Solar Project Development in Regulated Markets. Smart and Sustainable Campuses Conference 2017

Transcription

1 Solar Project Development in Regulated Markets Smart and Sustainable Campuses Conference 2017

2 Session Outline Overview of renewable energy procurement options Market structure and policy impacts on solar development Financing methods to deploy solar Working with utilities in regulated markets University Speakers Furman University University of Washington University of Colorado Colorado Springs Furman University University of Washington University of Colorado Colorado Springs 2

3 Renewable Electricity Procurement Options On-site 3 rd party financing Self-financing Off-site Power purchase agreements (PPAs) Green tariffs One-on-one utility deals Community (shared) solar Colleges & universities are increasingly looking off-site to better scale their renewable electricity use and meet aggressive climate commitments. 3

4 Renewable Electricity Procurement Options On-site 3 rd party financing Self-financing Off-site Power purchase agreements (PPAs) Green tariffs One-on-one utility deals Community (shared) solar Available options constrained by: electricity market structure state and utility policies Colleges & universities are increasingly looking off-site to better scale their renewable electricity use and meet aggressive climate commitments. 4

5 U.S. Electricity Markets Electricity markets have wholesale and retail components. Wholesale markets involve the sales of electricity among electric utilities and electricity traders before it is eventually sold to customers. Retail markets involve the sales of electricity to consumers. Both wholesale and retail markets can be regulated or deregulated. 5

6 Wholesale Electricity Markets Regulated wholesale markets are comprised of vertically-integrated utilities that are responsible for the entire flow of electricity to consumers. They own the generation, transmission and distribution systems used to serve electricity consumers. Deregulated wholesale markets are run by independent system operators (ISOs). ISOs use competitive market mechanisms that allow independent power producers and non-utility generators to trade power. Utilities are only responsible for the distribution, operations, and maintenance from the interconnection at the grid to the meter, billing electricity consumers, and acting as the provider of last resort. Utilities are not involved in generation. Gray areas = regulated 6

7 Retail Electricity Markets Retail markets are determined at the state-level and can be regulated or deregulated. Regulated retail electricity markets: consumers cannot choose who generates their power and are required to purchase from the utility in that area. Deregulated retail electricity markets: allow electricity consumers to choose between competitive retail suppliers. 7

8 Poll 8

9 How Do Market Structure & Policies Impact Renewable Electricity Options? 9

10 Off-site Renewable Energy Procurement Options 10

11 Power Purchase Agreements (PPAs) PPAs are an increasingly popular strategy for large institutions to buy renewable electricity directly from a specific project Contract for the purchase of power and associated RECs from a specific renewable energy source to a purchaser of renewable electricity Typically 10 to 20 year agreements, define all of the commercial terms for the sale of renewable electricity, including commercial operation date, schedule for delivery of electricity, penalties for under-delivery, payment terms, and termination. 11

12 Power Purchase Agreements (PPAs) The type of PPA available to your institution is constrained by where you are located and where the project you wish to engage is located. To engage in a physical PPA: You must be in a deregulated retail market. Project must be in a deregulated wholesale market that is interconnected with your ISO. To engage a virtual PPAs: You can be anywhere in the U.S. Project must be in a deregulated wholesale market. 12

13 Physical or Direct PPAs 13

14 Financial or Virtual PPAs 14

15 What Other Off-Site Options Exist Besides PPAs? Green Tariffs One-on-One Utility deals Community Solar Programs 15

16 Green Tariffs Optional renewable electricity programs in regulated state retail electricity markets, offered by utilities and approved by state public utility commissions. Currently available in 7 states Tariffs allow eligible customers to buy renewable electricity from a specific project at a long-term fixed rate. Benefits to customers: greater flexibility price predictability potential cost savings over a long-term contract agreement direct connection to a specific, often local, renewable energy project 16

17 Utility Renewable Electricity Deals In regulated markets, one-onone deals can occur between large electricity customers and their utility. Unlike green tariffs, these are not specific programs set up by utilities. These are typically unique one-off deals offering mutual long-term benefits to both parties. 17

18 Community (Shared) Solar An increasingly popular option for deploying and accessing solar energy. Today, 14 states and the District of Columbia have shared renewables policies in place Community solar projects enable customers that often do not have sufficient solar resources or that are otherwise unable or unwilling to install solar to own or lease a portion of a shared solar project. The subscriber s share of the electricity generated by the solar project is credited to their electricity bill, as if the solar system were located at their institution. 18

19 On-site Renewable Energy Procurement Options 19

20 Third-Party Financing for On-Site Primarily occurs through 2 models: PPAs and Leases PPA model a developer builds a renewable energy system on a customer s property at no cost. The system offsets the customer s electric utility bill, and the developer sells the power generated to the customer at a fixed rate, typically lower than the local utility. At the end of the PPA contract term, property owners can extend the contract and even buy the renewable energy system from the developer. Lease model a customer signs a contract with a developer and pays for the renewable energy system over a period of years, rather than paying for the power produced Can be structured so customers pay no up-front costs, some of the system cost, or purchase the system before the end of the lease term. 20

21 Third-Party Financing for On-Site 21

22 Self-Financed Solar Institution-owned models allow universities to be the owner of the renewable energy system. The university makes an upfront payment to purchase the system. Also responsible for design, construction, installation, operation and maintenance of the system, although the university may contract these responsibilities to a third party. The university owns the electricity generated by the system as well as its environmental attributes, unless it decides to sell them to another party. Because most universities do not pay federal taxes, they cannot take advantage of the federal investment tax credit or depreciation benefits when owning a system. The university bears the full risk in this model. 22

23 Non-PPA Solar Financing Models Additional funding & revenue streams for on-site renewable energy project development: Grants and incentives SREC monetization Bond financing Donor funding Internal funds Student fees (sustainability or renewable energy funds) Donations Leasing land for solar development 23

24 State Variations in PPA and Non-PPA Models Source: NREL analysis based on AASHE, 2016 data 24

25 Working with Utilities in Regulated Markets Leveraging utility/state incentives and programs Anticipating utility s concerns Designing projects that emphasize mutual benefits Contract discussions Assisting in the design and roll-out of new programs i.e., green tariffs, community solar, etc. 25

26 Any Questions? Green Power Partnership: Renewable Energy Project Development Toolbox: More Questions? James Critchfield, EPA, Weston Dripps, Furman University, Claudia Frere-Anderson, University of Washington, Linda Kogan, University of Colorado Colorado Springs, 26

27 Background Electricity Electricity is a physical product the flow of electrons, a commodity that can be sold and traded. It is a secondary energy source in that it results from the conversion of other energy forms such as natural gas, coal or uranium, or the energy inherent in wind, sunshine or the flow of water in a river. It may not be visible, but it can be turned on and off and measured. Once on the grid, the source of the electricity generation is indistinguishable. A renewable energy certificate (REC) is created for every 1 MWh of green power generation delivered to the grid, conveying the environmental benefits associated with a zero-emission resource and legal ownership rights to claim to be using renewable energy. 27

28 U.S. Electricity System Electricity is delivered to consumers through the electricity grid. From generation at power plants, electricity moves through a complex network of substations, power lines, and distribution transformers before it reaches customers. In the U.S., the power grid consists of more than 7,300 power plants, nearly 160,000 miles of high-voltage power lines, and millions of low-voltage power lines and distribution transformers, which connect 145 million customers. Local electricity grids are interconnected to create larger networks for reliability and commercial purposes. The U.S. power system in the Lower 48 has 3 main interconnections that operate largely independently from each other. 28

29 Virtual Net Metering Allows for the generation from a RE system to offset an electricity load that is not at the same location, as long as it is within the same utility service territory Multiple electricity customers can offset their load with the generation of a single renewable energy system Under virtual net metering, credits appear on each individual customer's bill the same as they would under traditional net metering, with each subscriber to the system receiving an estimated or actual kwh credit for their portion of shared project. 29

30 Market Structure Impact on Solar Development Regulated Markets Dominate most of the Southeast, Northwest and much of the West (excluding California) Developing large-scale solar projects inside your state and claiming renewable energy use can be a challenge Projects are pursued by institutions individually or aggregated with others Most renewable energy projects are utility-owned. Use indirect physical or financial contract structures by entering into a power purchase agreement (PPA) with an off-site project located outside your state. Existing grid power supply arrangement remains, while you help green the U.S. grid and claim the environmental and economic benefits from the project if the associated RECs are owned. 30

31 Market Structure Impact on Solar Development Deregulated markets Have opened up generation for competition from independent power producers in 24 states (e.g., California, Texas and most states in the Northeast) 18 of these states and Washington D.C. have also introduced retail choice, which allows residential and/or industrial consumers to choose their own electricity provider. Customers benefit from more competitive rates and generation options, including renewable energy. There is greater flexibility around the structure of a retail supply contract, the location of the project, and the scale of selected renewable source. Institutions can aggregate demand with others to create a larger impact project than could have been achieved alone. 31