Value Proposition of Resilience Investments Tampa Convention Center Tampa, Florida

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1 Value Proposition of Resilience Investments Economic Justification of Resiliency Investments Nisha Thirumurthy Senior Project Leader, Project Development and Finance National Renewable Energy Laboratory (NREL) August 17, 2017 Tampa Convention Center Tampa, Florida

2 There is a move in the DoD to develop cost-competitive, resilient and cleaner energy projects. Identify profitable value streams for energy security investments Energy security is of great concern to the US Government, especially the protection of critical DoD facilities. Identify feasible procurement strategies and authorities to implement energy security investments Establish viable financial assessments and metrics for energy security investments The question is how can we develop such projects in a cost effective manner. Suitable projects would ideally converge at the nexus of three areas shown in the figure.

3 Instead of trying to value resiliency before a catastrophic event occurs, find a way to pay for it today. How do you value something that hasn t happened yet? Future Best strategy is to pay for it today to have resiliency tomorrow. Present Capture value today through: Utility rate savings Ancillary services market (demand response, resource adequacy, reg up/reg down) Past Past outage predictor of future outage? Yes, but the current system of coping with those might suffice. But what about catastrophic, once-in-alifetime events?

4 Understanding the utility rate structure and seeing how the resiliency technology can be deployed to reduce utility charges is important. Bill Components Summer Winter Demand Charges (kw) Peak Batteries can be deployed to reduce these charges Mid-Peak Off-Peak Mid-Peak Off-Peak Energy Charges (kwh) Peak Batteries can be deployed to reduce these charges Mid-Peak Off-Peak Mid-Peak Off-Peak Customer Charges Fixed Fixed Cannot be impacted Riders (kwh) One-Rate One-Rate Lower KWh from grid reduces these charges Taxes (%) Of Total Amount Of Total Amount Takeaway: The more tiered your utility rate structure (i.e with time-of-use demand and energy charges), the greater the opportunity to economically justify energy resiliency investments.

5 In this example, the battery is strategically charged during off-peak periods (orange) and then discharged during peak periods (red) to reduce peak demand.

6 Example: PV + Battery combined with existing diesel genset extends probability of surviving outage at a lower or marginally higher cost NREL evaluated thousands of random grid outages and durations throughout the year and compared number of hours the site could survive with a diesel gensets and fixed fuel supply vs. gensets augmented with PV and battery 100% Generator Solar PV Storage Lifecycle Cost Outage 1. Base case 2.5 MW - - $20 million 5 days 2. Lowest cost solution 2.5 MW 625 kw 175 kwh $19.5 million 6 days 3. Proposed system 2.5 MW 2 MW 500 kwh $20.1million 9 days Probability of Surviving Outage [%] 80% 60% 40% 20% 0% Base case Lowest cost solution Proposed system (given site goals & constraints) Length of Outage [Days]

7 Combined operation of RE and diesel generators extends fuel for the outage (49% reduction in fuel used (due to PV/Energy storage systems) Operation for 66hr outage starting at 1900hrs, October 16 th Critical load is 70% of site load (note gap between generation and load) Dispatch Strategy Grid Outage Battery Charging

8 Innovations both on the market and technology side are adding additional value to resiliency investments Market opportunities going up Technology costs going down Demand Response Resource Adequacy Reg Up/Reg Down Services Black Start Capability Payments Energy Storage Costs Solar Technology Costs The combination of improving market opportunities and decreasing technology costs are making resiliency investments more attractive

9 Some electricity markets have specific needs that can make resiliency investments more valuable

10 We can bring all of these aspects together along with other variables to determine the value of resiliency for individual projects. Data Streams Deliverables Procurement Pathways Tariff structure/bills Interval load data Backup generator usage Regulatory / Market research Economic Analysis Rate Analysis (Savings) Diesel Fuel Cost Analysis (Savings) Value Streams Analysis (Additional Revenues) Appropriation (MMRP, Milcon) AF Working Capital Funds Grants (eg. CEC, ECIP etc) Grants/incentives research Financial / Economic Model Development PPA UESC ESPC UP System design scenarios and capital and O&M costs RE resource analysis Resiliency Duration Versus Cost Analysis GSA EUL

11 Contract for differences is another interesting model, however the opportunities for arbitrage to fund resiliency are not certain. Customer (eg. Installation) $/MWh (Fixed) RECs + $/MWh (Variable) 1 Renewable Project $/MWh (Variable) Power (MWh) 3 2 Power (MWh) $/MWh (Variable) Electricity Provider (eg. Utility) Power (MWh) $/MWh (Variable) Wholesale Market (eg. RTO) 1. Customer signs CFD with Renewable Generator at a fixed rate ( strike price) for power. Generator delivers RECs plus variable settlement to Customer. 2. Renewable Generator sells power to Wholesale Market at spot price and settles with customer based on difference between strike and spot prices 3. Customer uses RECs and CFD settlement to offset carbon emissions and costs of retail power and fund resiliency projects Source: Based on figure in Renewable Power Direct, 2015

12 Another approach Customer Damage Function (CDF) seeks to place a value today on future outage-related losses Based on customer survey of outage and cost information Site-specific, depends on duration of interruption, situation in which interruption occurs, customer activity Used two hypothetical scenarios that vary in duration and situation in which interruption occurs (emergency level) Two scenarios Scenario A There is a power outage and the lack of power supply lasts for 1 hour, 4 hours, 8 hours or 24 hours. The base is not in an emergency situation. Scenario B There is an outage and a natural disaster or terrorist attack event I simultaneously going on in the area. The lack of power supply lasts for 1 hour, 4 hours, 8 hours, or 24 hours and the base is under an emergency situation and has to remain operational. Giraldez, J. World Renewable Energy Forum 5/17/2012 NREL/PR 7A

13 Surveys used at Miramar and Fort Belvoir identified the following costs related to outages. Suspended mission critical non critical operations Impact on relief and rescue missions Personnel sent home from work Overtime for emergency workers Base security impacts Infrastructure impacts (heat, water, sewer, traffic lights) Delays or failures in backup generation Fuel for backup generators Equipment damaged Human lives put in danger Food spoilage Residential impacts Curtailing commercial facility operating hours Costs vary depending on scenario and outage duration Giraldez, J. World Renewable Energy Forum 5/17/2012 NREL/PR 7A

14 The costs associated with a catastrophic event (Scenario B) are a lot higher in the immediate aftermath than in Scenario A. Once survey is completed the data has to be processed in order to create a Customer Damage Function (CDF) Results: Substantial cost difference between Scenarios A and B Fewer personnel sent home in Scenario B Risk increases: communications, human life put to risk, etc. Might make sense to capture some of the value shown in the gray area up front especially if small outages occur frequently Based on frequency, perhaps this area can be included as an avoided cost in financial model Giraldez, J. World Renewable Energy Forum 5/17/2012 NREL/PR 7A

15 Find a way to pay for resiliency today, so that it s available when a catastrophic event occurs. In certain markets, a combination of high utility rates and favorable market conditions could make investing in resiliency a more cost-effective option than the status quo If utility rates in your area are low, then looking at arbitrage options through CFD might be worth investigating Also looking at the losses incurred during routine outages and using that as part of your avoided cost (or savings) upfront might also be a valid consideration in some cases Giraldez, J. World Renewable Energy Forum 5/17/2012 NREL/PR 7A

16 APPENDIX

17 The table provides some examples of the value that could be captured from resiliency investments in the CAISO region. Possible to participate in several different markets: Ancillary Service Market Est. Value of Service Requirements Day Ahead Energy Market $20-$40/MWh Minimum 100 kw Must be directly dispatchable 5 Minute Energy Market $15-$30/MWh Minimum 100 kw Must be directly dispatchable Non-Spinning Reserves $2 to $10/MWh Minimum continuous performance of 30 mins Reliability Energy $ /MW (only during an emergency event) Minimum 500 kw Able to deliver reliability energy in real-time reaching full curtailment within 40 minutes Minimum performance of 1 hour, up to 4 hours Must be available for up to 15 events and/or 48 hours every 6 months ndresponseresourceoverview.pdf

18 Ancillary Services: Resource Adequacy DRAM (Demand Response Auction Mechanism): Competitive annual auction, still in early stages. Average weighted bids were $87/MWh in 2014 $50/MWh in 2015 Must be dispatchable on a continuous basis for at least 60 minutes. Total volume and bid prices for all resource adequacy services in 2015, during peak hours. CAISO Annual Report on Market Issues and Performance. May alreportonmarketissuesandperformance.pdf

19 Ancillary Services Reg-Up/Reg-Down: Prices for both regulation services roughly tripled due to change in market procurement requirements, from about $5/MWh to about $15/MWh. Anecdotally around $10/MWh from LA AFB V2G pilot Lot of paperwork and effort to become a wholesale market participant Mutually exclusive with Demand Response Metering/scheduling can be technically challenging CAISO. Q Report on Market Issues and Performance. June 13,

20 Example CDF Survey Scenario A: 1. Outage due to minor event on the power grid 1 Hour 4 Hours 8 Hours 24 Hours Mission impacts Were mission critical functions affected? If so, what was the cost? What was the cost of re-starting mission activities? Were any human lives put in danger? Was any equipment damaged? Repaired/replaced? Estimated cost? Were any personnel ordered to remain or sent home? If so, how many? Was the security of the base affected? Other mission related costs due to loss of power? Infrastructure impacts Did the natural gas, potable water, sewer systems, and traffic/ street/ parking lot lights, alarms remain functional? If not, what was the cost? Support personnel: Did the base have to pay overtime to police, firefighters, emergency response workers, or others to deal with the outage? Backup generators How many of the backup diesel generators started? How long did it take? Did any backup systems fail to start? What was the fuel cost of running the backup generators? Commercial facilities Were normal operating hours curtailed? If so, what was the economic impact? Were any food/products spoiled? Estimated cost? Residential facilities What would base residents be willing to pay to avoid a similar outage in the future? Other costs

21 Contact Ms. Nisha Thirumurthy