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HomeMy WebLinkAboutAEA-REFAC_Meeting_Minutes_21NOV2018 FINALRenewable Energy Fund Advisory Committee Meeting Minutes Page 1 of 8 November 21, 2018 Renewable Energy Fund Advisory Committee Meeting November 21, 2018 Anchorage, Alaska 9:00 a.m. to 12:00 p.m. FINAL MINUTES WELCOME AND INTRODUCTIONS The Renewable Energy Fund Advisory Committee (REFAC) convened at approximately 9:14 a.m., with Chair Chris Rose presiding. Committee Members Present Chair Chris Rose Representative Adam Wool (phone) Meera Kohler Jodi Mitchell (phone) Nils Andreassen (phone) Lee Thibert AEA Staff Present: Josh Craft, Katie Conway, Devany Plentovich, Cady Lister, and Sam Tappen. Other Participants Present: Elaine Brown (AIDEA and AEA Board Member); and Kristen Arnold (Denali Commission). APPROVE MINUTES AND AGENDA MOTION: A motion was made by Ms. Kohler to approve the minutes from the summer meeting and to approve the agenda. Seconded by Representative Wool. The minutes and agenda were approved without objection. AEA FOLLOW-UP FROM AUGUST MEETING Chair Rose introduced Cady Lister, who provided the responses to Committee member questions from the prior meeting. 1. Outside funding for REF Ms. Lister informed the Renewable Energy Fund (REF) has the ability to accept monies from any sources, including federal, local, or private entities. The funding has to be appropriated by the Legislature through the statutory process. Ms. Lister gave examples of current AEA renewable activities outside of the REF. Ms Lister advised Senator Anna MacKinnon requested AEA develop a summary of the REF evaluation process with the intent to attract additional revenue streams from outside funders. The first draft of the high-level summary was distributed to Committee members. The REF has the program and expert staff in place. The economic Renewable Energy Fund Advisory Committee Meeting Minutes Page 2 of 8 November 21, 2018 evaluation is sophisticated. The REF has a statewide view with broad-based support and the potential to match funds. Ms. Lister invited Committee members to provide comments today or via email. Chair Rose expressed appreciation for the four-page summary and believes a one-page summary would likewise be beneficial. Mr. Andreassen believes the summary is a great start. He suggested the initial summary does not need to include details regarding the stages, criteria, and scoring elements. He requested the Committee be provided with the short list of potential funders. 2. Project failure points Ms. Lister discussed the reasons REF projects do not reach the construction and completion phase. The top two reasons are related to lack of funding. Challenged economics relate to the ability of the project to have a positive benefit-cost ratio, primarily due to the high cost of building projects in remote locations relative to the small market size. The third most common reason is a low community priority for the project or not having a community champion for the project. The other reasons include land use restrictions, insufficient load demand, technical issues, lack of agreement with utility, competing projects, and poor design. Ms. Lister reviewed the provided failure point analysis for all affordable energy strategies in Alaska, minus the Railbelt. Ms. Lister explained the highlights of the analysis. Operational and financing risks should be addressed during the project selection process. Project funding should be committed to projects that have community support and that have examined other potential technologies. State programs should use standardized criteria to approve projects at each stage of development. Projects should have a clear financing and business plan from conception through operation. Inadequate maintenance is the main barrier to performance after project completion. This can be mitigated through proper and full training. Climate change is expected to increase the need for infrastructure. Mr. Andreassen expressed appreciation for the analysis of risks and barriers. He noted the ongoing and challenging issue of communities who pursue projects that are unlikely to be cost effective only in order to obtain funds. Mr. Andreassen believes engaging communities’ approach to official local policies and energy cost is helpful. Chair Rose agreed there is a relationship between training, education, and champions in the community and the risk perceived by financiers. Ms. Mitchell inquired if the regional energy planning effort will assist to ensure the appropriate projects are prioritized. Ms. Lister believes the regional energy plans have helped in some places. Ms. Mitchell indicated her support for the regional energy planning efforts. Chair Rose recognized the challenge of updating the plans to reflect relevant changes in technology, community champions, and interest. The need for increased efficiency remains constant. Ms. Lister commented on the difficulty for smaller communities to maintain plan continuity without Renewable Energy Fund Advisory Committee Meeting Minutes Page 3 of 8 November 21, 2018 a full-time staff person focused on the planning efforts. Chair Rose indicated regional planning and having a regional planner could help with continued plan focus. 3. PCE historic fuel/non-fuel costs Ms. Lister explained utility costs for PCE eligible utilities from fiscal year 2007 (FY07) to FY17. In FY16, for the first time, total non-fuel costs were higher than total fuel costs. Chair Rose discussed communities cannot claim grants as non-fuel costs. Ms. Kohler informed the trend in rising non-fuel costs reflects additional operational costs related to projects and inconsistent utility reporting. She noted the cost of fuel decreased dramatically in FY15, FY16, and FY17, and is anticipated to now increase. Ms. Kohler requested a line be added to the graph representing the total gallons of fuel used. Ms. Lister believes the upward trend in non-fuel costs could potentially be due to utilities taking on more debt, thus increasing interest expenses and depreciation expenses. Another factor may be that utilities are doing a better job of accurately accounting for their actual costs. Ms. Lister discussed fuel is being displaced because of the greater renewable penetration. Ms. Lister informed the number of active communities in the PCE program increased from 171 in FY07 to 179 in FY17. Representative Wool asked for the program’s overall cost per kilowatt hour. Ms. Lister noted she does not have that graph with her today and will provide the information to the Committee. Ms. Lister described a graph previously requested showing the total kilowatt hour sales over the 11-year period from FY07 through FY17 has grown 11.2%, and the PCE eligible kilowatt hour sales has grown 9.7% during that same period. BREAK - none GUIDANCE FOR MARCH RFA CONSIDERATIONS Chair Rose advised the next agenda items pertain to Committee guidance for staff consideration regarding the scoring and overall evaluation process to be implemented during the upcoming request for applications (RFA) opening on March 1, 2019. All previous applications and unfunded projects must resubmit applications. 1. Efficiency points Ms. Lister stated efficiency points are currently considered and given for heat projects to improve the overall scoring. Efficiency points are not currently used in the evaluation process for electric projects. Chair Rose directed the Committee’s focus on two questions: • Should efficiency points be given to electric project applicants for increasing generation efficiency and/or demand side efficiency? • Is the number of points given for heating projects at the appropriate level? Ms. Lister noted the lion’s share of benefits ascribed to a project is displaced diesel. Improved generation efficiency is significant and will add points to the economic evaluation component. Renewable Energy Fund Advisory Committee Meeting Minutes Page 4 of 8 November 21, 2018 Chair Rose requested comment by Mr. Craft, Wind Program Manager. Mr. Craft reported on an analysis of diesel efficiency before and after the installation of wind projects. The evidence showed a slight increase is diesel efficiency. He believes the increased efficiency resulted from the supply side by installing new generators and upgrading switch gear. Mr. Craft feels supply side efficiencies measures could be used in the overall evaluation. Chair Rose asked if additional points could be given during the technical feasibility analysis for the project designs that upgrade the generators and/or utilize different sized generators. Mr. Craft advised the current technical modeling evaluation provides a greater diesel offset for establishing up-front efficiency. He noted increased up-front efficiency through generator upgrades increases the cost of the project, which may negatively impact the project’s benefit-cost (B/C) ratio. Ms. Lister explained the model compares the proposed project to a base case scenario. Chair Rose inquired if applicants feel penalized for increased total project costs due to generator upgrades. Ms. Lister does not believe that specific complaint has ever been filed and believes it could be a legitimate complaint, if it ever occurred. Chair Rose requested Ms. Lister continue to work on this option for the next meeting. Chair Rose requested comments regarding the possibility of giving points in the scoring process to an electric project applicant for demand side electrical efficiency. Ms. Kohler noted demand side electrical efficiency is a separate and complicated arena and not appropriately related to REFAC proposals. She gave anecdotal illustrations of intricacies of the energy structure of communities in which these projects will assist. Ms. Kohler feels a parallel program would be a better way to address electrical energy efficiency issues. Ms. Mitchell expressed agreement with Ms. Kohler’s comments. She noted a decrease in utility sales may result in an increase in customer rates. Ms. Kohler supports energy efficiency. She wants to be mindful the projects do not hurt the customers who are least able to pay. Representative Wool believes renewable energy projects need to be viewed holistically and include review of energy efficiency of heat, electricity, and diesel. He expressed understanding the utility companies do not want to lose sales and believes there is a way to move forward with energy efficiency. Chair Rose shared his consideration of incentivizing electrical demand side efficiency includes options such as LED lighting. Ms. Kohler inquired as to the assessment of the LED lighting consideration. Chair Rose stated he does not have an assessment plan, but believes the holistic goal should be to eliminate potential unnecessary energy generation. He agreed incentivizing electrical demand side would be difficult. Ms. Mitchell requested staff provide feedback regarding ways to incentivize efficiency in the REF. Ms. Lister suggested additional clarity for the supply side stating the cost of the upgrade of the diesel powerhouse is not included in total project costs during review of the B/C ratio of wind/diesel projects. She believes the clarification would help the projects score better through a supply side efficiency measure. Ms. Lister explained the demand side efficiency incentives for Renewable Energy Fund Advisory Committee Meeting Minutes Page 5 of 8 November 21, 2018 the electric side would be similar to incentives on the heat side, and could offer points for match, if efficiency measures are conducted on the buildings that will use the electricity. Efficiency measures could include an LED lighting exchange program or on-bill financing for lighting retrofit in community buildings. Ms. Lister agrees to the importance of ensuring the projects are not negatively impacting vulnerable populations. This concern exists in every electric market in the country. Ms. Lister believes these considerations are worth a deeper review. Mr. Tappen informed points are also awarded to key projects for efficiency in the State III Sustainability score, and similar language could be easily added for electric projects. Mr. Andreassen commented addressing the technical risks and barriers identified in the project failure points earlier are a higher priority to the success of projects and the purpose of the REF. 2. Increase match Chair Rose noted increasing local match has been discussed since the statute originated. He posed the question to the Committee regarding modifying the statutory criteria to include an increased local match. Ms. Lister cautioned this consideration could potentially run contrary to part of the intent of the program by being more favorable to communities who can increase their local match. Ms. Lister discussed the single biggest measure in the evaluation process is the cost of energy in the community, which tends to favor small, stand-alone communities. However, these small communities tend to be the least able to offer a significant match. Ms. Kohler commented if cost of energy in the community is the primary consideration, then funding will go to the outlier communities that do not have the ability to control costs and leaves the other parts of the state gasping for the remains. Ms. Kohler noted the cost of energy in the community and the matching funds total 50% of the evaluation. She suggested that percentage be equally split to 25% cost of energy in the community and 25% matching funds. Ms. Lister informed the current split is 35% for cost of energy and 15% for match. She noted the cost of energy is also reflected in the calculation of the B/C ratio within the evaluation process. Ms. Kohler requested the formula for scoring cost of energy in the community be provided to the Committee. Chair Rose requested comments regarding the proposal to decrease the current weight of final scoring for the cost of energy from 35% to 25% and increase the current weight of matching funds from 15% to 25%. Ms. Mitchell asked for explanation of the goal of the REF and AEA. Ms. Lister discussed there are multiple goals of the REF. Primarily, it is a balance between reducing diesel consumption and helping to stabilize the cost of power. The mission of AEA is to reduce the cost of energy in Alaska. The statute also provides directional goals for regional spreading. Ms. Lister commented Senator Hoffman is not in attendance today and he is the champion for maintaining the focus on the high cost of energy in smaller communities. She requested consideration be given during the discussion regarding his stance. Chair Rose conveyed it is unknown what sorts of impacts would occur to the selection process if equal percentages for cost of energy and matching funds were implemented. Part of the reasoning for the suggestion of increasing the local match is the desire for communities to have more skin in the game and the hope to improve operation and maintenance (O&M). He Renewable Energy Fund Advisory Committee Meeting Minutes Page 6 of 8 November 21, 2018 discussed one way to incentivize a higher local match is by increasing the amount of points given for matching funds. Mr. Tappen explained the current matching fund criterion contains the possibility of a total of 15 points, 10 of which come from the percentage of match provided and the other five comes from the type of match provided, including cash, federal sources or local in-kind. To receive the maximum of 10 points for the match, the community needs to provide over 49% of total project cost match. Chair Rose asked staff to review the possibility of new match weighting criteria based on a 30%/20% split and bring the suggestions back before the Committee at the next meeting. Ms. Mitchell expressed she is unable to agree to that suggestion and would like to hear comments from Senator Hoffman. Ms. Lister advised the State has a flexible loan program for power generation projects that can be provided to project developers or utilities to be able to provide the match. Chair Rose asked for the scoring percentage criteria for the current evaluation. Ms. Lister noted the information is listed on the summary handout; 35% cost of energy, 15% match, 20% project feasibility, 15% public benefit, 5% project readiness, 5% sustainability, and 5% local support. 3. Focus on specific phases of development Chair Rose began the discussion regarding establishing a focus for the upcoming RFA for a specific project phase. The RFAs will be conducted every other year and the available funding amount is anticipated to be low compared to previous years. Ms. Kohler cautioned against precluding demonstrating the need for funding for all phases of projects. She added the amount the Legislature is going to allocate is unpredictable. Ms. Mitchell agreed to the importance of communicating to the Legislature the increased need for funding and the progress made. Ms. Lister feels past discussions regarding this issue culminated in a philosophical bent, in terms of wanting to use government grant funds in the highest risk component of project development to try to create a pipeline of bankable renewable energy projects, rather than spending larger amounts of money in construction to build the projects. She noted it is very difficult for any developer to get loan monies to complete a reconnaissance or feasibility study. Chair Rose agreed. Ms. Plentovich commented the biomass sector has access to government funding for feasibility work and relies upon the REF for the biomass construction funding. Ms. Lister suggested wording be included in the RFA to indicate the applications will be considered for the next two years. The amount of funding that will be available each year will be unknown at the time of the RFA submittal. However, the available funding amount will be known at the time of the final project evaluation process. She proposed the RFA include verbiage that would outline the focus on different phases based upon the final amount of funding received. Ms. Kohler agreed a qualifier could be included in the application explaining applications will be taken for any phase of project development and all funding is at the discretion of the Legislature. Renewable Energy Fund Advisory Committee Meeting Minutes Page 7 of 8 November 21, 2018 Ms. Mitchell asked if there were excess PCE funds remaining from fiscal year ending June 30th that might be assigned to the REF. Ms. Lister believes there was approximately $480,000 remaining after the Community Assistant Program was funded, which is not an adequate level to conduct a REF solicitation. She believes the amount is slated to go toward maintenance and improvement (M&I) projects in the RPSU Program. The Governor’s budget will be revealed next week. Ms. Mitchell expressed confidence that some of the operating REF projects have saved money for the PCE Program. She asked if evaluation of this savings has occurred and if more funding is available from the endowment. Ms. Lister advised the savings associated with operational REF projects is estimated annually and reported to the Legislature. She agreed to communicate the savings of the program more explicitly. A portion of the PCE savings in communities is going to the PCE Program. Ms. Lister does not believe AEA will suggest different uses for the PCE Endowment Fund. Chair Rose stated that is a separate and distinct subject. He explained additional analysis is forthcoming and will be available to the Committee soon. 4. O&M plan evaluation Chair Rose noted the question for discussion is if more points should be given to the scoring criteria for O&M planning. Chair Rose asked staff for a description of what is considered a good O&M plan and what are some of the faults in O&M plans staff has seen. Ms. Lister noted the main area of O&M deficiency is not necessarily with the plan, but rather with the actual O&M execution of the plan. Lack of O&M to the system leads to poor performance. She explained funding after construction is not always available. Maintenance contracts in remote areas can be expensive and cost prohibitive. Discussion has occurred regarding the idea of allowing maintenance contracts to be included in the construction cost of a project that might allow a standalone utility to conduct high level maintenance and local training. Ms. Lister requested feedback regarding this consideration, particularly from Ms. Kohler and Ms. Mitchell. Ms. Lister acknowledged the specific resource is relevant to the O&M procedures and processes. Ms. Kohler explained the wind turbine maintenance contracts are executed for one or two years with the manufacturer. The O&M costs are not included in the construction costs because they are considered operating costs. Ms. Kohler does not agree it is appropriate to include the O&M cost component in the construction costs and including O&M in construction costs would decrease the B/C ratio of the project. Chair Rose mentioned another concept to consider is requiring or incentivizing applicants to contribute funds during the initial project application for instrumentation to retrieve data regarding the performance of the project and operation and maintenance. Ms. Lister added instrumentation could be considered outside of the project cost when the B/C evaluation occurs. Chair Rose requested Mr. Craft provide an overview of the current data retrieval system. Mr. Craft explained the data retrieved from a wind farm perspective is granular and can include average wind speed data and how much electricity was used to run the turbine. This data is provided through the annual performance reporting that is a condition of the grant agreement. It is separated into monthly components. The utility company provides statistics annually, Renewable Energy Fund Advisory Committee Meeting Minutes Page 8 of 8 November 21, 2018 including how many gallons of diesel was used and the price of the diesel. Most of the data collected fits within the PCE dataset. Ms. Lister commented on the difficulties in collecting data from communities. Chair Rose suggested staff develop a list of specific suggestions for applicants to always include in the applications that would not be considered part of the total cost, and therefore not decrease the B/C ratio. Ms. Kohler suggested a demonstrated O&M plan be included as part of the application under Stage II criteria for design and construction projects. Mr. Andreassen agreed this is an important issue that should be weighted appropriately in the application. Ms. Lister indicated staff can further develop this suggestion and report back at the next meeting. 5. Heat projects Ms. Lister indicated the suggestion from staff is to continue to receive both heat and electric projects within the RFA. She noted the discussion at the previous meeting focused on heat as a dominant issue in smaller communities. Ms. Kohler commented on the increasing nexus between heating projects and electric projects. 6. Others? There were no additional considerations presented to staff. Chair Rose requested staff to continue to work on the developments from today’s meeting and bring forth a clearer proposal of the RFA at the next meeting. Chair Rose asked for feedback on pushing the RFA release date to the middle of March rather than March 1st. Ms. Lister expressed moving the RFA date to the middle of March would be acceptable, but any date beyond that is disadvantageous. SCHEDULE AND LOCATION FOR NEXT MEETING The next meeting is tentatively planned for February 1st, 2019, from 1:00 p.m. to 4:00 p.m. in Juneau. MEMBER COMMENTS AND ADJOURN Ms. Mitchell expressed appreciation to staff for their diligent work. Chair Rose expressed appreciation to staff for their presentations and thanked Ms. Brown and Ms. Arnold for their attendance. The meeting was adjourned at 11:48 a.m.