In New York’s Fast-Growing Solar Market, A Focus on Assessing “Value”

By Rona Cohen

solar panels

Photo courtesy of NREL

As New York proceeds with its energy-system overhaul, solar power is booming, and regulators and industry sources say that finding a way to accurately value solar’s contribution to the grid will be key to sustaining that growth.

Gov. Andrew Cuomo’s Reforming the Energy Vision, or REV, aims to incentivize utilities to incorporate solar, wind and other distributed resources into their operations, as an alternative to traditional grid investments. The goal is to create a more resilient, greener, more affordable grid, and help New York achieve its ambitious clean-energy and climate targets, including getting half of the state’s energy from renewable sources by 2050.

By all accounts, the market is soaring.  Solar development has climbed from 74 megawatts (MW) in 2011 to more than 600 MW today, enough to power around 100,000 homes, and the state has the fastest-growing solar workforce in the country. That upward trajectory has been propelled in part by NY-Sun, a $1 billion program that offers incentives to homeowners, businesses and commercial establishments to install solar panels.

Requests from residents looking to host solar arrays have skyrocketed in some utility territories. “We went from receiving about 1,000 applications a year to about 1,000 applications a month,” said Michael Voltz, director of energy efficiency and renewables for PSEG Long Island, during a solar summit organized by the City University of New York on June 20. “I’m not really surprised about the change; what I’m really surprised about is the pace,” he said.

North of New York City, some utilities in Orange County have been inundated with applications from solar developers looking to participate in the state’s new Shared Renewables program, which launched on May 1. The program enables New Yorkers to purchase a portion of their power from a solar installation located in their community. It’s aimed at the nearly three-quarters of the state’s residents who are renters or otherwise can’t host solar panels on their property.

Land in Orange County is relatively cheap, and power demand is high, which makes the investment in community solar projects attractive to solar developers there, said utility leaders speaking at the conference. But they cautioned that cost and logistical issues mean it simply isn’t possible to incorporate the quantity that has been proposed.

For example, Central Hudson Gas & Electric Corporation has received applications to build a total of 700 MW of solar, 12 times the current solar generation in its service territory. The utility serves nearly 380,000 electric and gas customers in a region stretching from the suburbs north of New York City to Albany. Interconnection costs in its distribution area are so steep that to integrate that amount of new solar power, the utility would have to raise rates by 37 percent, said Anthony Campagiorni, vice president of business development and government affairs. “It’s just not feasible,” he said.

“The [Public Service Commission’s] order on community distributed generation has opened up the floodgates,” said Campagiorni. “Now we have to get to the granular level of focusing on the value of these projects…and how we can incorporate [them] most cost-effectively.”

Utility leaders at the conference said it is critical that new installations get added to the grid where they are needed most – for example, in places where the additional power can reduce grid congestion during demand peaks, and avoid the need for utilities to fire up dirty, costlier “peaking” plants that are brought online occasionally, when extra supply is required.

“You want to incentivize customers to put distributed resources in the right place so that you lower overall costs and provide the best value to the grid,” said Matthew Ketschke, vice president of distributed resource integration at Consolidated Edison, during the conference.

Fostering a Competitive Marketplace

Indeed, regulators stress that one of REV’s central missions is to properly align incentives among utilities and providers of solar and other distributed resources. Under the traditional regulatory model, distributed generation competes with the standard practice of supplying power from centralized power plants that are often located far from demand centers. Utilities have little or no incentive to enable new markets or encourage providers of products that create value for their customers, like energy efficiency, rooftop solar panels and demand-response programs, which enable customers to trim their energy usage at peak demand times, and often receive financial incentives for doing so.

Under REV, regulators aim to enable a marketplace that allows distributed energy resources to thrive.  The utilities would provide the “wires” for the system and serve as the essential “intelligent platform.” They would be compensated for integrating diverse resources into the grid, and connecting suppliers of demand management and other innovative services to the public in a competitive marketplace.

“No longer is the role of the utility just to deliver electrons. If they embrace this, then a solar provider is no longer a third party – it is a customer of the utility,” said Scott Weiner, deputy for markets and innovation at the New York Public Service Commission, during a panel discussion.

Moving Beyond Net-Metering

Last December, the New York Public Service Commission issued a proceeding in which it requested proposals for a more precise way to value distributed energy resources, which regulators consider to be “a cornerstone REV issue.”

As part of this effort, they hope to develop an “interim successor” to the practice known as net-metering by year-end. Net-metering enables owners of solar panels to sell their excess energy back to the grid and be compensated for it at the retail electricity rate, in most cases. The practice has been under fire in a number of states, where utilities have complained that as solar proliferates, net-metering increasingly represents an unfair transfer of costs to utilities and non-solar customers.

Last April, six investor-owned utilities and three solar companies filed a proposal with the Public Service Commission that offers an alternative to net metering.

The proposal suggests valuing distributed resources through a formula known as “LMP+D+E.” “LMP” is the locational marginal price of electricity, or what any wholesale generator in that location would earn for an equivalent kilowatt-hour of power. “D” is the value of the specific resource – solar, wind or other forms of renewables — to the distribution system. That can include load reduction, resilience, such as being able to maintain power during a larger grid outage, and avoiding “line losses” – the energy losses that occur when electricity is sent from a centralized power plant over high-voltage transmission wires that can run for hundreds of miles before they reach demand centers. “E” is the external societal value – the social benefits, like avoided pollution, that are not captured by current energy markets.

During the conference, utility representatives noted that finding a way to properly value “D” – a distributed resource’s contribution to the distribution system– is particularly tricky, and could change over time. “That’s the one we’re all struggling over: How much value can you place on a particular solar or wind installation?” said Ketschke of Con Edison. For example, a distributed generation facility could have a high value because it is located near a manufacturing plant. But if the plant closes, the value would drop, he said.

In a heavy-demand area of Brooklyn and Queens, Con Edison has launched a $200 million REV demonstration project that could yield some answers to these questions around value. The utility is hoping to forgo a $1.2 billion investment in a traditional substation to supply 52 MW of power, and instead deliver the energy through innovative efficiency measures. Aside from a dramatic reduction in costs, the project would avoid harmful emissions and lower demand on the grid. Elsewhere, the utility is also looking to site 4 megawatt-hours of solar, coupled with battery storage, on around 300 residential homes, and aggregate the power like a virtual power plant. Con Edison would be able to deploy excess power not being used by those homes for grid services. It will also be able to capture data about how best to dispatch power during an outage and provide resiliency benefits for customers, said Ketschke.

These efforts are among several demonstration projects that regulators have directed the state’s six investor-owned utilities to undertake across New York. The hope is that through innovation, the projects will create new business models that enable utilities and third-party providers to derive new revenue streams through collaborative approaches, and drive down costs for consumers.

Large-Scale Building Retrofits Seen as Key to Meeting New York Climate Targets

New York BuildingsBy Rona Cohen

As New York State forges policies to achieve its ambitious clean energy and climate goals, its buildings could be in line for a major efficiency upgrade.

Gov. Andrew Cuomo has pledged to reduce greenhouse-gas emissions 40 percent below 1990 levels by 2030, and 80 percent by 2050 — in line with the “Under 2 MOU,” an international agreement among state, provincial and municipal governments that have vowed to meet strict climate targets. Considering that buildings comprise 40 percent of carbon emissions throughout the state, and nearly three-quarters in New York City, policymakers say that finding a way to minimize their reliance on polluting fuels will be a critical step in the transition to a low-carbon future.

The challenge is a daunting one. New York City alone has one million buildings, and the lion’s share of greenhouse-gas emissions are generated by onsite combustion of natural gas and fuel oil to provide heat and hot water, said John Lee, deputy director for green buildings and energy efficiency in the New York City Mayor’s Office of Long-Term Planning and Sustainability, during a conference earlier this week. A large portion of those buildings use steam heat, whose systems date back to the Victorian era. Many function inefficiently, underheating some apartment units and overheating others, leading residents to open their windows in the dead of winter for relief.

The result is a tremendous amount of waste. A report last year by the Energy Efficiency for All Project, a collaboration between the Natural Resources Defense Council, the National Trust and other organizations, found that in the city’s multifamily housing, which comprises the largest building sector, upgrading steam systems throughout the city would save $147 million in fuel and maintenance annually and lower carbon emissions by nearly 312,000 tons.

“If we could optimize every steam heat [system] in the city, we’d get a four-percent reduction in greenhouse-gas emissions citywide,” said Lee.

A long-term goal, he said, is to stop bringing fossil fuels into buildings altogether, and transition to solar and other renewable sources. Making New York a renewable-energy leader is central to Gov. Cuomo’s energy strategy, known as Reforming the Energy Vision, or REV, which is working to transform the regulatory process so that utilities will be incentivized to promote energy efficiency, and incorporate larger quantities of clean, distributed energy located on or near the source they are powering. That scenario would represent a dramatic break from the traditional business model, in which utilities reap financial gains by building costly, centralized power plants and expensive transmission lines located far from demand centers.  Gov. Cuomo has set a goal of deriving half the state’s energy from renewable sources by 2030.

Given the widespread inefficiency of existing buildings, the first step toward a greener housing stock is to shrink overall energy consumption, said Lee during the conference, which was organized by the North American Passive House Network. Gov. Cuomo has pledged to cut energy consumption in buildings nearly one quarter below 2012 levels by 2030. The superefficient “passive house” technique involves air-tight construction and heavy insulation, and can slash a building’s energy use by more than 70 percent, compared with conventional construction. The practice has been employed for years in Europe, but has been much slower to catch on here – though it has grabbed the attention of policymakers in New York and elsewhere who are looking for transformative strategies to bring their ambitious climate goals within reach.

In his climate action plan, New York City Mayor Bill DeBlasio calls for the use of “leading edge performance standards,” such as passive house, to dramatically reduce energy use in all new construction. The plan estimates that carbon emissions from buildings will need to fall by 60 percent to meet New York’s 2050 climate target.

Lee said that starting next year, New York will require all new buildings to use a minimum of 50 percent less energy than conventional buildings, and that officials expect to see big efficiency gains in the commercial space. But given that the majority of today’s buildings will still be standing in 30 years, the biggest challenge involves finding an affordable, technically and logistically feasible pathway for performing deep energy retrofits on a massive scale, he said.

“The bulk of this problem is existing buildings,” said Lee. “How are we going to get to all of them?”

Opportunities in the Affordable Housing Market

The Cuomo administration has devoted considerable attention to the issue, and is thinking big: in the next few years, it hopes to create a large-scale, private-sector driven, self-sustaining market for deep energy retrofits in the multifamily sector, starting with affordable housing. The initiative, which is subject to approval by the New York State Department of Public Service, seeks to engage the building and finance sectors in a process that will overhaul large numbers of housing units at once, rather than taking an incremental approach.

New York has 1.7 million affordable housing units, and “all of them need to come into a new [more energy efficient] state by 2050 to meet our climate goals,” said Greg Hale, senior advisor to the chairman of energy and finance in Gov. Cuomo’s office, during the conference. Officials calculate that if New York retrofitted half of those units, the sheer size of the effort would generate an annual retrofit market of at least $1.2 billion, whose costs could be financed through the energy savings over time. Aside from the climate benefits, there would be significant economic gains: jobs would proliferate in the building sector, and tenants would enjoy lower energy costs, healthier indoor air quality and improved comfort.

The initiative would entail a competitive design process, modeled after a successful Dutch initiative, which significantly reduced the costs of deep energy retrofits by aggregating demand in the sizeable affordable-housing market there. The program offered secured long-term contracts, and brought together builders and housing associations, challenging them to design net zero-energy retrofits, without subsidies, in more than 100,000 housing units.

The result was a process that was quick, affordable and replicable. The retrofits involved wrapping houses in insulated panels around the existing shell of a building, topping them with pre-fabricated insulated roofs with high-efficiency solar panels, and installing heat pumps, hot water storage tanks and ventilation units outside. The upgrades were completed within 10 days, financed through the energy cost savings, and came with a 30-year warranty. Such a rapid, whole-house solution represents a sharp break from today’s typical, incremental approach to improving efficiency in multifamily buildings here, like switching out an old boiler or other appliance for a more efficient one. It is attractive to officials looking to create large-scale retrofits without causing major disruptions to tenants or requiring their relocation for long periods of time.

In the Netherlands, the upfront capital for the retrofits is supplied by the WSW social bank, which has provided €6bn to underwrite government-backed 40-year loans to housing associations. Tenants are charged the same amount they had previously paid for rent and energy bills together, until the debt is repaid, according to The Guardian.

Since the project started in 2010, the cost of retrofitting buildings in the Netherlands to a net zero-energy standard – meaning they can produce as much energy as they consume – has dropped by 40 percent.

Officials here believe the successful Dutch experience can be reproduced on this side of the Atlantic.

Gov. Cuomo announced the design-build competition in his 2016 State of the State policy book, “Built to Lead.” The goal is to retrofit 100,000 affordable housing units by 2025, by fostering the right policies and incentives needed to spur a supply chain, overcoming regulatory barriers, and creating financial tools that will encourage investment over a 20-year horizon, financed by the energy savings. The effort will be jumpstarted with a $75 million investment from the state’s Clean Energy Fund over the next three years to help offset the costs of efficiency upgrades.

“To go to scale, we need to create the right environment,” said Loic Chappoz of the New York State Energy Research and Development Authority, during the conference.

Through grants and a competitive design process, the hope is to spur the private sector to provide deep energy retrofits for a variety of multifamily building designs that slash energy use by approximately 70 percent. Officials hope to have the first round of solicitations out this year, and for the first pilot to be built next year, said Chappoz.

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Video — Guilford, Connecticut: A Case Study in Building Resilience

Guilford Case Study Screen ShotThis new video case study from The Council of State Governments/Eastern Regional Conference documents efforts by officials in Guilford, Connecticut, together with The Nature Conservancy, to develop a Community Coastal Resilience Plan. The video includes interviews with a number of key participants, including: state officials who were part of the Connecticut Shoreline Preservation Task Force, which conducted hearings in communities across the state to assess their level of preparedness to deal with future extreme storms; local officials and homeowners in Guilford; and the director of science at The Nature Conservancy.

Click here to watch the video and access additional documents.