How do you accurately assess and effectively manage the costs of integrating the new kind of variability from renewables like wind and solar into transmission systems that are habituated to the more familiar standards of fossil and nuclear generation?

The California Public Utilities Commission (CPUC) is considering a new formula for such a cost assessment. In his April 5 Rulemaking, Commissioner Mark Ferron described a “least cost, best fit” formula for capturing the full range of costs and benefits of renewables selected to meet the state’s 33 percent renewables by 2020 renewable portfolio standard (RPS).

In it, the Net Market Value (R) of a generation source is defined as:

[Energy Value (E) + Capacity Value (C)] - [Post-Time-of-Delivery Adjusted Power Purchase Agreement Price (P) + Transmission Network Upgrade Costs (T) + Congestion Costs (G) + Integration Costs (I)]

For an Adjusted Net Market Value (A), the CPUC would sum that Net Market Value (R)  and Ancillary Services Value (S).

This is complicated stuff and researchers have not yet defined all of those factors. But it is a more effective way, explained BrightSource Energy Vice President for Government Affairs and Communications Joe Desmond, of evaluating the value a generation source is delivering into the system. “There is a lot of work being done in this area -- studies by NREL, studies by Lawrence Berkeley National Lab, studies by the Cal ISO -- and they’re all converging on the need to look at the full cost of operating a system when we choose and compare among different resources.”

A group of Bingham McCutchen LLP attorneys said the formulation would “dramatically change the way utilities purchase renewable energy in California.” It proposes “to increase substantially the role of transmission planning in renewable procurement,” they said, and, with the addition of ancillary services into the equation, includes a generation source’s “potential positive impact on grid operation.”

The attorneys noted that until now, renewables developers have sited their projects “where the wind blows, the sun shines or geothermal resources are accessible” and have relied on an ‘if you build-it-transmission-will-come paradigm.'” The new value formulation, the attorneys concluded, would promote development of “cost-effective and location-appropriate transmission first.” It could save ratepayers $7.2 billion in the RPS procurement process.

Desmond said the new, comprehensive method of valuation proposed by the CPUC shows the concentrating solar power (CSP) plants with energy storage developed by BrightSource or SolarReserve will be highly valuable to utilities in their pursuit of meeting the RPS without compromising reliability.

“Our customers are utilities. We have to provide them with value. Utilities are obligated to balance reliability, affordability and environmental stewardship,” Desmond explained. “A utility has different ways of meeting the energy requirements for their customers,” he went on, describing how utilities must procure base load units, intermediate units and peaking units “to comply with the required reliability standards.”

Renewables “like wind and PV and to some extent CSP without storage will vary,” Desmond said. Due to this variability, utilities that procure them require balancing generation to maintain reliability. “Output variability impacts grid operations and adds costs, integration costs for ancillary services, spinning reserves, non-spinning reserves, and other types of market products,” Desmond said.

Wind, for instance, may be most productive “during off-peak hours, which is not in alignment with the system’s maximum demand.” During a 2006 California “heat storm,” Desmond noted, “the California ISO reached its all-time maximum demand” and had “about 3,000 megawatts of wind available,” but “the amount of wind delivering electricity into the system when it hit its peak demand was 1 percent.”

What it comes down to, Desmond said, is that “not all megawatt-hours are created equal. The time of delivery, when it shows up on the system, has value. Energy delivered at different times of the day has different values. And on-peak availability carries the highest value.” CSP with storage can deliver power whenever demand is peaking and that, Desmond said, “is worth anywhere from two to three times what it is compared to off-peak.”

Desmond made a convincing case for the value of the BrightSource solar power tower technology that uses high-temperature, high-pressure steam and can incorporate molten salt storage to meet whatever peaking period a local utility may have.

“How much storage makes sense is an economic optimization question,” Desmond said. “What you have to focus on is the total value of the energy being delivered to the market.”

The BrightSource 126-megawatt Ivanpah One project now being built in the Mojave Desert near Las Vegas and on schedule to go into production early next year “has a 32 percent capacity factor,” Desmond said.

Capacity factor, the CPUC formula shows, plays a major role in the value of a generation resource.

“When we add storage, the capacity factor increases,” Desmond said, adding, “If we add between two and six hours of storage, the capacity factor will be above 50 percent.”

But, Desmond said, “You’re not necessarily increasing your cost at the same rate. You’re taking your fixed costs and spreading them out over more hours, which helps drive down cost. Therein lies that economic optimization.”

In an upcoming sequel to this piece, GTM will take a close look at BrightSource Energy’s technology and plans.