On September 14, 2017, the New York Public Service Commission (“PSC” or the “Commission”) issued an Order on Phase One Value of Distributed Energy Resources, which finalizes the Value of Distributed Energy Resources (“VDER”) Phase One Value Stack, as originally articulated in the Commission’s March 9, 2016 VDER Phase One Order. This milestone represents a major step toward moving beyond net energy metering (“NEM”) to articulate a refined valuation methodology for Distributed Energy Resources (“DER”) which recognizes the unique values DER provides to the grid.

The Commission’s September 14, 2017 Order approved, among other things, a modified version of the utilities’ Value Stack Implementation Plans, which describe how each utility intends to implement the Value Stack of VDER Phase One. The Implementation Plans include, among other things, methods of calculating compensation methodologies for the Demand Reduction Value (“DRV”) and Locational System Relief Value (“LSRV”) – both of which are components of the Value Stack intended to compensate DER for the value of avoided distribution-level infrastructure costs. The Commission directed the utilities to fix a project’s DRV for three years following interconnection, to be updated every three years thereafter for the remainder of the compensation term to reflect actual reductions in utility costs. Similarly, the Commission directed the utilities to fix a project’s LSRV for 10 years following interconnection, to ensure developer predictability. The Commission noted that more refined valuation methodologies for DRV and LSRV will be developed during the Phase Two VDER process.

In addition to approving the utilities’ Value Stack Implementation Plans, the Commission addressed a number of other unresolved Value Stack issues such as compensation for storage paired with DER and the process for setting the environmental compensation component of the Value Stack. In the Commission’s March 9, 2016 VDER Phase One Order, the Commission determined that storage paired with DER should be eligible for NEM (for mass-market on-site projects) or Value Stack compensation, but directed staff to further work with stakeholders to address concerns about uneconomic arbitrage and environmental value compensation for re-injected energy that may not have been originally clean. The Commission commented on the utilities’ proposal to prevent non-renewable injections from receiving environmental value compensation , noting that the proposal required further analysis, particularly on the technical aspects of how DER providers can demonstrate controls to ensure storage is charged exclusively with clean energy from eligible DER.

Beyond the environmental value issue, there are other issues that must be addressed before Value Stack compensation of storage can be fully implemented, such as determining how storage is treated in the Standard Interconnection Requirements (“SIR”), technical and performance requirements, and how to determine the nameplate capacity of a paired system. To resolve those outstanding issues, the Commission directed staff to file proposed changes to the SIR and related recommendations by December 20, 2017 for public comment.

The Commission’s September 14, 2017 Order also clarified an important issue related to the environmental compensation component of the Value Stack (the “E Value”). The Commission decided to fix the E Value rate based on the Renewable Energy Credit (“REC”) price at the time a developer makes the 25 percent interconnection payment, or when the interconnection agreement is signed if no such payment is required.

Finally, the Commission also took this opportunity to lay the groundwork for expanding the size of solar projects from the current cap of 2 MW to 5 MW. The Commission acknowledged that solar developers often subdivide land into multiple adjacent 2 MW segments to stay within the cap, and noted that this complicates the development process. By expanding the project size to 5 MW, the Commission hopes to decrease development costs and spur competition in the solar market. However, before the Commission makes a final determination on the policy and rules for projects larger than 2 MW, the Commission is requesting comments on a series of questions related to eligibility and compensation. These questions include, among other things, whether the capacity limit should be increased only for particular technologies or project types, and whether existing projects should be permitted to opt-in and/or expand their capacity. The Commission requests responses from stakeholders by November 20, 2017, which will allow the Commission to make a final determination by early 2018.

With this refined valuation mechanism, the Commission hopes that developers will be incentivized by accurate pricing to spur prudent development in key locations to assist New York in meeting its ambitious clean energy goal of generating 50 percent of its electricity from renewables by 2030 and the companion goal of reducing carbon emissions 40 percent by 2030.