The consumer advocate in Arizona just proposed an overhaul of one of the most successful policies driving renewable energy adoption on the grid.
Twenty-nine states accounting for 55 percent of U.S. electric sales have adopted renewable portfolio standards, which force utilities to meet a certain percentage of their annual electrical production from renewable sources. That’s been great for spurring the growth of clean energy — approximately 60 percent of the increase in renewable generation since 2000 is associated with these measures.
The RPS model, though, sends a signal to build the cheapest renewables regardless of when they produce or what second-order effects they have for the grid. At high penetrations, this can create ramping challenges to meet peak load, requiring construction of more flexible fossil fuel plants. Those are the most expensive generators, meaning the policy doesn't minimize grid costs overall. It’s a blunt tool for a complex, interconnected system.
Thus, when Arizona’s public utility commission opened a docket on reforming the RPS, the state’s Residential Utility Consumer Office, which is tasked with protecting the interests of ratepayers, went beyond suggesting a higher target. It proposed a sweeping upgrade this week called, fittingly, RPS 2.0.
Unlike the various net energy metering successors dubbed NEM 2.0, this doesn’t alter or eliminate the basic policy that exists today.
“This doesn’t get rid of the RPS by any means — it’s more of an add-on, a way to send time-based price signals,” said Lon Huber, a director at Strategen Consulting who authored the proposal on behalf of RUCO.
The idea is to supplement the general renewables requirement with an additional clean energy target for hours of peak demand. The state would decide the details, but an example would be requiring utilities to generate clean capacity credits for four hours of peak load during the summer months. The state could also add additional targets on top of that, like a flexible clean capacity target.
So, utilities would still have to meet large volumetric renewables targets for the year, but they'd have to do so in a way that also tackles the grid's times of greatest need.
Importantly, the cost of the contracts would be capped at parity with the kind of flexible gas plant currently used to meet peak demand. “This won’t cost the ratepayer any more than our status quo trajectory,” Huber said. At the very worst, it triggers cleaner peak capacity at the same price. In all likelihood, clean dispatchable resources will do the job more cheaply than the gigawatts of peakers Arizona utilities think they'll need in the coming decades.
This seemingly simple tweak comes with big ramifications for the field of clean energy, because it opens up more niches where different assets can compete. The policy maintains technological neutrality, so whatever approach can verifiably meet the need will succeed.
“It’s not about the cheapest electron at noon or 3 a.m.,” Huber said. “When you’re unshackled from that construct, there’s a lot of different technology options out there.”
For developers now, incorporating energy storage into a solar project adds cost without helping to satisfy the RPS. Under the new model, the storage makes it possible for that solar plant to satisfy the clean peak standard.
This makes the policy an important new entry in the list of efforts to price the values storage can provide for the grid, which currently lack avenues for monetization in the markets.
“We know that peaking capacity resources are generally the most expensive,” wrote Jason Burwen, policy and advocacy director at the Energy Storage Association, in an email Thursday. “RUCO’s proposal could thus send a clear signal of value for storage not just to enable delivery of clean energy at times of greatest need, but also to simultaneously avoid other investments in peaking capacity.”
Utilities could also meet their obligations with geothermal plants, or demand response, or other aggregated technologies. The precision required to meet the time-based standard opens up the competition to a more diverse set of contracts than a basic RPS.
It offers something to the big wind and solar incumbents too: a more sustainable future. As more and more solar farms produce more and more power at the same time, the marginal value of new solar assets decreases. If you build an array that's going to be curtailed a lot, you don't make as much money on it. RPS 2.0 would create market conditions for utilities to deploy more flexible renewable resources, thus staving off the eventual decline in marginal value.
This proposal just appeared this week, so we shouldn't expect action on it for a while. Much of the impact will come down to the details of implementation: what time windows are chosen for the standard, how high the clean peak goal is set, etc. By tackling peak costs and guiding renewables deployments in a more sophisticated direction, this proposal has a lot to offer not just to Arizona, but the rest of the states as well.
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