California to Include Avoided Transmission Costs in DER Benefits Calculation

April 24, 2020
The California Public Utilities Commission has agreed to consider avoided transmission costs for the state’s three investor-owned utilities as part of its cost-benefit analysis for distributed energy resources (DERs).

The California Public Utilities Commission has agreed to consider avoided transmission costs for the state’s three investor-owned utilities as part of its cost-benefit analysis for distributed energy resources (DERs).

The issue centers on the PUC’s “avoided cost calculator,” or ACC, a methodology used to determine the benefits of DERs that is used across commission proceedings such as net energy metering.

Since it was first approved in 2005, the calculator has evolved to cover six types of avoided costs: generation capacity, energy, transmission and distribution capacity, ancillary services, renewable portfolio standard and greenhouse gas emissions. The ACC is updated each year.

However, until now, the calculator only included avoided transmission costs for Pacific Gas & Electric.

In response to concerns raised by the Clean Coalition, Vote Solar, the Solar Energy Industries Association and 350 Bay Area, the PUC on April 16 revised a proposed decision so avoided transmission costs would also apply to Southern California Edison and San Diego Gas & Electric.

True value of DERs

PUC staff was also directed to refine PG&E’s methodology for calculating its avoided transmission costs, which the Clean Coalition contends may significantly undervalue the savings DERs can bring to transmission costs.

“Including the true value of the transmission costs that can be avoided through deploying DER and DER-driven microgrids is a critical part of assessing the cost-effectiveness of any DER project, program, or policy,” said Craig Lewis, executive director of the Clean Coalition, a non-profit that designs microgrids.

Transmission service in California costs more than $20/MWh and its levelized cost for the next 20 years is forecast to be $30/MWh, the Clean Coalition told the PUC in testimony early this month.

High transmission costs avoidable

“These costs approach or increasingly even exceed the cost of the energy itself, and are largely or even entirely avoidable in many cases,” the group said. “As such this should be recognized as a very substantial component of potentially avoidable costs in the ACC, and evaluated based on the operational profile and characteristics of the DER being evaluated.”

Not including avoided transmission costs raised the cost of DERs in the avoided cost calculation by up to 50%, according to the Clean Coalition. 

Illustration of how transmission access charges artificially inflate the cost of local energy. Courtesy of Clean Coalition

The group said failing to include avoided transmission costs in the ACC would lead to flawed planning and program development, potentially saddling ratepayers with billions of dollars of misdirected investments, and less than ideal outcomes for grid resilience and environmental effects.

Looking ahead, the PUC directed its staff to immediately hold a workshop to discuss a methodology for calculating avoided transmission costs as well as calculations for the net cost of new entry for battery storage and avoided costs for “high” global warming gases.

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About the Author

Ethan Howland

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