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HomeMy WebLinkAboutStaff Report 14593 City of Palo Alto (ID # 14593) City Council Staff Report Meeting Date: 10/3/2022 Report Type: OTHER INFORMATION City of Palo Alto Page 1 Title: Informational Report on the Annual Review of the City’s Renewable Procurement Plan, Renewable Portfolio Standard Compliance, and Carbon Neutral Electric Supplies for 2021 Council Priority: Climate Change: Protection & Adaption From: City Manager Lead Department: Utilities Executive Summary All electric utilities in California are subject to the state’s Renewable Portfolio Standard (RPS) mandate of 60% by 2030. The City has also adopted a Carbon Neutral Plan, which led to the achievement of a carbon neutral electric supply portfolio starting in 2013 (and which was updated by Council in August 2020). In 2011, in compliance with state RPS regulations, the Council also formally adopted an RPS Procurement Plan and an RPS Enforcement Program that recognize certain elements of the state’s RPS law applicable to publicly-owned utilities. The RPS Enforcement Program requires the City Manager, or their designee, the Utilities Director, to conduct an annual review of the Electric Utility’s compliance with the procurement targets set forth in the City’s RPS Procurement Plan. This staff report satisfies the reporting requirements of the City’s RPS Enforcement Program, while also providing an update on the City’s compliance with the Carbon Neutral Plan. The City continues to meet both its RPS and Carbon Neutral Plan objectives—even after selling over 287,000 MWh of renewable energy in 2021. Background The City currently has two independent procurement targets related to renewable and carbon neutral electricity: • RPS Procurement Plan (60% by 2030): The City’s official renewable electricity goal is contained in the RPS Procurement Plan that the City adopted as required by Section 399.30(a) of California’s Public Utilities Code. Council first adopted the RPS Procurement Plan in December 2011 (Staff Report 2225, Resolutions 9214 and 9215) with updates in November 2013 (Staff Report 4168, Resolution 9381), December 2018 (Staff Report 9761, Resolution 9802), and December 2020 (Staff Report 11650, Resolution 9929). The City of Palo Alto Page 2 last update to the RPS Procurement Plan brought it into alignment with the state’s 60% RPS requirement (SB 100), which was signed into law in 2018. The RPS Procurement Plan and RPS Enforcement Program complement each other: the Procurement Plan establishes official procurement targets, while the Enforcement Program specifies the reporting and monitoring that is required of the Utilities Director while working to achieve those targets. The City’s RPS Procurement Plan requires the City to acquire renewable electricity supplies equal to 60% of retail sales by 2030, which is in line with the state’s current RPS mandate. The RPS Procurement Plan also contains an escalating set of targets for six interim Compliance Periods (2011-2013, 2014-2016, 2017-2020, 2021-2024, 2025-2027, and 2028-2030), as well as subsequent 3-year compliance periods beginning in 2031. • Carbon Neutral Plan (100% Carbon Neutral Electricity by 2013): Council adopted the Carbon Neutral Plan in March 2013 (Staff Report 3550, Resolution 9322) and updated it in August 2020 (Staff Report 11556, Resolution 9913). Under the Carbon Neutral Plan the City has procured a carbon neutral electric supply portfolio since calendar year (CY) 2013. In general, this goal is achieved primarily through purchases made under the City’s long-term renewable power purchase agreements (PPAs) and output from its hydroelectric resources. However, when the City Council approved an update to the Carbon Neutral Plan in August 2020, Council also approved a new procurement strategy whereby the City does not keep all of the output of its long-term, in-state PPAs, but instead exchanges that output for less expensive out-of-state renewable generation (with the net proceeds used to offset electric utility operational costs and fund local decarbonization programs). Discussion The City continues to meet its objectives under the RPS Procurement Plan and the Carbon Neutral Plan, and achieved an RPS level of 35.0% in 2021. Although this value fell just short of the state’s 35.75% RPS procurement “soft target” for the year, the City remains compliant with state law because the RPS procurement mandate is evaluated over a multi-year horizon (2021- 2024 in this case), and the City has enough RPS supplies under contract to far exceed the state’s soft target levels in the later years of the four-year compliance period. Below is a summary of CPAU’s progress toward satisfying its renewable energy and carbon neutral procurement targets. (Linked Document) RPS Procurement Plan Compliance In CY 2021, the City initially received 544,819 MWh of renewable energy through its long-term contracts for wind, solar, landfill gas, and small hydro resources (which represents 68.1% of the City’s total retail sales for that period). Additionally, the City received 247,362 MWh of large hydroelectric generation (representing 30.9% of the City’s total retail sales), which is not classified as eligible renewable generation by the state. Based on the Council’s decision in August 2020 to pursue the “REC Exchange Program” (Staff Report 11556, Resolution 9913) the City of Palo Alto Page 3 City sold 287,210 MWh of in-state renewable energy supplies, yielding $4.01 million in sales revenue, while purchasing 358,408 MWh of out-of-state renewable energy credits (“RECs”)1, at a cost of $1.79 million. Figure 1 below depicts the City’s load and supply resources for CY 2021, before and after the REC Exchanges described above. Accounting for these transactions, the City’s net renewable energy supplies totaled 616,017 MWh, which represents 77.0% of the City’s total retail sales for 2021. However, under the state’s RPS regulations the majority of the out-of-state renewable energy purchases were not able to be applied to the City’s RPS requirement, hence the City’s official RPS level was only 35.0%. Figure 1: CY 2021 Electric Load and Supply Resources, With and Without REC Exchanges For CY 2022, staff has contracted to sell about 120,000 MWh of in-state renewable generation and has purchased about 180,000 MWh of out-of-state renewable generation. Figure 2 below depicts the City’s projected load and supply resources for CY 2022, before and after the REC Exchanges described above. (Note that much of the decrease in REC sales volume and revenue, compared to CY 2021, is due to the much lower volume of hydro generation the City expects to receive in 2022 due to the current drought.) Once these transactions are accounted for, they will yield a total of about $0.7 million in net revenue, and an official RPS level of 38.5% (equal to the state’s RPS soft target for 2022). However, if the additional out-of-state renewable supplies 1 Not including 25,000 MWh of RECs purchased on behalf of PaloAltoGreen customers. City of Palo Alto Page 4 that cannot be applied to the City’s RPS requirements are included, the City’s total renewable electricity supplies are projected to be approximately 75% of retail sales. Figure 2: Projected CY 2022 Electric Load and Supply Resources, With and Without REC Exchanges In accordance with the state’s RPS Program requirements, CPAU’s Procurement Plan develops a renewable electric supply portfolio that balances environmental goals with system reliability while maintaining stable and low retail electric rates. The state RPS program requires retail electricity suppliers like CPAU to procure progressively larger renewable electricity supplies across a series of separate multi-year Compliance Periods. CPAU’s procurement targets, as well as its actual/projected procurement volumes and RPS levels, for the first four Compliance Periods are summarized in Table 1 below.2 Table 1: RPS Compliance Period Procurement Targets and Actual Procurement RPS Years Retail Sales Procurement Actual/Projected % of Retail 2 Note that the City’s projected RPS level is lower in Compliance Period 4 than the actual RPS level in Compliance Period 3 due to the adoption of the REC Exchange Program. Under this program, the City exchanges some of its in- state renewable energy resources for lower-cost out-of-state RECs; however, not all of these out-of-state RECs are allowed to be counted towards the City’s RPS level under the state’s RPS regulations. City of Palo Alto Page 5 Compliance Period (MWh) Target (MWh) Procurement (MWh) Sales 1 2011-2013 2,837,773 567,555 607,740 21.4% 2 2014-2016 2,801,056 605,949 826,855 29.5% 3 2017-2020 3,487,686 1,043,424 1,619,303 46.4% 4 2021-2024 3,242,464 1,295,073 1,295,073 39.9% TOTALS 12,368,979 3,512,001 4,348,971 35.2% Carbon Neutral Plan In CY 2021, CPAU achieved its goal, set forth in the Carbon Neutral Plan, of an electric supply portfolio with zero net greenhouse (GHG) emissions for the seventh consecutive year. Carbon neutrality was achieved in CY 2021 through existing hydro and renewable generation (wind, solar, and landfill gas). As discussed above, due to the Council’s adoption of the REC Exchange Program in August 2020, the City sold 287,210 MWh of in-state renewable energy supplies, yielding $4.01 million in sales revenue, while purchasing 358,408 MWh of out-of-state renewable energy, at a cost of $1.79 million. Accounting for these transactions, the City’s net renewable energy supplies totaled 616,017 MWh, which represents 77.0% of the City’s total retail sales for 2021. The remainder of the City’s needs were supplied by large hydroelectric resources. When the City Council approved an update to the Carbon Neutral Plan in August 2020, the primary change was to adopt an hourly carbon accounting methodology as the basis for determining whether the City has met its carbon neutrality objective. Using an annual accounting approach, the City had an overall surplus of 65,827 MWh of carbon neutral generation compared to its load (equal to 8.0% total load), and thus substantially exceeded the carbon neutrality standard. Meanwhile, under the hourly carbon accounting approach,3 the City’s electric supply portfolio also exceeded the carbon neutrality standard, being responsible for a net negative amount of GHG emissions: -102 metric tonnes of CO2 equivalent. See Figure 3 below for a depiction of the City’s monthly total net CO2 emissions for 2021 (as well as the rolling year-to-date net CO2 emissions), and the monthly average emissions intensity for the California electric grid. 3 The City’s hourly carbon accounting methodology entails calculating the City’s net surplus or deficit carbon neutral supply position relative to its load in every hour of the year. The grid average electricity emissions intensity for each hour is then applied to each of these hourly surpluses or deficits to yield a net emissions contribution (or reduction) that the City’s electric supply portfolio is responsible for in that hour. These hourly emissions totals are then summed across the entire year to yield the City’s annual emissions total for the year. City of Palo Alto Page 6 Figure 3: CY 2021 Monthly Net Electric Supply Emissions and CAISO Emissions Intensity For CY 2022, significantly below average hydro conditions are expected to result in only about 25% of the City’s electric supply needs being supplied by hydroelectric resources (compared to a long-term annual average of about 55%), with the remainder coming from non-hydro renewable energy resources (including purchases of out-of-state unbundled RECs). Policy Implications This report implements Sections 4 and 5 of the City’s RPS Enforcement Program, which require an annual review of the Electric Utility’s compliance with the CPAU RPS Procurement Plan to ensure that CPAU is making reasonable progress toward meeting the compliance obligations established in the CPAU RPS Procurement Plan. Environmental Review The Council’s review of this report does not meet the definition of a “project” pursuant to Public Resources Code Section 21065, thus California Environmental Quality Act review is not required.