CDG Model – Value Stack Components

Jan Borchert, Current Hydro and Dana Hall, Esq.

The Value Stack can play an important role in the CDG economics and in the marketing efforts necessary to sign up subscribers. The value stack is literally a “stack” of different categories of value, including: the sum of the energy value; the capacity value; the environmental value (RECs); the distribution system value (comprised of locational system relief value and demand reduction value); and lastly a market transition credit (MTC) created to ease the transition from the retail NEM price to the new value stack components. Let’s dive a bit deeper.

ENERGY VALUE – Energy value is based on the NYISO day-ahead hourly zonal “locational based marginal pricing” (LBMP) in effect at the time of generation (inclusive of losses) multiplied by the project’s hourly net injections during the billing period. The LBMP fluctuates based on demand for electricity and fuel prices. Compensation is based on the premise that the project’s export avoids additional energy purchases by the utility from the NYISO market. The Energy component of the value stack applies for 25 years, meaning the generator can expect that this pricing mechanism will last for 25 years. 

CAPACITY VALUE – Capacity value is based on retail capacity rates for intermittent/ dispatchable technologies. Credit is based on the sum of the project’s hourly net injections (kWh) in the billing period (Alternative 1), sum of the project’s hourly net injections during summer peak-460 summer, afternoon hours (Alternative 2) or the project’s net injections (kWh) at hour of prior year’s NYISO peak (Alternative 3) multiplied by each Alternative’s respective Capacity Component rates in effect at the time of billing.  The Capacity Component has a 25-year compensation term.  

ENVIRONMENTAL VALUE – Environmental value is based on the higher of the Clean Energy Standard Tier 1 Renewable Energy Credit (REC) price per kW generated and delivered (currently $0.02424 per kWh); or the social cost of carbon (SCC) per kWh value minus Regional Greenhouse Gas Initiative. The E value is locked in for a 25-year project term when a project executes its SIR contract or makes 25% payment on interconnection costs.  

DISTRIBUTION SYSTEM VALUE – has two parts: the Demand Reduction Value (DRV) limited to CDG projects, or the portion of those projects that do not receive the MTC; and the Locational System Relief Value (LSRV) which is paid to projects located on sections of the grid identified by each utility that would benefit from new DER.

DEMAND REDUCTION VALUE – Demand Reduction Value (DRV) credits are based on the project’s average net injections (kW) during the utility’s ten (10) highest peak hours (in previous calendar year) multiplied by the project’s DRV Component rate ($/kW) in effect during the billing period. DRV compensation is limited to CDG projects (or the portion of those projects) that do not receive the MTC. The host’s initial DRV credit will be established as the DRV component rate in effect at the time of the project’s eligibility date and will be adjusted every three (3) years from the interconnection date until the end of the compensation term. 

LOCATIONAL SYSTEM RELIEF VALUE – Locational System Relief Value (LSRV) is paid to projects located on sections of the grid that are badly in need of DG. Each utility has published maps identifying these locations and MW limits based on de-averaging of utility marginal cost of service studies. Credit is based on the project’s average net injections (kW) during the utility’s ten (10) highest peak hours (in previous calendar year) multiplied by the project’s LSRV Component rate ($/kW) in effect during the billing period. The LSRV will only be available to projects located in the identified LSRV areas and are paid in addition to the MTC/DRV Values. The project’s LSRV will be fixed for the project for the first ten (10) years from the interconnection date, using the LSRV Component rate established at the time of the project’s Eligibility Date.   

MARKET TRANSITION CREDIT – CDG projects on the value stack tariff also receive Market Transition Credit (MTC) equal to the difference between the retail rate and the estimated value stack compensation. The MTC is intended to make estimated CDG compensation equal to base retail rates under NEM in Tranche 1; 5% less than NEM in Tranche 2; and 10% less than NEM in Tranche 3. Credits are based on the MTC Component rate ($kWh) applicable to the project’s assigned tranche and service class, multiplied by the total net injections for the billing period. The MTC component only applies to a CDG project’s mass market (non-demand) subscribers and those mass market projects that opt into the value stack tariff. For example, if a project has 70% mass market off-takers and 30% large commercial off-takers, the project will receive MTC on 70% of generation, and DRV on 30% of generation Projects eligible for MTC will be placed in the tranche active at the time of their eligibility date. Projects are locked into an MTC tranche when they pay 25% interconnection upgrade costs or execute a SIR contract with the utility.

Each utility has identified areas where it offers additional elements to the value stack, resulting in higher project compensation. The LSRV maps below delineate these territories and are broken out by utility. The LSRV zones, capacity caps, and values were approved by the Public Service Commission in the 9/14/2017 VDER Implementation Order.

• Con Edison [PDF]
• NY State Electric & Gas (NYSEG) [PDF]
• Orange & Rockland (O&R) [PDF]
• Central Hudson Gas & Electric (CHGE) [PDF]
• National Grid [PDF]
• Rochester Gas & Electric (RG&E) [PDF]
• Public Service Enterprise Group (PSEG) Long Island [PDF]

Find more info our full Microhydro Community DG report.