Community Renewable Energy Success Stories Webinar: Exploring How Municipal Utilities Fund Solar Energy Projects (text version)
Below is the text version of the webinar titled "Exploring How Municipal Utilities Fund Solar Energy Projects," originally presented on February 19, 2013.
Operator:
The broadcast is now starting. All attendees are in listen-only mode.
Sarah Busche:
Good afternoon, everyone, and welcome to today's webinar sponsored by the U.S. Department of Energy. I'm Sarah Busche and I'm here with Devin Egan broadcasting live from the National Renewable Energy Lab here in Golden, Colorado. We're going to give everyone a few minutes to call in and log on, but while we do that, Devin's going to go over some of the logistics to make sure you can hear everything great and see it just fine. Devin?
Devin Egan:
Hello. First of all, you have two options for how you can hear today's webinar. In the upper-right corner of your screen there's a box that says "Audio mode" and that will allow you to choose whether or not you want to listen to the webinar through your computer speakers or over the telephone. As a rule, if you can listen to music on your computer, you should be able to hear the webinar. If you have questions during the webinar, please use the Questions pane on the right-hand side of your screen. There you can type any question you may have during the question and answer segment at the end of today's presentation.
And after today's webinar, you will be prompted to complete a short survey. Please take a few minutes to submit your answers once the webinar has ended. Today's webinar will be posted online on the Community Renewable Energy Deployment website. Once the presentation is posted, you'll receive a link to it via e-mail when it's available. Typically that takes about two weeks.
And with that, I will turn it back over to Sarah.
Sarah Busche:
Great. Thanks, Devin. I'm just going to reiterate one of the things you said because we always get the question, "Where will the slides be?" They will be posted online on the website, and like Devin said, we'll send out an e-mail to everyone who attended so you can access them directly once everything is up and loaded.
Today's webinar is the seventh in a series of the Department of Energy Community Renewable Energy, or what we call CommRE, success stories. So each of these webinars features communities that are successfully implementing renewable energy technologies and we try to highlight communities of all sizes and from all over the country. The CommRE project is a more than $20 million effort funded through the American Recovery and Reinvestment Act of 2009 to promote investment in clean energy solutions at the community level and provide real life examples for other local governments, campuses, and utilities to replicate. There were five community-based renewable energy projects which received funding from DOE through the CommRE program. Those were located in Vermont, Wisconsin, Colorado, and then two in California.
The webinar series is a part of the broader support that is provided under CommRE and we highlight not only the communities that won the awards but also other communities that are leading the way. During today's webinar, we're lucky to have representatives from Austin, Texas and Concord, Massachusetts to discuss their experiences funding solar incentives as municipal utilities. So I'd like to remind you that we'll do a Q&A session following each presentation and then also a general one at the end, so please don't be shy. Send in those questions, like Devin mentioned, on the toolbar. Just go ahead and type it in and we'll get to as many as we can. And I think with that, we're about ready to begin.
So I'd like to introduce our first speaker, Jan Aceti. Miss Aceti is the energy conservation coordinator for Concord Light and is responsible for the utility's energy efficiency and small-scale energy renewable program. Prior to joining Concord Light, Miss Aceti assisted local governments and nonprofits in improving participation in environmental programs.
[Next Slide]
Jan, we'll turn it over to you now.
Jan Aceti:
Great. Thank you, Sarah. Concord is a town of about 15,000 people in eastern Massachusetts. You know us as the town where the – hold on a second. Sorry. My slides are not advancing. Let's see. I'm just going to have to try one more time.
Sarah Busche:
Jan, if you're not able to get that to work, we can take control over and you can just tell us to advance the slide.
Jan Aceti:
Let me just try once more.
Sarah Busche:
These kinds of things happen with all webinars.
Jan Aceti:
Okay, yes. Why don't you go ahead. So Next Slide, please.
Sarah Busche:
Okay, Devin's pulling it up.
Jan Aceti:
Sorry?
Sarah Busche:
Devin is pulling it up so it will be just a second. There we go.
Jan Aceti:
Okay, great. Okay, so Next Slide.
[Next Slide]
So you know Concord as the town where the "Shot heard ‘round the world" was fired to launch the American Revolution. Next Slide.
[Next Slide]
So Concord has its own municipal electric utility, the Concord Municipal Light Plant or Concord Light, for short. We have about 7,600 customers, of which around 6,000 are residential. We have annual retail sales of about 180 million kilowatt hours per year. Electrical demand peaks in Concord every year sometimes on a hot summer afternoon at about 40 megawatts. We do not have any power generation facilities within our territory. We purchase power from facilities around the Northeast. Next Slide.
[Next Slide]
There are about 40 small-scale photovoltaic (PV) systems in town ranging from 2 to 100 kilowatts each for a total install capacity of about 400 kilowatts AC. About 35 of those installations are on residential property and are generally smaller than 10 kilowatts. In 2008, Concord Light introduced a solar PV rebate and also net metering and we saw some growth in the adoption of solar PV in subsequent years. In 2012, we saw a larger jump in adoption of solar PV and we attribute that to the declining price of solar PV, the fact that the state introduced a robust solar renewable energy credit market here in Massachusetts not long before that, and also in early 2012, the town's Sustainable Energy Committee held a very well attended solar fair at which they provided information and resources that we think helped a number of people along in their decision to go solar. Next Slide.
[Next Slide]
In 2008, a rebate that we began to provide at that time was $1,000.00 per kilowatt AC of installed capacity up to a cap of $5,000.00. We also began to offer retail net metering and the goal was to jumpstart adoption of solar PV in Concord primarily by reducing the upfront cost barrier. In 2010, we began working hard on a solar leasing program for our customers with the idea that if customers could have a PV system installed on their property for little or no money down that would further reduce the upfront cost barrier. Due to a variety of challenges that program did not launch, but in 2010, we were anticipating that with the availability of a solar leasing option that adoption of solar PV in Concord would become much more broad based so we took another look at our rebate and our net metering policy with an eye towards making them both as financially sustainable as possible for Concord Light to continue offering even with a dramatic jump in the adoption of solar PV. Next Slide, please.
[Next Slide]
We replaced our retail net metering policy with a wholesale net metering policy in which we provided solar PV owners with a credit for any electricity that migrated from their system to the grid at the average monthly spot market energy price. Concord Light purchases a certain percentage of its energy on a day-to-day basis from the spot market so for any energy that migrated to the grid from our customers' PV systems, we simply paid them the spot market price rather than paying the spot market. We do not purchase transmission services or capacity on the spot market and so the credit that we provided to our customers was for the kilowatt hours only.
As far as the rebate goes, Concord Light experiences certain savings when customers install solar PV in town and so our approach was to estimate what those annual savings would be into the future and to bundle up 10 years' worth of those estimated cost savings and provide them as an upfront rebate to help our customers offset the cost of going solar. Next Slide, please.
[Next Slide]
I'm going to talk about each type of savings that Concord Light experiences due to solar PV installations in town. Next Slide, please.
[Next Slide]
Every month, Concord Light receives a bill from the Independent System Operator of New England, or the ISO, for short, the regional transmission organization in our area. They are currently charging us $7.16 for every kilowatt that we require to be transmitted to Concord from our power suppliers around the Northeast during the hour at which peak electrical demand peaks in Concord each month. In October 2012, that occurred between 1:00 p.m. and 2:00 p.m. on October 5th at almost 24,000 kilowatts and we paid $7.16 for each one of those kilowatts that we needed to have transmitted to Concord. So solar PV owners in town that generated a kilowatt of electricity between 1:00 p.m. and 2:00 p.m. on October 5th saved us $7.16 in transmission costs that month. Next Slide, please.
[Next Slide]
Looking at past trends and also looking into Concord Light's crystal ball, we estimate that transmission costs will increase about 6% per year over the next 10 years, which gives us an average transmission cost per kilowatt per month of $9.44 during that time. Now a kilowatt of installed capacity does not necessarily generate a kilowatt of power during our peaks and since June 2012, we have been collecting data on a sample of PV installations in town with different orientations ranging from southeast, due south, to southwest and that data shows that, on average, that sample of systems has generated .45 kilowatts of power for every kilowatt of installed capacity during our monthly peaks from June through October when our monthly peak occurred before sunset. Therefore a kilowatt of installed capacity would lead to $4.44 of transmission savings per month, that is .47 kilowatts generated per kilowatt of installed capacity times $9.44 in average transmission costs per kilowatt per month for the seven months per year in which our monthly peak would occur before sunset. Next Slide.
[Next Slide]
The ISO New England is one of the regional transmission organizations that operates a forward capacity market, meaning that every year they hold an auction in which they solicit bids from supply side power generators and demand side resource providers, that is organizations that can reduce energy use at various times of the day and the year. The ISO solicits bids from demand side and supply side resource providers to meet a certain level of resource commitment that they have determined will be necessary to meet peak demand in the future, specifically three years from the year in which a particular auction takes place. The demand side and supply side resource providers that submit bids and can make capacity available during peak times at or under a certain price receive a regular stream of payments from the ISO and those payments are funded through charges levied on load serving entities such as Concord Light.
In 2013 our forward capacity market cost will be based on our 2012 peak electrical demand, which occurred on July 18th between 1:00 and 2:00 PM. That was our peak for the entire year at almost 41,000 kilowatts. The ISO has also determined that in order to ensure that we'll be able to meet peak demand in our area, that a 35% capacity reserve is necessary and so our 2013 forward capacity market cost is actually based on our 2012 peak demand plus 35%, so that's 55,211 kilowatts. The 2013 forward capacity market charge is $2.95 per kilowatt. That was determined three years ago at an annual auction and so we pay $2.95 per kilowatt for 55,211 kilowatts every month in 2013, leading to a total cost of almost $2 million.
So a solar PV owner in town that generated a kilowatt of power between 1:00 p.m. and 2:00 p.m. on July 18, 2012, will save us $3.98 in forward capacity market cost each month in 2013. That's the $2.95 times the $0.35 additional capacity reserve obligation. Next Slide.
[Next Slide]
We know the forward capacity market charges up through 2015 because of auctions that have been held earlier. We are expecting that the forward capacity market charge will increase substantially in subsequent years and based on our assumptions and based on the 35% capacity reserve obligation, we estimate that – sorry about that. Hold on one second. We estimate that the forward capacity market charge per kilowatt per month will be around $7.84 per kilowatt over a 10-year period.
As I mentioned earlier, a kilowatt of installed capacity doesn't necessarily generate a kilowatt of power during our annual peak. In fact, our data collection efforts show that our sample of solar PV systems generated on average .28 kilowatts of power for every kilowatt of installed capacity between 1:00 p.m. and 2:00 p.m. on July 18, 2012. Now we only have that one data point for an annual peak and we really feel that's not sufficient, so until we have more data points, we are using the June through October average of .47 kilowatts generated per kilowatt of installed capacity that we observed from June through October until we have more data points for annual peaks. That means that a kilowatt of installed capacity would lead to $3.68 of forward capacity market cost savings per month, that is .47 kilowatts per kilowatt of installed capacity times $7.84 in savings per kilowatt for each of 12 months per year. Next Slide, please.
[Next Slide]
Our main substation in Concord also needs to be able to handle the power that we require during our annual peak and therefore, solar PV owners in town who generate power during our annual peak allow us to defer the addition of capacity to our substation. We estimate that the cost of adding incremental capacity to our substation is $75,000.00 to $100,000.00 per megawatt, say an average of $88,000.00 per megawatt, and the annual carrying cost of that investment is about 10% of the cost when you account for depreciation, interest, and taxes. Therefore a solar PV owner that generates a kilowatt of power during our annual peak allows us to defer to avoid $8.80 in carrying cost for substation capacity upgrades costs per year. Therefore a kilowatt of installed capacity would lead to $4.13 of substation capacity upgrade cost savings per year. That is .47 kilowatts generated per kilowatt of installed capacity times $8.88 per kilowatt in investment carrying cost. Next Slide, please.
[Next Slide]
So when you add all these savings together for the months in which we expect to experience them, you get a total or gross savings of about $79.00 per kilowatt per year. We go one step further and calculate a net savings that Concord Light would experience and we do that because our data collection indicates that the solar PV owners in town use about 43% of the power that they generate on site. The remaining 57% , on average, they send back to the grid. For the 43% of power that they generate and use on site, they do not need to purchase that power from Concord Light and therefore we forego revenue. Specifically, we forego $.04 per kilowatt hour that is the component of our residential electric rate that we use to cover our fixed cost that is to maintain our infrastructure and to run our operations.
So the way that we incorporate that into the net savings calculation is first of all, looking at the table at the top of the slide, we translate each savings per kilowatt per year figure into a savings per kilowatt hour generated per year figure. In our part of the country, a kilowatt AC of installed capacity would generate about 1,200 kilowatt hours per year. So we take the savings per kilowatt per year, divide by 1,200 kilowatt hours per year generated in each case, and that gives us a total or gross savings of $.066 of kilowatt hour generated per year.
Going back to the net savings calculation, we then subtract the revenue loss of $.04 per kilowatt hour times 43% of the kilowatt hours generated that are used on site, which amounts to about $.017 per kilowatt hour per year, which gives us then a net savings of $.049 per kilowatt hour per year. That then gives us a net savings per kilowatt or per 1,200 kilowatt hours generated per year of $58.45 or a net savings over 10 years for that same kilowatt which generates 1,200 kilowatt hours per year of $585.52. So that is how we get to a solar PV rebate amount of $585.00 per kilowatt AC of installed capacity and we've kept the cap. We provide the rebate up to five kilowatts AC of installed capacity.
Now that we've discussed each type of savings, we quantified each type and estimated it and added it up and subtracted lost revenue, let's take just a step back and ask the question of whether these savings that Concord Light experiences actually can and do fully fund the solar PV rebate that we offer.
[Silence from 0:20:56 to 0:21:28]
[Next Slide]
And also included in that is $.02 for transmission. We've talked about what the transmission cost is. That $.02 sliver is our annual transmission cost divided by all the kilowatt hours that we sell each year and the same concept holds true for the forward capacity market component of $.02, annual forward capacity market cost divided by all the kilowatt hours that we sell. The $.04 for infrastructure operations is that component to cover fixed costs that I mentioned.
I also mentioned a moment ago that our data shows that our sample of solar PV owners uses about 43% of what they generate on average on site and for each of those kilowatts that they use on site, they do not have to purchase a kilowatt hour from Concord Light, meaning that they enjoy those $.02 slivers of the transmission and forward capacity market cost whenever they avoid purchasing a kilowatt hour from Concord Light. Therefore you could conclude that those transmission and forward capacity market cost savings which customers enjoy through avoided electricity payments to Concord Light are actually not available to fund a solar PV rebate because customers enjoy them through avoided electricity costs. Now the 57% of the electricity that they generate which they send back to the grid and for which we credit them only the energy, the spot market energy price, the transmission forward capacity market savings for those kilowatt hours are available or have been available to help fund the solar PV rebate. Go to the Next Slide, please.
[Next Slide]
One of the limitations of this mechanism or methodology for calculating the rebate is that part of this funding for the solar PV rebate has to come from other rate-payer revenue, not from cost savings, given that some of the cost savings are realized by the customers through avoided electricity savings that they enjoy.
Another one of the challenges that we face with this approach is that estimating costs 10 years into the future is hard. We could certainly make a midcourse correction at some point in the future if we found that our assumptions are not matching up with emerging realities. We could certainly revise the rebate at some point down the road. Another challenge is that determining actual demand reduction due to solar at our monthly and annual peaks requires long-term data collection. We'll continue collecting data on this sample of PV systems through the spring and likely for some years beyond that.
If you were to go to our website right now, you would see that our current solar PV rebate established in 2010 is actually not $585.00 but it's $625.00 and the reason for that is that in 2010, we did not have the benefit of this data that we began collecting in the summer of 2012 and so we made an assumption and that assumption was that a kilowatt of installed capacity would actually generate .75 kilowatts of solar electricity during our monthly and annual peaks. I used the more up-to-date information that we've collected in this presentation because I wanted to
[Silence from 0:25:28 to 0:26:06]
– that electricity back to the grid. Instead they will only be credited for the wholesale spot market price, which is a lot less. Therefore if people shift their use so that they use their dryer or their dishwasher during times when PV production is high, these times may overlap with our monthly or annual peaks, increasing electric demand during those times and therefore increasing Concord Light's costs, which is not what we want to happen. And primarily I think because of this concern, in late 2012, Concord Light's board of directors reinstated retail net metering, although minus the $.04 component of the retail electricity rate that we use to cover our fixed cost while continuing the rebate offering. And what that means is that any kilowatt hour that a PV owner generates, whether they use it on site or whether they send it back to the grid, they enjoy the transmission and capacity savings through either avoided electricity cost or through receiving a retail net metering rate. And therefore as of January 1, 2013, theoretically none of the savings that Concord Light experiences are available to fund the solar PV rebate because technically they're being enjoyed by the customer through either avoided electricity cost savings or retail net metering credits, which they enjoy.
So this approach certainly has limitations. We do feel that it does have a benefit to us, which is that it gives us something concrete and Concord Light specific to use to base the solar PV rebate on. So it's something we can point to this is the methodology, concrete, Concord Light-specific that we use to determine the solar PV rebate. Next Slide, please.
[Next Slide]
So if you have any questions that don't get answered in the course of this webinar, you are certainly welcome to contact me in the future for additional information.
Sarah Busche:
Thank you so much, Jan. I really appreciate, at least for me, how you laid everything out and walking through the calculations because it helped me understand that better. We have a couple of questions that have come in so we'll get started on those. Carl asks, "Is the spot market average price paid based on all hours of the month or just daylight hours?"
Jan Aceti:
Just daylight hours.
Sarah Busche:
Great, that was an easy one. Good one to get started with. For Concord, what percentage of energy is purchased in the spot market and what percent _____ _____ _____ from Michael.
Jan Aceti:
I believe we purchase around 20% of our electricity on the spot market.
Sarah Busche:
Great, thanks. Okay, and then we have one more from Elisa. "In your calculations, how do you incorporate estimates for electricity costs in future years? Did you do a sensitivity analysis with a high and low cost?"
Jan Aceti:
We did not do that and I'm just trying to think in terms of incorporating the electricity cost, the residential electrical rate really isn't incorporated into the solar PV rebate calculation. I mean what we do have to estimate is what we think the transmission and forward capacity market cost will be and I described how we do that.
Sarah Busche:
Okay, great. Thank you. So we have another question from Pamela and she asks if you could talk a little bit about any challenges that you face specifically with community support for developing a rebate program like this?
Jan Aceti:
There are committed and passionate activists in Concord around solar, which is a wonderful thing. I think the reinstallation of the retail net metering rates was a result in large part of those activists being vocal about what they felt was fair for solar PV owners in town and so there was quite a bit of discussion about what would be fair for solar PV owners in town and also what would be fair for our other rate payers, some of whom can't implement solar even if they want to given that some folks just don't have a roof that's facing in the right direction. I think it's been wonderful to have the support of activists in town around solar. It's also been I think quite a journey, I would have to say, in terms of coming to where we are at this very moment in terms of the net metering rates, the rebate, and so on.
Sarah Busche:
_____ _____ _____ utility interested in doing something similar?
Jan Aceti:
Hm.
Sarah Busche:
Tough questions, huh?
Jan Aceti:
Well, I do think that sort of related to the last question that it is certainly important to ensure to the extent possible that your community understands as well as possible your multiple goals and I think for us, our multiple goals included both supporting solar and encouraging the adoption of more solar in town while at the same time trying to be as fair as possible to all of our rate payers. So I think balancing those two things is a big part of what we've been thinking about over these last two years, so that's important. Certainly understanding and really, really very carefully looking into what your own costs and potential costs savings _____ is important.
Sarah Busche:
Well, thank you so much, Jan. We just have one final question before we're going to move on to Leslie's presentation, and everyone, keep sending your questions for Jan. We'll get back to those at the end. We'll do a joint Q&A session at the very end. And this one comes from Brian. It should be an easy one. He's asking if there's any utility-scale solar that Concord owns or in Concord's service area.
Jan Aceti:
Not currently. We are working on that. We've issued an RFP and have gotten responses and are currently negotiating with vendors. We are hoping to install some capacity on an old landfill.
Sarah Busche:
Great. Thank you so much. So what we're going to do then is transition over to our second speaker and I'd like to introduce her. Her name is Leslie Libby. She began working for Austin Energy in 1991 and has managed the utility's Solar Incentive Program since it began in 2003. She has a master's in engineering from University of Texas Austin. Leslie, are you there?
Leslie Libby:
Yes, I am.
Sarah Busche:
Great. We'll turn it over to you right now.
Leslie Libby:
Great. Thank you very much and I just wanted to say I really appreciated Jan's presentation. It was wonderful and enlightening and made me think, so I appreciate that.
[Next Slide]
My presentation is on Austin Energy's residential solar rate and just to give you some overview of Austin, our service territory actually encompasses more than the city limits.
[Next Slide]
We are a municipally owned utility, and we have roughly 400,000 customers, the vast majority, as you can see, are residential customers.
[Next Slide]
We have a generation plan and it is part of our climate protection plan and currently – let's hold on here for a second. I can't see my whole screen. We have roughly 27% renewables currently with 849 megawatts of wind and really 39 megawatts of solar. We have biomass, gas, nuclear, and coal. Our goal is to achieve 35 megawatts of renewables by 2020, which then also includes 200 megawatts of solar.
[Next Slide]
We have one utility-scale project that is 30 megawatts. That goal of 200 megawatts by 2020, right now we are planning to achieve that through 175 megawatts of utility-scale solar and 25 megawatts of distributed solar. We have roughly 9.4 megawatts of distributed solar today.
[Next Slide]
Just to give you an idea of what our installed cost is for solar, you can see that municipal solar tends to move up and down because the data set is very small. We have had a shift in which type of solar is more expensive in Austin. It used to be commercial and now it's residential and currently customers pay about $3.75 a watt for residential solar.
[Next Slide]
The rebate is $2.00 for residential solar. According to the Solar Energy Industry Association's second quarter 2012 report, Austin had the lowest cost solar in the nation at $3.88 a watt DC. We have currently 1,918 participants in our program since it started. Our goal for this year alone is 660 participants. Recently in October 1, 2012, we migrated all solar customers from net energy metering to our residential solar rate and we currently compensate customers $.128 per kilowatt hour, which is what we have determined is our current value of solar to the utility.
[Next Slide]
Traditional metering has its pros. It was a great first step to compensate customers for their solar generation. We would install one meter that could flow backwards and forwards and they would be billed on the net. We have always installed a separate solar meter to inform customers of how well their solar system is performing so it's very easy to administer net energy metering. The cons of that, is it assigns just a retail value for solar and may not be representative of the true value of solar and there's no provision to allow utilities to recover the full cost of service for solar customers under net energy metering. And the excess generation is commonly undervalued at either the avoided cost rate or our customers, who are being compensated monthly at our fuel charge rate. And here's the big con, is that under multitiered rate structures, you create variable solar values and we were migrating from a two-tier rate structure to a five-tier residential rate structure and that's what got us moving toward changing how we compensated customers.
[Next Slide]
So the value of solar approach, we believe there are a lot of pros to that in that the utility can now recover the full cost of service for serving residential customers that have solar. It reduces or eliminates class subsidies. What I mean by that is that higher consuming customers that end up with entering into the highest tier of a five-tier rate structure would also get their value of solar at that higher tier rate. Customers who try and achieve zero net energy kind of stay in the lower tiers and so they would be compensated less for their solar generation.
It decouples the solar value from incentives. That's how we do it here in Austin. We provide a rebate and then compensate customers according to the solar value. It allows for the production to be more fairly compensated. I think I've already mentioned that. It enables rate structures that encourage energy efficiency and conservation. What happens if you have net metering on high consuming customers, they end up getting a better value for their solar so they're less likely to be incentivized to consume less. The annual adjustment of our value of solar rate prevents over and under payment as utility costs change and as the value of solar changes to the utility. The cons for the value of solar approach is that it is a very complex stakeholder process to identify the benefits and develop the algorithms and also it is very difficult for customers to understand what the value of solar is, so it is very utility specific so it does take some education of your customers.
[Next Slide]
So this is how we apply the residential solar rate to our customers is since we have two meters, we can add the net meter read to the solar meter read and total those together and that is the total consumption for the customer and they are charged like any other customer for that level of consumption according to our five-tier rate structure. And then we also will apply a credit to their bill based on our value of solar rate, which is currently $.128 per kilowatt hour for every kilowatt hour that they generate, regardless of whether it is fed into their home or whether it goes back onto the grid. It is the total number of kilowatt hours that is generated by that PV system. The credits are applied to all Austin Energy charges and they roll from month to month until the end of the year and then we zero out those credits and the value of solar algorithm is reassessed and applied to the residential solar rate annually.
[Next Slide]
So these are the values that we typically have been looking at in order to assess what the total value of solar is to Austin Energy and so the energy value is based on the energy produced by a generator at the marginal cost. The PV value is based on the cost of energy it replaces. The PV hourly kilowatt contribute to a system is multiplied by the capital cost of installing a new gas turbine and that's how we calculate the capacity value. The T&D deferral is calculated by expense savings due to adding distribution which can defer future T&D capital investments. The T&D benefit is location specific. The loss savings is calculated by looking at what the PV produces. It produces electricity at the point of consumption and therefore you eliminate the need for supplemental energy to cover T&D losses. So then the environmental value has been based on the customer's willingness to pay a premium price for green power in Texas.
[Next Slide]
So once you add up all of those values, and I really don't have time in this presentation to go over how we calculate each one of them, but when you do, you stack them on these bars in this bar chart and you can see that the value does change depending on what the orientation and tilt is of the PV system. The west-facing systems, for example, have a slightly higher value than south-facing system. But the vast majority of our customers have south-facing systems on average and so we choose to use the value associated with the south-facing 30-degree tilted system.
[Next Slide]
Recently Texas has moved from a zonal price for energy and we are now under this nodal price structure and so we wanted to look at updating our value of solar last year based on looking at this nodal price structure and one of the things that was of interest to us is to look at for example here two separate days. One is a summer day, July 30, 2011, and you can see that it was most likely a cloudy day based on the red line beneath the blue line on the left side of the screen. The jaggedness of that shape indicates that there were clouds that day and at the same time, the nodal price didn't exceed $60.00 per megawatt hour. But on August 30th it was a very sunny day, and as you can see by the shape of the plots of the solar production that day and at the same time, the price spiked to its absolute peak. In Texas at that time, the nodal price was capped at $3,000.00 per megawatt hour and so our solar in Austin contributed immensely on that particular day.
[Next Slide]
So what have we learned from implementing the value of solar rate and I would say one of the No. 1 takeaways should be that you need to educate your stakeholders. We sent out notices to all of our solar customers and the solar advocates were informed through stakeholder process and the installers, we gave presentations to them at our monthly contractor meetings. But when it came time to migrate all of our customers over to this rate, it was evident that it was very confusing and many customers didn't understand it, and we had to spend a lot of time on the phone educating the customers. And we do have a model that we developed that we could run last year's bills through the model and show them with the five-tier rate and the value of solar, the residential solar rate, that they actually were fairing at least as well or better under the new rate structure. So we were able to help customers understand that we were actually trying to make things better for them by launching this residential solar rate.
Although the highest users of electricity that would have benefited maybe more by having a net energy metering tariff in place, were unhappy because they knew that that would be better for them, but we no longer have a net energy metering tariff that allows residential customers to participate in. Only our commercial customers can take advantage of net energy metering now in Austin, Texas.
And at the same time that we were launching our new rates, we also were migrating to a new billing system, and so we found out there were also problems with the billing system and one of the major ones was carryover credits. I mentioned earlier that the credits could carry over from month to month and then we would zero them out at the end of the year. What happened with us is we're a municipally owned utility that has one bill for city services which includes waste recovery and water and waste water and those bills were being affected by the credit. In other words, the credit was being applied to those bills so we were under recovering for those services. And our solution was to provide two bills for our solar customers. They now each receive a bill for electricity and then also a bill for all other services.
One of the remedies to this we are thinking about is to instead of providing the dollar credit on the bill, that we would provide a kilowatt hour credit. And I think that makes a lot of sense since people are used to getting carryover credits for their minutes for their cell phone plan that it might make sense to them to have carryover credits denominated in kilowatt hours for their solar credits. So we're looking at changing that from dollar credits to kilowatt hour credits. We haven't achieved that yet but I think we will be doing that within the next several months.
And then you have to be careful about when you zero out credits, if you're going to. One of the things we realized is in the tariff we were going to align the zeroing out of the credit with the new adjusted value of solar, which was going to happen on January 1. We were also aligning that with when we changed our fuel charge rate. But then it became obvious to us that solar customers tend to use up their credits in the summertime when they're using their air conditioning the most and so at the end of the summer or the beginning of our fiscal year might be a better time to do the zeroing out of the credits and then they can begin to build credits in November and December and then not have those credits wiped out in January. So we are also looking at changing out the time at which we will zero out the credits.
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And that concludes my presentation and if you have any questions, I'd be happy to answer them.
Sarah Busche:
Thank you so much, Leslie. It's really interesting to hear about this since it seems to be pretty revolutionary in terms of calculating the value of solar. _____ have had a lot of good questions come in and we'll get started with a few and then we'll do some more for Jan and _____ Leslie. We'll go back and forth.
So the first one comes from Thomas and he says that "You mentioned that residential is more costly than commercial. When making this comparison, how do you include the cost of transmission?"
Leslie Libby:
Residential is more costly than commercial.
Sarah Busche:
I think he's talking about PV. I think in the beginning of the presentation you mentioned that residential _____ _____ _____.
Leslie Libby:
Right, yes. Well, I'm just saying in terms of our rebate program, we ask or require all of our customers to send us their invoices from their solar contractors and the data I'm using is the invoice cost to the customer and so the average installed cost that has been invoiced to customers is higher for commercial customers right now than for residential customers. So T&D doesn't really enter into it. It's actually what they're paying to have their PV system installed on their house – or their business, sorry, or their business.
Sarah Busche:
Dan noted that at the beginning you noted that Austin leads the nation in the low cost of residential solar and he's wondering how Austin enabled this and was it through any association with reducing soft costs?
Leslie Libby:
I think that soft cost plays an issue. For those of you on the phone that don't understand what soft costs are, they're things like – think of it as red tape. I think that's a good analogy. It's how much it costs to permit a system, the waiting time can add cost, the amount of time it takes for the installer to get the rebate back if they're floating the rebate, just the cost of working, rebate application. Interconnection can be very costly for some utilities. And I would say that we believe our soft costs are pretty low and that is reflected in the installed cost for residential. I would also say that we have quite a few installers in Austin and we have a very competitive market for residential solar and I believe that there are a few residential contractors who have figured out to reduce their profit on each system in order to take a larger market share in Austin. I think that also has attributed to the lower cost.
But I also want to interject that a lot of times when people think that costs are low that it affects the quality of the installation and I just want to ensure everybody that we do a lot of upfront quality control where we evaluate the roof of every potential project to make sure that the system is appropriately located and that it won't be shaded and then we have a very thorough final inspection process. So we do believe we also have some of the highest quality PV systems installed in the country.
Sarah Busche:
So it sounds like both reducing soft cost and also ensuring that the systems that are installed are going to be optimized for generation.
Leslie Libby:
Correct.
Sarah Busche:
Great. So we have a question that has come in from a few people, including Kevin and Steve, and they're wondering if you could discuss why the credit recapture is capped at the annual residential bill amount and why some value isn't applied to the excess when you do the rollover.
Leslie Libby:
Oh, I think that is a great question and there are a few reasons. One is we want to incentivize system sizing to be up to zero net energy. That is a really important part of our climate protection plan is to incentivize zero net energy buildings in Austin, Texas, so that's one reason that we want to incentivize up to zero net energy. One of the reasons that we felt we needed to zero out the credit is that according to Texas property tax law, we have customers can get a property tax exemption on their PV system only if they do not have it be a revenue generator for them. And we were afraid if they were compensated for any excess electricity, then it could jeopardize their property tax exemption. So that was another reason why we decided to go ahead and cap it at zero net energy.
Sarah Busche:
Great, thank you. Mark and several others have the same question. "How have solar developers reacted to the annual adjustment mechanism of the value of solar rate?"
Leslie Libby:
Well, we haven't changed it yet. We've only launched it at $.128. But I think they really like having a solar value credit that they can market to their customers. In the past, I think it was a little bit difficult even with our two-tier structure to get a good feel for how any individual customer would get credited for their solar generation because it was highly subject to which tier they were offsetting and the five-tier rate structure would have been extremely difficult. So now they can run PV watts and know that the customer will indeed be getting that $.128 per kilowatt hour. Now how we move forward with adjusting that over time, only time will tell. It all depends on how much the solar value credit changes from year to year.
Sarah Busche:
Great, thank you. So I'm going to start asking some questions to Jan and we'll go back and forth between Jan and Leslie. Thank you for the questions you're sending, everyone. They've been great and we're trying to get to as many as we can.
So Jan, Jane asks, "Has Concord considered owning its own solar projects and can you talk about why or why not?"
Jan Aceti:
We certainly have considered it and the utility-scale project that we're in the process of procuring, which will be on an old landfill is – well, actually, let me back up. In fact, that is not one that we're planning to own. We are planning to sign a power purchase agreement with an owner of that landfill solar project. I think that as a utility, our usual sort of mode of doing business is to purchase power and so we feel that it's more appropriate to leave the operation of a utility-scale solar facility in the hands of the people who are expert at operating it and our expertise is in purchasing power and distributing it to our customers. So we don't plan to own utility-scale solar facilities at this time.
Sarah Busche:
Great. Thank you, Jan. This one, Leslie, is for you, and I apologize if I mispronounce the person who asked the question, their name, but I believe it is Joya asks, "Does providing a kilowatt hour credit incentivize customers using energy upper tiers more than customers who only use lower tier energy?"
Leslie Libby:
So I think by leaving the residential solar rate as a five-tier rate structure and we believe by leaving that alone and not having net energy metering does incentivize the customers that are pushed into those higher tiers because they're consuming more energy. And so that's why we decoupled our residential solar rate from the five-tier rate is because everybody, no matter how much energy they consume each month, will get the same credit. So I hope that answers the question.
Sarah Busche:
Hopefully. If it doesn't, Joya, feel free to send in another one. She says thank you and we said her name correctly, so yay. The next question is for Jan. "Do you work with residents participating in the rebate program to help them identify loan or other financing options?" And this question comes from Serge.
Jan Aceti:
We do not, however one of the things that the organizers of the solar fair that I mentioned earlier that happened in early 2012, one of the things that they did was they invited exhibitors to the fair and that was not only solar installers but also banks that were willing to make loans to folks that were interested in going solar. I honestly don't know to what extent people tend to use home equity loans, for example, to help them purchase solar _____ than buying them just outright, but we felt that that was a good move on the part of organizers just to make it clear to residents that this can be done. You don't have to front the whole cost yourself.
Sarah Busche:
Thank you. This is a question for both of you, so Leslie, I'm going to ask you first. Tom asks if there's been any outside peer review of the value of solar estimates to the utility and applicability beyond just these two utilities.
Leslie Libby:
Could you repeat the second part of the question?
Sarah Busche:
Yeah, so first if there's been a peer review of the value of solar estimates and then also if a peer review had included any applicability – maybe talk about how this type of program could affect other utilities.
Leslie Libby:
Oh, okay, yes. Well, we did get an outside consultant to help us evaluate what the value of solar is to Austin and we began really the first time we looked at this was in 1994, I believe, a long time ago, and we started looking at the value of solar for Austin in 2006. And that is the first time we hired a consultant to come in and help us with our internal stakeholder process and I can tell you it was a very rigorous process, a lot of debate, and the consultant had a lot of expertise to bring to the table. We really haven't had any outside peer review.
There are publications out there and if any of you are interested in looking at how we have moved forward with this residential solar rate and the value of solar, all you have to do is Google "Austin Energy and value of solar" and quite a few things come up. So it has been out there. There was a paper recently that was published on this update that we did to the value of solar that ended up with the $.128 per kilowatt hour. And I do know that quite a few utilities are looking at whether or not they would like to do the same thing because I've been getting many phone calls from utilities around the nation.
Sarah Busche:
And perhaps a few more after this webinar. So Jan, I'm going to ask the same question to you. Have you had an outside review of the calculations for the rebate program and also if you could talk a little bit about how it might apply to other utilities.
Jan Aceti:
We have not had an outside review. We would certainly welcome feedback from any other utilities out there that are listening on what we've done. I think that the types of cost savings that I've described are common to all utilities and so I think that other utilities should be able to take this concept and use it if they feel it is of use to them.
Sarah Busche:
Great. Thank you so much. Jan, this is for you, again. "Have you incorporated discount rates into your calculations for cost in future years?" And this comes from James.
Jan Aceti:
We have not. That is a refinement that we could make.
Sarah Busche:
Great. Well, thank you so much. I think that's about it for the question and answer session. We are going to, like we said, post these online. The webinar itself, the recording, will be posted along with the PowerPoints and a transcript. That takes about two weeks to get all of that coded and up but we'll send an e-mail out to everyone so you'll have easy access to it.
And I really want to thank both Jan and Leslie for their excellent presentations today. Hopefully everyone found it useful. Please be sure to complete the survey at the end and let us know what other topics you'd like us to cover at future webinars. We hope you are able to join us for the next one, which is on March 19th, and we'll focus on communities that have developed renewable energy parks using multiple renewable energy technologies and will be highlighting experiences in Hempstead, New York and Ellensburg, Washington.
So thank you, everyone. Have a good afternoon.
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