Tucson Electric Power (TEP) earlier this month filed with the Arizona Corporation Commission its 2019 Renewable Energy Standard and Tariff (REST) Implementation Plan for approval.
The plan is designed to achieve the 2019 REST requirement of providing at least 9% of retail sales – or about 806,000 MWh – from renewable generating resources as cost effectively as possible, the company said in its application filed with the commission seeking approval of the plan.
The estimated cost to implement the 2019 Plan is about $54.8m, which is about $1.2m more than the 2018 Plan budget, the company said. More than 80% of the 2018 REST budget – about $45.5m – represents the cost of renewable energy in excess of the market cost of conventional generation, TEP said. To fund the 2019 Plan, the company is proposing to recover about $61.1m through the REST tariff, which includes recovery of an under-collection of about $6.3m from 2017, TEP said.
The company noted that in order to implement the plan, it requests that the commission approve a REST tariff rate of $0.0127 per kWh for 2019, which is lower than the $0.0130 tariff rate for 2018; and an increase in the surcharge caps to some customer classes when compared to the approved caps from 2018 – the other customer class caps remain the same as 2018.
TEP said that it is not proposing any new incentives for residential or non-residential solar distributed generation or any other technologies. TEP said that its plan provides for renewable generation to meet the 2019 annual compliance requirement, with the exception of the residential portion of the annual Distributed Renewable Energy Requirement. While sufficient residential distributed generation has been and is being deployed to meet the requirement, the company does not receive renewable energy credits (RECs) from systems that have not received an upfront incentive, TEP said. As a result, the company requests a waiver for the residential portion of the Distributed Renewable Energy Requirement, TEP said.
As noted in the plan, TEP must obtain 9% of its 2019 annual retail sales from renewable resources and 30% of that renewable energy must come from distributed generation (DG) resources. Further, TEP must meet one-half of its annual DG requirement from residential applications and the remaining one-half from non-residential, non-utility applications. The plan added that TEP plans to satisfy those REST requirements using existing utility scale renewable generation and credits, including utility owned assets and power purchase agreements (PPAs) and applicable DG resources, such as utility owned and third-party resources.
Of the approximately $61m that TEP is proposing to recover, nearly $46m is attributable to the cost of renewable energy in excess of the market cost of conventional generation; about $7.2m for legacy performance-based incentive payments; about $2m for other program and administrative costs; and about $6.2m of unrecovered costs from 2017, the plan said.
TEP expects its annual REST budgets for 2019 through 2023 to average about $58m, the plan noted.
TEP requests that the commission approve the plan, as well as its associated budget and tariff, before Dec. 31, to be effective Jan. 1, 2019, the plan said.
The REST targets two resource categories: utility scale generation and DG, the plan said, adding that TEP will satisfy the 2019 utility scale requirement through the total output of renewable resources of 285.72 MW measured in alternating current (AC). That total is comprised of solar electric systems, including concentrated and photovoltaics (PV), with a combined rated capacity of about 196.32 MWac; as well as wind and other renewable resources with a combined rated capacity of about 89.4 MWac. Of that total, the plan added, 240.02 MWac will come from renewable PPAs currently in effect, while the remaining 45.7 MWac will come from TEP-owned facilities.
The combination of TEP-owned generation facilities and PPAs will allow TEP to continue to meet and exceed its renewable energy requirements for at least the next six years, the plan said.
The plan noted that TEP’s solar ownership plan – the Bright Tucson Solar Buildout Plan – was approved by the commission in the company’s 2011 Plan to reduce the risk that was associated with the company’s early and higher-cost investments in utility scale solar plants. The Buildout Plan allowed TEP to recover the annual revenue requirement for solar plants, including return on investment. The plan added that TEP’s 2011 proposed investment of $28m in the Buildout Plan was approved by the commission.
The company subsequently received commission approval to invest an additional $28m in the Bright Tucson Solar Buildout Plan in 2014, as well as another $12m in 2015, the plan said, adding that the combined $40m was designated for the development of a solar array at the U.S. Army’s Fort Huachuca. Phase I of Ft. Huachuca was completed at the end of 2014, while Phase II was completed at the beginning of 2017, the plan said.
TEP indicated in its 2016 REST Plan that it would no longer request recovery of costs related to new utility scale solar investments through the REST Program, the plan noted.
TEP is proposing the Energy Storage Buildout Program to encourage investment in, and help mitigate some of the risk associated with, the deployment of utility scale battery storage. The plan added that that program parallels the Bright Tucson Solar Buildout Program by allowing TEP to recover the annual revenue requirement, including a return on investment.
TEP currently has more than 245 MWdc of DG system, in addition to the 285 MWac of utility scale systems, which represents 20% to 50% of its retail load, depending on seasonality, the plan said. Both categories are expected to continue to grow for the foreseeable future, the plan said, adding that that increasing penetration of renewable resources requires additional investments in TEP’s distribution system to address the issues posed by those variable and intermittent resources.
In order to help mitigate those distribution system impacts in 2017, TEP deployed 20 MWac of Li-Ion batteries, which are designed to alleviate frequency issues caused by those intermittent resources at the grid-system level. The plan added that on certain individual distribution circuits, TEP has used traditional techniques, such as installation of capacitor banks, to help mitigate distribution system impacts. In many of those cases, the plan said, a battery system would alleviate those issues as well, and would provide added distribution system value benefits.
Among other things, the plan said that TEP has 21 MW of battery storage on its system designed primarily for frequency response, and those systems are leased from third parties, with the related costs recovered through TEP’s Purchase Power Fuel Adjustment Clause. Additionally, TEP has a PPA with NextEra for 100 MW of solar plus 30 MW of storage. The plan added that TEP plans to expand its portfolio of energy storage and invest in the company owned energy storage systems (ESS). TEP believes that having the ability to own ESS will allow for greater flexibility than might be available with leased or PPA contracts, the plan said.
TEP proposes to invest up to $15m per year on energy storage projects of up to about 10 MW per year – based on a current average installed per watt price of $1.50, the plan said.