New York’s ‘VDER’ Alternative Payment Method Helps Spur Energy Storage

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New York is well on its way to meeting the state’s goal of having 1,500 MW of energy storage by 2025 and 3,000 MW by the end of the decade, and the ‘value of distributed energy resources,’ or VDER, mechanism gets part of the credit, according to a report released by state utility regulators.

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The state had deployed or contracted for 706 MW of storage by the end of last year, equaling about 47% of the 2025 target and 24% of the 2030 target, the New York Public Service Commission said in a report released April 2.

The New York Independent System Operator (NYISO) has about 9,780 MW of storage projects in its interconnection queue, the commission said, noting that not all projects will be built.

“Due to the technology’s declining costs and the ability to pair with solar photovoltaic (PV) and capture additional revenue streams, energy storage is increasingly being used to augment the existing pipeline of utility-connected solar PV projects being developed in the state,” the commission said in its first annual report documenting how New York is doing in reaching its storage goals.

Partly, the strong energy storage development is being spurred by the state’s VDER payment mechanism, which makes it easier to obtain project financing, the commission said.

VDER preferred by solar developers

The VDER mechanism pays distributed resources based on how they benefit the grid and reduce customer costs. The value stack is based on a utility’s avoided costs plus other benefits a distributed resource may bring like demand reduction and environmental values. The commission approved the methodology in 2017 and updated it a year ago. 

VDER is the most common payment mechanism chosen by storage developers, and coupling energy storage with renewable generation allows developers to maximize their payments in many cases, according to the commission

Increasingly, developers of larger solar projects have been splitting them into smaller parts to qualify for VDER compensation, which is capped at 5 MW, instead of interconnecting to the grid at the bulk system level and receiving payments in NYISO’s wholesale markets, the commission said.

Energy storage installed costs remain relatively high, but are falling, according to the report. 

The total installed costs for commercial retail projects that were awarded “bridge” incentives as the state moved away from its former net metering paradigm, mainly energy storage paired community solar, averaged $435/kWh for installations in 2020 and 2021, according to the report.

Installed costs for projects above 5 MW that received an award and will provide wholesale market services averaged $416/kWh for installations between 2020 and 2023. The commission expects costs for those types of projects will be $150/kWh to $200/kWh by 2030. 

The average installed cost for behind-the-meter projects that are used to cut peak load increased from $1,000/kWh in 2018 to $1,279/kWh in 2019, according to the report. 

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New York tries to reduce energy storage soft costs

The commission said it is trying to reduce “soft costs,” which account for about half the costs of customer-sited projects, through various efforts, including by providing technical assistance to help permitting agencies, reducing the cost of site identification and customer acquisition and improving interconnection rules.

Looking ahead, NYISO is developing a hybrid storage participation model that provides wholesale market participation opportunities for energy storage resources that are co-located with other generation resources, including renewables, the commission said. The grid operator aims to have a stakeholder vote on a proposal late this year.

The commission warned that actions by the Federal Energy Regulatory Commission threaten the state’s energy storage and clean energy goals. Energy storage and other resources receiving state subsidies may face increased hurdles in the NYISO’s capacity market under recent FERC rulings, according to the state agency. 

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