The New York State Public Service Commission released its much-anticipated Order Regarding Value Stack Compensation yesterday, which sets forth new rules and methodologies for calculating the Value of Distributed Energy Resources (“VDER”) credit for Community Distributed Generation (“CDG”) projects.
Here are the key changes and why it matters:
What changed: The PSC is doing away with the MTC component of the value stack for new CDG projects and replacing it with the Community Credit in certain utility territories. In NYSEG, National Grid, and RG&E, the Community Credit will be a consistent value of $0.0225/kwh. In ConEd, the Community Credit is at a value of $0.12/kWh. Most importantly, this Community Credit – and the Demand Reduction Value – will be applied to ALL CDG subscribers.
Why this matters: Before this order, only mass-market CDG subscribers (residential and small commercial) customers were able to capture the MTC value, disincentivizing the participation of larger subscribers (like C&I and master-metered buildings) who did not get this value. The PSC acknowledges that it was not their intent to discourage anchor subscriber or mast-meter building participation.
Now what: We expect developers and their financial partners will seek to have anchor subscribers in place on new CDG projects that will capture the full value stack compensation. As the PSC expects, this rule will provide revenue certainty for financial partners, drive down cost of capital, and enable further development of CDG in these utilities’ territories. The PSC also vocalizes it’s hope that this policy change “may also increase the ability of developers to enroll subscribers with low credit scores.” While this sentiment is admirable, we’d wish there was more more teeth to ensure low-to-moderate income subscriber participation.
Did they forget about Orange & Rockland and CenHud? No, but the PSC declined to extend the Community Credit to these utilities. Instead, the PSC is establishing an up-front Community Adder that will ensure continued development of CDG but avoid imposing higher costs on ratepayers. The PSC has authorized NYSERDA to use $43M of uncommitted funds to pay for this adder, which is expected to fund 50 MWAC of CDG in CenHud and 45 MWAC in O&R.
Are your projects grandfathered? Projects that qualified AFTER July 26, 2018 will receive compensation based on this new order. A project “qualifies” when it meets the standard for placement in a Tranche – i.e. when 25% of its interconnection costs paid or Standard Interconnection Contract executed. Therefore, CDG projects qualified before this date will not receive the Community Credit for non-mass-market subscribers.
Phase One NEM for ≤ 750 kW Projects
What changed: The PSC has expanded the eligibility of Phase One NEM projects to those that at are less than or equal to 750 kW AC, behind the meter of the customer whose usage the system is intended to off-set, and the annual output won’t exceed 110% of the customer’s on-site usage. The PSC recognized that the value stack was not all that well-suited for smaller, demand-metered non-mass market customers that wanted to off-set their own usage.
Why this matters: Smaller CDG projects in development may be converted to Phase One NEM, to the extent the host customer has sufficient load to off-set the expected generation of the project and financial partners are comfortable with this single off-taker.
What didn’t change? Even with the establishment of the Community Credit, any new CDG projects with unsubscribed generation applied to the CDG Host’s bank, will not receive the Community Credit and only the value stack compensation. This is the same currently with the MTC.
The PSC also rejected Staff’s recommendation to have a $0.01/kWh Community Credit applied to non-mass market subscribers on current CDG Projects in Tranches 1-4. The PSC shot it down because this increased compensation would risk increasing net revenue impacts without spurring new CDG development.
The Take Away
The PSC addressed a major disparity in the compensation values for mass-market and large CDG subscribers under the current Value Stack methodologies. By creating a Community Credit that applies to all subscribers, and is in addition to the DRV, the PSC has thrown its unequivocal support of bringing large anchor subscribers to CDG projects. Now we wait to see if the expectations of lower financing costs and lower subscriber credit requirements come to fruition. The VDER Transition Order and VDER Implementation Order were always intended to be, well, transitional, and to improve the value stack. The PSC has done just that.
Jason Kaplan, Sam Place, and Nick Baudouin lead PowerMarket’s Business Development and Operations team. We’d be happy to dive deeper into this new Order and its implications to your community solar developments. Reach out to us via email at Jason.firstname.lastname@example.org, email@example.com and firstname.lastname@example.org.