Distributed Renewable Energy Operating Impacts and Valuation Study

Section 6
6.2.2 Approach to Identification of Qualitative Savings
A second element of the approach included consideration of various barriers to full deployment
of solar DE market development and possible strategies to minimize, remove or surmount these
barriers. Included in this consideration of important qualitative elements that could impact solar
DE deployment in Arizona are the following:
• Clarification of social and institutional obstacles to full solar DE deployment.
• Identification of possible strategies or solutions that APS might take to address these
obstacles.
• Non-economic considerations, such as customer conditions and perceptions regarding solar
DE.
6.3 Methodology for Quantification of Savings
6.3.1 Quantitative Methodology Used to Value Solar DE Deployment
To estimate an annual economic savings in the target years of 2010, 2015, and 2025 for the APS
distribution, transmission, and generation business sectors under the solar DE deployment
scenarios, the first step was to separate capacity and energy savings. As previously discussed,
this separation was made because capacity savings represent value in terms of either deferral or
avoided investment costs by the utility, while energy savings represent both immediate and
ongoing cumulative benefits associated with the reduction in energy requirements of the utility.
This methodology is consistent with the revenue requirement approach for capital investment
economic evaluations developed by the EPRI more than 30 years ago and widely accepted in the
utility industry 1 . The methodology recognizes all elements of a utility’s cost to provide service,
including energy components (fuel, purchased power, and operating and maintenance expenses
and taxes) and capacity components (capital investment depreciation, interest expense and net
income or return requirements). It measures reduced or avoided energy and capacity costs that
APS will not incur if solar DE is successfully deployed.
Correspondingly, it measures the lower costs that future ratepayers of APS will see, and thus is
the key quantifiable measure of value from solar DE deployment.
6.3.2 Value of Energy Savings
Future energy savings associated with solar DE deployment are readily identifiable through the
simulation of APS’s future costs to meet the energy needs in the target years of 2010, 2015, and
2025. As described in Section 5 of the Report, the operational cost savings for each business unit
roll up to reduced fuel, purchased power, and losses associated with reduce production
requirements on the APS system following solar DE deployment. Additional reductions in fixed
O&M requirements for APS have been quantified and included as annual cost savings in this
1 For a full description of this EPRI methodology, see the TAGTM Technical Assessment Guide, EPRI TR-100281,
Volume 3: Rev. 6, December 1991, especially Section 8.
6-4 R. W. Beck, Inc. Arizona Public Service