DER Revenue Analysis

The DER Revenue Morass: What are justifiable revenue assumptions to include in your DER financial pro forma model?

A diverse array of potential revenue stream components comprises a Distributed Energy Resource’s (DER’s) value stack. The value stack components and their magnitude vary by state, incentive program, utility, and rate class, and for non-fixed components, they vary over time. Examples of DER revenue stream components include:

• Varying $/kWh compensation based on wholesale electric rates (e.g., New York VDER) or Retail electric rates (e.g., Maine Net Energy Billing, New Mexico Community Solar)
• A fixed total compensation rate (e.g., Massachusetts SMART, though not fixed in certain circumstances)
• A mixed between fixed and varying revenue rates (e.g., Illinois Adjustable Block with fixed REC revenue and varying net metering revenue)

In many cases supplemental revenue is available from tradeable REC markets (if an incentive program doesn’t claim the environmental benefits – which many don’t), storage deployment, and wholesale revenue capture (e.g., capacity market participation).

The DER revenue opportunities (and complexity) increases dramatically if the DER is located behind-the-meter, where installations can provide additional value by avoiding demand charges (wire or capacity tag) and participate in demand response or other incentive programs.

SEA provides justifiable and bankable DER revenue forecasts. SEA’s typical approach is bottom-up analysis where all components (e.g., utility retail rate class specific electric generation, distribution, transmission, energy efficiency, etc.) that comprise a variable revenue stream (e.g., net metering credit) are analyzed independently and then totaled to forecast the entire revenue stream on a $/kWh basis.

Analysis of incentives based on retail rates typically includes:

• Research, analysis and summarization of legislative, regulatory and policy foundations of the incentive structure
• Collection and analysis of historic components and subcomponents that make up the variable revenue stream
• A regression based forecast of the generation component based as a function of wholesale energy and capacity prices;
• A forecast of the wire charge components (e.g., distribution, transmission, energy efficiency, etc.) based on an assessment of historic trends and plans of utility distribution investment and / ISO revenue requirements, combined with projections of underlying contributing factors (e.g., proposed policies, load growth, technological innovation).

Depending upon the incentive structure, DER variable revenue also includes:

• Renewable energy credit (REC) or solar renewable energy credit (SREC) revenue. In many cases, we can incorporate our best-in-class market fundamentals supply / demand / price forecasting of New England Class I RECs (New England REMO), New York Tier I RECs (New York REMO), and MA SRECs and SREC IIs (Massachusetts Solar Market Study).
• Storage revenue. In this case we can deploy our Battery Revenue Analysis Tool (BRAT) to provide outlooks of behind-the-meter or in front-of-the-meter storage revenue and savings.

New York’s value of distributed energy resources (NY-VDER) is special. In cases where our clients need a NY-VDER revenue analyses we rely on an array of New York specific expertise and tools to analyze the revenue streams including SEA’s customized forward-looking version of the NY-VDER calculator.

With dozens of clients covering most of the most active DER state markets our analysis has been used as a basis of attracting financing. Contact us when you need credible revenue projections to put forth before an internal finance committee or external financers.