecting distributed generators in the 10-20 megawatt range.

Report:
Interconnection Standards Solar Policy Survey Interconnection Standards Solar Policy Survey
Author:  NESEMC

This fact sheet provides an overview of northeastern state interconnection policies and includes information on timelines, costs, and more.

Tool:
The Energy Storage System Permitting and Interconnection Guide ... The Energy Storage System Permitting and Interconnection Guide for NYC
Author:  NY Solar Smart DG Hub

The guide summarizes the permitting and interconnection process for valve-regulated lead-acid battery energy storage systems in NYC, outlining the approvals that must be obtained.

Report:
Model Interconnection Procedures Model Interconnection Procedures
Author:  IREC

IREC identifies several important evolutions in best practices for interconnection and synthesizes them into model interconnection procedures.

Report:
Sharing Success: Emerging Approaches to Efficient Rooftop Solar ... Sharing Success: Emerging Approaches to Efficient Rooftop Solar Permitting
Author:  IREC

In this report IREC outlines innovative strategies being implemented across the U.S. to increase the efficiency of permitting procedures for rooftop solar systems.

Report:
Simplifying the Solar Permitting Process: The Importance of ... Simplifying the Solar Permitting Process: The Importance of Consistency
Author:  IREC & The Vote Solar Initiative

IREC and The Vote Solar Initiative offer nine best practices in residential solar permitting which can offer significant efficiency benefits.

 
Report:
IEEE 1547 and 2030 Standards for Distributed Energy Resources ... IEEE 1547 and 2030 Standards for Distributed Energy Resources Interconnection and Interoperability with the Electricity Grid
Author:  NREL

A short synopsis of the history of the IEEE 1547 interconnection standards, an update on current status, and a look at the future direction of ongoing standards development activities.

Report:
Distributed Solar Interconnection: Challenges and Best Pract... Distributed Solar Interconnection: Challenges and Best Practices
Author:  SEPA

SEPA surveyed over 60 utilities in 25 states on interconnection processes, identifying both the challenges and the best practices.

Report:
Smart Non-Residential Rate Design Smart Non-Residential Rate Design
Author:  RAP

This report examines rate design issues for large commercial and industrial customers and offers guiding principles and recommendations to regulators and utilities.

 
Report:
Grid-Connected Distributed Generation: Compensation Mechanism ... Grid-Connected Distributed Generation: Compensation Mechanism Basics
Author:  NREL

This report describes compensation mechanisms for grid-connected, behind-the-meter distributed generation, including metering and billing arrangements.

Report:
Advanced Inverter Functions to Support High Levels of Distributed ... Advanced Inverter Functions to Support High Levels of Distributed Solar
Author:  NREL

This short NREL publication looks at the capabilities of advanced inverters and outlines regulatory and policy considerations for their deployment.

Report:
A State-Level Comparison of Processes and Timelines for Distributed ... A State-Level Comparison of Processes and Timelines for Distributed Photovoltaic Interconnection in the United States
Author:  NREL

Results from an analysis of interconnection and deployment processes in the U.S. using data from more than 30,000 residential and small commercial PV systems installed from 2012-2014.

Report:
Residential Solar Permitting Best Practices Explained Residential Solar Permitting Best Practices Explained
Author:  IREC

A review by IREC of current residential solar permitting best practices, along with relevant resources to help communities implement them.

Collaboration Between Customers, Third Parties, and Utilities

Understanding how utilities function is a key step toward successfully accelerating the distribution of solar generation, but even more can be achieved when customers, solar advocates, project developers, and utilities collaborate to advance solar deployment.

There are many and varied examples of successful collaboration from Solar Market Pathways projects and elsewhere. A sampling of success stories and case studies can be found among the resources below that demonstrate the why and how behind each collaboration and the resulting benefits.

For example, the Smart Electric Power Alliance published a case study of how a small utility in Fremont, Nebraska sold out a community solar project in just seven weeks by researching what customers want and designing the program accordingly. In another example, the Community Solar Value Project worked with the Public Service Company of New Mexico to assess the local grid benefits of combining community-scale solar projects with demand response programs.

Resources

Report:
Maximizing the Value of Photovoltaic Installations on Schools ... Maximizing the Value of Photovoltaic Installations on Schools in California: Choosing the Best Electricity Rates
Author:  NREL

This report examined electricity rates available to schools served by three California utilities to identify common rate structure attributes that are favorable to PV installations.

Report:
Minimizing Overlap in PV System Approval Processes: Case Studies ... Minimizing Overlap in PV System Approval Processes: Case Studies and Analysis
Author:  IREC

The steps for obtaining each necessary approval for residential rooftop PV projects in four different markets in the U.S.

Article:
Capturing Distributed Benefits Capturing Distributed Benefits
Author:  Public Utilities Fortnightly

Case study of an IOU encouraging solar and other distributed resources to defer the need for more costly infrastructure upgrades.

Article:
In Vermont, A Forward-Thinking Utility Is Helping Customers Share ... In Vermont, A Forward-Thinking Utility Is Helping Customers Share Solar Power
Author:  Fast Company

This article offers a quick look at how one utility is partnering with its customers and third parties to accelerate PV deployment.