Solar energy has many benefits – from financial savings to its positive impact on the environment. However, if there’s any downside to solar energy, it’s that you will only produce electricity during the day. Historically, the primary solution to this obstacle has been a policy known as net metering. With net metering, you can send excess solar electricity to the grid for credits, and use built-up credits when you need them.
Recently, several states throughout the U.S. have altered or dismantled their existing net metering policies, one of which was New York. In 2017, the state began their transition process towards a new method for excess solar energy compensation, known as the Value of Distributed Energy Resources (VDER).
What is VDER?
New York State’s Public Service Commission (PSC) approved VDER in the spring of 2017 with the goal of more accurately compensating renewable energy generation for its benefits to the environment and electrical grid. The first phase of VDER implementation began in the fall of 2017, and only applies to large-scale commercial and industrial sized solar installations.
VDER is applicable to anyone generating distributed energy (i.e. solar, hydro, wind energy) in a service territory that’s overseen by the Public Service Commission. Notably, this doesn’t include customers of Public Service Electric and Gas, Long Island (PSEG LI). This is because as they operate under their own regulatory body known as the Long Island Power Authority (LIPA). However, LIPA separately approved their own VDER mechanism to compensate Long Island solar power generators in a similar fashion.
One of the key differences between VDER and NY’s net metering policy is how you’re compensated for excess solar electricity. With traditional net metering, you receive volumetric credits as you’re exporting extra electricity to the grid. This means that if you send 10 kilowatt-hours (kWh) to the grid, you’re going to have a credit amount of 10 kWh to use in the future. With VDER you receive a monetary credit that you can roll over into future billing cycles. This rate you receive, known as the Value Stack Tariff, is variable and largely depends on when the electricity is being sent and where it is going.
How is the Value Stack Tariff calculated?
There are five main factors that go into calculating the Value Stack Tariff for a solar panel system:
- Locational-based marginal pricing (LBMP)
- Capacity (ICAP)
- Environmental value (E)
- Demand reduction value (DRV)
- Locational adders (LSRV)
Locational-based marginal pricing (LBMP)
LBMP is the wholesale price of electricity. It is based on your electrical load zone, demand, and fuel prices. As such, this component of the Value Stack Tariff fluctuates depending on when you’re sending solar electricity to the grid.
The ICAP portion of your Value Stack Tariff is a similar credit to what you’d receive under net metering; it’s a value in energy pricing that exists to ensure that there’s enough electricity supply from generators to meet peak demands. ICAP pricing is rolled into electricity supply rates you pay on your current electricity bill. Under VDER, you continue to receive credit for this value. Similar to the LBMP, this component also fluctuates, though not as frequently.
Environmental value (E)
The E component of the Value Stack Tariff compensates you for the environmental benefits that solar and other sources of distributed generation provide, typically valued by the state’s renewable energy certificate (REC) price per kWh. In 2018, this amounts to approximately two to three cents per kWh of solar energy sent to the grid.
The value you receive for the E component of the tariff is established by the time your system is up and running, and locked in for 25 years.
Demand reduction value (DRV)
The DRV compensation factor is based on how much your system reduces your utility grid’s peak demand. In other words, you’ll receive higher compensation rates if you’re providing the grid with solar electricity when demand for distribution is very high, and you’ll have a lower DRV value if you’re exporting solar electricity to the grid when demand is low.
Locational adders (LSRV)
The locational system relief value (LSRV) component of a Value Stack Tariff isn’t applicable to all solar power generators under VDER; rather, it’s an adder, or a bonus, that the state provides if you’re installing solar in a location where there’s a lot of congestion for electricity distribution. An analogyAreas that experience electricity congestion are places where the grid’s transmission or distribution aren’t capable of handling all electricity loads necessary when the demand for electricity is at a peak. Utility companies provide maps of where these congestion zones are so you can check to see if your location is eligible. The adder is paid for the first 10 years of the system’s lifetime.
How will VDER impact you?
The first phase of VDER has already begun, but if you’re installing a residential or small commercial system, you are still eligible for net metering (though you can choose to opt into VDER). If you go solar before the state implements VDER for all residential projects, you will be grandfathered into net metering for 20 years. Alternatively, if you installed solar panels prior to the approval of VDER on March 17th, 2017, you’ll continue to receive the benefits of net metering for the lifetime of your solar panel system.
One of the benefits of receiving net metering credits over VDER compensation is that it’s a guaranteed, one-for-one kWh credit on your electricity bill. The Value Stack Tariff is less predictable given the many factors involved in its calculation, so it’s harder to estimate the value of energy you’ll receive compensation for. For these reasons, the compensation of a net metering credit will be higher than the Value Stack Tariff in most cases. One instance in which you may actually receive more financial benefit from VDER than net metering is if you’re eligible for the LSRV component of the tariff.
Due to the complexity of the Value Stack Tariff and the waiting period before the residential portion is implemented, calculating an accurate number for an expected tariff rate is very difficult. If you’re interested in calculating the expected value of a solar project, New York State Energy Research and Development (NYSERDA) provides a Value Stack Tariff calculator, available for free on their website. This tool is the best way to get an estimate for what kind of return you might see on your electrical bill in the future.
How much can you save with solar panels in NY?
Either with VDER or net metering, you’ll save thousands by transitioning to solar energy in New York. By signing up on the EnergySage Marketplace, you can receive up to seven quotes from local, pre-screened installers. These quotes will include cost information and savings estimates tailored to your property. If you’d prefer to start out with a quick ballpark estimate on solar savings, try our Solar Calculator.