Alerts and Updates
Energy, Environment and Resources Update
Issue 21 | April 2017
Amid recent media reports that President Trump is planning to issue an executive order aimed at expanding offshore drilling opportunities for petroleum exploration and production companies – opportunities that had been restricted by the Obama administration – Volkswagen (“VW”), one of the world’s largest automobile manufacturers, has announced its plans for investing the first $500 million of the $2 billion that it is required by court order (associated with the diesel emissions litigation) to invest in zero emission vehicle (“ZEV”) infrastructure.
Of the $500 million, $200 million would be invested in California, and the other $300 million elsewhere in the United States. Virtually all of the $500 million would be spent on the installation of charging stations, according to VW. Under VW’s plan, the chargers would be located on highways spanning 39 states and separately in 16 metropolitan areas. Reportedly, VW’s plans call for 1,100 fast charging stations to be built, with installation to occur within 30 months. The United States Environmental Protection Agency and the state of California are currently reviewing the plans.
For context, Tesla states that it has 828 “Supercharger stations” in the United States, with 5,339 “Superchargers.” This network, of course, has been built out over a number of years.
Charging stations require a supply of electric power, of course, but of the fossil fuels likely to be used to generate that electric power, oil is the least likely to be chosen, for a variety of long-standing reasons. Currently, less than one percent of the nation’s electricity is generated by combusting oil. To the extent that electric powered automobiles gain market share, petroleum-fueled vehicles will, by definition, lose market share.
Much is uncertain about the extent to which the current administration’s adoption of policies in support of the petroleum and coal industries will translate into tempering (or possibly even expansion) of production and sales of zero emission vehicles. But it is safe to say that the ZEV infrastructure investment mandates that were built into the VW diesel emission settlement should provide a meaningful boost to the vehicle fueling transformation that many wish to see. This will happen without any court challenges – of the kind that face projects for Artic or Atlantic off-shore drilling – in the way.
Illinois Commerce Commission Commences Study of Utility of the Future
The Illinois Commerce Commission (“ICC”) last month initiated a statewide proceeding to transform the state’s utility grid. The initiative, known as NextGrid, will be a consumer-based, collaborative study led by an outside facilitator, that will explore anticipated technological advances and existing regulatory models. Based on the findings, recommendations will be provided to the ICC and the Illinois legislature regarding possible actions and policies that can have a positive impact on the energy landscape and the economy of the state. All stakeholders, including consumer groups, environmental advocates, utilities, academics, technology leaders, government agencies and any other interested parties, are invited to participate.
After the study is concluded, in approximately 18 months, the ICC is expected to issue an interim report in early 2018 and a final report in late 2018. The arc of this proceeding is expected to be much shorter than a comparable proceeding in New York with the Reforming the Energy Vision (“REV”) proceeding, which has been ongoing for approximately four years. The move toward transformation of the utility grid is being undertaken in several states and indicates that technological changes are driving changes in the utility industry.
New York PSC Adopts Order Replacing Net Metering With Value Stack Compensation for Distributed Generators
The New York Public Service Commission (“PSC”) approved a landmark order in its Reforming the Energy Vision (“REV”) proceeding, adopting a new paradigm replacing net metering for clean distributed energy resources (“DER”) with a new method of compensation known as a “Value Stack.” The Value Stack will be implemented through the development of Value of Distributed Energy Resources (“VDER”) tariffs in each utility service territory in New York.
Up until now, net energy metering (“NEM”) enabled DER to sell excess power back to a utility for a set price based upon the price at which the utility would sell power to the account holder. As an example, if a commercial customer has solar on its premises, the credit the customer would receive for net metered electricity would equal the price the customer pays if it takes power from its utility. The PSC found that NEM fails to accurately reflect the value that the DER provides to the utility system, and it expects VDER to improve the method of compensation by taking into account locational, environmental and temporal values of a project.
VDER Phase One will establish two tariffs to be adopted by each utility pending further refinement of the Value Stack concept. One tariff will be the Phase One NEM, which will apply to rooftop solar and other residential and small commercial clean energy projects (but not energy storage unless combined with solar). The second tariff will establish a new Value Stack, which will be applicable to community DER and commercial and industrial projects. New tariffs took effect on April 1, 2017.
The Value Stack will include: 1) energy value, based on day ahead hourly LBMPs (location-based marginal pricing), including losses; 2) capacity value, based on retail capacity rates for intermittent resources, and capacity tag for dispatchable technologies, based on performance during the peak hour in the previous year; 3) environmental value, based on the higher of the latest Clean Energy Standard Tier 1 renewable energy certificate procurement price of the federal government’s social cost of carbon; and 4) demand reduction value and locational system relief value, based on utility marginal cost of service studies and performance during 10 peak hours.
Existing projects that are presently net metered will be grandfathered and will be entitled to continue receiving compensation based on net metering for 20 years before transitioning to the new compensation method. New DER projects interconnected between now and January 2020 to serve residential and small commercial customers will also be permitted to be compensated with net metering credits for 20 years as Phase One net energy metering. All DER projects installed prior to the effective date for Phase One net energy metering will have the option to transition to the new system, even if they are eligible to continue net metering.
New York utilities will have 45 days from the date of the order to propose detailed schedules and work plans for developing granular locational pricing reflecting the elements of the Value Stack and must file a proposed implementation plan by May 1, 2017. During Phase One, the PSC staff, utilities and stakeholders will meet to finalize recommendations to the PSC about how to refine the new Value Stack concept. The Value of DER order, along with other orders issued recently in the REV proceeding, is continuing New York’s movement towards incorporating distributed resources into the utility grid in a cost-effective manner that can enhance the reliability and resiliency of the grid at a cost that is fair to all participants.
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