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.