Updated: Arizona proposal seeks to mandate renewable generation during peak demand hours

A fix to the renewables mandate floated by the state’s consumer advocate would require wind and solar to deliver power when electricity use is highest

Update: Arizona Commissioner Andy Tobin endorsed the RUCO Clean Peak Standard in a letter filed with the ACC last week. Utility Dive's original report on the proposal follows.

An unprecedented proposal from Arizona’s consumer advocate on how to improve the state’s renewables mandate could be a policy whose time has come throughout the nation. 

In August, Arizona Corporation Commission (ACC) Chair Doug Little opened the first review of Arizona’s Renewable Energy Standards and Tariff (REST) in almost 11 years. His surprising suggestions to increase the state's 15% renewables mandate to 30% by 2030 and to include new technologies like energy storage were initially expected to be the most controversial topics in the proceeding (Docket E-00000Q-16-0289).

But a white paper just introduced last week by Arizona’s Residential Utility Consumer Office (RUCO) would enhance the mandate in a completely new way by adding a mandate for renewables to meet peak demand. 

While the idea is new, its immediate relevance to grid needs across the nation is already attracting attention of regulators, utilities, and important private sector players in other states.

“The Clean Peak Standard and the white paper address some of the things we want to and need to address in the review of the REST,” Chair Little told Utility Dive.

“Conceptually, there are a lot of good things in the proposal that start to confront a very specific problem we have about how to encourage utilities, aggregators, and merchant generators to focus on peak demand,” he said, “which is not dealt with by the REST and which existing renewable resources do not meet.”

The white paper — “Evolving the RPS: A Clean Peak Standard for a Smarter Renewable Future” — started with the question of what would be best for the realities of today’s grid if the policy slate was blank, white paper co-author Lon Huber, a Director with Strategen Consulting, told Utility Dive. RUCO commissioned Strategen to articulate the concept in the paper.

The Clean Peak Standard (CPS) "is intended to accomplish two things with one policy,” Huber said. “It adds more renewables, but it adds renewables when the system most needs capacity so it uses renewables to deal with system cost drivers and saves ratepayers money when electricity prices are highest.”

Arizona Public Sevice (APS), the state’s dominant electricity provider, is interested in the proposal, said Spokesperson Anna Haberlien Stewart.

“A lot has changed since the original REST was adopted more than ten years ago,” she said. “Technologies of many types have emerged and matured, and it is time to reexamine and modernize the standard. The devil is in the details, but RUCO’s proposal certainly appears to make progress on some key issues.”

Peak power needs can be met by pairing renewable energy with storage or designing wind and solar facilities to deliver power at certain times. The CPS concept is intended to provide that incentive. If it works, it could reduce the system’s need for conventional generation at peak times and eliminate costs for delivering it.

The mandate would provide a boost not only for renewables, but for storage and distributed energy companies. Already Tesla, fresh off its acquisition of SolarCity, endorsed the concept. “While details of the proposed Clean Peak Standard still need to be discussed, Tesla supports the concept which would enable a cleaner, more resilient, lower cost grid and promote a sustainable energy future,” the company told Utility Dive through a spokesperson. 

Under the RUCO proposal, a certain percentage of renewable generation would have to deliver power during peak periods

The CPS model

Traditional renewables mandates do not differentiate between renewable MWh based on their value to the grid, the RUCO white paper notes. But states with high wind and solar penetrations are already seeing times when there is more renewable generation than the system needs. That overgeneration can result in curtailment if it occurs during times of low power demand, with fast-reacting natural gas turbines ramping up during evening usage spikes. 

Driven by renewable portfolio standard (RPS) mandates, more states will be achieving high levels of renewables penetration, the white paper reports. “New approaches will likely be needed to guard against diminishing returns of a simple MWh-based approach.”

The CPS builds on the RPS construct “by adding a new dimension whereby a certain percent of energy delivered to customers during peak load hours must be derived from clean energy sources,” the white paper explains. A 30% CPS would require 30% of delivered MWh during the identified peak demand period to come from “qualifying clean peak resources.”

Huber recognizes the RPS as a policy that has added substantial renewables to the system, “but it does nothing about when those green electrons are produced,” he said. “This would introduce a policy framework for capacity, not just energy.”  

A CPS could be satisfied by renewables that generate during peak demand, by energy storage charged by eligible resources, and by methods of demand management that show verifiable, quantifiable energy use reductions, the white paper reports.

“This is about evolving technology solutions through technology-agnostic price signals,” Huber said. “It is making our renewables smarter.”

RPSs don’t encourage the use of clean energy for grid services like frequency regulation, load following, and spinning reserves. Those services tend to met by conventional resources, the white paper reports. That prolongs fossil fuel dependency and tends to increase costs to customers.

“Utility-scale solar PPAs in Arizona have been as low as $0.0375/kWh recently,” Huber said. “The [latest models of] natural gas combustion turbines that would be purchased to provide capacity have a levelized cost of energy of $0.194/kWh and run 20% of the year, according to the 2014 Tucson Electric Power IRP.”

A recent PPA for a Kauai Island Utility Cooperative solar plus storage project was $0.145/kWh, Huber pointed out. That shows that even in a place as expensive to do business as Hawaii, a flexible clean energy alternative can provide capacity more cost-effectively than peaker turbines.

Drawing down conventional generation during peak hours could save ratepayers money, RUCO expects, even if renewables are paired with energy storage.

Implementation details

The white paper deals with a range of policy questions related to implementing the CPS.

Renewable energy credits (RECs) are required to validate a utility’s purchase of renewables to meet a traditional RPS, the white paper explains. Similarly, compliance with a CPS would be validated by Clean Capacity Credits (CCCs). Like the RECs, CCCs would function as "tradeable commodities."

If insufficient CCCs are procured by load-serving entities to meet their compliance obligations, “an Alternative Compliance Payment could be established similar to some states’ current RPS approach,” the white paper suggests. The payments could fund CPS-eligible resources, it adds.

In some transmission-constrained load pocket areas, “capacity is more valuable from a system planning perspective, and often more difficult to procure due to NIMBY issues and more stringent air and land permitting requirements,” the white paper notes. A "locational multiplier" could be added for distribution system-connected capacity resources in these areas to reflect their proximity to load’s higher value.

More or fewer CCCs could be assigned depending on a resource’s ability to meet capacity across more or less of a peak demand period’s several hours, the white paper observes.

Similarly, as the penetration of renewables shifts the time of the peak period in a utility territory, the assignment of CCCs should be adjusted to reflect the effectiveness of participating resources at reducing the peak, the paper adds. Caution should be used to avoid altering the value in a way that compromises the integrity of the CCC market.

Some regulatory oversight would likely be necessary to make certain customers benefit from the CPS, the white paper stipulates. A screening process to evaluate cost-effectiveness for procured resources could “function as a form of consumer protection,” it suggests.

For customer-sited resources, “some accounting for lost revenues due to retail customer bill savings may also be appropriate,” it adds.

These various compliance calculations would not be any more complicated to administer than those involved in RPS compliance, Huber said. “Handling compliance records and managing CCC trading would be a relatively minor implementation matter and no more complicated than the systems now in place for the existing RPS and RECs trading.”

Under the proposal, resources could earn CCCs for peak-period generation — similar to a REC under a typical RPS standard.

Chair Little: Time for ‘a different approach’

Renewables targets are a good thing because they focus on an objective, Chair Little said. “But what is the REST trying to accomplish? In 2007, it was to encourage adoption of wind, utility-scale solar, and rooftop solar as alternatives to traditional generation because they were nascent technologies and the economics didn’t work.”

Nearly eleven years later, with those targets largely achieved, today’s objectives are to cost-effectively address peak demand and reduce greenhouse gas emissions and other pollutants, Little said. 

“There should be a different approach and we should get out of the business of picking specific technology winners and losers.”

Renewables procurement should first meet the five standard regulatory tests for cost effectiveness, Little said. “Then it should encourage correct behaviors. The RUCO proposal would do that because it says there is a benefit to increasing renewable energy but there is a special value of using renewable energy to offset peak.”

California’s duck curve is a graphic illustration of how midday overgeneration of solar can result in a greater need for spinning fossil fuel reserves to meet the steeper peak demand spikes, Little added. “It shows that more renewables to meet a mandate does not necessarily get at emissions reductions.”

The ACC chair cited the white paper’s reference to modeling that concluded an increase in California’s renewables mandate from 33% to 40% would only produce a 2% GHG reduction.

The section of the white paper pointed out by Little also shows that more renewables to meet a higher California mandate results in “fewer greenhouse gas emissions savings per MWh of RPS target.”

Overgeneration during off-peak periods likely leads to the need for more renewables procurement to get the same emissions reductions, the white paper reports. “Under an alternate case in which renewable energy procurement was better matched with the grid’s capabilities and needs, rate impacts of achieving the RPS were reduced by 10% to 39%.”

It is too soon, Little said, to specifically endorse the RUCO proposal but his impression is it “addresses the real issues.”

Those issues, he explained, are “how to deal with the steep demand ramps that will come with higher penetrations of renewable energy, and especially rooftop solar, and how to prevent increased carbon without imposing higher costs on utility customers.”

Stakeholders voice general support

Newly re-elected Commissioner Andy Tobin has also been looking for “innovative ways to solve peak system demand, either by reducing it or finding the least cost resource to meet it,” he told Utility Dive

The capacity to meet peak demand is “one of the most significant cost drivers for Arizona electric utilities” and adds “extraordinary cost to ratepayers,” Tobin said. A standard that allows all renewable energy technologies to compete as least cost capacity to meet peak demand will make it possible “for market forces to provide the largest menu of energy options.”

RUCO’s CPS “offers great promise in moving the Commission away from an obsolete commitment to arbitrary renewable energy goals,” Tobin added. In revising the REST, the commission “must not make the mistake of separating system peak from renewable energy.”

Energy Storage Association (ESA) Policy and Advocacy Director Jason Burwen likes the CPS concept as well. 

“There is no signal right now for peak capacity services and grid flexibility services to be clean energy,” he said.

The RUCO proposal would cost-effectively align the delivery of clean energy with the goals of the REST and make sure additions to the mandate also meet the goal of reducing emissions, Burwen believes. “What wins in this proposal are resources like demand response and energy storage that deliver flexibility to the system.”

It is “a new, important, and innovative idea that warrants regulators’ attention and warrants all stakeholders to engage,” he added. “Right now, it is more of a concept than a finished policy and it needs to be developed ... That is why subjecting this to a stakeholder process will be the best thing the commission can do with it.”

Stem is one of the leading providers of demand response with energy storage. Regulatory Affairs Sr. Manager Anthony Harrison voiced support for the CPS as well.

“The value of something like a Clean Peak Standard is that it takes a broad, technology-diverse approach to meeting system peak needs,” he told Utility Dive.

It could also help balance the variability of renewables with the deployment of flexible and dispatchable resources and lead to savings for ratepayers by reducing generation overbuild and limiting curtailment, he added.

“A key piece of RUCO’s proposal is that a complementary component, the Clean Flex Standard, allows system capacity and renewable integration needs to be met through scaling clean resources such as energy storage,” Harrison added.

The CPS's biggest value could come in allowing a diverse range of technologies, including storage, renewables, and other load management technologies, to compete, he said. But that can only happen if the attributes of all the technologies, including annual availability, dispatchability, ramping speed, response time, and duration, are properly valued.

Hard work still to come

Commissioner Tobin, APS’s Stewart, and ESA’s Burwen held back final judgment until it is further explored in the REST proceeding. 

“We will learn more as the Commission process evolves,” Stewart said.

Commissioner Little was equally hesitant on some specifics.

“The Clean Peak Standard has real merit,” he said. “It could be implemented without the level of complexity in some of the other parts of the proposal. Things like a Clean Flex Standard and a Clean Reserves Standard and a Clean Regulation Standard and the CCC market all start to get complicated.”

In 2007, the REST had “a fairly complicated way of counting credits,” he recalled. “It has failed because new business concepts, like third party ownership, and new technologies, like low cost rooftop solar, have evolved more rapidly than the REC system.”

Some of the more complicated things in the RUCO proposal may be similar to those early REST complexities and don’t offer the benefits that would come with the CPS, he thinks.

The new REST needs to be simple for the utilities to implement and he does not want to introduce what he sees as unnecessary complexities, Little said. 

“The objective is not a complicated system to count credits, it is to reduce carbon and address peak demand and deal with the variability of renewable energy,” he said. “I want to deal with those things.”

Filed Under: Solar & Renewables Energy Storage Distributed Energy Efficiency & Demand Response Regulation & Policy
Top image credit: Flickr; BlackRockSolar