As board members of Arizona municipal utility Salt River Project gather to vote on a slate of controversial solar energy charges for consumers, the second-largest IOU in the state is catching heat from renewable energy supporters for how it calculates the costs of rooftop solar. It's a spat that illustrates the difficulties for both industries in how to deal with the shift toward more renewables and distributed generation.

Solar advocate John Farrell last week charged Tucson Electric Power (TEP) with inflating the cost of the resource during his speech in the city.

“TEP’s 2014 integrated resource plan (IRP) estimates the cost of new natural gas generation at between $0.088 per kWh and $0.119 per kWh. For solar generation, they suggest, the cost is over $0.16 per kWh,” Farrell, the Energy Director at the Institute for Local Self-Reliance, told the audience. “That includes ‘system integration costs’ of $0.052 per kWh.”

An audience member with high-level knowledge of TEP operations offered Utility Dive an insider’s rebuttal of Farrell’s remarks on the condition of remaining unnamed.

“He confused the $5.20 per MWh for integration costs in the TEP IRP with the '$0.052 per kWh' that he based his presentation on,” the source explained. “That’s off by a factor of 10.”

“He is technically correct,” Farrell said. “I should have said integration PLUS back-up costs were about $0.05 per kWh. It was my mistake for not explaining that.”

Farrell identified the IRP chart from which he drew his numbers (below). In the bar indicating the levelized cost of electricity for fixed PV solar, the two factors — integration and back-up capacity — seem to add up to around $50 per MWh, at least roughly fitting Farrell's estimate of $50 (or $0.05 per kWh).

That is high, Farrell said, because the utility doesn’t actually have to build that much back-up. It has power plants already built and available as back-up reserves.

“The reserve margin for the regional grid, the Western Electricity Coordinating Council, is over 33% of the system peak demand,” he said.

Grid operations

Citing the WECC statistic shows a lack of understanding of grid operations and grid integration in the West, the TEP source said.

“[Farrell] uses a WECC value of 33% reserve margin as if, somehow, all of the utilities have all of their facilities operating at the same time and can serve each other without regard to transmission constraints,” he explained. “There are only three EHV integration points for TEP’s system load, two out three are constrained, and there is limited transmission availability on the third line to import energy. How does Mr. Farrell expect to get that reserve energy into Tucson?”

“It is a fair point. It seems TEP operates like an island. But each utility has to have reserves,” Farrell responded. “What reserve margin do they have in their service territory? What variability will solar introduce to require such a high back-up cost? The IRP puts solar at about 10% to 15% of the total load.”

The percentage of utility total annualized sales has very little to do with solar integration when actually operating the grid, the source said. “TEP has a little less than 200 MW of utility scale solar, either operational or under construction. This summer, when load peaks somewhere between 2,000 MW to 2,400 MW, it’s fairly easy to control as it’s only 8% to 10% of total peak load.”

But, the source stressed, next November when the Tucson weather is perfect and no air conditioners or heaters are running and peak load is between 1,000 MW and 1,100 MW, then solar will be around 20% penetration. With 50-90 MW of wind in operation, between 25% and 30% of load will be served by intermittent resources. That’s when the utility has to have additional resources and reserves on line to manage renewables.

Shutting down coal

TEP’s plan is to shut down coal plants and replace them with natural gas, the source said. The utility was 80% coal last year but it is down to 68% now and by 2019 plans to be at or below 50%.

A number of studies show geographic dispersion of solar substantially reduces the kind of variability from cloud cover that causes the fluctuation in the daytime load that is the problem, Farrell said. The concern is not backup power but the ability to ramp fast enough to keep pace with the cloud cover.

TEP has power plants to meet Tucson’s daytime and nighttime load so adding solar will not require new resources, Farrell reasoned. But coal does not ramp fast so the proposal to replace coal with natural gas makes sense because more solar will require resources more flexible than coal.

“The real question is do you have enough controllable load and enough fast response generation or storage?” Farrell added. “Where is the controllable load to manage the ramp rate? Where is strategic energy storage to manage the ramp rate?  Where does conservation fit?”

Building renewables

TEP expects to be at 20% renewables in 10 years even though the state mandate is for 15% by 2025,” the TEP source said.

“This is not an overnighter. This is a u-turn in an aircraft carrier ... Higher levels of penetration make managing the grid much more challenging. Just because the state has a renewables standard doesn’t make NERC reliability rules go away. Does it mean additional resources are necessary? Absolutely.”

“We keep thinking about this in terms of turning a big ship but is a big ship really what we want to be sailing?” Farrell laughed. “I am not limited by the notion that the way we do it tomorrow is the way we did it yesterday and I find it hard to believe costly back-up and a 50% higher cost for solar is the solution. What are the low budget solutions we haven’t tried?”

“I cannot get on board with something that disregards physical limitations of the infrastructure as it exists today,” the source said. “More renewables and storage and/or more geographic dispersion are wonderful concepts and I would love for them to be there but they are not.”

The way things are, the way things can be

In his Tucson presentation, Farrell called the utility's solar cost calculations "total crap." Asked to reconsider that, Farrell said, “The output from our utility system is the result of the rules and regulations we have in place cementing the power of conservative, monopoly institutions. Solar and distributed power are creating fundamental change, so what looked like sensible output in 1975 has a different name in 2015."

“TEP has long been a leader in promoting solar and will continue to be, long into the future,” the source said. “It will always have critics, but very few of them ever take the time to really learn about the utility or how the grid works.”

Farrell doesn't lay the blame solely at the feet of utilities, however. He says the way established the regulatory structure across the nation is more of the issue.

“The utility’s lack of imagination is not its fault,” Farrell said. “It is the way we structured the system. We gave them a monopoly and didn’t encourage them to innovate.”