ORTECH Comments on Long-Term Energy Plan

ORTECH Comments on Long-Term Energy Plan

ORTECH Consulting Inc. (ORTECH), renewable energy, energy storage, greenhouse gas (GHG) and air emissions consulting, auditing and testing experts, would like to thank the Ministry for the opportunity to provide our view on the Long-Term Energy Plan (LTEP) and for providing substantive supporting documentation such as the Ontario Planning Outlook (OPO) to allow us to formulate a meaningful response.

ORTECH commend the government as well as their agencies and their partners in industry in pursuing the goal of a supply of energy that is sustainable both environmentally and economically.  Energy is fundamental to all forms of activity today and many take for granted its reliability and convenience of access.  Energy is the fuel which drives not only our economic activities but also much of what we do in our everyday lives.  A LTEP in today’s changing world must be broad and far reaching, and touch on many different areas.

The breadth of the LTEP is important for Ontario to continue driving down GHG emissions.  As clearly identified in the Fuels Technical Report (FTR), the GHG emissions associated with electricity have been falling for some time and are now a very small contributor to Ontario’s total GHG emissions.  Electrification of other energy uses such as heating and transportation will allow the use of decarbonized electricity to displace more GHG in these other energy use categories. This represents a new approach to energy planning as previous LTEPs have had a very dominant focus on electricity. Such an approach will require coordinated action from multiple Ministries and agencies.

ORTECH comments on the LTEP are structured to follow the Discussion Guide and are provided in the order of the subject areas presented in that document.

Distribution and Grid Modernization

The global trend towards behind-the-meter generation will have substantial impacts on the utility sector.  With the continually falling cost of photovoltaic solar and the steadily increasing retail cost of electricity, the push to self-generation is constantly increasing.  ORTECH is encouraged to see that the Ministry is embracing these changes with proposed updates to the net metering regulation such as Single Entity Virtual Net Metering, removal of the 500 kW cap, and explicitly acknowledging the role of energy storage in net metering type applications.

One concern with distributed generation is the phenomenon referred to as the “Utility Death Spiral”.  As rooftop solar reaches grid parity customers begin to switch towards self-generation.  This reduces the amount of energy delivered by the local distribution company (LDC) which is at least partially compensated on a per kWh delivered basis. Rates are often increased to make up for lost revenue, however higher rates only serve to further incentivize self-generation, resulting in a feedback loop or Utility Death Spiral.

One possible way to avoid the Utility Death Spiral is by having the LDCs play a larger role in distributed generation.  LDC’s understand their customers and dealing with distributed electrical infrastructure is their core business.  They are ideally positioned to facilitate further uptake of distributed generation, increase the penetration rates of clean energy, and alleviate the need to bring power from distant centralized generators to the load centres where it is needed. Powerstream’s award winning Power House pilot program is an example of this and shows how utility-customer partnerships may work in the future.

Microgrids

Microgrid solutions are not only for remote communities.  Microgrids can operate in parallel with the grid, providing the advantages of resiliency and robust infrastructure.  Combining microgrids with district energy or community energy resources can create strong nodes where energy can be supplied even in extreme circumstances. Many applications demand very high reliability of energy supply resulting in mission critical equipment with high costs for low utilization.  A microgrid approach to these applications can enable those systems to provide other benefits allowing for better use of existing equipment.

Microgrids can also be used to provide alternate benefits such as improved power quality, load shifting and peak shaving, amongst others.  Using microgrids in this way can provide more reliability than traditional fossil fired back-up generators as microgrid systems will essentially be continuously tested.

Energy Storage

Achieving Balance stated that the government was to include energy storage technologies in its procurement process starting with 50 MW and assessing engagement on an ongoing basis.  This was to include: “commissioning an independent study to establish the value of energy storage’s many applications throughout the system; examining the opportunities for net metering and conservation policies to support energy storage; and providing opportunities for storage to be included in large renewable procurements.”

At the end of 2016, it appears that energy storage procurement started and ended with 50 MW.  The Large Renewable Procurement (LRP) was to have “mechanisms to encourage innovative technologies and approaches, including considering proposals that integrate energy storage with renewable energy generation for upcoming procurement cycles”.  While an on-peak/off-peak pricing mechanism was included in LRP 1, it did little to encourage energy storage integration.  The benefit and capability of energy storage to smooth variable generation as well as provide additional reliability was not valued by the LRP 1 RFP.  The sole mechanism for incorporating energy storage was for power shifting.  However, this one application discounted the benefits provided by energy storage.  As an explanation, the LRP 1 RFP determined the “effective capacity value” of various generation technologies which represented “the amount of capacity that can be counted on at the time of system peak”.  Adding energy storage to a variable generator for the purposes of power shifting would significantly increase this value, but the RFP scoring rubric did not allocate any benefit for this.

ORTECH would like to commend the Ministry on moving forward with the first 50 MW of procurement.  This program put Ontario at the forefront of the emerging industry of grid scale energy storage and marked the province as a global leader in the space.  However, a lack of additional support for energy storage will pose the risk of being surpassed by other jurisdictions.

Innovation and Economic Growth

Start-stop procurements can be quite disruptive to industry.  Gearing up for major RFPs followed by long periods of no activity hinders private sector planning and exacerbates the boom-bust cycle.  The Feed in Tariff (FIT) program is a good example of how programs can operate more smoothly with similar sized procurements that are repeated over short time frames. However, even with FIT procurement, program windows are announced one at a time resulting in considerable uncertainty as to future market opportunities.  Smaller procurements that are repeated more frequently will smooth out the roller-coaster type activity level in the Ontario industry, and greater certainty in future procurements and activity will help the industry develop the right level of capabilities to address needs.

Climate change is a global concern.  Clear and effective long term programs will allow Ontario industry to refine the expertise to address these challenges providing a basis to assist other jurisdictions reduce their environmental footprint, and to benefit from these export opportunities.  However, a healthy domestic market that supports renewable energy and energy storage industries is required.

It is generally acknowledged that environmental permitting is slowing down the development of projects.  This year’s Burden Reduction Act introduces the possibility of streamlining the permitting process.  However, it’s not yet clear if this will have appreciable benefit for energy projects. 

Clean Energy Supply

The OPO identified potential scenarios where electrical demand is increased.  These are related to electrification and a shift away from fossil fuel usage in transportation and heating.  It is important that additional electricity generated to meet these needs is clean energy otherwise no GHG benefit would realized from electrification.  For example, if higher electrical demand is mostly met by natural gas fired generators, the benefit of displacing natural gas fired heating with electrical heating is diminished.

Since the Green Energy and Economy Act of 2009 came into effect, Ontario has aggressively pursued renewable energy development resulting in substantial amounts of renewable generation capacity being installed. This domestic demand for wind, solar and other forms of renewable generation allowed a strong industry to develop in the province. With advances in generating technologies and a strong local industry that is ready to deliver projects, Ontario is in a position to build wind and solar projects at competitive rates.

The LRP 1 (in 2015) procured wind energy for a capacity weighted average of $86 per MWh and solar for $157 per MWh.  These rates are competitive with other generation technologies, with wind being one of the lowest cost forms of generation in the province and solar rapidly closing the gap.  This is supported by the OPO Data Tables which list current technology characteristics and show the range of levelized unit costs of electricity for wind and solar to be cost competitive with all other forms of generation. It should also consider that wind and solar are still experiencing significant cost declines as the technology matures and the industry increases in scale. While Conservation First remains the strongest economic performer in the province, Ontario’s supply of clean energy will be most efficiently procured from wind and solar.

Summary

ORTECH recognizes the importance of the LTEP to the Province of Ontario and thanks the Ministry for the opportunity to provide comments.  ORTECH comments are summarized in pint form below:

• Have the LDCs play a larger role in distributed generation
• Combine microgrids with district energy or community energy resources
• Assess the full value and expand the support for energy storage to ensure Ontario remains at the forefront of this evolving technology
• Expand clear and consistent procurement programs (e.g. FIT) to ensure market certainty which will lead to the development of the right level of capabilities to address needs
• Further streamline the environmental permitting process
• Wind and solar are becoming increasingly more cost competitive and thus represent an opportunity for expanded development while addressing further reductions GHG emissions from the overall energy supply system  
  

A strong domestic clean energy industry will allow for GHG reductions beyond our borders through clean energy trade.  Ontario is already a net exporter of electricity and the jurisdictions where our clean electricity is being sold include regions that still rely heavily on coal-fired power plants. While the GHG emissions associated with the electricity used in province is already very low, additional low carbon electricity still has the potential to reduce GHG emissions on a global scale.

Is Net Metering with Solar PV the RIGHT choice for your company in Ontario?

Written by Michael Tingle and Ka-Ming Lin

The answer depends on your view of the trend in future electricity pricing.  If you feel the price of electricity is going to drop or stay the same, this may not be for you.  However, if the price of electricity for Commercial and Industrial (“C&I”) users will continue to rise in the next 5-15 years, net metering with solar photovoltaic (PV) may be of interest.

View fullsize

Ontario Electricity Prices vs Cost of Solar PV

This graphic depicts the historic, and forecasted price of electricity versus the install price for a solar PV facility. Although there are many variables, this serves as a reasonable guide.

Other assumptions considered in the preparation of this graphic are:

Price of solar based on a typical < 100 kW Feed-in-Tarrif (FIT) rooftop facility,
Price of solar (forecast) is based on a 4% annual reduction in costs,
Electricity prices are the time of use (TOU) rates based on 50% on-peak, 30% mid-peak and 20% off-peak plus typical local distribution company (LDC) delivery charges,
The delivery charge benefit would only apply to load displaced, you do not get delivery charges back on energy returned to the system under net metering, and
The electricity price (forecast) is based on the Bank of Canada’s target 2% rate of inflation.

What is Net Metering with Solar PV?  Net metering allows an electricity user to install a solar PV facility onsite (or close to it) to generate electricity which can be used with any access delivered to the grid with compensation in the form of a credit on a future electricity bill.   Net metering has been an option since 2015 and is governed under an Ontario Regulation (O. Reg. 541/05: Net Metering).  However, only more recently has the price of electricity and the cost of installing a solar PV facility made net metering with solar PV more worthy of consideration.

As shown in the graphic above, even if you were to install the solar PV facility today, the price of solar exceeds current electricity prices.  However, looking forward not too far in the future, price parity and beyond are possible. Some key business drivers you should consider when evaluating whether Net Metering with solar PV makes sense now (2017), instead of waiting until 2020 are described below.

1. Cost Certainty of Electricity: Electricity prices are expected to rise in the short and long term.  When you factor in all the components of your electricity bill, the type of power user you are (time of use, class A/B) and global adjustment, you might want to lock in the price of electricity in the future. A Net Metering solution with solar PV can help you do that.
    
2. Time Sensitivity:  Your Local Distribution Company (“LDC”) has a limit on the percentage of net metering solutions with PV they can manage on their distribution network.  Once they hit that level, you will not be able to participate in the net metering program although you could still be a “Behind the Meter” generator.  When it comes to net metering “the early bird has the best chance of getting the worm”. 
    
3. Speed to Operation:  This solution has advantages over other renewable energy procurement processes as there is no environmental permitting unless you decide to go for a ground mount solar PV facility for which there is a simplified permitting process. Securing the connection with the LDC is likely to be the main hurdle.
    
4. Greenhouse Gas (GHG) Emissions: If you generate emissions, as a course of operating your company or plant, net metering with solar PV will allow you to reduce or offset your emissions. This solution will enable you to retain your emission reduction credits. (currently emitters above 25MT only)
    
5. Saving Money:  The benefit of net metering is that when you are not using electricity at your plant, you are allowed to inject power back into the grid and receive a credit on your next bill. Currently, you can bank this credit for 11 months which can help balance cash flow.
    
6. Reputation: In addition to future cost saving, there are marketing and promotional advantages to be realized. Maybe your owners, board of directors or shareholders have given you a mandate to “GO GREEN”.  Generating your own electricity using renewable energy such as solar PV fits the bill. 

Whats Next?  Making a decision on net metering with solar PV requires a level of analysis. You will need to understand how you pay for electricity and review monthly bills (1 or more years of history) to determine your peak demand and load profile. This in combination with an assessment of which of the above drivers are most important to you should assist in the decision making process.  The solar industry

in Ontario is flush with capable and knowledge firms and individuals, reach out to them for assistance and advice to determine whether net metering with solar PV may be right for you now.

For more information on ORTECH's Net Metering with Solar PV, click here.

How to get your Renewable Energy Project Debt Financed? Simple answer: Documentation!

You have received your Power Purchase Agreement, Feed-in Tariff contract offer or RFP Win; now you are thinking “I need to get my project debt financed!”  

Enclosed is a list of Best Practices to make this process as easy as possible.  The example below is based on either a ground mount or rooftop solar Facility that is not constructed.   However, this process can be used for constructed projects or Wind Power, Waterpower, Renewable Natural Gas or Energy Storage projects with some modifications.

Also note, there will be regional requirements that are not listed in this guide, so check with your debt provider for any additional material that is required.

Getting Started:

Tip #1: Agreeing to use the debt providers IE can simplify the process

Debt providers will have their preferred technical due diligence service providers often referred to as Independent Engineer (I.E.). Some developers may indicate that they have their own favourite .  However, the IE needs to be truly independent.  

Tip #2: Get all your documents in order

The first phase of technical risk management services conducted by the I.E. typically includes the provision of essential documents for review (see below for list). The requested documentation will be dictated by the status of the Facility under consideration (e.g. early development, pre-construction, post-commissioning, etc.). To complete the review efficiently and to minimize scope creep, the I.E. will typically start the review once all documentation is provided.

Tip #3:  Missing documentation is a major red flag and will cost time and money to complete the review.  Do it right the first time.

It is common that the initial batch of documentation provided is not complete.  This means the I.E. will need to review the preliminary batch for completeness only (i.e. not a technical review at this stage) and notify the developer of key documents that are missing if any. It is important to note that initiating the formal technical review while documentation is missing or deemed insufficient will ultimately be reflected in the draft I.E. report.  

Tip #4: Save costs by providing all the documentation up front, at one time.

Following the document review, the I.E. will issue a draft examination of documents report providing analysis and commentary on the reasonableness, accuracy and completeness of the documentation and identify the main risk factors and possible impact, if any, on the ability of the Facility to generate the expected level of energy/revenue.  That last part is key to any debt provider. The review must indicate an ability to service the debt.  

Tip #5:  Use up-to-date documentation because the site visit will end badly if you don’t!

Following document review, a site visit should be performed. The site visit will involve physical inspection of critical components for consistency with the provided documentation and confirmation of overall Facility design and compliance with the major Contract parameters including:

• facility type (i.e. rooftop or non-rooftop solar) and physical location,
• nameplate capacity including approval of DC overbuild and record of inverter production, if visibly accessible,
• main equipment components (panel, inverter and racking suppliers),
• connection point location, and
• review of power production or data log information, if available, for the purpose of performing a high-level check of the Facility’s ability to achieve maximum capacity.

What Documentation do you need to prepare?   

Essential documentation that will be reviewed for accuracy, completeness and technical suitability as applicable and available before the site visit, may include the following:

Previous due diligence report, if applicable.

• This can save time and provide the debt provider with a sense of comfort if another I.E. previously reviewed the Facility.  If you have a previous report available, provide it.

Power Purchase Agreement / Feed-in Tariff (“FIT”) documentation: Includes: contract, contract assignment and term buyback documentation, if applicable.

• This provides important confirmation that the Facility is “real” and viable.

Key project design documentation:  Includes: as-built, signed/stamped electrical single line diagrams (“SLD”), main equipment specifications (panels, inverters, racking) including capacity, efficiency, warranty, the status of warranty assignment (if applicable) and facility layout drawings.  

• The design documentation is important and should meet industry standards. This documentation will be compared with observations made during the site visit, if there are differences, explanations will be required and documented.

EPC warranty and commissioning report: Includes: Warranty contracts and reports from the EPC signing off of the project including performance testing reports.

• Understanding warranty is important from a debt provider hold back point of view, and the commissioning report will provide valuable information to the I.E. as to the ability of the Facility to perform over time.

Grid Connection documentation:  Includes: A metering plan (if applicable), LDC connection cost agreement and status of assignment, if applicable.

• Jurisdictions will not allow a Facility to connect to the grid without following a process. This documentation will help to mitigate risk in the eyes of the debt provider f that the distribution company has signed off on the Facility.

Environmental permitting and documentation: Includes: Permitting approval documents from the local government agency.

• Environmental permitting is important. Facilities cannot begin construction until the required permits or approvals are in place. The debt provider is also interested in the conditions of the permits and whether the ongoing costs to meet these conditions are adequately considered when assessing the ability of the Facility to service the debt.

Land status documentation: Includes: confirmation that a lease agreement is in place for suitable duration, building permit or Certificate of Completion

• The debt provider wants to understand any risks associated with the lease agreements like length of term or that zoning will not allow for buildings that can cause shading to be built.

Energy output information: Includes:  calculations and /or Solar Resource Assessment

• This is very important. If you provide a poor quality resource report that is not consistent with industry standard, the I.E. will likely raise this as a red-flag and/or may require the analysis be redone costing additional time and money.

Financial Model: Includes: breakdown of main capital cost items (panels, inverters, racking, roof upgrades, other) and operating cost items (O&M contract, monitoring, lease, roof repairs, insurance, administration, other) and debt service calculation, if available.

• This will be reviewed in depth so ensure the assumptions and costs can be validated

Constructability assessment documentation:

• The I.E. will look for any issues that might cause unusual challenges during the construction of the Facility (e.g. geotechnical study.

Notice to Proceed (“NTP”) related documents:

• For construction financing, this confirms the Facility has been approval to begin construction.  This is very important document when shopping for debt financing.

Commercial Operation Date (“COD”) related documents:

• This confirms that the project has been signed off. This document can be called a number of things in different markets.

Operation and maintenance (“O&M”) documentation:

• The I.E. will want to understand the plan, cost and approach. The debt provider will want to see how these costs, including key component replacement, are accounted through the entire lifecycle of the Facility.

In Summary, spend the time to get your documentation together.  Provide the I.E. with a complete package of documentation and provide access to your Facility.  You do not want to give the I.E. or the debt provider a reason to question your Facility, if there are issues, work collaboratively with the I.E. to resolve them.