Making solar dispatchable: Hawaiian Electric’s new renewables contract is one of 2017’s game-changers December 7, 2017 | By John Sterling 2017 could go down as the year that arguments about the intermittency of solar power — and the need for back-up from traditional generation — were upended. It will be the year that solar was made dispatchable. A full transition from intermittency to dispatchability will take time — although probably not the decades some may expect. The requisite technology is available now — including storage and advanced inverters — and will become increasingly sophisticated and affordable. At the same time, utilities and other industry stakeholders are working on the new business models that will also be needed to drive the transition forward. Which is why, getting a jump on the usual year-end top trends lists, I would point to Hawaiian Electric Company’s new Renewable Distributed Generation contract model as one of the most impactful developments of the year. The contract was the result of a process that began with a collaborative effort between Hawaiian Electric, and the Smart Electric Power Alliance (SEPA) and ScottMadden, as detailed in our report, “Proactive Solutions to Curtailment Risks.” Simply put, the contract provides an innovative, holistic solution to the problem of solar overproduction and curtailment, which is occurring with increasing frequency in markets with high levels of rooftop and other solar, such as Hawaii and California. For new projects, the model replaces seniority-based curtailment — that is, newest plants curtailed first — with a system aimed at allowing some of that excess generation to be available to provide critical grid support services. It also provides a more equitable allocation of curtailment risk — and the associated costs — between utilities and developers, which in turn should make financing such projects easier. Most important, it transforms the role of the utility from being a passive taker of energy to proactive grid manager. To translate these key concepts into the legal and technical terms of an actual contract, Hawaiian Electric had to develop completely new performance metrics, as well as get feedback from developers and financiers. The utility recently proposed using the contract for the equivalent of 330 megawatts of new utility-scale renewable generation – solar or wind — to be deployed on three of the five main islands in its service territory. On the solar side, that’s more megawatts in one request for proposals (RFP) than 37 states had online at the end of 2016, according to SEPA’s 2017 Utility Solar Market Snapshot. If approved by the Hawaii Public Utilities Commission, the projects completed under the new contract structure will provide a compelling proof of concept and replicable model for others. Make that replicable and adaptable, particularly for the reconstruction of hurricane-ravaged electric systems in Puerto Rico and the U.S. Virgin Islands. There, the contract could provide a practical foundation for using renewables and other distributed energy resources as an integral part of future system resiliency. How it works Like California, Hawaii has a duck curve — with mid-day solar overproduction already cutting demand to less than Hawaiian Electric’s traditional times of least demand, around 3 a.m. The resulting potential for high levels of curtailment has become a significant risk for developers, who must factor the possibility of lost revenue due to curtailment into their bottom lines. (Source: Hawaiian Electric Company) A solution to these high curtailment rates had to be found for Hawaii to meet its statewide target, passed in 2015, to produce 100 percent of its power from renewables by 2045. In addition to that mandate, Hawaiian Electric has set interim goals of its own — 48 percent renewables by 2020 and 72 percent by 2030. Putting such high levels of renewables on the grid has also raised the issue of if and how these resources might be used to provide critical grid support services. These “ancillary” services — such as frequency and voltage response, and spinning reserves; all essential for maintaining stability and power quality on the grid — have traditionally been provided by firm generation, usually fossil fuel-fired. The Renewable Dispatchable Generation model gives Hawaiian Electric dispatch rights over the associated renewable energy projects. In exchange, the developer receives a fixed monthly payment based on the availability of the facility. Hawaiian Electric can then tap the renewable energy facilities for energy or ancillary services in order to optimize the efficiency and cost-effectiveness of the entire system. For example, it could tell a developer to run a project at less than full capacity, providing “headroom” for the facility to also provide power for ancillary services. Average-day solar production (top) vs. potential reserve for ancillary services under Renewable Dispatchable Generation contract (bottom) The fixed monthly payment to the developer also ensures a predictable income stream, making it easier to secure project financing. The contract provides for a variable payment as well, based on any incremental cost to produce energy, although for solar projects this variable payment may be zero. Developers will be required to meet performance and availability metrics, similar to traditional firm generation contracts. Coming up with such metrics proved to be challenging for the Hawaiian Electric team working on the contract. Traditional contracts for fossil-fuel generation generally include a capacity payment, with terms and conditions for demonstrating facility capability and availability. This payment allows developers to recover a significant portion of their capital costs. Surveying the energy landscape, it quickly became apparent that this type of contracting structure, where payments are primarily fixed as opposed to energy-based, had not yet been applied to variable renewable energy projects. Furthermore, the conventional metrics could not simply be applied due to the intermittent nature of renewables. To advise in the process, Hawaiian Electric brought in AWS Truepower, a renewable energy consulting firm and subsidiary of UL. Metrics for wind projects, widely used throughout the industry, are based on standards developed by the International Electrotechnical Commission. For solar projects, the new contract proposes to use a common, industry-standard metric known as the Performance Ratio to evaluate the ongoing performance of facilities. The Performance Ratio is a measure of efficiency that compares actual power produced to an expected level of production, given the solar resource available. At present, this ratio is frequently used during the acceptance testing and commissioning of a solar project, but not to evaluate ongoing performance. The proposed model contract employs this metric, along with others, to evaluate facility performance throughout the term of the contract, in exchange for fixed, capacity-like payments. Will the duck fly? While the levels of solar on Hawaii’s grid are higher than in most markets, the Renewable Dispatchable Generation contract model may be broadly applicable in the near future. Beyond its use to mitigate the impacts of past solar deployments, it could also become a core element for rebuilding island systems in the Caribbean and elsewhere. However, making solar dispatchable — and capturing its potential benefits for grid resilience — will require more than one innovative contract. Hawaiian Electric’s proposed plan for reaching 100-percent renewables includes battery storage and demand response programs that provide additional customer benefits and more options for grid support. The utility has also built a range of collaborative partnerships with technology developers and organizations like SEPA and ScottMadden. Looking ahead, the next step will be monitoring the bids that developers submit for Hawaiian Electric’s RFP, to see if the contract can, in fact, drive more flexible and grid-friendly project design. Adoption in other markets, such as California, could be another possibility. Maybe 2018 will be the year the duck flies away. Share Share on TwitterShare on FacebookShare on LinkedIn About the Author John Sterling Senior Director, Advisory Services, SEPA John Sterling, Senior Director of Research & Advisory Services with the Smart Electric Power Alliance (SEPA), is responsible for helping SEPA members drive the integration of distributed energy resources into utility portfolios and business operations. Mr. Sterling assists SEPA members in their consideration, development, and ultimate implementation of innovative customer programs, business models, and rate designs. He has facilitated multiple stakeholder processes across the country on issues such as distributed solar valuation methodologies, pilot program design, and retail rate modifications. At SEPA he has co-authored multiple reports, including: “Blueprints for Electricity Market Reform: Building a Structure for Collaborative Stakeholder Discussions” (SEPA 2016) and “Proactive Solutions to Curtailment Risk: Identifying New Contract Structures for Utility-Scale Renewables” (SEPA 2017). Prior to joining SEPA, Mr. Sterling spent 11 years at Pinnacle West Capital Corporation/Arizona Public Service. He holds a BS in Finance and an MBA from Arizona State University.