How cost effective are solar and storage as Non-Wires Alternatives?
Non-Wires Alternatives (NWAs) in the electric utility sector are strategies that can delay, defer, or eliminate the need for new infrastructure investments such as transmission and distribution projects. Energy efficiency measures have historically been employed as Non-Wire Alternatives (NWAs) to reduce system constraints during peak demand periods. These measures have proven effective in helping utilities lower their overall base load. By leveraging existing energy resources such as microgrids, distributed energy resources (DERs), batteries, and demand flexibility programs (like controlled charging or demand response), NWAs can further enhance grid resilience.
Implementing NWAs allows utilities to make the most of existing infrastructure, reduce costs, and improve grid reliability and resilience. NWAs offer a cost-effective alternative to traditional infrastructure upgrades and allow for postponing or deferring upgrades for the electrical grid.
Utilities and developers want to understand the cost-benefit ratio of front-of-meter (FTM) solar or storage assets when deployed as NWAs. Our analysis reveals that reducing peak demand and providing upfront incentives significantly enhances the cost-effectiveness of FTM NWA solutions.
Evaluating NWAs via benefit-cost analysis tool
ICF’s Benefit-Cost Analysis (BCA) tool that helps utilities assess whether a proposed NWA project offers a cost-effective alternative to traditional upgrades. By accounting for factors like peak load forecasts, line loss, reserve margins, and avoided costs, the tool provides utilities with a holistic view of the project’s financial and operational impact.
How the BCA tool works:
1. Bidder Evaluation Engine (BEE): This tool collects and standardizes data from bidders proposing NWA projects, including technical specifications, costs, and benefits. The BEE ensures that all bidders are evaluated consistently, allowing utilities to make fair comparisons.
2. Cost Effectiveness (CE) model: Once data from the BEE is collected, the CE model runs financial and technical analyses to determine the viability of the proposed projects. The CE model calculates critical metrics such as cost savings, avoided costs, and projected returns on investment.
The BCA tool uses standard cost-effectiveness tests from the National Standard Practice Manual. The results of the BCA tests are crucial for determining whether an NWA project should proceed. A project that passes these tests is considered cost-effective and beneficial, making it a viable alternative to traditional infrastructure investments.
Sensitivity analysis on NWA feasibility
ICF conducted a comprehensive BCA on FTM solar and storage technologies to assess their viability in deferring transformer upgrades at the substation level. The analysis identified key parameters that significantly influence the cost-benefit ratio of these technologies when deployed as NWAs.
To evaluate the sensitivity of the BCA results to various factors, we adjusted several parameters. These included:
Load relief duration: The duration for which load relief is required at the transformer directly impacts the sizing of battery storage technologies. Longer load relief periods necessitate larger battery capacities to withstand extended discharge cycles.
Peak demand reduction: Reducing the total peak demand during load relief hours also influences system sizing.
Avoided costs: The avoided cost of electricity and deferral upgrade costs vary across utilities and regions. These costs represent the potential savings realized by utilities when investing in NWAs.
Technology costs: The current market prices of solar and storage technologies are subject to fluctuations and are expected to decrease over time. This trend may enhance the economic attractiveness of these technologies in the future.
Investment Tax Credits (ITC): The availability of upfront ITC, such as those provided by the Inflation Reduction Act, can significantly lower the initial capital cost for developers and tax equity investors. These incentives can encourage greater adoption of solar and storage technologies if specific criteria are met.
Base scenario
The base scenario for the NWA project is modeled with realistic parameters. This scenario serves as the reference case, with individual parameters being tested for sensitivity as listed below:
- Load relief duration: 8 hours
- Load relief required: 5.4 MW
- Utility avoided costs: Sampled
- Upgrade costs: $7.5 million for transformers and equipment
- Reference price: NREL ATB Cost 2025
- Incentive costs: 30% of CAPEX for Investment Tax Credit (ITC)
Key results of sensitivity analysis
Our sensitivity analysis conducted on the cost-effectiveness of FTM solar and storage NWAs reveals that the most significant parameter influencing the baseline cost-effectiveness results is the reduction of peak demand. Reducing the peak demand by 50% substantially enhances the cost-effectiveness of FTM NWA by necessitating a smaller, more economical system deployment. This allows utilities to implement energy efficiency measures across their territory to reduce cumulative peak demand, thus lowering the overall need for extensive grid infrastructure investments.
The second most influential factor is the provision of upfront incentives, such as Investment Tax Credits (ITC). Elevating ITC from 30% to 50% markedly improves the cost-effectiveness of FTM solar and storage NWA solutions. These incentives are crucial as they significantly lower the initial capital expenditure required for these projects, making them more financially viable. State policies and the manner in which equity tax investors capitalize on the benefits offered by the Inflation Reduction Act play a pivotal role in determining the availability and impact of these incentives, leading to variability across different states.
The third critical sensitivity parameter is the avoided cost of energy. An increase in this cost positively affects cost-effectiveness because the solar and storage plant gains more financial benefit per kWh produced, thereby enhancing the project's cash flow. The avoided energy cost is influenced by various factors including market dynamics, technological advancements, grid infrastructure, and policy and regulatory frameworks. Regions with higher avoided costs generally see greater financial benefits from renewable energy projects, making these investments more attractive.
Lastly, the cost of solar and storage technology is a pivotal factor. The trend of decreasing costs over time is evident, and by utilizing the National Renewable Energy Laboratory's (NREL) Annual Technology Baseline (ATB) 2040 cost projections for solar and storage technologies in the sensitivity analysis, we observed notable improvements in the overall cost-effectiveness of the FTM NWA.
This trend suggests that as the costs of FTM NWA technologies continue to decline over the next two decades, they will become increasingly viable and attractive options for utilities and investors alike. We expect the ongoing advancements in technology, economies of scale, and increased competition in the market to drive these cost reductions, further enhancing the feasibility and adoption of solar and storage NWA solutions.
