Valuation of NEM Solar: Environmental Considerations

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Valuation of NEM Solar: Environmental Considerations

December 12, 2019

Patrick DurhamRené ToledoEric Rivero-Montes

1. Our Presentation’s Focus

2. Program Overview

a. Greenhouse Gas (GHG)

b. Criteria Pollutants

c. Emission Reduction Distinctions

3. Value of Solar Benefit Considerations

Agenda

2

This presentation focuses on the value of Behind the Meter (BTM) Solar with respect to the Net Energy Metering (NEM) Study.

The presentation also discusses how emissions are impacted by changes to SMUD’s thermal power plant resources as forecasted in the 2018 Integrated Resource Plan (IRP).

These thermal power plants operate with the highest environmental agency oversight.

This presentation does not focus on the methodology used to forecast the emission reductions in the IRP.

Our Presentation’s Focus

3

Key Takeaways

Financial Benefits – The Cap-and-Trade Program allows for quantifiable financial benefits for the reduction of Greenhouse Gas (GHG) emissions. Any monetization of allowances must be used to comply with Assembly Bill 32 (AB-32) objectives.

Societal Benefits – GHG and criteria pollutant reductions result in societal benefits.

RecommendationWe recommend the consultant include these benefits as part of their study.

Emission Reduction Considerations For Value of Solar Study

4

Introductions

5

René ToledoSMUD Environmental Services, Compliance Supervisor

7 years with SMUD, Air Quality Specialist

12 years with Yolo-Solano Air Quality Management District; Air Quality Permitting Engineer

Eric Rivero-MontesSMUD Environmental Services, Greenhouse Gas Reporting Supervisor

6 years with SMUD, Greenhouse Gas Specialist

10 years in Environmental Consulting and Greenhouse Gas Verification


2. Program Overview





Agenda

6

Words to Know

Thermal Power Plant – Refers to SMUD’s natural gas fired power plants.

Generation – The amount of gigawatt-hours of electricity produced by a single thermal power plant or the entire thermal power plant fleet.

Emissions – Generally used to describe either criteria and/or greenhouse gas pollution produced by the thermal power plant fleet as it combusts fuel.

Criteria Pollutant Emissions – Pollution created from the combustion of natural gas fuel. Similar to vehicle tail pipe emissions that include: nitrogen oxides (NOX); volatile organic compound (VOC); particulate matter (PM); sulfur oxides (SOX); and carbon monoxide (CO).

Greenhouse Gas Emissions (Greenhouse Gas) – Greenhouse gases are those gaseous constituents of the atmosphere, both natural and anthropogenic, that absorb and emit radiation at specific wavelengths within the spectrum of thermal infrared radiation emitted by the Earth's surface, the atmosphere itself, and by clouds.

Integrated Resources Plan (IRP) – SMUD’s ambitious road map for lowering greenhouse gas (GHG) emissions in the Sacramento region while maintaining our historically low rates and reliable service to our customers. The IRP explores alternative scenarios for decarbonization in the region.

2018 IRP Load Forecast

7


8

53%67%

79%13%

4%30%

23%

16%

4%6%

5%

0

5,000

10,000

15,000

20,000

2020 2030 2040

Gig

aWat

t-Ho

urs (

GWh)

Carbon Free Generation/Purchases Other Purchases SMUD Thermal Generation BTM Solar Generation Total Generation

Required Generation is Expected to Increase in the Next 20 Years Due to Electrification Efforts


9

53%67%

79%13%

4%30%

23%

16%

4%6%

5%

0

5,000

10,000

15,000

20,000

2020 2030 2040

Gig

aWat

t-Ho

urs (

GWh)


Carbon-Free Generation/Purchases (including renewable purchases & generation)


10

53%67%

79%13%

4%30%

23%

16%

4%6%

5%

0

5,000

10,000

15,000

20,000

2020 2030 2040

Gig

aWat

t-Ho

urs (

GWh)


Other Purchases


11

53%67%

79%13%

4%30%

23%

16%

4%6%

5%

0

5,000

10,000

15,000

20,000

2020 2030 2040

Gig

aWat

t-Ho

urs (

GWh)


Generation from SMUD Thermal Power Plants

53%67%

79%13%

4%30%

23%

16%

4%6%

5%

0

5,000

10,000

15,000

20,000

2020 2030 2040

Gig

aWat

t-Ho

urs (

GWh)



12

Generation from BTM Solar Resources


13

53%67%

79%13%

4%30%

23%

16%

4%6%

5%

0

5,000

10,000

15,000

20,000

2020 2030 2040

Gig

aWat

t-Ho

urs (

GWh)


Note: The 4% of BTM Solar corresponds to 7% (~210 MW)

of installed capacity.

SMUD’s 2018 IRP Overview

14

15

16

17

Carson Ice103 MW

Campbell Soup160 MW

Procter & Gamble182 MW

McClellan72 MW

Cosumnes Power Plant

603 MW


2. Program Overview





Agenda

18

Terms to Know

AB-32 – Landmark 2006 legislation requiring California to reduce GHG emissions to 1990 levels by 2020. Also established California’s Cap-and-Trade Program.

Cap-and-Trade – Emissions trading program that sets a limit on total emissions responsible for 85% of California GHG emissions.

Allowance – A limited tradable authorization to emit up to one metric ton of carbon dioxide equivalent (MTCO2e).

Metric Ton – A unit of measurement equal to 1,000 kilogram (kg) used to measure carbon dioxide (CO2).

Auction Reserve Price – Minimum allowance price, per metric ton, allowed in an auction (i.e., price floor).

Auction Settlement Price – Allowance price resulting from sales in a given auction, per metric ton.

Compliance Obligation – The quantity of verified reported emissions or assigned emissions for which an entity must submit compliance instruments to California Air Resources Board (CARB).

Offset Project – All equipment, materials, items, or actions that are directly related to or have an impact upon GHG reductions, project emissions, or GHG removal.

Western Climate Initiative (WCI) – A non-profit corporation formed to provide administrative and technical services to support the implementation of state and provincial greenhouse gas emissions trading programs.

Greenhouse Gas

19

20

21

- SMUD’s Thermal Power Plants

(Natural Gas)

The size of the green circle provides a visual

representation of the magnitude of GHG emissions

relative to other thermal power plants in California

22

-Natural Gas Fired Power

Plants in California

-SMUD’s Thermal Power Plants (Natural Gas)

SMUD represents 5-6% of California’s Total GHG from Natural Gas Power Plants

- SMUD’s Thermal Power Plants

(Natural Gas)

SMUD represents 5-6% of California’s Total GHG from Natural Gas Power Plants

2017 California Greenhouse Gas Emissions

23

Total Emissions = 424.1 MMT CO2e AB-32 Target = 431 MMT CO2e

California Cap and Trade Regulation

24

AB-32 Rewards Facilities that Reduce GHG

Emissions

25

AB-32 Rewards Facilities that Reduce GHG

Emissions

Entities that emit more must purchase more allowances to cover their carbon obligation through quarterly state-administered auctions or the secondary market.• More Emissions = Higher Costs• Less capital to invest in GHG reducing

projects

Entities that reduce emissions can sell extra allowances through quarterly state-administered auctions or the` secondary market.• Lower Emissions = Lower Costs• SMUD invests money from excess

allowance towards projects that reduce GHG emissions including:

• Investments in EV Chargers, Grants for Electric School Buses, Energy Efficiency Projects, Sulfur Hexafluoride (SF6) Fugitive Emission Reductions



26

Key Takeaways:

The cap covers approximately 85% of total state-wide

emissions.

Covered entities are sources that emit more than 25,000

metric tons per year.

The cap declines by about 3% per year.

0

100

200

300

400

500

2020 2022 2024 2026 2028 2030

Mill

ion

Met

ric T

ons o

f CO

2e

California Cap: 2020-2030(Million Metric Tons CO2)

GHG Emissions

2014-2019 Carbon Allowance Price

27

2018Carbon Obligation

~$30 MM

Source: Western Climate Initiative (WCI)

SMUD’s Power Plant GHG Emissions

28

0.0

0.5

1.0

1.5

2.0

2020 2030 2040

GHG

Emiss

ions

(Mill

ion

Met

ric To

ns o

f CO

2e)

Key Takeaways:

Less power coming from fossil fuels; more power coming from carbon free

sources.

This will result in less carbon intensive power

and fewer emissions.

BiogasEmissions


2. Program Overview





Agenda

29

Terms to Know

Criteria Pollutant Emissions – Pollution created from the combustion of natural gas fuel. Similar to vehicle tail pipe emissions that include: nitrogen oxides (NOX); volatile organic compound (VOC); particulate matter (PM); sulfur oxides (SOX); and carbon monoxide (CO).

Emission Reduction Credits (ERCs) – Emission credits needed to be supplied to governing agencies in order to offset the pollution from power plants before they begin operation. These credits are certified by the air district as real, quantifiable, and surplus.

Nitrogen Oxides (NOX) – Highly reactive gases that form quickly from fuel combustion sources. Contributes to the formation of ground-level ozone (O3) and fine particle pollution. Is also associated with adverse effects on the human respiratory system.

Maximum Potential to Emit – Maximum permitted emission limits of each applicable air quality permit.

Short Tons – A unit of measurement equal to 2,000 pounds used to measure criteria pollutants.

Criteria Pollutants

30

SMUD’s Power Plant Criteria Emissions

31

0

20

40

60

80

100

2020 2030 2040

Annu

al To

ns (s

hort

tons

/yea

r)

Thermal Plant NOx Emissions (Short Tons)

NOx Emissions (Short Tons)

Key Takeaways:

Less generation, less fuel combusted, less emissions.

Thermal power plant generation and emissions

trend downward over the next 20 years.

Variable Cost for Value of Solar Study

32

SMUD believes that the Value of Solar Study should evaluate the following variable operating costs that are highly dependent on thermal production:

• Cooling Tower Chemicals

• Ammonia Consumption for NOx Control

• Solid Waste Disposal Fees

• Water Usage - Potable Water, Recycled Water

• Sewer Discharge Fees

Key Takeaway:

Variable costs are driven by generation demand.

Less annual generation; lowerannual variable costs

Increased power plant cycling on a daily/hourly basis; higherpower plant standby/station power and operation and maintenance (O&M) costs


2. Program Overview





Agenda

33

“Pay-As-You-Go”The GHG programs are designed as “Pay-as-You-Go”• There are quantifiable financial benefits to reducing GHG emissions• Less GHG emissions generated; less allowances needed

“Pay-Ahead”The criteria pollutant programs are primarily designed as “Pay-Ahead”• SMUD bought and surrendered all potential emissions using emission

reduction credits (ERCs) at the time of permitting• ERC costs are an established “sunk cost” that allow our plants to run

Emission Reduction Considerations

34

Key Takeaways

Financial Benefits – The Cap-and-Trade Program allows for quantifiable financial benefits for the reduction of GHG emissions. Any monetization of allowances must be used to comply with AB-32 objectives.

Societal Benefits – Both GHG and criteria pollutant reductions result in difficult to quantify societal benefits.

RecommendationWe recommend the consultant include these benefits as part of their study.

Emission Reduction Considerations

35


2. Program Overview





Agenda

36

Closing – Environmental Benefits Perspectives

37

GHG Emission Reductions

Benefit: Decreased GHG allowances required per decreased thermal power plant generation

Variable Operating Cost

Reductions

Benefit: Decreased thermal power plant generation will decrease variable operating costs (i.e., water, waste, etc.)

Cost: Increased power plant standby/station power costs and higher operation and maintenance (O&M) costs due to cycling

Criteria Emission Reductions

Benefit: Overall decreased emissions contribute to societal benefits

Neutral: Assigned criteria pollutant ERCs are sunk cost (no financial impact)

Documents

Valuation of NEM Solar: Environmental Considerations