Key Term Definitions

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The Evaluation Matrix Framework

This database offers a framework that can be used to perform a more comprehensive (and, thus, a more accurate) analysis. It frames the established Standard Practice Tests used for demand-side management cost-effectiveness evaluation within a benefit-cost matrix and then expands this matrix to include additional perspectives and benefits/costs. It also suggests which benefits/costs apply from the various perspectives as well as whether they are a benefit or a cost.

The Evaluation Matrix - Perspectives

A set of standard industry tests evaluate the cost-effectiveness of efficiency and load-management programs. These tests identify the cost-and-benefit components and cost-effectiveness calculation procedures and include:

1. Participant
2. Ratepayer Impact Measure (RIM)
3. Total Resource Cost (TRC)
4. Program Administrator Cost (PAC)

From these tests, one can identify the different perspectives that would either benefit or pay the costs of taking action. The perspectives included in the PV Value Clearinghouse are:

1. Participant (who installs the system)
2. All Ratepayers (to the extent that all ratepayers pay a cost or enjoy a benefit)
3. Utility (who may support program implementation, or benefit from the program)
4. Industry (the PV industry)
5. Local Government (who may secure economic or environmental benefits)
6. State Government (who may pay an incentive or may benefit economically)
7. Federal Government (who may pay tax credits or increase energy security)

The Evaluation Matrix - Benefits/Costs

The benefits and costs can be measured in many different ways, as shown in the categories used in the PV Value Clearinghouse below.

Key Categories

Investment

The investment category includes the initial costs of equipment, installation, and sales tax; and the ongoing costs of operation and maintenance (O&M) and financing. These represent costs to the participant as well as revenue (and, thus, benefits) to other industry participants. For example, manufacturers increase revenue due to equipment sales; installers and dealers increase revenue due to installation and the ongoing O&M. The state increases sales tax revenue, and finance companies increase revenue by financing new systems.

Subcategories included in this category include:

• Equipment
• Installation
• Sales Tax
• O&M Cost
• Financing
• Material Offsets

Electric Utility Bill

The electric utility bill savings is typically the most important benefit to the participant. While the amount of money saved by the participant in reduced utility bills represents a decrease in revenue to the utility, this is not money that is paid out of the utility's budgets. And, in many cases, in order to retain neutral effect on overall revenue requirements, a portion of the reduction in revenue may be passed on to other ratepayers, or all ratepayers might be paying to implement the program.

Subcategories included in this category include:

• Electric Bill

Incentives

The incentives category includes the incentive payments and the cost of incentive program administration. The incentive represents a benefit to the participant and a cost to the utility or state agency, because it is a cash expenditure that the utility or agency pays to the participant. To administer the incentive, there is also an administration cost. Because the administrative cost is a labor cost, there is an increase in income tax revenue for the government agencies.

Subcategories included in this category include:

• Incentive Payments
• Program Administration

Tax Effects

The tax credit is a benefit for the participant and a cost to the local, state, or federal government. While the tax credit is typically included in an analysis, there are other tax effects that need to be accounted for. Some are benefits to the participant (in the form of income and other taxes decrease) and costs to the government, while others are costs to the participant (in the form of income and other taxes increases) and benefits to the government. The magnitude of the other tax effects depends on the particular participant (including annual income and tax filing status). For example, depreciation benefits and the O&M cost deductions are only available to for-profit commercial customers, while the loan interest write-off can be available to all commercial customers and to residential customers who finance their system with a home equity or other tax deductible loan.

One tax effect that is often excluded from the analysis is the increase in state and federal taxes due to a reduction in utility bills for for-profit commercial customers (i.e., if a commercial customer has a reduction in utility bills, they have fewer expenses to deduct and, thus, have an increase in their tax bill). Another tax effect that can often be missed for residential customers is the tax effect that occurs for residential customers with state tax credits (state tax credits are taxable at the federal level, representing a transfer payment from the state governments to the federal governments).

Subcategories included in this category include:

• Tax Credits
• Depreciation
• Loan Interest Write-Off
• O&M Costs
• Utility Bill Savings
• Tax on Tax Credits

Utility Cost Savings

The utility cost savings include the more traditional benefits that the utility gains from a reduction in consumption (or increase in on-site generation), such as the energy savings, generation capacity deferrals, O&M costs savings, transmission and distribution (T&D) system deferrals, and loss savings (both energy and capacity). In addition, a benefit that is often neglected is the potential for technology synergies. For example, for utilities with late summer peaking loads, an increase in distributed PV generation can reduce the utility's daytime load (either on the overall generation system or on a particular T&D system) but still leave a peak load that occurs during a small percentage of time late in the afternoon. A utility with a robust load management program could realize a cost savings from this by having to dispatch their load management program for fewer hours during the year and paying less to customers who participate in the load management program. This may also be a benefit to industry in increased business.

Subcategories included in this category include:

• Energy Production
• Generation Capacity
• T&D Capacity (Deferral)
• Loss Savings
• Technology Synergies
• Voltage Support

Environmental

The environmental category includes emissions reductions, improvement in people's health as a result of an improvement in the environment, water savings, and the direct financial benefit that can be obtained by selling green tags or by not having to purchase renewable energy credits (RECs) from another source in order to comply with RPS mandates. All ratepayers benefit from the environmental and health improvements; the REC benefit depends on who owns the environmental attributes of the system.

Subcategories included in this category include:

• Emissions
• Water
• Health
• RECs/Green Tags

Job Creation

Distributed PV systems create new jobs. The PV industry and the government agencies realizing additional tax revenue associated with increased income are the ones who will benefit from the increase in jobs. Government officials may also benefit, to the extent they are considered as bolstering the economy and supporting this particular industry.

Subcategories included in this category include:

• Manufacturing Jobs
• Construction Jobs
• Unspecified Jobs

Reliability

The reliability category includes blackout prevention, emergency utility dispatch, catastrophe recovery, and backup power. Both the utility and all of its customers (particularly the participant) benefit from preventing a blackout. Emergency utility dispatch is beneficial to the utility and to the participant (if the utility pays the owner for the right to dispatch the system in an event of emergency). All ratepayers benefit from catastrophe recovery protection. The PV system owner benefits from outage protection. For almost all of the reliability benefits, there are benefits to the government in the form of increased tax revenues or greater tax revenue stability.

Subcategories included in this category include:

• Blackout Prevention
• Emergency Utility Dispatch
• Disaster Recovery
• Backup Power

Risk Factors

The risk factors category includes the ability to manage load uncertainty through short-lead times and modularity, wholesale price hedge, retail price hedge, and retail price cap due to the lack of fossil-fuel based requirements, and the benefit of national energy security. These benefits are often neglected and have the potential to be very significant. The utility benefits from the ability to manage load uncertainty and the wholesale price hedge. The PV system owner/participant benefits in the short-term from the rate retail rate protection. In the long term, all consumers will benefit from the availability of a technology that provides an economically viable alternative to traditional utility service: Even if they never purchase a PV system, this will provide an effective price cap on the retail price of electricity. All ratepayers benefit from improved national energy security. And with almost all of the risk protection benefits, there will be an increase in revenue or more protected tax revenue for the governmental agencies.

Subcategories included in this category include:

• Manage Load Uncertainty
• Wholesale Price Hedge
• Retail Price Hedge
• Retail Price Cap
• Energy Security
• Environmental Liabilities Hedge

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