Every renewable energy project must interconnect to the grid under “reliability” standards. This means that the project won’t cause the grid to fail due to the project’s exporting power -- or failing to export power.
This is a fairly commonsense requirement.
There is a second level of interconnection, however, in places like California and similar jurisdictions. It's known as “deliverability.”
A project is fully deliverable when the power the project produces 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 getting to where it’s needed. So, reliability is about safety, while deliverability is about the versatility of the power provided to the grid.
Utilities generally have capacity requirements imposed on them by their regulating agency. In California, utilities must procure 15 percent over projected normal demand in order to meet demand spikes and unexpected outages. This is where deliverability comes in. In order for utilities to meet their capacity requirements, they need to have enough fully deliverable power. And this means that projects seeking interconnection are encouraged to be fully deliverable.
Developers can apply for interconnection under either “energy only” (which means no capacity credit is given to the utility) or as “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 value.
Resource Adequacy (RA) payments are a revenue stream over and above the power purchase payments for the energy itself. While the RA market is still nascent in California, a rule of thumb is that it will provide about 10 percent additional revenue on top of the energy payment revenue.
Similarly, a useful rule of thumb for the higher Time of Delivery (TOD) payment is an additional 10 percent payment. 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 of TOD payments in general 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, but 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 do you obtain full deliverability status? There are now two ways to obtain full deliverability: 1) the California Independent System Operator’s (CAISO) annual assessment process, and 2) CAISO’s new assignable deliverability process.
The annual assessment has two windows each year (spring and fall), and developers must pay $10,000 to enter this process on a standalone basis. If they’ve applied for detailed study, rather than Fast Track interconnection, then the project will be automatically studied for full deliverability. But Fast Track projects interconnecting under Rule 21 or WDAT, if they’ve checked the “energy only” box and later decide to seek full deliverability, or if they’ve checked the “full deliverability” box, will have to enter the annual assessment process. Unfortunately, it takes about a year and a half for 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 actual costs of achieving fully deliverability status can easily run over a million dollars in some cases, even for smaller projects. But here’s the kicker: these costs are fully reimbursable. Deliverability upgrades are, by definition, “network upgrades” and are FERC-jurisdictional upgrades. All FERC-jurisdictional upgrades are fully reimbursable over a five-year period. So the developer must foot the bill, but can rest assured that the full amount, including financing costs, will be recovered over a five-year period.
Due to the 20 percent to 30 percent boost in revenue that full deliverability can bring, this investment can make sense in many situations.
The good news is that there’s a new CAISO process that is a whole lot easier and cheaper than the annual assessment process. The new assignable (or allocatable) deliverability process is available only for distribution-interconnected wholesale energy projects. This means typically it will apply only to projects of 20 megawatts or fewer. 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 the project. And if the applicant is at the front of the interconnection queue, it will get that available capacity and be very happy.
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 carrots are now stacking up in such a way that a developer not seeking deliverability will be severely disadvantaged when attempting to secure a power purchase agreement.
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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.