Executives of the Indiana utility NIPSCO had assumed that “natural-gas generation would be the most cost-effective option” for new generation, but were surprised when solar and wind bids for their all-source procurement showed both to be “significantly less expensive than new gas-fired generation,” said Mike Hooper, NIPSCO senior vice president, in a webinar.
And the Colorado utility Xcel Energy found that its least-cost mix of generation resources, reflecting low renewables bids from an all-source procurement, selected “quite a bit of renewable energy instead of gas,” said Solar Program Director Bryan Jacob of the Southern Alliance for Clean Energy (SACE) in an interview.
“The end result” of all-source procurements, Jacob said, “is cleaner utility portfolios and savings for customers.”
Other utilities can “replicate these results” by using all-source procurements, says a report prepared by the consultancy Energy Innovation and SACE.
State regulators can require such procurements for vertically integrated utilities, the report says, ideally staying close to the process developed by Colorado regulators (illustrated in the image above), as that process “successfully motivated both the utility and potential bidders to engage in a competitive market process.”
“Roughly half of U.S. electricity load is served by vertically integrated utilities,” the report notes.
Southeast and beyond
SACE, which focuses on utilities in the Southeast, believes that state regulatory commissions across the region “already have the authority to require the utilities they regulate to utilize all-source procurement approaches, but they don’t presently have a legislative mandate to do so,” Jacob said in an interview. “Emphasizing to state lawmakers how these aspects of competition benefit ratepayers and the public interest is key to advancing the adoption of this approach among Southeast utilities,” he said.
The North Carolina Clean Energy Business Alliance, whose members include local and national solar firms, supports all-source procurement, said spokesperson Adam Foodman. “If we are provided an opportunity to participate in the procurement of generation resources in a fair environment,” he said, “that is going to benefit ratepayers and it’s going to benefit the state broadly, with less risk to ratepayers, and with environmental and carbon benefits.” He added that with a bid process, “private companies are bearing the risk of that very competitive environment, as opposed to ratepayers bearing the risk.”
From the perspective of solar developer Pine Gate Renewables, “where you don’t have good PURPA implementation,” said Steven Levitas, the firm’s senior vice president for strategic initiatives, “and you haven’t had competition, we’re for all-source procurements to open up the market. In places where there has been good PURPA implementation, we’ve been willing to support all-source procurement as an alternative.” PURPA is the federal law requiring utilities to purchase power from independent power producers.
All-source procurement is a near-term option for utilities in Arizona, Georgia, Kansas, Missouri, and New Mexico, which are in the process of selecting new generation or replacing existing assets, said Silvio Marcacci, communications director for Energy Innovation.
The report makes five detailed recommendations, based on case studies of vertically integrated utilities across the country.
Prior to an all-source procurement, the authors say that regulators should make a determination of the load forecast that must be met, and oversee the terms of the procurement, including contract terms for winning bidders. Utilities should not use procurement and contract terms to box out competition in favor of utility-owned gas units, they say.
The report includes a model bid evaluation process, and a caution that “complex bid evaluation processes can create opportunities for bias.”
Following an all-source procurement, the utility would follow the usual process of using a resource planning model that can find the least-cost resource mix. “Utility resource planning models appear to be capable of simultaneously evaluating multiple technologies against each other,” says the report.
In Xcel’s case, the utility is optimizing across three categories of resources: dispatchable resources, renewable resources, and semi-dispatchable renewable resources.
Bias toward gas
“Many utilities are in a rush to acquire new natural gas-fired capacity, and clinging onto coal-fired generation” rather than reducing costs and environmental impacts by “embracing clean alternatives,” say the report’s authors.
After examining ten utility procurements, they found “utility preferences for gas-fueled generation” that “may be at odds with economics, but are not surprising.” Utilities owned and operated about 1,900 gas units as of 2018, the authors found, and utilities’ preference for gas-fueled plants may be related to biases towards over-procurement of capacity and self-built generation, and “an organizational culture and rate design that favor gas-fueled generation.”
Also, “while utilities have generally acknowledged the value of grid services,” they said, “those values may not be recognized for new technologies in the same way that they are taken for granted from gas-fueled generation.”
Apparent bias toward gas was a factor last year as at least seven utilities used their resource plans to block solar power. Another factor was the use of high federal projections for solar costs—a problem that all-source bidding would overcome, by using actual solar bids.
Many bids, or few
All-source procurements can yield hundreds of bids, as shown in the last column of the following table; the report discusses each of the ten utility procurements shown.
The report’s authors are offering a webinar to discuss their findings on Thursday, April 30.
The report is titled “Making the most of the power plant market: Best practices for all-source electric generation procurement.” The ten case studies are presented in an appendix. The authors are John D. Wilson, Mike O’Boyle, Ron Lehr and Mark Detsky.
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