This post was originally published by the Cynthia and George Mitchell Foundation.

Neil McAndrews & Larry Lawrence, Enterprise Risk Consulting, LLC
Austin, Texas

Berkshire Hathaway (”BH”) recently provided a proposal to the Texas Legislature to add security to the ERCOT power grid in Texas (“Warren Buffett group lobbying Texas lawmakers for deal to build $8 billion worth of power plants for emergency use,” Texas Tribune, March 25, 2021). Half of the proposed idea hits the bullseye; the other sails far wide of the goalposts.
Increasing and improving short-term natural gas storage is necessary to improve the reliability of natural gas-fired electricity generation; additional natural gas-fired generation capacity in a market with sufficient peak generation capacity is unnecessary.
 
The proposal seeks to add two elements: emergency generation capacity (adding 10,000 MWs of new power plants) and fuel to run the plants for seven days by developing on-site natural gas storage.
 
The 10 gigawatts of generation would only be used during emergency conditions, making their economic utility questionable. Many observers have noted that ERCOT did not lack generation capacity during the February crisis. ERCOT lacked available generation capacity.
 
Following the BH plan would overinvest in generation that was not needed during the February crisis. To support this view, the reserve margin is an index that measures the amount of expected capacity needed during a season and the amount of generation expected to be available. The winter capacity factor measured in December 2020 in ERCOT was a robust 43%, meaning that it had 43% more generation than was expected during the peak hours over the winter season. This level of reserve margin is considered more than adequate by industry standards.
 
In power plant planning and management, a critical component is availability, and the watchword is reliability.
 
Availability means a plant that can come online and provide power reliability over a short period of time. The problem with Texas’ winter storm crisis was a twofold loss of availability:
 
1. too many power plants were lost to freezing, and
2. numerous natural gas-fired power plants that were counted on to provide reliability lost natural gas supply.
 
The main problem was not a lack of generation capacity but a lack of sufficient operating pressure in natural gas pipelines to meet the fuel needs of existing natural gas-fired generation. The loss of natural gas supply lasted for days.
 
While all sources of power generation underperformed during the winter storm, including wind farms and other renewable energy sources, natural gas-powered plants represented the vast majority of energy generation sources that failed, undermining reliability.  
 
And the decline in natural gas reliability may be exacerbated in the future by the large portion of Texas natural gas supply being exported as LNG, or by pipeline to Mexico.   
 
A variation of the storage component was posited during the recent Texas Senate and joint legislative hearings. The question asked during the hearings was, “how difficult is it to store natural gas for emergency use at the generation facility?” The answer is that Texas has developed natural gas storage capacity, but it hasn’t been applied to the ERCOT grid.
 
Contrary to common perception, Texas has a long history with backup fuel storage at power plants. For decades, baseload and intermediate natural gas plants were designed as dual-fuel facilities that used fuel oil as a backup.  However, much of the dual fired capacity was dismantled over the course of time because of the difficulty in maintaining the facilities as well as the higher cost of fuel oil.   But now Texas has developed another storage capability that has not been used in the ERCOT grid—Liquefied or Compressed natural gas “LNG/CNG”. 
 
Texas is the home of large capacity facilities for LNG in Corpus Christi and at the Sabine Pass facility near the Texas/Louisiana border. These facilities are now exporting approximately 10 BCF per day of natural gas. However, almost none of this gas is used domestically in Texas.
Texas could use already developed LNG capacity to create storage to be distributed throughout the grid for reliability, either as LNG or as CNG.  Enough supply at critical facilities would supplement the current natural gas and storage infrastructure.
 
This could solve the problem that caused the fuel loss experienced in February.
 
The BH proposal has severe flaws in that it proposes additional generation in a system that already has sufficient generation.
 
This would be wasted investment for Texas. Yet, the onsite storage concept has merit.
 
Adding LNG/CNG would solve the availability problem while avoiding the expense for generation capacity that might never be needed. The current proposed weatherization legislation would address the operability of generation in deep freezing conditions, while storage would address the fuel loss issue.
 
One challenge to be addressed is the production of the LNG/CNG (especially its transportation and storage). Developing interchangeable storage tanks that could be transported via railcars would help provide a very flexible delivery system that could be expanded over time. This additional use of existing infrastructure would add both diversity and flexibility into the ERCOT grid. 
 
While we are sure that Texans appreciate Warren Buffet’s emergency rescue proposal, it involves much more than needed. Yet the idea of buttressing the fuel delivery system with additional short-term natural gas storage offers high value for improving ERCOT’s resiliency.

Chris Foster, Manager, Resource Planning and Integration, the City of Georgetown
Neil F. McAndrews, Senior Principal, Enterprise Risk Consulting, LLC
Larry G. Lawrence, President, Enterprise Risk Consulting, LLC

Editor's note: This is the second of a two-part series by the City of Georgetown's Chris Foster and consultants Larry Lawrence and Neil McAndrews examining how Georgetown, Texas became a 100 percent renewable city while pursuing least-cost economic goals. This post was originally published by the Cynthia and George Mitchell Foundation.

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Georgetown Utility Systems (GUS), can serve as the basis for a sustainable power supply solution.

In part two of our series on how Georgetown, Texas became a 100 percent renewable city, we examine how market opportunities and the supply portfolio decisions of Georgetown’s municipal utility, Georgetown Utility Systems (GUS), can serve as the basis for a sustainable power supply solution. Georgetown’s renewable power supply helped the city in a surprising way, as it has engendered new thinking about the city’s future. Georgetown now embraces a longer term planning vision, and being a 100 percent renewable city underpins more dynamic marketing and branding opportunities.    

We focus first on Georgetown’s local market, the Electric Reliability Council of Texas (ERCOT) and then on opportunities in other markets throughout the U.S.

The ERCOT Market Structure

Two important aspects of the ERCOT market structure allowed GUS to make the switch to a 100 percent renewable supply of power.

First, ERCOT operates an electric grid where wholesale generators are in open competition and consumers like GUS have access to this market. Generators are rewarded only if they produce energy (as opposed to other markets, where generation, some of it noncompetitive, is also rewarded simply to be available). 

This allows a simpler path to introducing competitive new technologies like renewables because old technologies are not rewarded on a legacy basis.

The second aspect is that ERCOT operates a very reliable transmission grid.  The state of Texas directed ERCOT to invest billions in transmission lines to connect wind and solar farms from optimal sites in west Texas. ERCOT routinely conducts economic analyses to determine whether building new generation or building new transmission is more efficient. The ERCOT grid allows renewables to be a large part of the future energy supply in Texas.

Portfolio Management Opportunities

GUS was free to shop around ERCOT for resources, considering any kind of generation resource connected to the ERCOT grid, with market tools available to efficiently manage a renewable supply portfolio.

GUS’ power supply evaluation framework considers power prices along with related direct and indirect costs. As an example, the intermittency of renewable power resources is a challenge because of the cost of dealing with inherent production uncertainty.  This cost was considered in GUS’s evaluation process.

To manage this uncertainty, GUS developed a daily process using tools available within the ERCOT market.  For wind, GUS needed to purchase power when wind is limited and sell excess production when the wind is stronger.

Fortunately, ERCOT provides real time and day-ahead markets to help manage short-term supply imbalances.  Although this adds operational complexity, the exercise is a more solvable challenge compared to that of managing short-term fossil fuel supply imbalances and price uncertainty, as well as the environmental impacts and regulation associated with fossil fuel power resources.  

Renewables Reduce Fossil Fuel Supply Cost and Operational Risks

Renewable energy reduces the large risk and cost exposures of a traditional fossil fuel supply contract.

Traditional power supplies and resource planning studies include an extensive fuel supply analysis.  These studies (will) include location (basis) exposure, transportation costs, price forecasts and environmental impacts. 

It’s crucial to match the type of supply required to the output characteristics of the power resource.  For example, for a natural gas fired power plant, purchasing natural gas supply from a producer must also be done in conjunction with a gas transportation contract. The gas contract will have provisions for how much volumetric change is allowed each day, and the related cost impacts (including substantial penalties). The contract is also likely to include natural gas storage, which is a seasonal asset requiring management of excess capacity during non-seasonal demand periods (in order to reduce the overall cost impact).

GUS experienced fossil fuel delivery problems in its former power supply contract.  Natural gas had been interrupted due to severe winter weather in February 2011. Outages at over seventy power plants caused power to be rationed statewide. 

GUS was also exposed to delivery shortages from its long term coal contract:  railroads faced floods in the Midwest during the early 1990s, a merger caused shortages in the late 1990s, and competition with higher value deliveries produced shortages during this decade.  

Renewable energy avoids virtually all of these expensive complications.   

Another cost saving aspect is that the planning process is minimized with renewables because there is no fuel infrastructure to develop and maintain.  Delivery cost adders include all sorts of fuel infrastructure costs like railcar maintenance and pipeline annual outages.

Unlike fossil fuel contracts, there were no cost escalators in many of the renewable energy contracts offered to GUS. And, minimal regulatory compliance costs are required with renewable energy— important to Georgetown’s goal of minimizing administrative costs.

Avoiding Water Consumption

Water was the most important sustainability-related issue for GUS.  During the historic drought of 2011, many power plants were in danger of shutting down because their cooling lakes’s water levels were too low. GUS placed significant emphasis on power that does not require additional water use and water rights. Texas is a growing state that has increasing need for water resources and a history of conflicts related to water rights. GUS wanted a solution that took this into consideration.  

Opportunities for Sustainable Economic Development and Branding

The Texas economy has been dependent on oil for most of the 20th century. Georgetown’s leadership was concerned that the city needed to diversify in order to maintain a vibrant economy.

Georgetown found that a 100 percent green message offered a significant benefit in its efforts to attract tech sector and innovative research and development-skewed businesses, along with highly educated professionals. The brand value of the Georgetown’s subsequent media attention hasn’t been quantified by an independent third-party, however, the city estimates the decision to go green has generated positive impressions equal to a multi-million dollar worldwide advertising and public relations campaign, a figure that continues to grow.

Applications in Other Markets

How do others replicate Georgetown’s success? 

First, consumers and producers need to be involved in making the transmission grid work.  Renewables need to be cost competitive with fossil fuel generation resources.  Finally, a solid set of plans and procedures are needed for proper integration and management of renewables in supply portfolios. 

GUS’ story can do a lot to break down theoretical, cultural, and even political barriers within some institutions and municipalities in regard to the viability of renewable sources of power, although each utility will continue have it own unique challenges. Not all will be able to cost effectively integrate renewable technologies, or to go 100 percent renewable; however, many should be able to take significant elements of GUS' model and approach and replicate them while successfully increasing both the proportion of renewables in their supply portfolios and the efficiency of these portfolios.

© Copyright 2016 Enterprise Risk Consulting, LLC

Chris Foster, Manager, Resource Planning and Integration, the City of Georgetown
Neil F. McAndrews, Senior Principal, Enterprise Risk Consulting, LLC
Larry G. Lawrence, President, Enterprise Risk Consulting, LLC

Editor's note: This is the first of a two-part series by the City of Georgetown's Chris Foster and consultants Larry Lawrence and Neil McAndrews examining how Georgetown, Texas became a 100 percent renewable city while pursuing least-cost economic goals. Up next: a look at how Georgetown Utility Systems renewable supply portfolio can serve as a model for a sustainable solution.

This post was originally published by the Cynthia and George Mitchell Foundation.

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In 2017, Georgetown (Texas) Utility Systems (“GUS”) will become the largest municipally owned electric utility to be powered by 100 percent renewable energy resources. 

Significantly, it wasn’t Georgetown’s intention to become the first city in the U.S. to commit to 100 percent renewable energy.  The city’s leadership simply set out to purchase the lowest cost, most secure, environmentally friendly, and easiest-to-manage supply of electric power, period.

Yet the most interesting aspect of the city’s purchase effort is that renewable resources met all of these goals. 

After GUS acquired solar and wind supplies, Georgetown embraced clean power as a symbol of its fast growing, modern city.  Now, other cities are looking to Georgetown as a model for developing sustainable and cost-effective supplies of renewable power. 

GUS’s path to a renewable portfolio utilized elements of sustainability science, a framework of decision-making that had several iterations, with an approach that examined and solved problems related to the interrelationship of environment and economic development.

The City of Georgetown laid the groundwork for a clean power portfolio by using planning goals and affording their staff the freedom to review a broad range of solutions. Business-focused local leaders asked the utility to pursue a path of cost certainty and risk mitigation when considering power supplies.  The City Council issued the following objectives for acquiring power supplies to the GUS staff:

1. Secure low cost power sources
2. Secure long term fixed cost power sources
3. Mitigate as much risk as possible, both financial and regulatory
4. Achieve at least a 30% renewable energy portfolio by 2030

In the state of Texas, many cities have opted into electric competition, where the consumer can purchase their own power from third party providers. Georgetown, however, decided not to opt in because they understood competition places too much financial risk on the consumer and because third-party suppliers offer only short-term contracts. GUS chose to continue managing its own long term power supply portfolio.

In 2012, GUS decided to exit a long term power supply arrangement that was backed almost entirely by fossil fuel resources.  This decision left GUS with the challenge of replacing power supplies for one of the fastest growing cities in the U.S. 

The United States Census Bureau estimates that as of 2014, Georgetown’s population had grown by almost 25 percent since 2010.  If this rate of growth were to continue, the city would double in size every 10 years.  GUS’ power supply management staff knew they needed substantial supplies to cover the city’s exposure for both the near- and long-term.

Fortunately, GUS already had experience in power supply resource planning and portfolio management because it had been purchasing power in the market for more than a decade.  GUS had staff, and employed consultants and legal counsel, who were fully acquainted with the intricacies of the modern Independent System Operator market, and who were familiar with the economics of the Texas power market.  

GUS issued Request for Proposals (RFP) in 2013 for all types of possible power generation.  Based on Georgetown City Council’s objectives, GUS specifically asked for long-term arrangements and received dozens of responses from coal, natural gas, solar, and wind organizations, including one nuclear energy proposal. 

GUS maintained a disciplined strategy of evaluating the proposals first by lowest overall costs, including adjustments for projected transmission congestion risks, and including the potential cost impact of carbon and other regulatory risks.  An important part of the process was the review of potential environmental liabilities. For example, power producers using coal as a fuel were very insistent in having GUS assume future environmental liabilities.

In the end, wind providers, who were facing expiring tax breaks in 2013, offered the lowest power prices in an attempt to secure project financing prior to federal tax benefit deadlines.  GUS selected a wind farm based in the Texas Panhandle.  The wind farm’s output would cover GUS’ load in the overnight hours during most months, but did not cover all of the daytime hours.  GUS entered into a 20-year contract at one of the lowest price-points available in the market over the past 25 years.

A second supply contract was needed to cover the remainder of GUS’ load: the highest peak daytime hours, especially during late summer.

In 2014, GUS launched a second RFP aimed at proposals to cover those peak power needs.  At that time, GUS was entering a market where solar modules were rapidly falling in cost, dropping prices to historically low levels.  GUS found that both solar and natural gas producers offered equitable pricing, but GUS opted for a solar contract based on its fixed price certainty, and based on the additional benefit of regulatory risk mitigation.

Another crucial attribute for GUS was that both solar and wind resources avoid the consumption of large amounts of water that are required by fossil fuel generation.   

Solar and wind resources are an incredibly complementary match.  Daytime hours, which comprise the strongest period for solar production, are the weakest period for wind production, whereas wind production starts to increase during the late afternoon and keeps increasing late into the night.  And, importantly, this combination of complementary production supply profiles matches the load demand profile in Texas.

The outcome of GUS’ resource planning and purchase process is that solar and wind supplies proved to be the least expensive available, with the added bonuses of avoiding substantial water consumption and avoiding potential cost risks from carbon, particulates, and mercury regulations.  

The City of Georgetown opted for contract solutions that will be 100 percent renewable starting in 2017; solutions that are energy effective, cost efficient, and green -- better for the city's and its taxpayers' bottom line, and better for the environment.

© Copyright 2016 Enterprise Risk Consulting, LLC

Neil McAndrews & Larry Lawrence, Enterprise Risk Consulting, LLC
Austin, Texas
 
In a previous piece, The Solar Tsunami, we explored how the market is experiencing the most rapid and disruptive technological changes we have ever witnessed in the power industry, with solar now competing against all other forms of energy and often winning by a large margin.  In this piece, we look at the burgeoning renewable energy efforts in the global corporate sector.
 
Oilprice.com recently published an article on RE100 [“More Than 50 Global Companies Commit To 100 Percent Renewable Energy”], an organization focusing on a collaborative initiative of influential businesses committed to 100% renewable electricity.  Many consumers still perceive the renewable industry as a “green” niche industry.  However, RE100 members are not niche “green” companies; they are mainstream global corporate leaders, including:
 

• Adobe
• Biogen
• Coca-Cola
• Goldman Sachs
• Google
• Ikea
• Johnson & Johnson
• Microsoft
• Nestle
• Nike
• P&G
• SAP
• Starbucks
• Swiss Re
• UBS
• Unilever
• Walmart

 
Companies joining RE100 are encouraged to set a public goal to procure 100% of their electricity from renewable sources of energy by a specified year.
 
As the private sector accounts for around half of the world’s electricity consumption, RE100 has put forth the goal of switching the demand to renewables to accelerate the transformation of the global energy market and aid the transition to a low carbon economy.
 
Many RE100 companies signed the Paris Pledge for Action at the recently concluded COP21 conference in Paris conducted by the Climate Action group and the United Nations Environment Programme (UNEP).   Climate Action and UNEP’s goal is to limit the global temperature rise to less than 2 degrees Celsius.
 
The pledge states ““We welcome the adoption of a new, universal climate agreement at COP21 in Paris, which is a critical step on the path to solving climate change. We pledge our support to ensuring that the level of ambition set by the agreement is met or exceeded.”
 
Green alliances such as RE100 are now taking center stage.  The oilprice.com article states that if all 50+ of the current RE100 members convert to using 100 percent renewable electricity, it could lead to an increase of 90.1TWh of renewable electricity generation, which would be equal to almost 1 percent of the total electricity usage by the industrial sector around the world.
 
The RE100 website states “Over the last few weeks several RE100 companies have announced plans for switching to renewable electricity. For example, Unilever has set a goal to source 100% of its electricity from renewables by 2030 – including all grid electricity from renewables by 2020. Meanwhile Coca-Cola Enterprises and ING joined RE100, each committing to go 100% renewable by 2020.”
 
Oilprice.com quotes Paul Polman, the CEO of Unilver, a RE100 member, as saying “The consequences … will be felt in banks, stock exchanges, board rooms and research centres as the world absorbs the fact that we are embarking on an unprecedented project to decarbonise the global economy.
 
Part of the RE100 mission is to keep the marketplace aware of current global trends in corporate demand for, and investment in, renewable power.  They also share the business case for renewables and showcase business action, including the most popular renewable power technologies, and which industries are the biggest investors with the best financial returns.
 
One of the key comparative advantages that these companies are employing is the distributed nature of many renewable technologies.  This flexibility, especially in emerging markets, provides a leapfrogging advantage compared to traditional central station paradigms.  It is not just the carbon avoidance advantage, but the flexibility in scaling of the resource that produces advantages.
 
The renewables tsunami is building.  In the current environment of low fossil fuel prices, which puts downward pressure on the price of all energy sources, now is the best time to join the wave and embrace renewable energy. 

© Copyright 2016 Enterprise Risk Consulting, LLC

Neil McAndrews and Larry Lawrence, Enterprise Risk Consulting, LLC
Austin, Texas
 
Our utility consulting clients offer varying responses when the topic of local residential solar is raised, ranging from disdain to enthusiastic acceptance.  Regardless of attitude, local residential solar is here to stay and will be coming to a municipality near you.  Residential solar can provide many benefits to distribution utilities, and we suggest that it is more productive and beneficial to embrace the inevitable than to ignore or fight it.
 
(Note:  the following discussion is ERCOT-specific but many of the general principles are applicable to other regions.)
 
Residential solar installation provides measurable savings that accrue to the distribution utility under today’s regulatory and pricing environments. The savings are from multiple sources and include peak shaving, lower energy costs and environmental credits. 
 
Our perspective in this piece is from the utility acting as a passive interest in the solar investment. It is in utilities’ interest for residential solar to be installed up to a penetration limit. Our objective is to summarize the benefits to help provide a framework for developing incentives, or rate reductions, that are costless to the utility. Most importantly, our summary shows that current incentives offered by many electric utilities to install solar are likely to increase solar penetration in Texas.
 
The benefits can be divided into the following categories.
 
Peak Shaving
•          Avoids 4 CP demand charges
•          Avoids Congestion Revenue Right purchases
 
Cost Saving
•          Avoids on peak higher power purchase prices
 
Environmental Credits
•          Produces Renewable Energy Credits (RECs) or avoids the purchase of RECs
 
Transmission Savings.  The largest potential savings are avoided transmission costs. In ERCOT, four coincident peak (4 CP) 15-minute intervals, one for each summer month, are averaged and then multiplied by the total annual transmission cost rate. Peak shaving from local solar production will reduce the total eligible amount of summer peak load.
 
Energy Savings.  Local solar production can offset the need for higher cost energy purchases during solar production hours.  Off-peak energy will be at a lower cost but will still be purchased by the utility, resulting in a lower average power purchase price for the utility.
 
Congestion Savings.  Solar helps avoid congestion costs and thus it avoids the purchase cost of Congestion Revenue Rights (CRRs). This is very similar to energy savings in that the same outcome occurs because the utility would avoid the risk and the number of CRRs that need to be purchased. Less on-peak demand drives lower load amplification, and leads to a more uniform load profile and an increased load factor. The cost for CRRs declines because on-peak CRRs are avoided.
 
Environmental Savings.  Local solar production can reduce load that will be removed from consideration for carbon allowance requirements, avoiding environmental costs.  You do not have to pay if load is not measured because of net metering.  And even if a net metering process is not involved, the load is served by a zero emission resource.
 
The result of these savings is that a utility could provide a substantial energy subsidy that at worst would be cost neutral.  Our estimates are that subsidies of 2.0 to 2.5 cents per kWh could be achieved.  Detailed calculations for our estimation process are beyond the scope of this piece, so please contact us for more details and assistance in integrating these incentives into a proactive renewable energy development plan and rate structure.

© Copyright 2015 Enterprise Risk Consulting, LLC

Neil McAndrews and Larry Lawrence, Enterprise Risk Consulting, LLC
Austin, Texas
 
Solar is like a Tsunami and it is coming to a utility near you. Many folks still characterize the solar industry as a niche industry; that it is simply a West Coast thing or a Green thing.  That it can’t hope to compete with conventional power.  All of these prevailing public perceptions are about to be challenged because the assumptions are no longer true. 
 
The reasons are manifold, but it comes down to price and performance. We at Enterprise Risk Consulting have had years of experience in the conventional power industry. Nothing in the last 50 years compares with the market changes we are now experiencing. Solar competes against all other forms of energy, and in many cases, wins by a large margin. It all depends on the quality of installation, the solar irradiance, the regulatory jurisdiction and whether it is utility scale or distributed scale.
 
A Tsunami sweeps all before it and solar is the mother of all waves. The wave started in California with large subsidies and grandiose targets related to the “California Solar Initiative” in 2007. Rapid technology improvements and industry installation standardization have dramatically reduced costs. PV module costs plummeted in 2011-2014. This built the wave from a regional swell to a gigantic disruptive technology. 
 
The California Solar Initiative program is now fully subscribed and has surpassed all of its targets - ahead of schedule. The program also produced by-products in the form of billion dollar businesses like SolarCity and Vivint - new companies with economies of scale for installation and inventive new financing and ownership plans.
 
We have witnessed great marketing moments in the past.  The introduction of iconic products that define an era: the Ford Mustang, the IBM Selectric, the PC, the cell phone, the Ipod, and smart phones.  These have spun off huge ancillary businesses. iTunes to feed the Ipod for example. California innovation in solar is next, and is now being marketed to the rest of the country and the world. 
 
Because of the drop in the cost of the underlying technology, large installations are now commonplace.  Enterprise Risk Consulting has already helped establish power cost leadership for new power supplies covering entire Texas cities using predominantly wind and solar resources. That is how we know that the Tsunami is here in Texas. Not because we forecast it, but because it has already crashed on Texas shores. Texas is scheduled to grow its solar installations by more than 1000% between 2015 and 2016. Other states are next.
 
Renewables are not the same supply risk we dealt with in the past.  Managing renewable resources is not for the faint of heart, or the uninitiated.  We urge you to surf the wave, or at least seek higher ground and avoid being washed away.  We have learned many useful procedures to select renewable resources and to integrate them into a power supply portfolio. Many of the portfolio optimization techniques are relatively well established and we are using them to successfully manage renewable intermittent resources.

© Copyright 2015 Enterprise Risk Consulting, LLC