Private Sector Engagement
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Introduction
Traditionally, transmission planners use exact locations of new generation plants to plan system expansion and upgrades. In the REZ process, there are no specific generation projects identified, so how can regulators know there is a robust need for the transmission?
The REZ process addresses uncertainty about where renewable energy projects will be built by adding economic analysis and engaging the private sector to “ground-truth,” or collect data on the feasibility of a probable project site.
Commercial interest and due diligence
The ultimate goal of the REZ process is to direct public transmission investment that provides the greatest benefit to end-use customers. Private-sector input is crucial to knowing whether such a public investment will actually be used to provide service in the most cost-effective manner. Therefore, a crucial step of the REZ process includes testing the strength of commercial interest in specific areas that are being considered for enhanced transmission access.
Private developers have valuable knowledge and information that can enhance decision-making. Technical analyses cannot capture the subjective factors that may influence a developer’s decision to build renewable energy projects in a specific zone. For example, local communities in one area might welcome development, while those in another area with comparable wind or solar resources might oppose it. Or, an area with high-quality renewable energy resources might have several culturally sensitive areas that by their nature cannot be pinpointed and mapped (to deter the looting of artifacts, for example). Developers often have such “street knowledge” about where projects can and cannot work.
Due diligence
Developers conduct due diligence investigations before deciding whether to begin a project in a specific area. Due diligence includes assessing risk as well as the available renewable energy resource potential. Factors that create uncertainty for the developer (such as the feasibility of developing in certain regions) pose a risk of delay, which can add to the cost of a project and can reduce the area’s relative competitiveness. Developers generally prefer locations with minimal investment uncertainties where they can earn returns more quickly.
In the REZ process, the step of assessing commercial interest involves gauging the status of developers’ due diligence. Earlier REZ steps screen and compare study areas based on their technical and economic resource potential; this step provides a ground-truth testing based on developers’ assessment of risks not captured earlier in the REZ process.
Tangible demonstration of interest
Directly engaging with developers is crucial to identify potential REZ areas. Planners must gain tangible and verifiable demonstrations of interest, since developer’s might say “yes” to all possibilities if no costs were associated with their response. Even with no intention of building in certain areas, the developer still may have a strategic reason to suggest interest, if only to keep competitors guessing about the actual location of the planned development.
Valid indicators of commercial interest are those that cost the developer money. They can include the previous development of other projects in the area, purchase of lease options from landowners, interconnection requests with the transmission utility, and other types of payments or agreements made to secure the right to develop a project. The willingness of a developer to spend money in anticipation of development is based in part on the developer’s due diligence.
Examples of indicators of commercial interest may include:
- Existing renewable energy projects or measurement stations
- Pending or signed interconnection agreements
- Other projects undergoing an interconnection study or request with transmission utilities
- Leasing agreements with landowners
- Letters of credit from a bank or financial institution
- Other indicators for which developers have provided evidence as indication of financial commitment.
Acceptable indicators of interest should be identified in advance. Not only does doing so provide public transparency, it provides a standard list of metrics that allow information to be aggregated and systematically compared across all REZ study areas.
Confidentiality concerns
Much of what a developer discovers through due diligence is competitively sensitive. Therefore, the task of collecting and summarizing tangible indicators of developer interest should be done by an entity with the authority to protect sensitive information. This can be the regulator, which normally accepts and protects sensitive information in the course of ratemakings, permitting, and other functions.
The regulator, under an umbrella of confidentiality, aggregates the information for each study area in a way that provides a public summary, increasing transparency and confidence in the planning activity. The underlying data specific to a particular site or developer remain protected.
The ultimate outcome
Successfully completing this step of the REZ process can help avoid burdening the public and end-use customers with wasted, unused capital investments. Areas with little demonstrated commercial interest can be removed from consideration, allowing more focused analysis on the remaining areas (“Candidate REZs”) under consideration in the REZ process.
Case Study Example: Texas Competitive Renewable Energy Zones (CREZ) Initiative
Candidate REZs are a subset of study areas that have high-quality resources and demonstrated proof of commercial interest. The Texas CREZ initiative screened areas with high-quality resources that were feasible for development (see renewable energy resource and technical potential assessments) to identify areas with 4,000 megawatts (MW) or more of potential wind capacity. The 25 most productive of these areas were then bundled into study areas with similar electricity generation profiles. The regulator (Public Utility Commission of Texas) then invited private wind developers to demonstrate their financial interest.
The two maps below depict this process of comparing commercial interest for candidate zone selection in the Texas CREZ. The map on the left shows the tangible demonstrations of interest provided by private developers (i.e., existing, signed, and pending interconnection agreements) for the 25 REZ study areas. The map on the right highlights the outputs of this process—the 10 candidate REZs with the highest levels of interest are outlined in red (ERCOT 2006).
Figure. Candidate zone selection in the Texas CREZ
Reading list and case studies
Analysis of Transmission Alternatives for Competitive Renewable Energy Zones in Texas: Attachment A
Electric Reliability Council of Texas, 2006
This report provides an overview of the process used by Texas utility, the Electric Reliability Council of Texas (ERCOT), to identify REZs within its territory. After identifying areas with the highest wind-resource potential, ERCOT engaged private sector power developers to gauge which of these high resource areas stood the greatest likelihood of future development. For this, they sought financial commitment as evidence of the developer’s interest in the REZs.
Renewable Energy Zone (REZ) Transmission Planning Process: A Guidebook for Practitioners
National Renewable Energy Laboratory, 2017
Step 3 of the REZ transmission planning process guidebook focuses on engaging the private sector to guide transmission development to the candidate zones with the highest likelihood of renewable energy development. This step provides a level of certainty that development will occur in the chosen REZs and that any investment in transmission lines would be used and these costs could be recovered. Developers are invited to demonstrate financial or commercial interest in the zones to be included in transmission development plans.
Germanwatch in support of BESTGRID, 2015
Public participation and engagement is necessary in effective grid expansion planning. This guide provides a best-practices framework for meaningfully incorporating these stakeholders. It highlights the importance of involving power generators and renewable energy power generators as stakeholders in the project, both in performing a needs assessment and transmission line corridor and route planning. It highlights several examples of successful and unsuccessful European projects and how their outcome relied on the implemented stakeholder engagement process.
Webinars
Implementing Renewable Energy Zones for Integrated Transmission and Generation Planning
Greening the Grid, 2015
In many countries, integrating significant renewable energy to the grid requires new transmission to access the best wind and solar resources and accommodate generation from large projects. The REZ approach provides a policy framework for planning new transmission to encourage utility-scale renewable energy development in areas with the highest likelihood of being cost-effective. This presentation provides an overview of the REZ process, highlighting the process by which transmission lines can be built in a competitive market by allowing private developers to guide the location selection.
International Energy Agency, 2016
Aimed at using sustainable energy to increase energy security and power growth globally, this webinar promotes private sector engagement and offers opportunities for increasing its engagement . It provides an overview of some of the tools IEA has developed to interact with and engage the private sector in clean energy projects. Among these are the Transport Mobility Model and the IEA’s various technology collaboration programs, which are a way for public and private to work together to promote new energy technologies. The webinar also highlights the creation of private sector advisory boards within the IEA, including the Energy Business Council and Renewable Energy Advisory Board, which engage the private sector to facilitate dissemination of IEA findings on the energy industry.