Curtailment – No Longer a Dirty Word with Innovative PPA Structures
Increasing penetration of renewables and the associated overproduction risk will require innovation in traditional solar power purchase agreement (PPA) structures. In January 2017, the Solar Electric Power Association and ScottMadden released a report analyzing potential alternative approaches to curtailment for PPA structures in Hawaii.
- The report focuses on Hawaii, which faces a unique renewable energy development risk due to the curtailment of renewable resources
- Unexpected or over-curtailment can undermine financials of a solar project
- Currently in Hawaii, curtailment is in “reverse chronological order,” meaning the newest PPAs are the first to be shut down during periods of curtailment
- This arrangement poses a challenge as higher curtailment risk becomes priced into new projects and drives up customer cost
- The report addresses the challenge by analyzing three alternative PPA structures:
- Capacity and Energy – Pricing includes capacity ($/MW-month) and energy ($/MWh) components. Solar developers could set pricing during an RFP process. Higher capacity payments reduce the curtailment risk that must be priced into bids
- Time-of-Day Pricing – Pricing for energy is lower (or even negative) during expected low-load periods (e.g., midday) and higher during peak periods (e.g., evening peak). A PPA price multiplier could be used to determine hourly pricing. The structure may also encourage development of solar plus storage
- Renewable Dispatch Generation – Pricing includes fixed monthly payment to ensure the project can obtain financing and a variable component ($/MWh) to cover O&M costs. The utility schedules the percentage of potential production to be used each day and controls output on a real-time basis. Undelivered available energy provides system reserves
Curtailment has often been a dirty word for renewable system owners, who stand to lose revenue with traditional solar PPA structures. Innovative new PPA approaches may allow new solar projects to provide additional value to the electric grid, thereby reducing price risk and increasing flexibility. In return, the financial arrangements can allow solar projects to remain profitable, even if operating below maximum capacity.
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