Distributed Renewable Energy Operating Impacts and Valuation Study

APPENDIX N — EVALUATION OF ECONOMIC VALUE OF SOLAR DE
DEPLOYMENT
N.1 Introduction
In this study, economic value is defined to be the present value of future energy and capacity
savings on the Arizona Public Service (APS) system resulting from solar DE deployment. To
estimate the economic value, a revenue requirement based methodology was used consistent
with the TAG TM Technical Assessment Guide developed by the Electric Power Research
Institute (EPRI) 1 . The revenue requirements approach represents all elements of a utility’s cost
of service, including typical energy related costs (such as fuel and purchased power expenses,
operating and maintenance (O&M) expenses, property taxes, etc.) and the various elements of
investment and capital cost recovery (e.g. depreciation expense, interest income, net income,
etc.) associated with capacity reductions. It is the present value of reduced or avoided future
energy and capacity costs resulting from solar DE deployment that is used as the current
economic value of these solar DE deployment levels. Such a framework provides estimates for
the economic value represented by the costs APS would need to incur in future years without
solar DE deployment. This framework parallels the analytical methodology APS uses to
evaluate the economic costs and values of alternative supply side and other resource options.
N.2 Economic Value of Energy Savings from Solar DE Deployment
Energy savings are relatively straight forward to estimate as these are the annual avoided or
reduced fuel and purchased power costs and related O&M expenses. These savings typically
occur in each year and are associated with the cost reduction of energy for APS. In this study,
energy savings from solar DE deployment are estimated for each test year reviewed in the study
from the reduced or avoided costs estimated in 2008 dollars. In equation form this can be
expressed as follows:
E t = F t + PP t + O&M t
where E t = APS’ projected fuel expense in year t, in 2008$
F t = APS’ projected purchased power expense in year t, in 2008$
PP t = APS’ projected purchased power expense in year t, in 2008$
O&M t = APS’ projected O&M expense in year t, in 2008$
1 TAG TM Technical Assessment Guide, EPRI TR-100281, Volume 3: Rev. 6, December 1991, Sections 5 and 8.
004137/02-01766-01000 R. W. Beck, Inc. | N-1