A renewable energy project is "deliverable" when the power can physically get to where it’s most needed on the grid. A fully deliverable project means that there are no chokepoints on the grid stopping power from getting to an end point.
Reliability is about the safety of the grid; deliverability is about the versatility of the power provided to the grid.
Obtaining this status is a key factor in realizing optimal value for renewable energy projects in California. In 2013, the California Independent System Operator (CAISO) created a new and much more streamlined system for verifying deliverability. The good news is that the 2014 program will include far more opportunities for project operators than were available in 2013.
Utilities generally have capacity requirements imposed on them by regulators. In California, utilities must procure about 15 percent over projected normal demand in order to meet demand spikes and unexpected outages. This is where the factor of deliverability comes in. In order for utilities to meet their capacity requirements, they need to have enough fully deliverable power. As such, projects seeking interconnection are encouraged to meet that requirement.
Developers can apply for interconnection under the category of either “energy only” (which means no capacity credit is given to the utility) or “fully deliverable.” When a developer seeks full deliverability, it becomes eligible for two important additional revenue streams: a resource adequacy credit and a higher time-of-delivery (TOD) value. Most contracts, however, require that resource adequacy be sold along with the energy, so this can’t generally be captured as a separate revenue stream.
A good rule of thumb for estimating the TOD payment is that it will be an additional 10 percent payment over the energy-only payment, though this can vary. Higher TOD payments are provided not only to incentivize developers to seek full deliverability, but also to incentivize production of power during peak demand periods. The point is to provide higher payments during peak demand periods and lower payments during off-peak periods. For Southern California Edison, for example, on-peak TOD payments can be as much as three times the base payment.
Projects that are not fully deliverable can still receive TOD payments, albeit at a lower level, because the power they provide can’t always be sent to where it’s most needed on the grid.
So how can a project achieve full deliverability status? There are now two ways to obtain full deliverability: CAISO's annual assessment process and its new distributed generation deliverability (DGD) process.
The annual assessment has two windows each year (in spring and fall), and developers must pay $10,000 to enter this process as a standalone assessment. If they’ve applied for a detailed study, rather than fast-track interconnection, then the project will automatically be studied for full deliverability. But if developers seeking fast-track interconnection have checked the “energy only” box and later decide to seek full deliverability, or if they’ve checked the “full deliverability” box, they will have to enter the annual assessment process. Unfortunately, it takes about a year and a half to get the results from this process -- and the results aren’t always pretty.
In fact, many developers of smaller renewable energy projects have decided to forego full deliverability entirely because it can be very expensive to achieve it. The $10,000 fee is just the start, and the actual costs of achieving full deliverability status can easily exceed $1 million in some cases, even for smaller projects.
But here’s something important to keep in mind: these costs are fully reimbursable. Deliverability upgrades are by definition “network upgrades” and thus are FERC-jurisdictional upgrades. All FERC-jurisdictional upgrades are fully reimbursable over a five-year period. So the developer must foot the bill upfront, but can also rest assured that the full amount, including financing costs, will be recovered over a five-year period.
Due to the 10 percent to 20 percent boost in revenue that full deliverability can bring, this investment can make sense in many situations.
The new CAISO process is a whole lot easier and cheaper than the annual assessment process. The DGD process is available only for distribution-interconnected wholesale energy projects. This means that typically, it will apply only to projects that are 20 megawatts or smaller.
CAISO now conducts an annual study of the whole distribution grid and the points of interconnection with the transmission grid. It then releases a report showing which substations already have assignable deliverability capacity without any upgrades. Each substation gets a megawatt value that shows how much is available. If a project is interconnecting to that substation, it can simply apply, for no fee, to the utility and ask for that deliverability capacity to be assigned to them. And if they’re at the front of the interconnection queue, they’ll get that available capacity and be very happy.
The 2014 DGD study found far more deliverability available than in 2013. Specifically, 2,178 megawatts of DGD is available in 2014, compared to 1,410 megawatts in 2013. This change results largely from the fact that CAISO included an analysis of transmission-level constraints this year, and some resolution of such constraints, whereas last year’s study only looked at distribution-level substations. In practice, this led to a far larger DGD allocation for projects in SCE territory.
The utilities have been pushing hard in recent years for all renewable energy projects to be fully deliverable. The CPUC has pushed back a bit and generally doesn’t allow utilities to actually require deliverability for these projects. However, the application process is changing, so a developer not seeking deliverability will be severely disadvantaged when it comes to finding a power purchase agreement.
The 2014 DGD application window opened March 17 and closes April 16.
***Tam Hunt is owner of Community Renewable Solutions, a consultancy and law firm specializing in community-scale renewables. Community Renewable Solutions can help developers navigate this complicated field and provide other development advice relating to interconnection, procurement and land use.