Earlier this week, Arizona power stakeholders spoke out about a controversial request for proposals (RFP) from Arizona Public Service, the state's largest utility.
Environmentalists said the RFP for 400 MW to 800 MW of peaking capacity unfairly benefits gas generation by limiting the amount of renewable energy, storage and demand-side management that could be procured through the request.
Because the RFP must be closed by year's end, critics also said the request would likely violate Arizona's natural gas moratorium, which limits gas infrastructure investments from utilities until the end of 2018.
APS responded to those concerns in a Wednesday interview, saying critics misunderstood critical elements of the RFP and gas moratorium. The utility is committed to non-gas resources like solar and storage, executives said, but is concerned adding too many of them now will challenge grid reliability.
"Our RFP does not have any indication or condition that would violate the Commission's [moratorium] order," Amanda Ho, APS director of state regulatory compliance, told Utility Dive via phone.
Ho said the moratorium does not apply to power purchase agreements (PPAs) despite language in the April order barring the "purchase, acquisition, or construction of a generating facility of natural gas energy of 150 MW of capacity or more."
Arizona Corporation Commissioner Andy Tobin, who proposed the moratorium, specified during the ACC's April meeting that it would not apply to PPAs, Ho said.
"Remember, this does not impact purchased power agreements," Tobin said, according to a video of the meeting. "It is just building and buying the plant."
Tobin’s office did not respond to requests for comment.
Carve-out confusion
Regardless of the moratorium, critics of the APS RFP said it appears designed to return mostly natural gas generation with some small contributions from other resources.
"It does seem like they have determined that they need a gas peaker and they're saying 'if you can provide me exactly what I get from the gas-powered peaker but for cheaper with solar-plus-storage, then we'll give you 12% of the contract,'" said Michael O'Boyle, electricity policy manager at Energy Innovation, a think tank.
But APS said the limits on renewables, storage and efficiency measures are actually higher than many stakeholders assumed when they read the RFP.
Many participants read the RFP as setting aside two carve-outs for non-gas resources: 100 MW for renewables paired with storage, and 100 MW for demand-side measures. But APS said the RFP should actually be understood with three carve-outs: 100 MW for renewables and storage, 100 MW for standalone storage, and 100 MW for demand-side management.
"This is a 400 MW to 800 MW RFP, and so by virtue of that, you can almost meet the minimums with those types of [non-gas] resources," said Jeff Burke, director of resource managment at APS.
Despite setting aside that much capacity for non-gas resources, Burke said APS does not feel comfortable today lifting the limits and running an open RFP process.
"We typically have an estimate of what we feel comfortable with for these resource types and as we conduct more RFPs, we expect that [non-gas] number to go up," Burke said. "But many of these resources are relatively new. They haven't seen their full life cycle."
Storage prompts reliability concerns
As renewables and energy storage decline in price, many in the sector expect them to become viable alternatives to natural gas peakers — particularly in places like Arizona, which has some of the best solar resource potential in the country.
APS is "interested" in those resources, Burke said. Earlier this year, the utility contracted for a 50 MW, 135 MWh battery to be paired with a solar farm — expected to be the largest battery in the state when it comes online.
But despite that project the utility is still apprehensive to lift resource restrictions in its RFPs, saying it wants to ensure "diversity" in its contracts.
"You don't install all new technology right when it comes online," Burke said. "You have to get comfortable with how it operates, that it meets your system needs, that the longevity is what you expected it to be."
Critics like O'Boyle argue that APS is already largely reliant on natural gas and coal for its generation, so the RFP restrictions are "limiting the diversity of what's possible." But Burke said they are necessary due to reliability concerns with battery facilities.
"We've only seen 500 MW to 700 MW [of long-duration storage] across the U.S.," Burke said. "Do you expect us to put 500 MW of solar plus battery as the only resource through this RFP? I think that could challenge reliability."
APS is still unsure of what those specific reliability risks could be, the director said, in large part because the resource is so new.
"If you take a resource that's been around — some of them have been around for about five years — we don't know all the ways that our reliability could be impacted yet," he said. "There's reliability risks, there's some technology risks of the new, there's some learning curve with how they operate on our system. There's some longevity concern potentially into a number of things."
RFP bids are not released publicly, so it's difficult to know if solar-plus-storage facilities would outbid gas-fired resources in an open solicitation. Burke and Ho declined to say if that concern was a factor behind the RFP stipulations, but Burke did note that First Solar won a competitive contract through an RFP for its facility.
"First Solar is a very innovative contract structure and it meets our needs," Ho said.
Participants in the APS RFP will file their intents to bid by June 8, and the utility expects to have contracts signed by the end of the year. While changes to this RFP are unlikely, Burke said APS could one day issue requests without resource limitations.
"That's the ultimate goal," Burke said. "Over time there will be additional a battery solar plus batteries on our system and I think it's just a matter of time and if you think about how we're going, we will have RFPs in the future."
