A New Model for Valuing Distributed Energy
Heres the secret sauce: E+C-Co+Be+Ext.
ADAM JAMES
The process of valuing energy resources can be very complex. As a result, the current model for assessing value is a reflection of the assets that have traditionally populated the grid, such as large centralized power plants, sprawling transmission and distribution lines, and the inherent costs for operating and managing this system. The valuation model has been to compensate these big investments over long periods of time through consumers electricity bills.
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A new paper from Travis Bradford of Columbia University and Anne Hoskins of Princeton University has tackled this issue head on, laying the groundwork for an expert energy policy roundtable that will aim to come up with a new model for valuing distributed energy. The full report has two important points:
1) A new valuation model must consider both the energy and capacity value of distributed energy....
2) A new valuation model should consider both the costs and benefits of distributed energy....
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Creating a New Valuation Model
Based on these findings, the authors suggest a new model for valuing distributed resources. The alphabet-soup version is "E+C-Co+Be+Ext." In laymans terms, this means adding the savings from offsetting wholesale energy purchases (E) to the savings from avoided capacity investments (C), subtracting the range of costs listed above (Co), and adding the benefits (Be). The Ext part of the equation is the right of states to assess environmental, security, and job creation into the mix and value those benefits accordingly.
This is actually very straightforward. The equation boils down to valuing energy based on the savings from using distributed energy compared to using the next best option, along with considering the balance from a cost-benefit analysis perspective. There are a few real-world examples of this, but unfortunately, as the report notes, none of them are comprehensive. Examples include net energy metering, which allows consumers to be compensated for the electricity they generate, but only assesses retail energy value and not the long-term energy and capacity values or the costs and benefits.
There is also the ...