Valuing wind as a distributed energy resource: A literature review
Introduction
Deployment of distributed energy resources (DERs) in electric power distribution grids and microgrids is increasing as the technology improves, costs decline, and more states adopt supportive energy policies [1,2]. DERs are resources that are connected to distribution grids and serve on-site or nearby energy loads rather than supplying bulk electricity to the transmission system [3]. DERs include wind, solar photovoltaics (PV), batteries, natural gas fuel cells, electric vehicles, demand response, and energy efficiency [4]. Distributed wind is simply wind connected at the distribution grid level as a distributed energy resource [5].
Increased DER deployment has many consequences. Managing a grid system with two-way power flow between dispersed electricity generation and loads is a significant technical challenge [6]. However, increased DER deployment can also provide societal benefits such as reduced greenhouse gas emissions from the use of renewable energy DERs and less reliance on centralized fossil fuel power plants [7]. A challenge for policymakers, utilities, and investors is valuing the contributions of DERs to various stakeholders [8].
A specific understanding of valuation of wind as a distributed energy resource is important because (i) behind-the-meter distributed wind has significant growth potential (economically, up to 37 GW of deployment by 2050) [9]; (ii) distributed wind, both behind-the-meter and front-of-the-meter, can improve resource diversity and resilience in high-DER grid systems [10]; (iii) wind energy generation is technically capable of providing several ancillary services, such as voltage support, frequency response, reserves, inertial response, and, if paired with other technologies, even black start services [11]; and (iv) distributed wind can be used to achieve state or utility policy goals as many states attempt to produce cleaner energy.
Currently at just over 1 GW of installed capacity in the United States [12], total distributed wind deployment is significantly lower than the over 23 GW of small-scale solar PV (less than 1 MW) deployment in the United States [13]. However, wind (non-distributed and distributed) has an installed capacity of 122 GW versus approximately 100 GW of total solar PV capacity, as shown in Fig. 1 [14,15]. This suggests that, while wind energy can be cost-effective to deploy on the utility scale, it faces barriers in its adoption on smaller scales. Indeed, much of the recent capacity additions of distributed wind have been of utility-scale turbines connected on the distribution grid [12]. In order to make optimized decisions about DER deployment, including distributed wind, it is important to identify, characterize, and (to the extent possible) quantify the value elements of DERs to policymakers, system developers, DER-owners, and utilities.
For example, the State of Hawaii's renewable portfolio standard sets a policy goal of achieving a 100% renewable electrical energy portfolio by 2045, and distributed generation is a stated part of Hawaii's plan to reach this goal [16,17]. However, Hawaii has struggled with grid issues caused by high amounts of rooftop solar photovoltaic (PV) electricity generation injecting energy into the grid on a variable basis [17]. Because wind generation can be produced at times that solar PV generation cannot [10], distributed wind could contribute value via resource diversity to smooth out renewable energy contributions to Hawaii's grid system to help the state achieve its policy goal. An improved understanding of distributed wind's resource diversity value could promote more distributed wind deployment and thus enable Hawaii to reach its renewable energy policy goal while reducing electrical issues in the variable generation grid.
Distributed wind can have several different configurations: isolated grids, grid-connected microgrids, behind the meter, and front of the meter [18,19]. Isolated grids are electrically independent of bulk power grids, while grid-connected microgrids can operate either connected or disconnected from an external grid [18]. Both types of microgrids may contain a variety of DER technologies, including wind. When installed behind the customer's meter, distributed wind can provide power directly to the customer, offsetting electricity bills. Front-of-the-meter distributed wind systems are connected to load-serving distribution grids and can provide power to the local distribution system.
While some peer-reviewed studies looked at the value of small-scale wind projects [[20], [21], [22], [23], [24]], we found no peer-reviewed studies that provided a widely applicable framework for the valuation of wind as a DER.
Several studies look at the financial viability of a wind project from the viewpoint of investors and/or society, using real options analysis [21,25,26], cost-benefit analysis [22], life-cycle cost analysis [27], or contingent valuation [28,29]. These analyses answer the questions of “What return on investment would this wind energy project yield?” and/or “How much is society willing to pay for this wind energy project?”
Though rarer, a few studies look at the broader societal impacts of wind, such as the life-cycle environmental impacts of wind [30] or the economic impacts of wind energy, such as the impacts to job creation [31].
A review article by Allan et al. [20] finds similar results for DER valuation in general; the majority of DER valuation studies focus on the financial viability of DERs. The article indicates that fewer DER valuation studies focus on the social costs and benefits of DERs, and even fewer focus on the economy-wide environmental and social impacts of DERs.
While the above-mentioned studies help one understand the willingness to pay for wind energy projects by society and project owners, the financial returns for projects, and some of the broader economic impacts of wind, they do not decompose the various value elements of distributed wind to different parties as done in a value-of-resource approach, which are more commonly performed for state public utility commissions and public service commissions in the United States. They also do not offer a consistent framework for investigating distributed wind's value to various stakeholders.
One recent study by Dsouza et al. [32] does look at DER valuation in the context of value-based compensation, investigating which value elements are typically included in DER valuation, and how they are quantified. However, Dsouza et al. [32] primarily investigate solar PV valuation and do not specifically explore distributed wind's status in DER valuation. Additionally, they focus more on the commonalities of the DER valuations and less on potential gaps in standard approaches.
In this paper, we investigate distributed wind's representation in DER valuation, finding gaps in many value-of-resource studies regarding value elements that are important to distributed wind. First, we define the concept of valuation and describe the considerations that must be taken into account for DER valuation. We then review the treatment of distributed wind in DER valuation studies performed in the United States for state public utility and public service commissions. We find that distributed wind is not currently well represented in these DER valuation studies.
We also identify commonly used value elements in DER valuations, along with value elements that may be missing or underrepresented. We find that there are several value elements which appear frequently in DER valuation frameworks, but which are rarely quantified in practice. We outline how these less frequently quantified value elements are of importance to distributed wind valuation. We suggest that standardized methodologies be developed to address these potential gaps for distributed wind valuation, which in turn can allow policymakers, system developers (including microgrid developers), DER-owners, and utilities to make informed decisions about appropriate distributed wind deployment.
This paper is organized in the following order: in Section 2, we define valuation and describe important considerations in the valuation of DERs; in Section 3, we review DER valuation studies and solar PV valuation metastudies and discuss results and implications for distributed wind; and in Section 4, we give our conclusions.
Section snippets
DER valuation and its considerations
Valuation is “the process of determining the relative worth, utility, or importance (i.e., value) of options or alternatives to allow their comparison in ways that are clear, transparent, and repeatable” [33]. Value can be positive or negative. Benefit-cost analysis, as reflected in a determination of cost-effectiveness, is commonly used to approximate and compare the value of different energy resources.
In this paper, we discuss benefit-cost analysis and cost-effectiveness relative to DER
Review of valuation studies
In our review, we explored a wide variety of literature on DER valuation, including reports conducted by utilities, research institutes, national laboratories, and government agencies. Value-of-resource metastudies and frameworks were found through the Solar Energy Industries Association's webpage on solar cost-benefit studies and DER valuation metastudies [51] as well as through search engine queries through Scopus, Web of Science, Google Scholar, and Google using key search terms such as “DER
Conclusions
From a discussion of general valuation concepts and definitions and a summary of the current state of affairs to a deep dive into DER and solar PV valuation studies and metastudies, this review establishes a foundation to examine distributed wind valuation. We found that distributed wind has not been explicitly valued in any value-of-resource study, although some literature has looked at the economics of specific small wind projects.
It is difficult to consider distributed wind equally as a
Declaration of competing interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
Acknowledgments
Funding: This work was supported by the U.S. Department of Energy's Wind Energy Technologies Office. The views and opinions of the authors expressed herein do not necessarily state or reflect those of the United States Government or any agency thereof. Pacific Northwest National Laboratory is operated for the U.S. Department of Energy by Battelle under contract DE-AC05-76RL01830.
We would like to thank our colleagues and peer reviewers, Andrew Reiman and Danielle Preziuso, for their time and
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