Part 1: VDER Revenue Stack for Standalone Storage Projects

Many developers and financiers rely on the Value of Distributed Energy Resources (VDER) Calculator, a freely accessible spreadsheet calculator tool (here) to calculate expected VDER revenues for potential projects. While this tool is freely available and relatively easy to use, we find that it can be insufficient for accurately modeling some potential revenue streams. Some potential shortcomings of an approach relying solely on the VDER calculator could include:

• The VDER calculator uses only a linear degradation model and a fixed round-trip efficiency value for the life of the project. In reality, degradation follows a curve and RTE also degrades over time.
• The VDER calculator uses historical call periods for Locational System Relief Value (LSRV), when in actual operation, an operator would act to maximize LSRV revenues by discharging coincident with Demand Reduction Value (DRV) periods. This can result in the VDER calculator under-representing LSRV revenues.
• Actual Location Based Marginal Pricing (LBMP) revenues are calculated at the nodal level, while the VDER calculator uses zonal-level data, which is not sufficiently granular to accurately capture true prices.
• ConEd revenues are calculated by Group (A-D) and these groups are not present in the VDER calculator.

So, while the VDER calculator is a helpful tool for preliminary analysis, when making an investment in utility-scale BESS, it is important to supplement this initial analysis with a more detailed revenue forecast that accounts for the many additional variables present in actual operations.

Like other leading BESS market analytics experts, Camelot uses an optimized dispatch model to calculate future revenues for BESS projects participating in merchant energy and ancillary services markets. However, projects with significant programmatic revenues, like NY VDER projects, often require a more tailored approach to validate revenue streams and financial model inputs, so Camelot has built out additional tools and capabilities to incorporate these revenue streams seamlessly with applicable merchant market opportunities. We provided some background on the VDER program to help developers and investors better understand this critical framework, which you can view here.

Below, we have modeled the revenue stack for a 5 MW, 4-hour Battery Energy Storage System (BESS) under the VDER program for various utilities. We estimated LSRV and Installed Capacity (ICAP) revenues manually, while using an optimized dispatch model to estimate LBMP and DRV values.

Reasons for manually modeling LSRV and ICAP Alternative 3 (Alt 3)

• LSRV: Since the VDER Calculator does not distinguish between ConEd Groups (A-D), it can incorrectly place LSRV revenue periods outside the DRV windows for ConEd C and D Groups. In reality, these LSRV calls would correctly align with the DRV windows in each ConEd Group, therefore we have manually adjusted the LSRV periods in ConEd C and D Groups to correct for this.

1. For example, in ConEd Group C , 2023 historical data would suggest that the LSRV period occurs from 2pm-3pm, whereas the DRV period is from 4pm-8pm. In this case, an optimized dispatch might prioritize the DRV period, resulting in no LSRV revenues. Camelot, therefore, adjusts the LSRV revenues to reflect the more likely operating scenario wherein a BESS would gain both LSRV and DRV revenues.
2. Regions with longer DRV windows, such as RG&E, show the greatest loss in LSRV revenues due to capacity degradation in the BESS, as the systems age and become less able to fully discharge over 5+ hour DRV windows. Regions with shorter typical DRV windows or windows capturing most of their revenue within an hour or two , such as ConEd A, were less affected by BESS capacity degradation. ?

• ICAP Alt 3: Under the VDER program, ICAP Alt 3 is the sole option for BESS projects and is considered the most lucrative ICAP variant, though this varies by region. Monthly compensation is awarded based on injections during the annual peak hour multiplied by the ICAP Alt 3 rate ($/kW), which fluctuates monthly. Additionally, all ICAP alternatives already account for an ELCC (Effective Load Carrying Capability) adjustment, eliminating the need for further capacity accreditation adjustments. Moreover, since capacity prices fluctuates on a monthly and annual basis, we modeled ICAP manually using the 2024 VDER Calculator and applied an escalation rate based on our market outlook.

Key trends and insights from the above figure results

• The energy component is the smallest contributor to the value stack, largely due to higher charging costs in ConEd and PSEG areas, which face elevated electricity prices caused by high demand, congestion, and transmission losses. Thought energy is discharged at a higher price, too, the difference (high minus low) in price can often be modest.
• Capacity prices vary significantly by NYISO load zones, making it challenging to predict capacity revenues due to the volatility of auction prices across zones. Prices could decline with the addition of offshore wind, which contributes to both energy and capacity. Historically, capacity prices have been high across Zone J (ConEd NYC) and Zone K (PSEG LI), with Zone J (ConEd NYC) averaging 2.5 times higher than other zones due to expected thermal retirements and the difficulty of integrating new renewables due to land constraints.
• Projects located in regions with 2 PM to 7 PM DRV windows show the best results, as these times overlap with potential system peak windows. For example, DRV revenues in ConEd and PSEG regions are much higher than in other areas, with ConEd DRV revenues 7.02 times higher than the state average and PSEG DRV revenues 2.22 times higher ?than the state average.
• In the Central Hudson utility territory, LSRV does not apply. The highest LSRV revenues are observed in ConEd and PSEG, particularly in ConEd Zone A, where LSRV revenue is 3.17 times higher than the state average. ?PSEG’s LSRV revenues are, on average, 1.13 times higher than ?the state average.

Conclusions

In summary, the VDER revenue stack diminishes considerably when projects are located outside of ConEd and PSEG territories. Though CAPEX and OPEX costs for upstate projects may be generally lower, this is more than offset by the more lucrative revenue streams noted in this article.

In calculating these revenue streams, it is important to consider the many market nuances applicable to the VDER revenue stack. The freely available VDER Value Stack Calculator, while a good initial analysis tool, may not be sufficient in all cases to estimate accurate forward revenues and our team recommends a more detailed analysis be done to support development and financing of energy storage projects in New York State.

Stay tuned for Part 2, where we will discuss and compare the VDER value stack for hybrid projects under ICAP Alt 1 and Alt 2, as well as the PV Charging Only and the PV & Grid Charging considerations.

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If you're interested in assessing energy storage and/or hybrid projects in NYISO’s VDER Program, feel free to reach out to us at [email protected].

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About

Camelot Energy Group is a technical and strategic advisor to owners and investors in clean energy and energy storage projects, programs, and infrastructure. Guided by our core values of courage, empathy, integrity, and service we seek to support the energy needs of a just, sustainable, and equitable future. Our team has experience in supporting 7+GW of solar PV and 10+ GWh of energy storage and offers expertise in technology, codes and standards, engineering, public programs, project finance, installation methods, quality assurance, safety, contract negotiation, and related topics. Our services are tailored to a providing a different kind of consulting experience that emphasizes the humanity of our clients and team members, resulting in a high quality bespoke service, delivered with focus, attention, and purpose. Key services include: -Technical due diligence of projects and technologies -Owner’s representative and engineer support -Strategic planning -Training and coaching -Codes and standards consulting -Contract negotiation and support.

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