Executive Committee
Special Meeting
August 21, 2023
10:00AM
Central Coast Community Energy
70 Garden Court, Suite 300
Monterey, CA 93940
REMOTE LOCATION VIA TELECONFERENCE
Any interested parties or community members may attend, and participate in, the meeting at the following addresses where Board members may also join the meeting from:
County of Monterey
Courthouse
1200 Aguajito Rd, Suite #1
Monterey, CA 93940
Santa Cruz
County Center
701 Ocean Street, Room 500
Santa Cruz, CA 95060
Capitola
City Hall
420 Capitola Ave
Capitola, CA 95010
San Luis Obispo
City Hall
990 Palm Street
San Luis Obispo, CA 93401
County of Santa Barbara
County Administration Building
Room 108, Large Conference Room
105 E Anapamu Street
Santa Barbara, CA 93101
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The public may comment on the consent agenda and matters not listed on the agenda but within the Board's jurisdiction at the opening of the meeting. The Board may not take action at this meeting on any item not listed on the Agenda other than to refer the matter to staff or set it for a future meeting.
The public may comment on a specific item listed on this agenda when the Board considers that item.
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https://3cenergy.hylandcloud.com/203agendaonline
AGENDA
Welcome & Roll Call
REGULAR AGENDA
1. Consider staff presentation and support proposal to reduce existing natural gas facility emissions while securing valuable Resource Adequacy product for 3CE through a hybrid natural gas power purchase agreement
CLOSED SESSION
2. Closed Session under Government Code 54950 relating to the following items Pursuant to Government Code section 54956.9(d)(4), the Board will confer with legal counsel regarding one item of potential initiation of litigation. a.
Pursuant to Government Code section 54956.9(d)(1), the Board will confer with legal counsel regarding existing litigation: Central Coast Community Energy, et al., v. BigBeau Solar, LLC, Superior Court of Santa Clara County, Case No. 22CV398156
b.
Adjournment
Staff Report Item 1
TO: 3CE Executive Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Dennis Dyc-O’Neal, Chief Operating Officer SUBJECT: Consider staff presentation and support proposal to reduce existing natural gas facility emissions while securing valuable Resource Adequacy product for 3CE through a hybrid natural gas power purchase agreement
DATE: August 21, 2023
RECOMMENDATION:
This memorandum recommends the Executive Committee consider a staff presentation and support proposal to reduce existing natural gas facility emissions while securing valuable Resource Adequacy product for 3CE through a hybrid natural gas power purchase agreement.
BACKGROUND:
Resource Adequacy is a non-energy compliance product, sometimes referred to as “capacity,” that commits generators to be available for dispatch and therefore helps ensure the reliable operation of the grid by assuring sufficient resources are available to the California Independent System Operator when and where they are needed. Failure to procure the required volumes results in non-compliance penalties being assessed.
2024 will be a test year for the new 24-Hour Slice of Day Resource Adequacy paradigm, which will place a greater emphasis on baseload and dispatchable capacity resources.
In 2019, the Policy Board identified, as part of its adopted Advocacy Policy and Procedures, that “ensuring a reliable grid requires utilization and investment in both existing and emerging technologies that will accommodate both the increased load from the electrification of processes and greater generation from solar, wind, and other renewables.” The Policy went on to clarify that staff should support policies that promote low or zero emission conventional generation resources that can “serve as a bridge to California’s zero-carbon grid.
In 2020, the Policy Board adopted its goal to meet its retail demand with 60% clean and renewable energy by 2025 and then 100% clean and renewable energy by 2020.
DISCUSSION/ANALYSIS:
Over the last several years, it has been increasingly difficult to procure sufficient RA volumes.
Policymakers are beginning to realize that while the available RA supply is, under the best-case scenario, barely sufficient to meet California’s needs, when viewed in the larger context of Western market constraints there is an obvious RA Supply deficiency.
The limited supply of RA has been further exacerbated through regulatory limitations on RA value assigned to renewables to serve as reliable resources, restrictions on energy imports performance obligations, and removing assets from the market as strategic reserves. Regulatory policy making has also dramatically increased supply obligations by increasing the planning reserve margin to 16% with an even higher “effective” margin for IOUs.
The decreased supply and increasing demand for capacity have spiked prices and is preventing compliance by CCAs despite their best efforts to be compliant, even at exorbitant prices. In October 2022, 3CE, and ten other CCAs, were deficient in their 2023 Year-Ahead obligations. 3CE’s assessed penalty was $6.8 million. 3CE’s will be further penalized for failing to meet month-ahead penalties and be assessed a portion of any backstop procurement ordered by the CAISO. 3CE has been uniquely impacted by the tightening RA market through additional externalities applied by the CPUC’s effort to indefinitely delay 3CE’s implementation start date for customers in the City of Atascadero. Furthermore, a new rule, adopted by the CPUC in June, requires two years of RA compliance to be eligible to serve additional jurisdictions who join 3CE, and may impact the start date for San Luis Obispo County.
All of these factors have contributed to RA Market Prices skyrocketing from $3 to $4/kW-month to $20 to $30/kW-month for annual strips, which equates $90 to $130 million in additional costs to 3CE’s customers.
In response to these pressures, 3CE developed a new strategic approach toward RA compliance that includes:
1. Leveraging our accelerated buildout of 100% clean and renewable PPA projects (or owned projects) to maximize RA value, including pursuit of baseload renewables;
2. Accelerating our battery storage buildout with varied technologies and dispatch capabilities;
3. Layering short and long-term RA contracts to hedge against price volatility;
4. Control over existing traditional dispatchable resources that can perform in each hour of the 24-hour slice of day paradigm; and
5. Developing short and long-term load shifting strategies that include demand response.
Staff has begun to implement this strategy through additional purchases of capacity, pursuing additional renewable projects, hedging RA, entering a contract with OhmConnect for a demand response solution and simultaneously reviewing RFI results to build a separate load shifting / mitigation program.
Now, as part of this strategy, staff has identified an opportunity to enter into an innovative PPA contract structure to site a grid charged battery with an existing natural gas peaker plant. The result would provide high quality, CAISO-preferred RA for 3CE while reducing emissions from the existing peaker facility.
Natural gas peaker facilities have a relatively low capital cost and high operational cost, meaning they are generally last to dispatch into the market – e.g., the market clearing price needs to be high enough to justify the high operating costs. While they do not run often, peakers remain a CAISO preferred resources for grid strain events because they have a quick start time and can be dispatched relatively quickly 24 hours a day.
3CE is exploring contract structures with 15 plus year terms that would enable the installation of a 1- hour discharge battery of roughly the same size of the peaker output, installed on the existing peaker site. E.g., a 52MW natural gas power peaker plant would be paired with a 52MW or larger 1-hour duration battery. 3CE would have the ability to grid-charge the battery during low priced periods (mid-day hours when solar is plentiful) and discharge during evening ramp. The battery will compete for transmission capacity at the site and the Natural Gas Unit will operate less, thus reducing emissions at the project location. The recommended term is within the useful life of the existing facility and allows 3CE to stabilize and predict RA costs longer term.
Such a structure, based on the above example would meet five percent of 3CE’s annual RA obligation, satisfy a portion (9.8MW) toward the CPUC’s Mid Term Reliability mandate, and stabilize a portion of RA costs.
The contract structure would be consistent with the Board direction to serve retail demand with 100% renewable energy by 2030 and would not impact 3CE’s Power Content Label (because of the contract structure the energy would not serve demand). Further, the proposed project would reduce emissions from the already existing, and operating Peaker unit by an estimated 50% to 90%, depending on market prices.
Finally, while the project was originally submitted to 3CE prior to the adoption of the Project Selection Criteria, staff has verified that the project developer has indicated they are committed to utilizing a labor agreement for the construction of the new battery.
FISCAL IMPACT:
There is no financial impact associated with this report at this time.
The notional cost impact of a PPA would be determined more precisely during negotiations and presented to the Operations Board, pursuant to 3CE’s normal approval process and in accordance with its Energy Risk Management Policy.
RA cost savings will be dependent on final negotiations. Because the RA would be a premium product under the 24-hour slice of say model, we anticipate RA cost savings over the initial seven years of the project could be considerable given the current market prices.
CONCLUSION:
The Executive Committee’s support of this new strategy will allow 3CE to reduce RA non-compliance risks and obtain cost certainty in a volatile market, encourage good paying jobs in support of the battery construction and reducing emissions from an existing natural gas peaker facility.