Opportunities and Barriers to Renewable Energy Projects

Opportunities and Barriers to
Renewable Energy Projects in
Arctic Thermal Communities
ONSEP Workshop
Vincent Dufresne and Stephan Schott, Carleton University
April 29, 2015
Research carried out with funding from
AANDC’s Canadian High Arctic
Research Station (CHARS)
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The High Cost of
Arctic Thermal Electricity Generation
Average Total
Cost of
Electricity in
Thermal
Communities
Yukon
NWT
Nunavut
Nunavik (QC)
Nunatsiavut(NL)
Weighted
Average: $1.13
/kWh
Lower Range:
$0.97/kWh
Upper Range:
$2.15/kWh
(2012)
NTPC:
Weighted
Average: $0.58
/kWh
(2012)
NUL
Weighted
Average:
$0.70/kWh
(2015)
Weighted
Average: $0.65
/kWh
Lower Range:
$0.50/kWh
Upper Range:
$1.01 /kWh
(2012-2013)
Weighted
Average: $0.75
/kWh
Lower Range:
$0.65/kWh
Upper Range:
$1.32/kWh
(2013)
Weighted
Average
(Residential):
$0.86/kWh
(ATCO Electric Yukon, 2013; Northwest Territories Power Corporation, 2012; Northland Utilities (NWT) Limited, 2013; Northland Utilities (NWT)
Limited, 2014; Qulliq Energy Corporation, 2013; Hydro-Québec Distribution, 2013; Newfoundland and Labrador Hydro, 2014)
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Outline
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Context
Typical Arctic Thermal Community
Institutional and Regulatory Frameworks
Electricity Rate v. Marginal Production Costs
Typical Project in a Typical Community
Challenges and Trade-Offs
Policy Discussion
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Thermal Communities in Canada
Nunatsiavut
(NL)
Nunavik
(QC)
Yukon
NWT
Nunavut
(NRCan, 2011)
All Thermal Communities
● 240 communities
● Pop: 117,000 people
● Median: 239, Avg: 287
Arctic Thermal Communities
● 92 communities
● Pop: 63,000 people
● Median: 465, Avg: 683
● 20 largest: 36,000 people
Median Arctic Thermal Com.:
● About 150 households
● About 1,200 kW installed
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A Typical Electricity System in an
Arctic Thermal Community
Diesel: 1.2 MW
Population: 460 ppl, 150 households
Installed 1,200 kW, Peak 1,000 kW
Load Factor 60%, Min. Load 300 kW
Three Operators on Site
(Wong, 2013)
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State of Electricity RE Technologies
in Arctic Thermal Communities
Sufficient Level of Maturity:
● Small Hydro, Wind, Solar PV
● Baseload Small Biomass Power
Frontier Technologies:
● Peak-Load Small Biomass, Small-Scale Geothermal, MiniNukes, Small-Scale Waste-to-Energy
Operational RE Projects in Thermal Communities:
● 3 micro-hydro, 1 kinetic-hydro,
● 40 solar PV (from 1 kW to 135 kW, median 5 kW),
● 2 wind projects (Raglan & Diavik)
● 1 near-operational IPP project in NWT (Lutselk’e, PV)
● Undetermined number of IPPs in various stage of develop’t
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Arctic Electricity Market Structures
Voting Pole/Workshops/Surveys
Territorial
Government
Laws,
Policies
Ow
Ca ners
h
Su pital ip
pp
ly P
lan
nin
g
Formal Proceedings
Stakeholders/
Public
Regulator
Rate of Return Regulation,
Level of Service Oversight,
Capital Planning Oversight
Utility
Power Purchase
Agreement (PPA)
Typical Arctic
Regulated Rate
Classes:
General
Service
IPP
(If Any)
One-on-One
PPA
Residential
Government
Thermal
Comm’ties
Industrial
(If Any)
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Yukon
NWT
Nunavut
Nunavik (QC)
Nunatsiavut(NL)
Utility(ies)
ATCO Electric
Yukon (Privte)
NTPC &
NUL (Private)
Quills energy
corp. (QEC)
Hydro-Québec
Distrib’n (HQD)
NL Hydro
Rate-Setting
Rate of Return Regulation (aka Cost of Service regulation) - Block pricing
Regulator
Yukon Utilities
Board
NWT Public
Utilities Board
Supply
Planning
YEC
Status of IPP
Policy
Utility Rate
Review Council
Régie de l’
Énergie
NL Public Utilities
Board
NT Energy, now QEC
GoNWT
HQD
NL Hydro
In the making,
but pending
(Draft Availab.)
Being
discussed, but
pending
Announced in
Energy Policy,
but pending
Competitive
tendering for
IPPs
Net metering
discussed, nothing found on IPP
Approach to
Subsidizing
Thermal
Residential
Non-Govern’l
Prices
Cross-Subs.
from Gov RC &
Hydro grid
+ Direct Gvt
Subsidy
Cross-Subs.
from Gov RC
+ Direct Gvt
Subsidy
Cross-Subs.
from Gov RC
and btw
communities
+ Direct Gvt
Subsidy
Heavy CrossSubs. from QC’
s Southern
hydro grid
Cross-Subs. from
Gov. RC and btw
communities
+ Direct Gov
Subsidy
Information on
Marginal Cost
of Diesel Gen.
Not available
bcs no
allocation.
Available but
aggregated for
thermal
communities
Available
community-bycommunity
Available by
community-bycommunity incl.
Firm capacity
Available but
aggregated for all
Labrador thermal
comm.
Source: Multiple
Institutional and Regulatory Framework
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Example of a Regulatory Filing:
A General Rate Application
Stakeholders’
Lawyers
Capital Budget
Load Forecast
Typical Angry Mob
Cost Allocat’n
Production of the
Evidence
Months of
Preparation by
the Utility’s Staff
GRA
Filing
Intervenor
Registrat’n
Written
Interrogatories
(IRs)
Regulatory
Proceedings:
3 to 12 months
Oral
Hearings
(Incl. Expert
Witnesses)
Final
Arguments
&
Compliance
Filing
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Electricity Cost of Service:
A Comparison
Arctic Hydro-Grid
Cost of Service (CoS):
Arctic Thermal-Community
CoS (Weighted Avg of all Comm’ties):
(McLaren, 2014)
Note: Data is for the NWT rates in place in November 2014 (for NTPC-serviced
communities only) but nevertheless representative of Arctic communities.
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Marginal Production Cost
Thermal Cost of Service
Average Total Cost
Variable
Cost:
Diesel Fuel
(47% Approx.
or 27c/kWh)
Fixed
Cost?:
O&M, Capital,
Customer
Service, etc.
(53% Approx.
or 30c/kWh)
Actual Residential Price
Short-run
Variable Cost
- Variable O&M?
Grey
- Variable FirmZone
Capacity Capex?
Short-run
Fixed Cost
CrossSubsidy
Direct
Govern’tSubsidy
Average
Price per
MWh:
26c/kWh
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Typical RE Project (Case Study)
Wind Project: 1 x 800 kW, Capacity factor 29%
RE Project Cost: Overnight Capital $5m, O&M: $0.2m
Community Load: Peak @ 1,000 kW, Load factor 60%,
Minimum load @ 300 kW
Community Rates: Diesel fuel cost 27c/kWh,
Cost of Service 57c/kWh, Resid’l price 26c/kWh
IPP’s Cost of Capital: Investors’ hurdle rate 12%,
70% debt @ 5% interest, 20-yr project life and debt
term, Weighted-Average Cost of Capital 7.1%
Financial Outputs: Levelized Cost of Energy
35c/kWh, Benefit/Cost ratio against diesel fuel
cost 0.77, Net present value ($163,000)
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Business Model:
Private Developers (IPPs) v. Incumbent
Benefits of IPPs Over Incumbent Utility:
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Other sources of capital (Private)
Eagerness to take on risk
Expertise and access to human resources
Ability to pool risks btw many projects
Less regulatory burden / Less red tape
Ability to partner with aboriginal nations
Alignment with the aspiration of some communities
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PPA Negotiation:
Information Asymmetry
Regulator
& GRA
Incumbent Utility:
- Detailed cost
information
- “Grey-zone
avoided cost”
- Corporate
strategy
- Risk aversion
- PR challenges
- HR limitations
PPA
Negotiation
Private Developer:
- Hurdle rate
- Interest rate
- Actual cost of
technology
- IBA agreements
or benefit
sharing w/
aboriginal
nations
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Challenges and Trade-Offs
How to:
● Take on renewables w/o worsening subsidies?
● Value the “grey-zone” variable cost?
● Reduce private developers “risk premium”?
● Make both sides of negotiation more transpar’t?
● Value externalities and turn them into cashflows?
● Attract, train & keep talent/expertise?
● Address the high risk & cost of pre-investment
stage?
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Typical Content of an IPP Policy
● Eligible technologies
● Tiered approach based on project size
● Approaches to establish the purchase price
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○ Avoided cost of utility v. IPP’s production cost
Process, including: (These are options...)
○ Streamlined utility/regulatory approval
○ Requirements regarding timelines
○ Roles & responsibilities of each party
○ Pro-forma power purchase agreement
○ Competitive tendering procedure
* Yukon published a draft IPP policy
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Policy Discussion
Recommendations:
● Establishing track-record of projects required to lower
private-developer risk premium
● To this effect: Feed-In Tariff based on avoided cost (including
grey-zone variable cost) + externalities
● Externalities getting paid by either ratepayers or governm’t
Areas for future research:
● What additional information should utilities disclose?
● How to quantify “grey-zone variable cost”?
● Externalities: Who should value them?, How?
● Formal IPP policy: would it be useful or would it be a liability?
● Approach to creating competition btw private developers?
● How to get the talent needed in utilities and governments?
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Questions and Discussions
Thank You!
Vincent Dufresne, Eng., CEM, CMVP
M.A. Candidate, Energy Policy, SPPA, Carleton University
[email protected]
Dr. Stephan Schott
Associate Professor, SPPA, Carleton University
[email protected]
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