'Stunning' APS RFP could violate Arizona gas moratorium, critics say
The request for 800 MW of peaking capacity limits renewables and energy storage to 100 MW, which clean energy advocates say could run afoul of a regulatory pause on gas investments.
Clean energy advocates are raising concerns about a request for proposals (RFP) from Arizona Public Service they say unfairly disadvantages renewable resources and could lead the utility to defy a regulatory moratorium on new gas generation.
The APS 2018 Peaking Capacity RFP, issued April 26, requests 400 MW to 800 MW of peaking resources, but limits demand-side resources and renewable energy combined with storage to 100 MW each. Selected resources must also deliver power during peak demand hours in the summer, but not at other times.
The utility says it wrote the request to ensure a “diverse mix of technologies,” but some energy analysts say the stipulations appear designed to result in the procurement of gas generation rather than renewables or energy efficiency.
“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.
That, critics say, likely means APS will violate a pause on gas investments that state regulators put in place in March when they refused to approve 15-year Integrated Resource Plans (IRPs) from the state’s utilities.
“If APS does not modify this RFP they would be out of compliance with the IRP [decision] and it is stunning to me that this is what they would put forward,” said Amanda Ormond, managing director of the Western Grid Group, a clean energy nonprofit active in Arizona. “The commission was very clear that it's very concerned about natural gas and APS has shown that it is all in on natural gas.”
The debate over APS’s RFP is one example of how clean energy advocates are pressuring utilities to alter their procurement practices and open them up to more public scrutiny as renewable resources and storage become increasingly competitive with conventional generation.
“[The RFP] seems to actually be limiting the diversity of what's possible,” O’Boyle said. “APS is already relying primarily on coal and natural gas to meet peak energy demand. It seems like if it were, in fact, the most cost-effective option to award these contracts using a combination of renewables and storage, then it would make the system more diverse and more resilient.”
The gas moratorium
In a written statement, APS told Utility Dive it does not believe its new peaking RFP would violate the terms of Arizona’s gas moratorium, as any new construction would not begin before year’s end.
“The moratorium was on construction of new natural gas assets and it expires at year-end,” APS spokesperson Anne DeGraw wrote in an email “As this RFP is still open, we do not know what the selected solution will be and nothing new will get built within that timeframe.”
But advocates like Ormond say the language of the Arizona Corporation Commission’s decision prevents not just building new natural gas resources, but new contracts for gas-fired resources as well. The RFP requires APS to procure its resources by the end of the year, before the moratorium lifts at the beginning of January.
The decision bars utilities from the “purchase, acquisition, or construction of a generating facility of natural gas energy of 150 MW of capacity or more,” unless it runs an “independent analysis comparing the present and future costs of the specific natural gas procurement and alternative energy storage options and [ACC staff] reviewed that analysis.”
ACC commissioners did not respond to requests for comment, but the critics say stipulations in the RFP prevent that kind of comparative analysis.
Solar-plus-storage projects are the most likely renewable resources to compete directly with gas peakers in Arizona, but O’Boyle and Ormond said limiting their size could make them less competitive, because such facilities rely heavily on economies of scale.
Other stipulations could also affect renewables-plus-storage economics. The RFP strictly limits the times when resources may sell power to APS, O’Boyle noted, not allowing any sales during certain times of day in different months.
That, O’Boyle said, could further hamper the competitiveness of renewable energy projects.
“What they're saying is that they won't buy solar power that is coming in before 2:00 p.m. or even later in the day,” he said. “That to me is a really big problem for getting good economics for a solar-plus-storage project because if you're not allowing the solar to sell its energy to you during those other hours, you're not allowing the project to benefit from its full value that it would otherwise provide for the grid.”
“I think it really limits their options of what they can get economically that meets their needs,” he added.
Costs and competition
APS did not make a representative available for an interview, but DeGraw wrote that the utility “wants a diverse mix of technologies at competitive prices, rather than specifying a single technology to meet our resource needs.”
Ormond, however, worries the RFP’s stipulations will prevent the utility from putting together the most price-competitive portfolio it can.
“If clean energy, or clean energy and storage comes in as the lowest price resource, they arbitrarily eliminate that amount [over the limit],” she said. “Because renewable prices are now less expensive many times than new build and existing natural gas that gets incumbent upon utilities to prove that they have to have new natural gas.”
Contract offers for renewable energy facilities and those combined with storage are coming in at historic lows, Ormond noted. In Colorado, an Xcel Energy RFP early this year returned a median solar-plus-storage bid at $36/MWh, the lowest observed in the U.S. to date, and last year Tucson Electric Power signed a solar-plus-storage contract for less than $45/MWh.
“By limiting to 100 MW, you have to wonder if they’re limiting for the least cost resources,” she said.
Other limits on energy storage stipulate that it must have a five-hour duration and be charged exclusively by an adjacent renewable energy resource — two factors O’Boyle said could further limit its competitiveness.
“By specifying that every single resource has to provide the same capability as opposed to making it maybe slightly less stringent ... they've, again, limited their options to things that look like a gas peaker,” he said.
O’Boyle said it’s difficult to know if those rules are justified because APS did not provide information on the grid needs driving the RFP.
“APS I'm sure is saying that's what modeling shows the system needs,” he said. “Of course, we don’t have access to that in this RFP, so it’s hard to argue convincingly against their determination of their system needs.”
With more information, APS and renewable energy developers may be able to find a lower cost portfolio that can meet the utility’s needs, O’Boyle said, even if some of the resources have different capabilities.
“Rather than requiring all resources to individually meet these potential needs of the RFP, maybe you have 100 MW of 2-hour storage and 100 MW of 3-hour demand response plus 50 MW of solar that are powering the storage,” he said. “Maybe cutting the pie that way gives you exactly what you need.”
Lack of information into utility procurement processes is not unique to APS, Ormond said.
“All utility procurement processes are a black box,” she said, but publishing average bid prices like Xcel and TEP have done “builds some confidence that we understand the utility is doing good procurement processes.”
“If you're doing a good competitive procurement process, you're going to find astoundingly low solar and wind prices,” she said, “and if you don't find astoundingly low solar and wind prices, it's because you're not really running a fair competitive procurement process.”
Ormond and other Arizona energy players are looking forward to Wednesday, when APS plans to hold a procurement call with potential vendors.
“I hope to get on and just hear anything more that they are saying,” she said, “because the limit certainly seems arbitrary and potentially not in the best interest of customers because we know that the clean energy is coming in cheaper."
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