Arizona Regulators Propose Largest Clean Energy and Storage Target in the United States

Written by: Matt Johnson, Sustainability Associate with Pierce Energy Planning

Arizona is setting out to prove clean energy leadership doesn’t solely exist in the coastal states of California and New York.

In January 2018, Andrew Tobin, member of the Arizona Corporation Commission (ACC), introduced the Energy Modernization Plan. The plan is an “update to Arizona’s energy policies to accomplish cleaner energy resources, lower prices for consumers, and greater grid security” (Arizona’s Energy Modernization Plan, 2018). Under the plan, Arizona would pursue 80 percent clean energy by 2050 and 3,000 megawatts (MW) of energy storage by 2030.

The state currently is working toward a 15 percent renewable portfolio standard for 2025 under the Renewable Energy Standard and Tariff (REST), but the new plan will update the language to the Clean Resource Energy Standard and Tariff (CREST) to “allow for the development of broader diversified energy policies relating to clean energy resources, energy storage, and energy efficiency, not just those related to renewable energy” (Arizona’s Energy Modernization Plan, 2018).

The Energy Modernization Plan will attempt to tackle the issue of providing a clean baseload while concurrently supplying peak power in a cost-effective, clean way to consumers. Peak hours increase expenses for the utilities which are then passed on the consumer in the form of higher rates.

Arizona’s sunshine provides for excellent solar opportunities such as Tucson Electric Power’s (TEP) record breaking $0.03 per kilowatt-hour PPA last year. Yet, utilities will need to figure out how to keep the power going when the sun goes down or when demand peaks. The plan’s overhaul could harness Arizona’s low-price solar resource by delivering it at peak times.

A large factor of the plan will be storage. The energy storage market could garner recognition if they can meet the Energy Modernization Plan’s goal and hold clean power for use during high demand where ratepayers can witness high charges on their bills. Storage developers have been working on small scale products in California, but Arizona could become a market for new energy storage companies. For instance, Salt River Project (SRP) launched the first standalone energy storage project in Arizona to provide peaking capacity. It will operate a 10 MW to 40 MWhr system. On June 29, Arizona Public Service (APS) began bids to equip some existing solar plants with up to 106 MW of battery storage capacity.

But how can you harness the energy from the sun when the sun doesn’t shine?

Renewable energy are inherent intermittent resources: solar can only produce when the sun shines and the turbines only generate energy when the wind blows. Baseload energy is meant to run continually and provides reliable, cheap energy. Without storage, an increased amount of renewable energy into the baseload would force the baseload to function intermittently. As a result, the grid could witness more blackouts or increased rates. Tobin addresses the issues of intermittent renewable energy sources crowding out crucial baseload resources and the necessary dispatchability of energy to the grid.

The Energy Modernization Plan to address crowding out baseload sources includes two provisions: The Clean Peak Standard and the Clean Peak Target. 

The Clean Peak Standard requires a certain percent of delivered electricity during predetermined peak periods to come from specified renewable energy resources. The Clean Peak Target was developed by the state’s ratepayer advocates – Arizona Residential Utility Consumer Office and Arizona Utility Ratepayer Alliance - to benchmark the amount of clean energy a utility deploys. Utilities will be required to increase the clean energy share by an incremental 1.5 percent of the benchmark each year through 2030.

For context, SRP’s total renewable capacity as of fiscal year 2017 was 838 MW or 15.88 percent of their retail energy requirements. SRP has set a goal to reach a 20 percent retail energy requirement for renewable or clean sources by 2020. As of 2017, nearly 13 percent of TEP’s community power was provided from sustainable, clean energy sources. TEP anticipates adding 800 MW of renewable energy capacity by 2030, increasing their total renewable energy portfolio to 1,200 MW. At the end of 2015, APS provided 10 percent of its electricity for retail customer’s needs through renewable energy sources. APS plans to increase their renewable energy portfolio to 15 percent by 2025.

With the increased investment in build-out generation and peak power plants for clean energy, the ratepayer could be left on the hook to balance the expenses. A utility company will need to invest money into new generation resources such as a coal plant or a clean energy technology to meet the demands of the grid. The utility company will wish to recoup the costs of their investments and break-oven over a period of time. A common regulatory approach for a utility company to recoup their costs is increasing rates to consumers. The utility company can witness a return on their investment and not lose money for adding essential electrical generation to the consumer. Thus, a ratepayer could see increases in their monthly bills due to the increased deployment of renewable energy.

TEP stated the new plan could raise costs for the company and its ratepayers by more than $800 million through 2030. The impact to customer bills were not available from TEP, but an estimate can be provided based on the number of customers TEP services. TEP serves roughly 417,000 customers and estimates an increase of $800 million to customers through 2030. These would equate to an average annual increase in a customer’s electric bill by $160.

The plan could cause closures of generating units at the Springerville Generating Station, TEP said in regulatory filings. This closure could result in the loss of about 765 jobs and $151 million in gross state product in Apache County alone. Although, TEP stated publicly they back the Energy Modernization Plan, but believe more work can be done to identify specific requirements. Additionally, the plan would include nuclear energy as clean energy and count APS’s Palo Verde Nuclear Generating Station as renewable energy.

The Energy Modernization Plan is attempting to transition the grid for the future of clean energy, but concurrently act as a vehicle to cost-effectively solve numerous sustainability goals. The plan calls for utilities to procure 60 MW of biomass energy by the end of 2021. The concept is to produce a carbon neutral form of energy, but the biomass will be collected with the aid of state foresters to thin out high-risk trees that threaten to fuel deadly forest fires. From 2002 -2017, Arizona saw over 5.2 million acres burned and total expenses of over $162 million due to Arizona wildfires.

On July 16, the ACC opened the nation's first state regulatory docket expressly focused on transactive energy at the request of Commissioner Andy Tobin. The docket will address a host of transactive energy issues with the use of block chain technology to track renewable energy credits, utility accounting, cybersecurity, real-time compensation and applications for distributed energy ledgers. On July 19, the ACC held an open meeting to further discuss the Energy Modernization Plan among other issues.

If the Energy Modernization Plan is approved, the new piece of regulation would launch Arizona to top of the list for grid modernization strategies. Arizona could lead the country in clean energy standards, keeping rates stable for consumers, and rebuilding the healthy forests of Arizona.