Value Proposition of Resilience Investments · 2017-08-29 · Tampa Convention Center • Tampa, Florida Economic Justification of Resiliency Investments Value Proposition of Resilience

Tampa Convention Center • Tampa, Florida

Economic Justification of Resiliency Investments

Value Proposition of Resilience Investments

Nisha ThirumurthySenior Project Leader, Project Development and Finance

National Renewable Energy Laboratory (NREL)August 17, 2017

Energy Exchange: Connect • Collaborate • Conserve

• Energy security is of great concern to the US Government, especially the protection of critical DoD facilities.

• 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.

Identify profitable value streams for energy

security investments

Establish viable financial

assessments and metrics for energy

security investments

Identify feasible procurement strategies and authorities to

implement energy security investments

There is a move in the DoD to develop cost-competitive, resilient and cleaner energy projects.


Instead of trying to value resiliency before a catastrophic event occurs, find a way to pay for it today.

Future

Past

Present

• Past outage predictor of future outage? Yes, but the current system of coping with those might suffice.

• But what about catastrophic, once-in-a-lifetime events?

• How do you value something that hasn’t happened yet?

Capture value today through:• Utility rate savings• Ancillary services market

(demand response, resource adequacy, reg up/reg down)

Best strategy is to pay for it today to have resiliency tomorrow.


Bill Components Summer Winter

Demand Charges (kW) Peak Batteries can be deployed to reduce these charges

Mid-Peak Mid-Peak

Off-Peak Off-Peak

Energy Charges (kWh) Peak Batteries can be deployed to reduce these charges

Mid-Peak Mid-Peak

Off-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.

Understanding the utility rate structure and seeing how the resiliency technology can be deployed to reduce utility charges is important.


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


Example: PV + Battery combined with existing diesel genset extends probability of surviving outage at a lower or marginally higher cost

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Prob

abili

ty o

f Sur

vivi

ng O

utag

e [%

]

Length of Outage [Days]

Base case

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

Lowest cost solution

Proposed system (given site goals & constraints)

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


• Operation for 66hr outage starting at 1900hrs, October 16th

• Critical load is 70% of site load (note gap between generation and load)

Dispatch Strategy

Battery Charging

Grid Outage

Combined operation of RE and diesel generators extends fuel for the outage (49% reduction in fuel used (due to PV/Energy storage systems)


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 AdequacyReg Up/Reg Down ServicesBlack Start Capability Payments

Energy Storage CostsSolar Technology Costs

The combination of improving market opportunities and decreasing technology costs are making resiliency investments more attractive


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


We can bring all of these aspects together along with other variables to determine the value of resiliency for individual projects.

Rate Analysis (Savings)

Diesel Fuel Cost Analysis (Savings)

Value Streams Analysis (Additional Revenues)

Data Streams Deliverables Procurement Pathways

Tariff structure/bills

Interval load data

Backup generator usage

Regulatory / Market research

Grants/incentives research Financial / Economic Model Development

System design scenarios and capital and O&M costs

RE resource analysis

Resiliency Duration Versus Cost Analysis

PPA ESPC

UESC UP

GSA EUL

Appropriation (MMRP, Milcon)

Grants (eg. CEC, ECIP etc)

AF Working Capital Funds

Econ

omic

Ana

lysi

s


“Contract for differences” is another interesting model, however the opportunities for arbitrage to fund resiliency are not certain.

Source: Based on figure in Renewable Power Direct, 2015

Customer (eg. Installation)

Electricity Provider (eg. Utility)

Renewable Project Wholesale Market (eg. RTO)

$/MWh (Variable)

Power (MWh)

Power (MWh)

$/MWh (Variable)

$/M

Wh

(Fix

ed)

RECs

+ $

/MW

h (V

aria

ble)

$/M

Wh

(Var

iabl

e)

Pow

er (M

Wh)

1

2

3

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


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 5/17/2012NREL/PR 7A30 54985


Surveys used at Miramar and Fort Belvoir identified the following costs related to outages.

Costs vary depending on scenario and outage duration


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


• 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


The costs associated with a catastrophic event (Scenario B) are a lot higher in the immediate aftermath than in Scenario A.

Based on frequency, perhaps this area can be included as an avoided cost in financial model


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

Find a way to pay for resiliency today, so that it’s available when a catastrophic event occurs.



APPENDIX


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:

http://www.caiso.com/documents/reliabilitydemandresponseresourceoverview.pdf

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 $950-1000/MW (onlyduring 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

http://www.caiso.com/documents/reliabilitydemandresponseresourceoverview.pdf


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.

Ancillary Services: Resource Adequacy

CAISO- “2015 Annual Report on Market Issues and Performance”. May 2016.http://www.caiso.com/Documents/2015AnnualReportonMarketIssuesandPerformance.pdf

Total volume and bid prices for all resource adequacy services in 2015, during peak hours.

http://www.caiso.com/Documents/2015AnnualReportonMarketIssuesandPerformance.pdf


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 effortto become a wholesale market participant• Mutually exclusive with Demand Response• Metering/scheduling can be technically challenging

Ancillary Services

CAISO. “Q1 2016 Report on Market Issues and Performance.” June 13,2016.http://www.caiso.com/Documents/2016FirstQuarterReportMarketIssuesandPerformance.pdf

http://www.caiso.com/Documents/2016FirstQuarterReportMarketIssuesandPerformance.pdf


Example CDF SurveyScenario 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 impactsDid 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 generatorsHow 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 facilitiesWere normal operating hours curtailed? If so, what was the economic impact?

Were any food/products spoiled? Estimated cost?

Residential facilitiesWhat would base residents be willing to pay to avoid a similar outage in the future?Other costs


Ms. Nisha [email protected]

Contact

mailto:[email protected]