Dispatchability Adders for Feed-In Tariffs

Market mechanisms for Dispatchable Energy Capacity Services (DECS)

If a utility or other load-serving entity (LSE), such as a Community Choice Energy (CCE) program, wants to encourage the development of energy storage, the Clean Coalition recommends a Dispatchability Adder. A Dispatchability Adder, a fixed ¢/kilowatt-hour (kWh) bonus on top of the Feed-In Tariff (FIT) rate, offers a value for the Dispatchable Energy Capacity Services (DECS) provided by solar+storage.

Benefits of local renewables + energy storage

Pairing local renewables with local energy storage can provide many benefits to the grid and associated value to an area. These benefits and values include:

  • Making renewable energy dispatchable to match grid requirements and potentially reaping energy arbitrage and capacity value.
  • Reducing peak congestion on the transmission and distribution grids and potentially reaping associated congestion relief value.
  • Matching the energy supply and demand for a given LSE, including forecasted versus real-time experience, and potentially reaping value from avoiding scheduling penalties, etc.

When an energy storage system is deployed in conjunction with an ITC-qualifying resource, the ITC can be applied to the cost of the entire system. This means that the benefits of energy storage can be secured at a lower cost than otherwise possible.

Eligibility for the Dispatchability Adder

For an energy storage project to be eligible for the Dispatchability Adder, it must meet certain operational requirements, which could include:

  • Minimum power capacity and duration ratings
  • The ability to fully cycle the contracted energy capacity daily
  • A requirement for the energy storage facility to follow the dispatch schedule, with as little as one hour advance scheduling — and/or configuration of the storage system to allow direct dispatch control per future specifications.

Dispatchable renewables facility owners would be compensated via a Dispatchability Adder for their full kWh deliverability rating daily — or if the total energy delivered on a given day is less than the kWh deliverability rating due to unfavorable weather or a poorly performing facility, then the Dispatchability Adder will be applied on the total energy delivered. Any shortfalls from the contracted levels under the Dispatchability Adder must be justifiable weather-driven or planned maintenance reasons. Unjustified shortfalls would be result in penalties, and three or more unjustified shortfalls within a rolling twelve-month period could result in termination of the Dispatchability Adder for the offending facility.

Market Responsive Pricing with a Dispatchability Adder

The Market Responsive Pricing (MRP) structure can be applied to the Dispatchability Adder. Such a mechanism can be designed to adjust the Dispatchability Adder (¢/kWh), either up or down, based on whether the market is able to deliver dispatchable renewable energy at the offered price. Through offering capacity in predictable, quarterly allocations, the LSE will drive an efficient dispatchability adder, sustained by MRP in order to reduce dispatchable energy pricing over time.

Example: If a FIT using MRP for its Dispatchability Adder allows the first 1.5 MWh of capacity to contract at a starting fixed price, then if the first 1.5 MWh tranche fills quickly with projects, the price paid for the following 1.5 MWh tranche is reduced by a predetermined adjustment. If, on the other hand, the first 1.5 MWh of available capacity is not procured within the planned time frame, then the fixed price adjusts upward by a predetermined increment after a set time period for the subsequent tranche.

MRP baseline for the Dispatchability Adder

These guidelines detail our recommended Dispatchability Adder with an MRP mechanism for the LSE’s FIT program:

Downward price adjustment

  • If valid applications exceeding 2.25 MWh (150% of 1.5 MWh, the desired quarterly capacity) have been reserved as of 30 days prior to the next scheduled quarterly procurement, then there is a downward price adjustment of 1.5¢.
  • If valid applications totaling between 1.5 MWh and 2.25 MWh (100-150% of desired quarterly capacity) have been reserved as of 30 days prior to the next scheduled quarterly procurement, then there is a downward price adjustment of 1¢.

No price adjustment

  • If valid applications totaling between 0.9 MWh MW and 1.5 MW (between 60% and 100% of desired quarterly capacity) have been reserved as of 30 days prior to the next scheduled quarterly procurement, no price adjustment is made.

Upward price adjustment

  • If valid applications totaling less than 0.9 MWh (less than 60% of desired quarterly capacity) have been reserved as of 30 days prior to the next scheduled quarterly procurement, then there is an upward price adjustment of 0.5¢.

State-of-the art FIT with Dispatchability Adder and MRP

For the City of San Diego, the Clean Coalition designed a FIT with streamlined interconnection that includes a Dispatchability Adder and MRP. The price paid under the FIT for both solar and storage adjusts based on market response, ensuring that the LSE pays the optimal price for clean local energy. MRP is critical to successful procurement under the San Diego FIT.

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The only approach that has been proven to unleash wholesale distributed generation (WDG) in the United States.

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