Executive Committee MeetingAugust 21, 2023
Item I. 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
California’s Energy Supply Mix Transition
SB 100
100%
Clean Power
by 2045
To achieve greenhouse gas reduction goals, California has been transitioning from a mostly fossil-based generation mix towards the goal of a mostly clean & renewable generation mix.
September 6 2022 Heat WaveHow California Kept the Lights On California’s success at deploying large amounts of solar and wind have changed the dynamic of how to make sure the lights are kept on.
Consumption peaking in evening hours on hot days as renewables are ramping down increased stress on the grid manager, CAISO, to ensure there is adequate supply to meet demand.
While a demand response event was called to help reduce consumption (not reflected in the chart), natural gas generation played a critical role in meeting evening demand and preventing any blackouts.
Reliability vs Renewables
4 The enormous success of California’s goal to increase renewable generation on the grid to reduce greenhouse gas emissions has also increased the likelihood of outages due to the intermittency of the most prevalent renewable generation technologies deployed, wind and solar.
This conflict between Reliability and Renewables is manifesting itself within the Resource Adequacy (RA) Compliance Program.
More Renewables on the Grid
Reliability
(Keeping the Lights On)
Due to increasing difficulties in procuring the required RA volumes, 3CE had RA deficiencies in 2020, 2021, and 2022, and was penalized by the CPUC. 3CE, and ten other CCAs, were deficient in their 2023 Year-Ahead obligations, determined in October 2022. 3CE’s assessed penalty was $6.8 million. 3CE will be penalized for month-ahead penalties as well, due to being unable to find adequate volumes for July and August. The estimated amount is $3.8 million.
Lack of RA resources, increased CPUC restrictions on qualifying RA, and continued uncertainty in the RA market rules are all contributing factors to why 3CE has been unable to obtain the required RA volumes.
CPUC has adopted a point system for month-ahead non-compliance that will double and triple the existing penalty price [e.g., a Summer penalty price of $8.88/kW-month can increase to $17.76 (doubling) and $26.64/kW-month (tripling), based on accrued non-compliance points.] Non-monetary impact of 3CE’s RA Non-Compliance: CPUC Resolution E-5258 delayed 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 in order to be eligible to serve additional jurisdictions that join 3CE and may impact the start date for San Luis Obispo County.
Upcoming major reform to the RA Compliance Program called the 24-Hour Slice-of-Day paradigm, will necessitate 3CE securing dispatchable capacity to become compliant. This new paradigm will start in 2025, with 2024 being a test year.
All these factors have contributed to RA market prices skyrocketing from $3 to $4/kW-month to $15 to $25/kW-month for annual strips (five to six times higher).
Reliability vs Renewables Conflict: Impact to 3CE
5 RA Compliance Strategy
6 In response to these pressures, 3CE has 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
Hybrid Energy and Energy Storage Opportunity
7 An existing opportunity to act on the new strategy
Hybrid Natural Gas Power Plant with Battery Energy Storage System Enter into a Power Purchase Agreement with an Existing Natural Gas Power Plant that will build a 1-hour discharge duration battery adjacent to the existing unit.
Existing Peaking Gas Unit is a preferred resource by CAISO for grid reliability as it has a quick start-up time.
Grid-charge the BESS during low-priced periods (Duck Belly) and discharge during the evening ramp.
The BESS will compete for transmission capacity at the site and the Peaking Gas Unit will operate less, thus reducing emissions at the project location. Estimates of the reduced emissions from the Peaker unit range from 50% to 90%, depending on market prices.
Pricing Structure:
Resource Adequacy: Fixed price per kW-month for a firm RA benefit Energy: Financial settlement structure would have no reportable emissions on 3CE’s Power Content Label, as physical energy from Peaker Unit, if dispatched, is being purchased directly by CAISO from Seller.
Tolling Rights: Charging & discharging rights to 1-hour BESS along with rights for dispatchable energy from an existing peaker plant to be used during constrained market conditions for reliability.
Hybrid Energy and Energy Storage Opportunity
8 Emissions Reduction Impact of Adding Battery to Peaker Unit BESS will compete with Peaker Plant and decrease emissions Emission Reduction Potential: 50% to 90%
For Illustrative purposes only-55 MW Peaker and Battery
Hybrid Energy and Energy Storage Opportunity
9 Other Benefits
Emissions:
No reportable emissions on the Power Content Label due to financial structure Generator-Owner is planning to utilize IBEW and other Unions and will be signing Project Labor Agreements.
Portfolio Impacts:
Meets 5% of 3CE’s RA annual obligations
Provides 9.8 MW towards meeting the CPUC’s procurement MTR mandate.
Secures cost certainty in a volatile market
Request for the Executive Committee
10 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
Questions
11 Dennis Dyc-O’Neal
Chief Operations Officer
Central Coast Community Energy
[email protected]