Title
Approval of AGR22-928, a Power and Renewable Energy Credit Sales Agreement, between Uniper Global Commodities North America, LLC and the Incorporated County of Los Alamos
Recommended Action
I move that the Board of Public Utilities approve AGR22-928, a Power and Renewable Energy Credit Sales Agreement, between Uniper Global Commodities North America, LLC and the Incorporated County of Los Alamos and forward to Council with a recommendation for approval.
Staff Recommendation
Staff recommends approval as presented.
Body
With the planned closure of the San Juan Generating Station on June 30, 2022, the Operating Committee for the Los Alamos Power Pool (LAPP) voted to replace this power with a short-term Power Purchase Agreement (PPA) to coincide with the expiration of the current Electric Coordination Agreement on June 30, 2025.
The County’s interest in the San Juan Generating Station represents 36 MW of capacity or approximately 40% of the LAPP annual energy demand. This proposal is for a 25 Megawatt (MW) PPA for the period between October1, 2022 through June 30, 2025.
One of the most unique and defining attributes of this PPA is it leverages the over build of resources from the previous UNIPER contract and includes them as a firm fixed price resource at $34.50/MW. In this case the cost of the resources are significantly less than projected Market Pricing. Utilizing the current models, UNIPER and Power Operations believes we can source 28% of the energy for the 2.75-year period with Renewable resources. This equates to roughly 170 Gigawatt hours (GWhs) over the contract period. There is also potential for UNIPER to add additional renewables, however 28% is what we expect based on current information.
The remaining 72% of the PPA is based on forecasted market prices. The forward outlook of $72.75 on-peak and $51.00 off-peak. These prices are based on the Paloverde Index and are not adjusted to the Four Corners hub where LAC receives power. Please see attached presentation for Futures outlooks at Paloverde. The Future pricing is the true competition for this PPA. Due to the timing of this PPA Power Operations would have no other choice but to procure this energy on the short-term market. As an added benchmark in FY2021, the price of market purchases was $62.16, and the blended cost of county resources was $55.66. Power Operations used $64.50 for purchases in the FY2022 budget forecast.
History and Background:
Earlier this year, BPU and CC approved a 15 MW PPA with Uniper Global Commodities that consisted of wind, solar and market power for firming. The wind and solar resources were sized to deliver 76% renewable energy on an annual basis. To achieve this level of renewable energy, Uniper oversized both the wind and solar resources for this contract. The contract also gave the County’s right of first refusal on all excess renewable generation above the contract requirement of 15 MW, priced at the Paloverde index plus $0.75 per MWh non-firm.
This contract may appear to come at odd time since the Power Pool is currently undergoing an Integrated Resource Plan (IRP). The IRP is a planning document that is good for decision making up to 3 to 5 years even though the plan forecasts loads and resources over a 20-year period. The recommended resources (portfolios) in the IRP are long term assets (12 plus years). This PPA energy is needed in 2022 (next year) for a relatively short term of less than 3 years.
Power Operations in conjunction with the Power Pool choose 25MWs as the best fit with the existing owned resources and PPA’s. Other Considerations were a 20MW Option and a 30MW Option:
The 20MW option:
• Adds +$1/MWh, for a non-standard block premium; this is roughly the risk premium associated with having to cover when 4C is not available and the wind and solar are not producing.
• The % of carbon free MWs increases as a function of less MWhs but is also limits the upside of the wind generation in a good wind year.
The 30MW option:
• Adds +$2.50/MWh, for a +$1/MWh non-standard block premium and a +$1.50/MWh on the shape as there are more hours not covered by excess renewables
• The expected % of carbon free MWs goes down, but it leaves room in a good wind year to gain that back (just hard to confirm with exactness) However, even in a good wind year because the wind is largely in the LL hours the price would not be mitigated all that much because of the renewable short fall in the HL hours compared to the 30MW volume.
The Pool currently has a reserve margin of -25% that has Power Operations buying energy on the open market throughout the year. The original intent of this PPA was to keep the Power Pool whole considering the retirement of SJGS, the addition of the Uniper 15MW Wind and Solar PPA, and LANL CT operations. While there is forecasted load growth from Super Computing and other Programs during this three-year period, the schedule is flexible. In addition to the increased load the addition of LANL’s Combustion Turbine (CT) and its new run schedule can possibly create an oversupply issue in the shoulder months when power demand is lower. It is imperative that we do not ask the Laboratory to curtail CT operations. If the PPA capacity was any lower than the 25 MWs it would increase our reliance on the short-term market and that pricing has been unfavorable since this past June, with the outlook being more expensive for the next two years. A 30MW PPA would cause issues with the seasonal variation of load regarding CT operations. A shaped block as more information is received from LANL would be a much better approach to addressing load. With these considerations the Power Pool decided 25MWs is an optimal PPA size.
Additional Information:
Power Operations would like to address some of the points and concerns that were raised in November’s board meeting when staff first introduced the 25 MW PPA. The questions revolved around the recommendations of the 2017 IRP. The IRP stated, “The County needs not to be in any rush to commit to new resources until several uncertainties regarding SMRs, solar and storage are resolved”. The IRP also said the addition of solar and storage should be tailored with the load growth and existing resources retirement schedules. Recommended portfolio S9 recommended a build of 21MWs of Solar and Storage by 2025.
Electric Production has researched many resources since the 2017 IRP was completed. First was the indicative bidding from the company MAXX Solar for the solar and storage option. It became clear that MAXX Solar over promised the idea of $65.00 Solar and Battery Storage. This inability to deliver lead to our eventual talks with UNIPER for the 15MW Wind and Solar executed contract. In addition, EP brought forth options for the second MW at the Landfill site as well as other sites within the community that were not approved by BPU as the alternatives presented were more economical. In addition to the resource development issues discussed above, the Power Pools load never developed as planned. Recent volatility in the markets has been the focus of many discussions, however it is a relatively new development from approximately one year ago.
There is a new IRP being prepared that will address new market conditions throughout the west. As a guiding principle from the previous IRP, Power Ops has not extended its footprint due to one of the key recommendations of “Beyond building new renewable/ clean energy capacities to meet the carbon neutral goal and renewable objectives, additional gas-fired generation capacity (CC or RICE) involves upfront capital investment in a soft market, and is not advised unless control of resources is a priority to LAPP”. EP feels that Nuscales Small Modular Nuclear Reactor (SMR) continues to be a feasible carbon free dispatchable resource and continues to follow the development as an option.
In summary, Power Operations believes that this contract will ultimately be delivered below market prices into the future. EP believes it has acted in the spirt of the adopted 2017 IRP findings and the January 20, 2016 adopted Strategic Policies for Electrical Energy Resources.
Alternatives
Not Replacing the energy Output of SJGS is not an option. We have a load demand that must be met with a known generation resource. If this contract is not approved, Power Operations will try to find short-term energy to meet our load. All this energy will be procured at market prices which have proven to be very volatile over the last year.
Fiscal and Staff Impact
The cost of the energy is already accounted for in the budgeting process. Staff efforts are part of normal business activities.
Attachments
A - Agreement No. AGR22-928
B – Uniper PPA Contract Presentation