ODEC Goes Solar

solar_panelsby James A. Bacon

The Old Dominion Electric Cooperative (ODEC) has joined Virginia’s solar club, awarding 25-year contracts to deliver 30 megawatts of electric output from solar power plants in Northampton County and Clarke County. Hecate Energy, a developer of renewable energy projects based in Nashville, Tenn., will build and operate the facilities.

“Adding clean solar generation to our portfolio will allow us to keep fulfilling our mission of maintaining a diversified mix so that we can continue to provide affordable and reliable electricity to our member cooperatives,” said Jack Reasor, ODEC’s president & CEO in a press release last month.

ODEC is the generation and transmission entity for 11 electrical cooperatives in Virginia, Maryland and Delaware. The nine Virginia-based cooperatives serve 10.6% of Virginia’s electric customers. Collectively ODEC cooperatives experience a peak demand of approximately 3,000 megawatts daily. That compares to a peak demand of roughly 20,000 megawatts for Dominion Virginia Power, Virginia’s dominant electricity provider.

In partnership with Dominion, ODEC owns 50% of the Clover coal-fired power station, 10% of the North Anna nuclear power station, and multiple natural gas-fired generating units. The company is building a gas-fired combined-cycle plant in Maryland, which should be operational by mid-2016, and it has negotiated Power Purchase Agreements (PPAs) for about 265 megawatts of renewable wind power from projects in Virginia and Maryland. The two solar units will be the company’s first foray into solar.

“In the near-term, solar is still a little more expensive than some of the alternatives,” ODEC Portfolio Manager Mike Cocco told me when I asked him about the economics of solar. However, the contracts with Hecate will provide rate stability for rate payers of ODEC’s member cooperative, and over the life of the contracts, he said, costs are expected to be lower than projected wholesale market prices. Unlike power plants burning fossil fuels, solar energy is not subject to fuel price increases.

The timing of the projects, said Cocco was driven by the expected expiration of the 30% solar tax credit next year. To qualify for the credit, which will drop to 10% in 2017, projects must go online by the end of 2016. “We’re purchasing that power. Hecate is building it and getting the investment tax credit, which allows them to offer us a lower price,” said Cocco. “If we had waited much longer, we would have been faced with a higher cost for solar. If we wanted solar in our portfolio, we had to jump on it.”

The coal-fired Clover plant is “totally compliant,” with the Environmental Protection Agency’s air toxic regulations, which caused the shut-down of dozens of other coal plants around the country in recent years, but the jury is still out on how the Clean Power Plan will effect ODEC. “The impact is unknown at the time,” said Cocco. “A lot depends on how Virginia rolls out the plan.”

However the state divvies up the CO2 reductions between Dominion, Appalachian Power, ODEC and other minor players in the state, the addition of the two solar units to ODEC’s electric power portfolio will help meet whatever goals are set. What the public doesn’t know is how the solar investment will impact rate payers.

Because the solar generators are being developed by a third party, Cocco does not know specifics on costs such as the up-front capital expense, ongoing maintenance & operations costs, or land acquisition. He does know the cost per kilowatt hour under the Power Purchase Agreement, he said, but he cannot reveal it. Cocco noted that Hecate’s bid was the most economical offer among over a dozen submitted in ODEC’s competitive solicitation process.

Why the lack of transparency? ODEC is bound by confidentiality agreements with Hecate, said Cocco. “They’re in a competitive market, competing with other suppliers. That’s commercially sensitive information.” While ODEC will not release cost data to the public, it does provide the data to its member cooperatives, he said. “The officers of the companies understand the rates and approve the contracts..”

The cost per kilowatt generated by a power-generating facility, regardless of fuel type, is only one component of the total cost. A power plant is embedded in a larger system of power sources, electric transmission lines and wholesale markets in which power providers swap surplus electricity with each other. A drawback of a solar facility as a component of the larger system is that power companies cannot control when it generates electricity — output varies with the sun’s position in the sky and with cloud cover. To ensure a reliable supply of electricity to customers, power companies have to maintain back-up capacity or purchase electricity on wholesale markets, paying a premium during periods of peak demand.

An advantage of solar energy is that it generates electricity during the daytime when it is needed more than at night. But it doesn’t meet peak demand, when electricity is most expensive. ODEC’s two facilities will provide maximum output between 10:00 a.m. and 4:00 p.m., a period of fairly high demand, said Cocco. But output declines as the sun sinks in the horizon, he concedes, just as demand peaks around 5 p.m. when people come home and crank up their air conditioners and appliances. ODEC will have to fill that gap either through owned resources or by purchasing the power on wholesale markets.

Bacon’s bottom line: Once again, I am stymied in my effort to make transparent the impact of solar-generating projects on Virginia rate payers. All we can safely say is that the up-front capital cost of solar is higher (even after tax credits) than gas-fired electricity, and that the cost is offset to some degree by the zero cost of fuel. But that doesn’t tell us much at all. Cocco says that ODEC will pay less over the life of the contract, which is somewhat helpful. But is that calculation adjusted for net present value (the fact that, economically speaking, a dollar today is much more valuable than a dollar 25 years from now)? And, given the intermittent nature of solar production, what is the cost of ensuring a reliable electricity supply even when the sun isn’t shining? The public doesn’t know.

In every instance that I have dug into, critical details have been kept under wraps by confidentiality clauses required by the solar-development companies, supposedly on the grounds of protecting commercially sensitive information. ODEC, Dominion and other electric utilities turn to solar development companies to assemble solar projects because they are structured to take advantage of the 30% tax credits without which the deals would not be economically viable.

Which raises another question. How much of that 30% tax credit is applied to driving down the cost of the project, ultimately benefiting rate payers, and how much is pocketed by the solar development companies? To what extent does the tax credit make solar power more economically competitive, and to what extent does it pump up profits for the guys who put the deals together? Once again, the public is in the dark.

I am not arguing that solar is a bad investment. I’m saying the public isn’t given enough information to judge whether it’s a good investment or a bad one. When the nation is spending billions of dollars on solar construction, the lack of transparency is not a good thing.

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7 responses to “ODEC Goes Solar

  1. pity we don’t have the same ardor for “transparency” for other generation, like Nukes, eh?

    😉

    I would suspect that most utilities would consider this type of information especially on a per plant basis as proprietary.

    Even with monopoly status – they are not required to detail to the nth degree – their detailed operating costs – at least to the public.

    and perhaps this also highlights the issue of the what should be the regulative role of govt for public services provided by private sector business.

    Jim wants more transparency for solar – I’d like to have seen that level of transparency before now – for Nuclear.

    • “Same ardor for transparency for nukes”….

      The ardor for transparency for nukes is even more compelling than for solar. When new nukes cost $19 billion and even retrofits cost $1.5 billion, those are huge investments that will have tremendous impact on rate payers and the reliability of the grid.

      Here’s the difference between nukes and solar. Nuke projects are subject to a regulatory process that makes them far more transparent than solar projects, which appear to be protected by non-disclosure agreements. Dominion will submit voluminous details — literally thousands of pages — to regulators such as the State Corporation Commission and the Nuclear Regulatory Commission about its nuclear projects. The public will have ample data by which to judge the value of nuclear power units — far more data than they get extract from solar power deals.

  2. “Once again, I am stymied in my effort to make transparent the impact of solar-generating projects on Virginia rate payers.”

    In general, I’m with you – I’m in favor of greater transparency. However, I can understand why the situation is more difficult with solar. There are many factors that can go into a solar Power Purchase Agreement. It is not like building a gas plant, where the utility pays for all of the expenses and is responsible for ongoing maintenance.

    First of all, some contracts have a guaranteed minimum annual output, others do not. If the developer is taking more risk, they will want to be paid for it. In some situations the ITC goes to the developer, sometimes to the buyer, sometimes to someone else. Often contracts are structured for the developer/investor to own the project for 5 years to take advantage of the investment tax credit and the accelerated depreciation, then the project is sold to the power purchaser (often a co-op or muni who cannot take advantage of the tax benefits). All of these things can create variations that make it very difficult to compare one project with another.

    Sometimes maintenance is included in the original purchase price, sometimes it’s not. You can see that even if you had the information it could be a challenge to do an apples to apples comparison, especially since you can’t determine the actual financial benefit of some of the terms to the various participants.

    Many solar developers consider their ability to structure contracts part of their competitive advantage so they do not want the details released. Buyers often don’t want the details released because they have negotiated something that gives them a special advantage but perhaps at a higher price per kWh and they don’t want to be criticized if that number is compared to other projects.

    “But is that calculation adjusted for net present value (the fact that, economically speaking, a dollar today is much more valuable than a dollar 25 years from now)”

    This area is going to get more complicated especially if the negative interest rates being paid by central banks in other parts of the world make their way to the U.S. A dollar today will be worth less than a dollar tomorrow. In general, it is helpful to a utility to know that they will have a fixed cost of electricity for the next 25-30 years. All of their other sources of generation are likely to get more expensive each year.

    “what is the cost of ensuring a reliable electricity supply even when the sun isn’t shining? The public doesn’t know.”

    Nor do the utilities know now even without solar. These prices change moment to moment in the PJM marketplace although a rough estimate can be made for solar and for traditional generation.

    “But output declines as the sun sinks in the horizon, he concedes, just as demand peaks around 5 p.m. when people come home and crank up their air conditioners and appliances.”

    Utilities are overcoming some of this by orienting their arrays to the southwest or west to capture maximum sunlight when it is most important to them near the peak load time. Tracking solar arrays that follow the sun all day are now much more reliable and the premium over non-tracking panels is not so high anymore, so this issue is less troublesome. Good sunlight lasts much later in the day in summer, but does not help as much with the secondary peaks in winter.

    The biggest investments in solar are being made by big private companies right now, for their own use. So don’t count on getting more transparency for a while. They are the buyers for 3 out of every 4 new installations in some parts of the country. The lack of a truly competitive market in Virginia is slowing down that type of solar development here. Dominion wants their non-regulated subsidiary to take over that market in Virginia anyway. No transparency from them either.

  3. yeah – I’m thinking the expectation of transparency is probably not realistic and I’m quite sure DVP and other utilities’ viewpoint would be that all they are really required to do is show bottom line financials to meet their regulated monopoly responsibilities.

    I’ve asked before – do Va ratepayers have a legitimate interest in the decisions that DVP makes for future power generation – i.e. if DVP chooses nukes rather than something else – what knowledge do ratepayers have about that and what opportunity do they have to participate?

    And the answer is pretty much that they cannot and that the SCC represents those interests and not necessarily in a transparent way themselves.

    it’s also been asserted that – to date – DVP has demonstrated good judgement in past decisions – proven by some of the lowest electricity rates in the country.

    But accommodating renewables – is not only a legitimate issue for the public – it requires a paradigm shift for the utilities in how they operate the grid.

    without solar/wind – it’s pretty simple – run baseload – top off with peaker plants when demand exceeds baseload… rinse, repeat, etc.

    with wind/solar – it’s not baseload nor peak – it’s basically power than can be salvaged, harvested – by changing the way that power is currently produced.

    wind/solar are never going to be, in my view, a trustable, reliable – core fuel – even when/if it is widespread.

    there will always be days when wind/solar do not produce near enough power for demand and the question is – what different approach is needed to harvest it without compromising grid reliability ..

    and to me that IS a question deserving of more transparency to ratepayers – and taxpayers.

    what is the plan to do incorporate and integrate wind/solar into the grid?

    how that is done DOES affect the interests of all Virginians and to date it appears that between the SCC and DVP – they are not being proactive in doing that but almost reluctant and tentative.

    what should be transparent is not the pilot plans for individual solar and wind pilot projects – but instead how DVP intends to deal with wind/solar on a grid basis – as more and more wind/solar is built – not only by DVP but others.

    I’m especially concerned that wind/solar cannot realistically be incorporated into the grid unless we have ample and affordable supplies of natural gas to run plants to compensate for when wind/solar fail to generate enough power for demand.

    if you pretend a world where there is no natural gas to do that – how would wind/solar “work”?

    I simply do not see how wind/solar work without natural gas.

    what is DVP’s plan with regard to usage of natural gas in the future?

    what is DVP’s plan on how to harvest wind/solar if there is no natural gas?

  4. Larry, you have raised a number of excellent questions. I’ll give you my take on some of them. Others might have better answers.

    “what knowledge do ratepayers have about that and what opportunity do they have to participate?”

    The SCC does provide an opportunity to participate. They have annual chances to comment and provide testimony about Dominion’s long-term plans when each year’s Integrated Resource Plan is reviewed. I submitted testimony this year. It all seems to go in a big black hole at the SCC. You get no feedback or indication that your issues are being considered. I was busy with other projects during the times for public testimony so I was not able to do that.

    When a new plant is proposed, the SCC must approve it. There are comment periods and hearings when public input is accepted. Again, I’m not sure how the input is dealt with and I have not been involved in such a process in Virginia. In other states where I have worked, an Administrative Law Judge is in charge of the proceeding and attorneys for the utility and for intervenors in the proceeding can cross examine witnesses. Usually this is based on the review of an Environmental Impact Statement. I don’t know if this is the process followed in Virginia.

    There is usually some coverage in the media, but often people become aware of things after it is too late to have their voices heard. Typically, there is a small band of dedicated citizens that keep track of the activities of the SCC and the utilities. Like many other issues, most citizens leave it up to someone else to deal with these issues, then complain about the outcomes. Somehow the general public needs to be aware of how many decisions will be made about their energy future in the next few years. We need to encourage a widespread conversation of these issues, covering all points of view, so that good choices will be made for the entire state.

    “DVP has demonstrated good judgement in past decisions – proven by some of the lowest electricity rates in the country.”

    This is a statement I hear a lot in Virginia. It is partly true and much by accident. I am not criticizing Dominion. I believe that they are an effective operating company, in the old utility tradition. They are the 12th largest utility in the nation (Dominion Resources), but lag their counterparts in the adoption of many modern practices (they are 32nd out the 32 largest utilities in the adoption of renewables and energy efficiency for example).

    We have rates slightly below the national average (which is pushed up by the much higher rates of Hawaii, Alaska and California). Our rates are mostly due to an accident of geography (we are not too hot or not too cold compared to other regions). This allows utilities to have a higher capacity factor for their intermediate (cycling) and peak load units, which makes them cheaper to run than in regions where there is just one extreme season. All of the states with climates similar to ours (MD, WV, KY, TN, NC) have rates that are less than ours. States with truly low rates pay over 20% less than we do. We should be thankful that our rates are reasonable, but not be overly congratulatory of Dominion or the SCC. There are many things they could be doing that would make our utility costs lower.

    “But accommodating renewables – is not only a legitimate issue for the public – it requires a paradigm shift for the utilities in how they operate the grid.”

    This is so true. While Dominion has demonstrated skill in following the traditional utility paradigm, they seem reluctant or unable to embrace the new one. Even if they have been effective in the past, does not mean they will be in the future. Many other utilities are working towards developing a new way of operating. Not always because they want to, but because they see no other choice for long term success.

    “wind/solar are never going to be, in my view, a trustable, reliable – core fuel – even when/if it is widespread.”

    “if you pretend a world where there is no natural gas to do that – how would wind/solar “work”?”

    This is true from the old utility outlook, but not using the vision of the future grid. You are absolutely correct in suggesting that natural gas is essential as a bridge fuel for the bringing renewables into the grid. But this bridge might be needed for only 10-15 years.

    The important issue is how quickly we develop affordable means of energy storage and how quickly we develop customer accepted means of demand response. Batteries are far better means of handling variations in solar than gas combustion turbines (peakers). They also provide extra grid benefits such as voltage regulation, reactive power, emergency backup, etc.

    It is projected that within 15-20 years the prices of solar and energy backup will be so much less than other choices that this will provide some of our baseload capacity as well. Concurrently, technologies will be developed to match demand with supply (by altering customer usage) rather than changing supply to meet demand as we do today. Imagine a grid with residential, commercial, industrial and utility sited solar, plus storage and widespread customer accepted ways of altering demand that does not require customer intervention. Coupled with energy efficiency, this scenario would provide us with reliable clean power to support a more vital economy, with less energy use and lower costs than we have today.

    • Thanks much TomH.

      and yes, in Va… more typical than not – citizens give “input” – pro forma and the appointed and elected will “take that into consideration” but seldom respond as to how.

      I’ve always been a little bemused that apparently “hearings” are ‘required’ but never understand specifically what requires them in the first place because despite the mandatory use at local and state levels there is rarely, if ever, a detailed response from the entity “hearing” the comments.

      And I have a bit of a quibble with regard to the concept of “bridge” – in terms of both the timeframe – and specifics as to what the other side of the bridge actually will be and where we are right now with that technology.

      I continue to be a serious skeptic of timeframe of “storage” technology and if that is the sole answer to what is on the other side of the “bridge” – the timeframe seems pretty speculative – a lotta hope… and a lotta “hail mary”/”holy grail” to me.

      I guess when I see batteries for cell phones that last a week or more, I’ll become more of a believer.

      Until we have some solid breathroughs – I think we should ban the export of natural gas and presume the “bridge” to be longer than 15 years.

      And if somehow – DVP get approved and goes forward with a 3rd Nuke at North Anna – I think that would undermine wind/solar.

      So I also share the concerns about knowing what the plan forward is.

      and I DO THINK that there SHOULD BE a up-front, apples to apples cost analysis between nuclear and wind/solar.

      right now – it seems like we’re at a crossroads where we will leave coal behind – not without those who argue otherwise – and not at all certain we need to do next and for the next 15-20 years other than nothing much.

  5. Re: The EPA Clean Power Plan:
    I noticed ODEC said the same thing I keep saying, we don’t know the CPP impact until the state develops and communicates a tentative plan or options. We don’t know what coal plants the state wants to keep running, if that is consistent with the EPA projections, and so on.

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