[Georgeann Moss]: Welcome everyone, my name is Georgeann Moss, and I'm the executive administrator for Sustainability Outreach and Initiatives for Dallas County Community College District, so on behalf of DCCCD we welcome you here today, we're very excited about this workshop.
Let me just briefly tell you how this workshop came about.
Last October I attended the AASHE conference in San Antonio, AASHE stands for Association for the Advancement of Sustainability in Higher Education, and at that conference there were breakout sessions for regional groups and the regional group for Texas is called Texas Regional Association for Campus Sustainability, that's called TRACS, and at TRACS we had some round table discussions and the table that I was at, the people at that table were very interested in renewable energy and powering all higher education institutions in the state with renewable energy and so we got together, we started talking about it and we discussed this vision, and the vision is what if every single higher education institution in the State of Texas, public, private, every single one, what if they all transitioned to renewable energy as quickly as possible?
Hopefully within five years but however long it takes, what if we were able to do that?
What a tremendous difference that would make in our state, in our air quality, in our greenhouse gas emissions, plus we would be leaders modeling for our communities the way of the future, and so out of that roundtable discussion came this workshop.
This workshop is a series, it's a pilot in what we hope to be a series of workshops around the state because we know that not everyone can travel from Laredo or south Texas or the panhandle and so we're going to move them around, I know that A&M is interested in having one, I know Alamo Colleges is interested in having one. We want to give renewable energy champions in higher education the tools that they need to be successful as change agents and that we understand that this isn't gonna come easy or quick, right?
We all work for higher education, they're large bureaucratic institutions, but that's why we need to start now and we need to move as quickly as possible.
Now it is my pleasure to introduce Mr. Michael Bendewald who is the chief operating officer for Texas Energy Aggregation, so thank you Michael.
[Michael Bendewald]: Thank you Georgeann, appreciate the introduction.
Thank you all for coming to the workshop today, I know that your time is very valuable and so to take three quarters of a day and spend it with us, we feel really happy that you did that and we want to make your time well spent.
One of the key differences I think you're gonna find today in relation to maybe other renewable energy and sustainability workshops you've attended is that this is gonna be very sort of focused on procurement and the transaction, you're gonna learn a lot about the economics and the contracting, and a lot of those details aren't always discussed.
This is about how do you get it done, OK?
So, I think hopefully that's really — and I've talked to many of you before the workshop so I'm pretty sure that's what you wanted and so that's what we're gonna be focusing on today.
So, I wanted to just start off thanking the committee for selecting Texas Energy Aggregation as its technical adviser, we know that you were considering others and we feel very privileged that you selected us and thanks to the LeCroy Center as well for hosting the event.
All right, so the meeting intention today and the objective, so what we want to do, we view you all as renewable energy champions at your own institution and your own organization and we want to support you in procuring renewable energy, OK, do everything we can.
The objectives for today are four fold, really we want to understand the fundamental economics of renewables, we understand there's a lot of arguments for renewables from a sort of soft value side and what happens is that when push comes to shove the economics really start to make the decisions and so we want to make sure that you all have the right information about those economics so you can build support within your organization for renewables.
We want to be able to summarize the contracting options and the process of procurement, how does it work, what if I have a renewable energy provider contract through the next few years, can I still do this?
We're gonna answer that question for you.
To increase collaboration among your peers, so we have built in some time for you all to mingle and talk with each other, OK?
Your own conversations, right, so please take advantage of those times to discuss with each other, and we want you to build relationships.
Finally, we want to identify some common goals, is there some common themes in the room of what people want to do and can we build aggregation around that?
There's economies of scale, we are Texas Energy Aggregation after all so we are looking to aggregate if it makes sense, but you really need to have common goals.
I'm gonna hand it over to T.J. who's gonna do an introduction about the program and about TEA.
[T.J.]: OK, so we're gonna talk a little bit first about the program that we manage for the State of Texas.
So the only energy program that was out there that was officially vetted by the State of Texas was the general land office's program and the comptroller's office has put together a program to do something similar to help you with the contracting process, but also moving into this century and including renewables and an all of the above kind of solution, so this program was created by the legislature for any public entities.
If you're not a public entity such as the catholic diocese, all you have to do is be a member of Texas Smart Buy, I think it's $50 a year to be part of that and it's well worth it.
But we're gonna make the contracting process a bit simpler for you.
Another great thing about this program is it's got oversight and it's SECO, the State Energy Conservation Office, y'all may be familiar with them, they are a wonderful organization.
Dub Taylor works closely with us to make sure this program stays up to date with any kind of changes, making sure we're doing our job correctly and serving our clients correctly, and then is anybody here using GLO for their energy purchasing, the General Land Office at Texas?
OK, a lot of folks have used them for a long time and a lot of what they do is you sign confidentiality deals on contracting so it's hard to get accurate information, but that's probably the best option that's out there.
But we were selected vendor in 2011 and we won that contract now I guess six times and there were three of us when we started, now it's just one of us doing it.
So, I'm gonna talk just a second about the company, what gives us the right to stand up here before you all.
I started the company back in 2002 and built the company over the last 16 years now.
Now we are focused just on working with public entities and renewables, we actually do aggregations too, not many aggregators aggregate, but so we also have won several other interlocal agreements across the state over the years.
We serve the five largest entities and about 100 different municipalities, independent school districts that we work with, so pretty good variety of clients.
But we've probably done 5,000 energy contracts, most of the customers we work with, they've done one or two, we do several a week so very familiar with them and the changes in those.
Also, we're Texas based, we're Texas owned, we are not owned by an energy generator, we're not owned by a utility company or a retail energy provider.
Also — yeah we got the old slides, that's OK — I'm very proud to say that there's probably 500 energy consultants at least in Texas, many, many more across the country, we won a national award, voted #1 by the energy providers out there for ethics, innovation, contract negotiation and customer service.
So happy to say that, and also we've worked on quite a bit of consumer legislation, we've already saved you money whether you know it or not, if you have athletic fields and you turn those lights on a few times a year and you have to pay incredible amounts of money every month or used to, that's gotten fixed and that was some legislation I brought to one of our state legislators, what I lack in looks and brains I make up for in persistence, and it took three sessions, we got the bill passed, house bill 1084.
So also just four of the largest state agencies, the Department of Criminal Justice, TXDOT, Health and Human Services and Texas Parks and Wildlife, between them since 2011 we've saved over $56 million for taxpayers.
Two of those contracts that we've done so far for these agencies have been 100% renewable, they were less than .03 cents a kilowatt hour, OK, and that was at the time we did the one for TXDOT that was the lowest rate of any state agency in the country, so we're proud of Texans, we do think bigger and better, we do a lot of chest thumping, but we are innovators and all these energy companies are all looking, the renewable developers are all looking at Texas and what we do because we are rewriting the rules.
This is a really, really exciting time to be in this business, and let me say this, a lot of the sustainability people, we talk with universities, you walk in the room, they're like oh no, here he comes, he's gonna make us sort our garbage, tell us how much extra we're gonna have to pay to save the polar bears, so now this is an economic proposition, you are gonna get to be the hero, you're gonna get to save your organizations millions of dollars.
Renewable energy is now cheaper.
I just gave away the punchline, but it's an exciting time.
So the CFO is now going to be your best friend, OK, so we got lots of good news and we're gonna give you the tools that you'll need.
So, let's get this out of the way, 'cause people say, how are you paid?
So, this was part of the RFP we answered, we've come in very, very cheaply and what we do, a lot of times just to say when people say who are your clients, we can say the State of Texas, perhaps you've heard of them.
So, but on these at the bottom, the commodity contracts on there, depending on how many meters you have and how large your load is it's a matrix of what we're paid, that's the total amount whether it's a one-year contract or a 30-year contract, we're agnostic, so we're paid the same thing.
For demand response we're paid 3.5% of any of the payout that you get and then renewable energy we're paid 1.5 cents per watt, so if it's a 1-megawatt deal that's a $15,000 commission we make on those.
We don't make a dime unless we actually get you a contract so we'll run around, we'll do all the work for you, we only get paid if we're successful in helping you and we certainly hope we can do that for you.
So let's talk a bit about aggregation for a minute because I think there's some misnomers about it.
I'm licensed as an aggregator, very few aggregators actually aggregate customers together.
When we talk about aggregation you’re gonna have your own contract, you're not gonna be lumped on different contracts because I've seen what happens on football fields when these schools get together, we don't want any of that going on with attorneys 'cause it really gets ugly then.
So what we want is, you'll have your own contract that meets exactly all the needs that you have for whatever contract lengths.
However, we execute those contracts together simultaneously for economy of scale, and by doing it at the same time it allows us to achieve a lot more than any single school could do on their own.
When it comes to utility scale solar, size matters, it's a big deal because if you just have five megawatts or even 15, you're not gonna qualify for the really, really good rates that you see the apples and the googles of the world, but if we just had half the universities in this room right now we would be seeing some of the lowest power purchase agreement rates in the State of Texas, so I really hope we can figure out ways to work together.
You all have different contract end dates, we'll work all those things out, think I covered everything there.
OK, so our people that we have helping us in RFP that we answered for the State of Texas, I was back in the solar industry – well the dead sea was still only sick, that's how long ago it was.
I don't want to date myself, but the renewables now, it's a big deal and these two gentlemen here both came from – my hero mentor is Hunter Lovins that started Rocky Mountain Institute, Dan Sithe here started the Business Renewables Center at Rocky Mountain Institute, which now 92% of all the PPAs that got done in the united states over the last couple years were done by a member of the Business Renewables Center, most of it with assistance of Rocky Mountain Institute.
So, I'm never the smartest guy in the room but I can usually identify them and most of the time get them to come to work with us.
So, the other gentleman here is Mike Bendewald who was out there I think about nine years at rocky mountain institute and somehow left boulder and moved to Waco, Texas.
We're happy to have him.
But these guys are great, they've been on the cutting edge of this for a long time, have a broad base knowledge, so what I don't know these guys know and we're happy to have them with us.
So, we have this partnership with Rocky Mountain Institute, they like us because we help take these guys off their payroll and they were very focused on Texas, the Shine program, Josh works with UNT, we've got an RFP out for solar for several co-ops, so everybody's looking at solar right now.
But these guys help us with the PPA execution and when we get in a lot of the technical details of the cost and what's going on these are our go to guys.
Here's something else too is I don't care about getting credit, I want you all to be the heroes because you all have been – were into sustainability before it was economically viable so and it's been a long road.
We're gonna help you be the hero in your institution and if something doesn't go right you can have us be the scapegoat because we don't want any decisions to do anything that's gonna make your job more complicated or get you in trouble.
[Dan Sithe]: So I'm Dan Sithe, I am a consultant here in Texas, TEA is one of my most substantial clients, love working with these guys, I also support rocky mountain institute so my two clients work together with josh and the co-ops right now releasing a very large RFP for solar, so been living a lot of my life with these fellas recently.
So, I'm gonna get into the economics of renewable energy here in Texas in the ERCOT grid and specifically here in north Texas 'cause there are some pricing specifics.
So, let's start her up.
So, is there anyone here who believes that their campus or significant maybe satellite campuses — they're not called Campii are there?
— campuses, are outside of ERCOT?
ERCOT you can see is the sort of darkish blue, I think there's a more appropriate name for that slightly green darkish blue, but you have campuses outside of it?
In New Mexico.
OK, do you know if it's an SPP or in the fully regulated area?
Well I think all of New Mexico's fully regulated but there's a part that has a wholesale power market, you can see this kinda greenish corner — Taos?
No, that's fully regulated, OK.
You do as well?
OK, SMU has a Taos campus.
That's kind of interesting actually because there's a lot of small scale solar going in there, local utilities, so, and RMI actually worked with that program to get it going, it's kind of the earlier version of what we're now working on here in Texas.
But so you often here that ERCOT is the grid of Texas.
As you can see it's not 100% of Texas, it's about 70% of the geography, 90% of the population.
Its load is quite substantial, it's bigger than the load of Mexico, I think it's about 400 terawatt hours a year which is about 10% of the energy used in the united states is in ERCOT, and two thirds of the customers in ERCOT have competitive ability to choose an energy provider.
Your wires charges for your distribution if you pay distribution charges and transmission are set by the Public Utility Commission of Texas, there are substantial ways to reduce that and we'll get into it but your competitive element is just the energy portion.
So 73,000 megawatt peak, 40,000 megawatt average, I think it's maybe more like 55,000 megawatt average, that might be a bigger number.
OK, so let's talk a little bit about what actually makes up the ERCOT grid and how prices are derived and how you get your price, right, at your campus and what your energy provider is looking at when they award you a contract price.
So for loads, for university campuses and other facilities, there are only eight retail prices in the entire State of Texas, OK, and you can see them on this map.
Good luck by the way finding this map anywhere on google, it cannot be found, it took me over an hour to find this coherent map.
Only four of these, the west, the north, Houston and the south are — have competitive areas within them.
Four are specifically carved out for fully regulated — or really the word is fully monopoly utilities, the competitive areas are highly regulated by the P.C. as well, so I tend to steer away from regulated and prefer competitive and monopoly retail, and I do believe we have femi from the cps area so you have your own energy price.
These prices, it's a little complicated but it's basically there are many substations in each one of these eight areas and at all times the price at thousands of points are priced and together they form an average price and that is the price that is awarded in the north load zone for any area in this blueish purple.
So if you're 100 miles south of here, north load zone, 75 miles west of here, north load zone, 75 miles northeast of here, north load zone.
It's all exactly the same price.
Now you might see maps like this of ERCOT and see all these points of different prices, it's a really cool kind of Rorschach test.
If you go to ERCOT.com you find a beautiful map that shows constant real time heat map of different prices, these are the prices received by utility scale generators.
They get their own price for where they sit in the grid, but again that's the generators, you still have your set price by where you sit.
For most of you it's the ERCOT north load zone, that purple area, one price.
Even further, ERCOT is doing a lot more price modeling than just those 550.
I mean right here I say 11,500, I believe the number is more like 13,000.
Every single substation that is 69,000 kilovolts and above has a price in ERCOT, OK, sometimes multiple prices depending on how that substation is set up.
So ERCOT is constantly monitoring all these prices, but the reality is they're only awarding eight to loads, OK, so almost all of you have a north load zone price.
OK, so let's get into renewables now to background and ERCOT and we can cover some of the questions on this, some deep dive.
Mike, should I take any questions at the tail end here?
[Michael Bendewald]: Tail end please.
[Dan Sithe]: OK, so a lot of you heard that wind has taken off tremendously in Texas in the ERCOT market and also in the SPP part of Texas so it's not just ERCOT and the panhandle, and indeed it has.
You see this number here, 2017 we were at almost 21,000 megawatts, you know that's a big number, what does it mean?
You know that's producing more power at that capacity than probably about 10 of the 50 states use and probably about 150 countries combined use less power than that, it's a tremendous amount of power, I think it's pushing up towards 25% of total power in the state, probably will be at year end if you're not there already and you can see there's more coming.
It's just very low priced and the capacity is just gigantic.
Solar however is about 1/20th of where wind is, but it's coming on much more rapidly.
I think these are — I believe this came from perhaps ERCOT?
These — in North America I think these are underestimates, I think we're gonna see a lot more than that.
There's over 30,000 megawatts in the interconnection queue to give you some perspective of projects that are registering through ERCOT to get their projects connected and online, so that's 15 times the numbers you see here on the right, not 15%, 15 times.
OK, so why all this wind, why all this solar, how does it make money, how does it pencil, right?
So wind and solar for to have a lot of uptake has to beat power market prices, right?
And on the left I'm showing a flat price that we'll pay for wind power at the ERCOT north load zone at your price point, OK.
Not where the wind sits, that's a different price there, what it would cost to buy here in the north load zone.
It's about $20 a megawatt hour, and on the right I'm doing the same thing for solar, and you're like, well the two charts are different, why?
Well wind is more off peak and kind of night correlated, so its price when it's generating is lower than the price for solar which is more daytime and more peak correlated, that's why even though these numbers are the same the orange and the blue are not the same, OK?
So these are the average prices going about six years out on the energy futures market, OK.
So this is — you all might have seen trading places with Eddie Murphy and Dan Aykroyd, they're trading future prices for various commodities like frozen concentrated orange juice or pork bellies, right?
Well the Chicago Mercantile Exchange and another exchange called ICE, they also – you can also buy and sell futures for power markets on specific pricing points in those power markets including the ERCOT north load zone, OK, and also the ERCOT North Hub which is a little bit different but their prices are somewhat correlated, we can get the details later.
But so these go out this far and then afterwards it's kind of anybody's guess, I just sort of best fit the last few years going out, but you can see that in this projection you know wind beats wind correlated pricing and solar beats solar correlated pricing with one year about even, right?
So you might say, well how do I know any of this holds, even the futures part can change, changes every few seconds based on trades, right?
Markets move, and the answer is we don't know, and if you did know I think there is an outstanding economic opportunity for you to apply that knowledge to earn a great deal of wealth for yourself.
But just for a little bit of perspective, here's a solar chart and it shrunk down because I'm showing two other projections.
The yellow is from an esteemed third party consultancy where they did solar weighted ERCOT futures pricing and you can see it's way above what my futures projection indicates, and this one actually came from ERCOT and its long term assessment is kind of base case without carbon pricing from – they release it every two years, this was their last release, I think it was like a year and a half ago, and you can see both these prices absolutely dwarf what I indicated on futures which is still a quite nice deal for solar, it beats futures, it beats the market.
But here's the problem.
Before I go further, if you want to just buy for 3, 4, 5, 6, 8, 9 years, solar and wind, they're gonna sell it to you at the market price, right?
Which means no savings.
They'll basically equal the market, but you can buy market power or brown power or whatever you want to call the market as a whole, they'll just choose to sell it at market if they're gonna sell for shorter term.
The only way you get this price or this price which is about $27 a megawatt hour for solar delivered at the north load zone is if you buy long term.
Then you get it at cost, you push the project developer all the way down to the lowest return on capital that they're willing to accept, which is about 5.5% weighted average cost to capital, ballpark, for wind and solar.
You have to buy long term, otherwise you're just gonna get market and you're not gonna get savings, you'll get whatever the market is at that time.
It may be fixed so in the end you could save money or lose money, but it'll just equal market.
OK, so always folks come and say, oh we don't want to take a long term position on the market, it could go up, it could go down.
Absolutely you know, we're not prognosticators here, I just show you what some folks are producing from computer models and what a liquid traded market is producing, right, which is made up of thousands of people's computer models and they put money to work based on what their model is telling them, if they could buy or sell and make money.
But there's a lot of things that can move these prices around.
Grid congestion, it's very bad right now, it was almost non-existent two years ago in ERCOT and now it's horrific, OK.
Last year was 9,400% worse than the year before and this year I think is at least twice as bad as last year, OK, so congestion could get crazy even though natural gas prices didn't change, population stays the same, economic activity stays the same, that's a major variable.
Economic growth obviously drives more load, higher population growth, more homes, more businesses.
This is a big one I think particularly for Texas, LNG exporting not only for the load for the LNG facilities, we've got a big one coming into freeport, very large load, but also natural gas industry folks would love to connect our domestic natural gas market with the world's natural gas price.
Right now it's $7, $8 in Europe, $9, $10 in japan, and you know $2.50, $3 bucks here, and they love to you know buy at $3 and sell at $9, who wouldn't?
So there's a lot of money going to LNG export and it doesn't take a tremendous amount of our domestic natural gas production to connect those markets, you get to 10 – 15% you're probably there, we're in the low single digits right now but people are racing ahead to make that happen.
Natural gas determines the price of the power market about 80% of the time, what's called a marginal price, and so those – natural gas, because of the large amount of natural gas generators in our market which include here in ERCOT, they're very tightly connected.
Lower energy efficiency, higher energy efficiency obviously, there's a lot of energy efficiency, price goes down, you know wind and solar drive the price down because they bit into the market, it basically they're marginal costs which is $0 for solar and actually about -$30 for wind because they get a production tax credit, so they drive the market price down which we've seen in germany.
Higher carbon, low carbon, I think that's pretty straightforward, obviously all of our natural gas and coal generators would have to sell at a higher price to pay for their carbon tax or whatever, and then higher power supply scarcity, lower power supply scarcity, and this is the major forcing function in the near term in those futures markets.
You know I was asked a couple days ago, what made it decrease, and really it's sort of more the question is why isn't it going like that, why is it – what is with this?
The answer is scarcity, OK.
We've had a bunch of coal plants close, it's been uneconomic to build new natural gas or coal plants or nuclear plants so we're at a moment where there's only just enough extra generation in the ERCOT grid but 9.5% of extra capacity versus our highest expected amount of generation, and some markets have a thing called generation capacity where you pay power plants just to stick around 'cause of their ability to generate when you need it most.
We don't have that, we have something called scarcity pricing which goes by a bunch of other names but the simplest term is scarcity pricing which basically is if you're generating when the market gets real tight, when there's only maybe 2,000 or 3,000 megawatts of room left or we're gonna have blackouts, you get paid an extra price, OK, and that extra price can be quite large.
So there's quite a bit of that going on right now, don't be scared, we just had the highest peak ever last Thursday and the lights stayed on and we had about 3,000 cushion, so don't you know go running out of here with your hair on fire, but you know the pricing mechanism is triggering and it's built into the futures market and I think it's down here because they assume with all the new solar coming on gobbling up the scarcity, scarcity won't be that big a part of the pricing story going forward.
OK, so just one more indicator of solar's current economic viability, in the long term system assessment from the ERCOT staff, the grid operator has a number of staff in Taylor and in Austin, Texas, they did their own projections out to 2031 and they found in six of the eight scenarios using some of those you know down arrows, up arrows that I just showed before, six of the eight projections, 100% of new generation coming into ERCOT would be solar, not 85%, not 92%, 100% in six of eight scenarios, and obviously they're already wrong 'cause I just showed you the wind that was coming on, right?
So, wind's doing quite a bit better than this projection which is a year and a half old at point of publication and probably two years old from point of analysis.
But they forecast a ton of solar coming on and these are all immense numbers, and we're at 1,000 now and I think the smallest bar here is, what?
13,000-14,000, smallest bar?
And there are two other scenarios when it won't be 100% solar, just maybe 70 – 80%, these are still bigger amounts of solar.
So, I mean our grid operators saying, solar is the most economic power source, new solar, pretty much period.
Folks like us in the solar industry, when we saw this come out, we're like oh, that's too good.
We don't want a bullseye on us saying we're that good, we want to be competitive, but weird things might happen if we think we're just gonna absolutely dominate the market, but that's what ERCOT said.
OK, so you heard a lot about corporations doing deals, obviously some campuses have done large scale utility scale deals, more corporate but I think there's been a bit of a catch up from the university space.
These are not REC deals, OK, rec deals have been going on for 15 years, that's pure premium.
In the past you want to do a REC deal in pencil, I mean more power to you, you're doing a sustainability action.
You know these deals are happening not because all these entities have sustainability goals, nearly all do, not all, it's because the economics work, right?
I think these charts would be more like this with your Microsoft, Facebook, Apple, if the economics didn't strongly prevail.
We would see a chart something like that every year, and these are in gigawatts, OK, so we're at 12 gigawatts, 12,000 megawatts of deals so this is basically putting to play $20 billion of wind and solar investment for contracts that are probably worth $50 billion over their lifetime, so these are all b's with an extra zero, so we're talking a lot of deal flow here, and you could see that you know you might say oh, amazon, google, these guys have a little extra cash these days, they can take a little bit of a hit.
Well I'm not so sure that's true about the Cisco’s and the Ingersoll Rands and the DSMS and the Aerojet Rocketdynes and the Dow chemicals and the Owen Cornings.
You know there's a lot of folks here that you know aren't running on 30% margin per year in the dot com – what's it called, the GAFAM economy, Google, Apple, Facebook, Amazon, Microsoft?
There's a lot of other folks here that have tighter margins and are more traditional in their economic outlook.
None of these are REC deals, these are all pure play, new build enablement’s of wind or solar, almost all wind up to about here and then it's getting to be about I don't know, 30/70 solar wind.
The largest market for this by far, ERCOT.
OK, talk a little bit about onsite now, those are mostly offsite economics or just the pure energy portion of your bill.
Your bill has other components, some of you may or may not have a distribution portion, all of you will have a transmission portion, sometimes they're blended with the energy portion.
I think if you're — most of you are in primary class so it should not be blended, it should be very clear what you're paying for both.
Onsite solar has a tremendous ability which people are just beginning to fully realize in our market to reduce the transmission portion of your bill where you have the transmission portion called out if you're on a primary class, OK.
So, here's just one example of a recent — so OK, how is transmission billed?
It's billed upon one synthetic hour in the year, the other seven — sorry, 8,759 hours do not matter to the transmission portion of your bill.
It's based upon four 15-minute episodes, it's the highest entire ERCOT peak, not your peak, the entire ERCOT peak, how much you're using at the entire ERCOT peak for that highest 15 minutes in June, July, August and September, the four summer months, coincident peaks, so what is your use at the peak of the system?
4CP is the acronym that they use to describe this charge method, all right?
So here we just had a 4CP episode in the month of July, it occurred between 4:15pm and 4:30pm on Thursday, it also happened to be the all-time record of ERCOT, and here is the cloud cover.
Now this is an anecdote, this is one 4CP moment and there's four every summer, right, but I'm not seeing too many clouds in this triangle area here.
That's the area that determines the main load of the State of Texas which will determine the 4CP moment, right, it's the most amount — it's the load of Texas.
So, you might say, well that's a great anecdote Dan, it also happens to be the highest amount ever used in ERCOT so maybe you're just cherry-picking.
OK, so in the solicitation we ran with Josh and seven rural electric cooperatives we looked at three specific sites going back four years on all four 4CP moments, so it's 16 4CP moments times three different sites.
I don't know, somebody who's good at math tell me the number.
But the capacity factor, and they were kinda like you know here, here and here, we tried to spread them out based upon our clientele.
The capacity factor for all sites was between 95% and 100%, OK, so basically solar's going full boar the vast majority of the time during the moments that determine the transmission portion of your bill, so it obliterates 4CP.
OK, so why is that important?
Is transmission really a big issue?
It's by far the fastest escalating portion of your bill, by far.
Energy goes up and down, transmission's pretty much a one-way train, and it's not just an ERCOT thing, it's a national thing and there's structural reasons why it's not gonna slow down, I'm happy to talk to y'all on the details of why, but it's not like hey, we built enough and now we can stop.
Unfortunately, the utility business model and the public utility commission regulations, they're structured in such a way that it ain't gonna stop, OK.
These companies have investors, they need to have higher returns every year, the way they get returns is by putting capital expenses to work, everything, and the way they get return is on those capital expenses and the one thing that they can justify these days or at least the last decade in a large amount is transmission and distribution, it's been much harder to justify generation, OK.
So here are the details for ERCOT in terms of total billion dollars collected, you see it's about 10% per year, the rate has gone from about $20 per kilowatt year, those units are weird, we can talk about how those units work, to now it's about $54 I think over 11 years, so it's more than – more than 150% increase in 11 years, OK, and that's pretty much the story everywhere in the United States.
People like to talk about CREZ lines here in Texas, it sure did cause a two-year big jump, but you strip the CREZ cost increases out, it's still 6% per year increases, you know triple inflation every year, it's giant.
So, you know here you can see what this cost of service would be based upon three different escalation rates with utilities in a public model we just distributed which all the utilities agreed as a reasonable base case.
We used 6%, I can tell you some utilities when they present to their board based on expectations, they use 9%.
OK, so surely people are doing deals based upon this transmission offset if those economics are true, right, and indeed they are.
The last two years — it really goes back about four but two years has really caught wildfire – there have been about 100 megawatts of particularly municipal and cooperative utilities doing these small deals, below one megawatt, that can offset both energy and transmission and in many cases the generation capacity charges that they're in agreement on with their GNT co-op.
It's kinda complicated, we can get the details for those in regulated areas that it's relevant.
But it saves them a ton of money and it's usually equal or more about the transmission savings than it is the energy, and if you're a primary class at a campus you have basically the same economic proposition.
You know these guys run the math all day long, they're utilities, so they might be two, three years ahead of y'all on this proposition and that's to be expected, right, it's their job to do this all day long and they have lots of cheaper land, these are rural electric cooperatives so they also have that advantage.
OK, so you know you can do this on campus and you might say well, rooftop on campus, it might be a little awkward.
There are some challenges to it for sure but if you think that there isn't anybody who's gone big yet on onsite solar in a non-extremely liberal subsidized state, well take a look at ASU.
I mean I think we missed a few roofs, I think that carport is solar.
I've only got 30 arrows up here but I can still — that's solar right there, so is that and that too.
OK, so comparing offsite and onsite, about to wrap up here if you're tired of economic story.
But a lot of folks see the cheap, cheap, cheap prices particularly on solar nowadays for offsite solar and they think that must be the best deal possible, and indeed it's some wonderfully low prices.
I have clients who do utility scale deals and I'm certainly very proud of the deals they're executing and it is wonderfully low prices for the State of Texas and their customers.
It's about 65% below what I would consider to be on campus ground mounted, you know if 10 acres or more of $1 per year lease, basically freely enabled land, maybe 100% or 110% cheaper than on campus rooftop depending on your roof type, and these are all Dallas Fort Worth prices, OK.
This isn't just like one little shed, this is kinda going you know at least medium big, megawatt or more on rooftop with at least a tenth of a megawatt or more per roof, OK, and pretty cheap roofs, like flat roof, easy for people to work on, not too expensive.
OK, but value is much closer, OK.
You really have to run the analysis and see, what is the best deal for you, because then it becomes more specific to the opportunity.
You know utility scale might still generally be on campus rooftop solar but it could be close, and if you really have reasonable land that you make available ten acres or more, that tends to jump out as the best deal but there are usually scale limitations to your overall load.
But this might be low hanging fruit, and this might be the real solution for volume.
But they're not the same and this is probably the biggest savings per unit of generation or per solar panel for solar.
OK, and the green is a transmission savings I mentioned earlier, kind of on a net present value, it's not year one but assuming an escalation rate.
[speaker a]: all right, we're gonna move on and we've just had really a lot of information about the economics of these solutions.
We're gonna switch gears and talk more about contracting, how do you actually purchase the stuff, OK.
So, we want to introduce to you today three models, OK, and you'll have to bear with us here because it is a little bit complicated, but I think you guys can get this and then we've got some deep dives after this presentation to go a little bit deeper.
So, the first model is really what's called a virtual power purchase agreement, despite the name it's 100% additional renewables that you're supporting to go into the grid, OK, so it meets sustainability goals.
The word virtual refers to the fact that it's not delivered power, it doesn't meet your load, OK, it's just a financial arrangement, so financial structure that enables renewables to come onto the grid and for you to actually save cost, but it doesn't – it's not delivered to your load zone, to the north load zone as dan discussed.
So really our assessment of this model, and we'll go into it a little deeper in later slides, it probably is the best pricing but the trade-off for best pricing is that it's a little bit more complicated.
You have a variable cost benefit when the – based on what the market is doing that month, you might be paying money to the real energy owner or you might be receiving money as revenue based on that particular month or year, and but on average we think that's a net positive revenue and we'll go into more of that.
It can also be more complicated to track savings 'cause you continue to have a payment to your retail electricity provider whether that's a competitive retail provider or a monopoly / regulated retail provider, so you have to kind of deal with both a renewable energy settlement as well as your historical retail provider settlement.
Contract option number two is what's called a sleeve through PPA, so power purchase agreement where the competitive or monopoly retail provider delivers that power for you, so it's not virtual, they what's called sleeve it through and there's different terms for this, physical PPA but really sleeve through PPA is the best term, and the assessment here is that you've got simplified billing because now it's just one entity that's billing you, not two, and the value is a bit more predictable as well because what they do is they can fix the price for you so you don't have that wavering cost revenue thing going on.
Number three is comprehensive energy services provider, this is really the result of an RFI we did earlier this year, a request for information from competitive retail providers.
Could they actually sign the PPA on customers' behalf to help simplify this whole thing, and the answer was a resounding yes.
These people are happy to do that and basically, they sign the PPA on your behalf and then on the backside of that they do an energy contract with you, it's just a typical energy contract and then they add on a master services agreement to make all this happen.
Basically, what this results in is simplified contracting, simplified billing, you're just dealing with one entity.
On the flip side you are gonna have a little bit of a higher price, but we think you'll still be able to get savings so that's another thing to consider.
So, let's now go into a little bit more detail in how these three things work.
First off, the virtual PPA.
So this is from the Business Renewables Center, as I said earlier the power customer is paying a renewable energy project owner a fixed price as part of a PPA, you get those returns, what you might expect is you get energy return as well but no, the virtual power purchase agreement as I said earlier, the energy goes to the grid and that gets sold into the grid and what you get is revenue, OK, and so it's really a financial arrangement where you just pay the project owner and you receive revenue as part of it.
So, it says best pricing, it's a little bit more complicated to track savings so this is – think of yourself as the center icon, you're the institution and you've got some of you, if you have campuses in competitive retail areas as well as monopoly retail areas, you might have two separate billings.
You're essentially adding a second or third billing with that offsite PPA and you've gotta deal with the varying cost benefit as I discussed earlier, could be a cost, could be a revenue that month.
You also have significant legal work to do, a PPA is a 50 to 100-page document so you're gonna need to bring in your legal team, there's a significant lift there to review all those terms and conditions, make sure everyone's OK with that.
How do you save money with a virtual power purchase agreement?
Let's go back to dan's slides here.
So, on the left side you've got the wind and on right the solar.
Basically, you're earning revenue, OK?
On average if we just look at these curves that dan presented earlier, on average if they're true you're earning revenue, OK?
That's how this works, and so you're paying, you continue to pay for your power, 100% of your power, and that's your red line, and this is apples to apples comparison to the wind that's getting generated or the solar that's getting generated.
So, you're paying for that power and that's more expensive but at the end of the day you get a price as follows.
So, let's say that you're paying $25 a megawatt hour for that wind profile to your retail provider in order to get energy for your facilities.
You're saving or you're earning $3 a megawatt hour –
[speaker b]: The developer will send you a check probably monthly but here we're showing annually for $3 for every megawatt hour that that project generated.
[speaker a]: So, what's your actual cost of power?
Let's say next year it goes to $24 a megawatt hour 'cause the market moves around.
What's your year two revenue?
Oh, it goes down as well because the market went down.
Now you're just getting $2 a megawatt hour, what's your net price?
Year three goes down to $23, your revenue goes down to $1, what's your price?
Go into year eight, $28 a megawatt hour, you save or you earn revenue to $6 a megawatt hour, right, $22.
So, you get a nice flat line, you're basically hedged against your retail price fluctuations, OK.
All right, that's the virtual power purchase agreement.
Sleeve through PPA.
All right, this is where the retail provider accepts that variability in the market and gives you a fixed price, so this is great, one bill, I don't have to like do the internal accounting of the revenues and the cost.
Some state agencies have issues with revenue, receiving revenue, so this might be a good solution for them.
You still have the legal work of signing the PPA but essentially you ask a competitive or monopoly retail provider to sleeve this PPA through to you, deliver the power, put it all on the same bill.
What happens then?
So instead of earning revenue, you no longer earn revenue, you're getting savings.
Basically, your revenue that you were earning just reduces the cost of your power down to that same line of $22 a megawatt hour, so it's essentially the same economics, it's just a different way of looking at it.
[speaker b]: might be a little bit higher 'cause now you're paying the retail electric provider to ...
[speaker a]: correct, 'cause they're taking on some of the variable ...
[speaker b]: Some administrative and ...
[speaker a]: That's right.
Comprehensive energy services provider.
So, going one step further, they're not only sleeving the PPA through for you, they're actually just signing the PPA, they're gonna do it all for you, full service, right.
All you have to do is sign an energy contract and a master services agreement which has significant but less significant legal work than a power purchase agreement.
The added benefits of this approach, you know some of you might have some delayed maintenance in your building, some of you might want to do demand response, some of you might want to do other things.
There are other services that they can do on some solar, demand response, they'll do financing for different things, backup power if you're trying to do resiliency.
So, these people are — these companies are some of the biggest companies in the world, and again this is really a solution for the competitive retail space.
We've talked to each of these companies, sample projects, they're basically bundling these services together, making it as simple as possible for you, so if you're into simplicity this would be something to consider.
[speaker c]: Which military base in Texas was that, do you know?
[speaker a]: Fort Hood.
[speaker d]: Can I address a couple things?
I'm always the big picture guy.
One of the things that if we haven't said this, you should not have to pay a dime to build anything anywhere.
Right now there are financiers, developers that are clawing for your business, for your good credit rating, because our earth is changing so quickly, 20 years from now these power purchase agreements you have to get about 15 years in for them to really start moneying out, well 15, 20 year deals, nobody knows if many corporations are gonna be in business 20 years from now.
They know the State of Texas is gonna be in business, these higher institutions of higher education, you all are gonna be around and you're gonna be in business and you've got a great credit rating and that's what they're all looking for is a 15- or 20-year credit rating.
So, the other thing is they have outside investors that are gonna come in and pay the cost to build these things.
Because you all are non-taxable you can't take advantage of that 30% federal tax credit, that's what they're all trying to get.
So, they get that federal tax credit upfront, they get to depreciate the cost of these systems up front and it would take a long time and a lot of creativity to be able to make up for that 30% difference of them being able to build this for you more cheaply.
So, don't worry about the cost, we're gonna come up with the money to do it.
We've got plenty of people that are pounding our doors down because they know the load that we're managing.
[speaker b]: All right, now let's talk about closing a deal, and we're gonna use our friends the LEGO people.
All right, so current practice if you're in a competitive retail place is to get a competitive retail contract, right?
And so typically an energy manager leaves that transaction, you might have a procurement group that supports, OK?
When you're talking about these longer-term deals that include renewables it becomes a little bit more complicated internally.
You've got finance involved now, you've got facilities if you're considering doing solar on site and obviously sustainability could very well be the champion in this case.
So, it's — there's more people involved, I think you all are aware of this having been advocating this at your own institutions, it's a little bit more challenging, and we can't forget obviously the legal team which can shut a deal down from day one if you're not careful.
Typically, what we like to do is build a really strong economic case of all the benefits, all the values, and then let legal look at it 'cause all they're gonna do is say no because that's their job.
They're trying to reduce risk and they're not gonna actually look at doing something new because typically what they'll say is, well there's nothing here that says I can do this, so I can't allow you to do this.
But if you build a really strong case and then bring it to them then everyone's saying, well you gotta figure out a way to do this, there's nothing saying you can't do it, OK?
So that's legal.
Thinking about the timeline here, this is not something that can happen tomorrow or the next day, this takes months, this is a many months process.
This is sort of the timeline that you could expect from us where there are kind of two sets of activities, one that you have to accomplish, others that we will take on.
There's a lot of work that we do on your behalf but we can't do everything on your behalf unfortunately.
So, evaluating opportunities, right, that's kind of in the stage that we're in right now, we're understanding what are some of the opportunities, we're starting to think about the economics.
Next comes actually quantifying the specific opportunities for your campuses or your institutions, prioritizing them and deciding which ones you want to move forward with, and then you go out and run an RFP or we do on your behalf and get firm bids on that.
It's always a non-binding RFP so you don't have to move forward, this is just a tool to get firm bids that you can make a decision about whether you want to move forward or not, and that's where you start to involve legal more in detail as well.
Then you select the winner, execute the contract.
So, this will take several months, and again these slides are available, we're recording the presentation, so all right.
Concluding messages from this morning.
Number one, SECO, the State Energy Conservation Office has created this program, it's this higher education and other state agencies and Texas Energy Aggregation is operating the program.
Renewable energy is the lowest cost power in Texas, you have to procure it long term though, has to be 15 years or more.
You don't have to wait for your retail power contract to expire because you can do more financial contracting before then.
[speaker d]: Years ahead actually, many years ahead.
[speaker b]: Renewable energy provides a hedge against future prices, we've seen that, I think we all understand that to a certain extent.
Savings are not guaranteed, we're not telling you that this is totally guaranteed but deals are done based on high probability and there's a lot of analysis that can be done to demonstrate that.
And then finally, this is a multi month effort, right, so if you're trying to get something done next year you probably need to start pretty soon.
[speaker d]: Let me just one closing comment is that these deals are complicated to get done and this is a new way to buy power to be able to self-generate.
Your CFOs, your financial people a lot of times, they speak a very different language than you do so it's our job to help communicate with those people and help give you the tools, but I've been working for the last 16 years in a very red state.
We start talking about renewables, people's eyes glaze over.
Money though is the greenest thing people understand, if you start with the money part, it's easy to say no, we're not interested, but if you show them we can save $30 million over the next ten years by doing this, now you've quantified the cost of doing nothing, and if we start with that, if somebody says no, I'm not interested in saving that money, I'd rather give it to the utility company, we can demonstrate they're not being a good steward of the money that they're working with.
So, if we start with that, they say OK, let's prove it now, so that's what we do, we got the people to do it, we're talking a lot of generalities.
Every single institution, you all have different needs, different facilities, different locations, and we need specifics from you getting data on your meters, your usage.
Once we get all those numbers we can come back with real actionable numbers and that's a really good place for us to start, to open discussions at your institutions because we realize it's gonna be a lot of people involved that all have to come together and speak those different languages, and we'd love to help you do that.