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Renewables Integration on Islands
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Renewables Integration on Islands
24 Toshiki Bruce Tsuchida The Brattle Group
1. Introduction Increasing generation from renewable energy sources (RES), represented mostly by wind and solar photovoltaic (PV) technology, has been a global trend with many large interconnected systems showcasing the successful integration of these indigenous and variable resources. Small island systems face different and more complex challenges when diversifying their generation portfolio to include these alternative resources. This chapter focuses on the integration of RES for island systems with peak demand below a few hundred megawatts (MWs). While the discussion and illustration may center around systems for physical islands located in tropical regions, such as the Caribbean and Hawaii, similar systems can be found in remote coastal or even inland areas (for example, there are over 180 electrically isolated communities in Alaska), military bases, mines, and other rural settlements. Lessons can be applied to grid resiliency or for various jurisdictions of smaller scale, such as cities and communities that are seeking alternative options for achieving ambitious renewable energy targets.1 Since the early days of electrification, power generation in island systems, with the exception of those with hydro or geothermal resources, has largely depended on resourcesdmostly reciprocating internal combustion engines (RICE units)dfueled by imported oil because of the ease of transportation and storage compared to other fuels [1]. However, the high and volatile oil prices experienced in the last decade have wreaked havoc on many island economies. The oil price impact on island systems is magnified because the transportation means for delivery (ships and barges to physical islands, trucks to remote inland locations, and planes to extreme isolated areas) are also oil based. Some island nations view reducing reliance on imported oil as a path towards achieving energy independencedoften as part of a larger national security strategy. Oil prices also have macroeconomic impacts. Statistics for tourismintensive economies in the Caribbean indicate that a 10% increase in real oil price reduces real gross domestic product (GDP) growth by 0.5% points over 5 years and real effective exchange rate by 2.8% points over 5 years [2]. Environmental concerns accompany these high and volatile fuel costs. Many islands estimate that roughly two-thirds of their greenhouse gas (GHG) emissions come from the power sector and another quarter from transportation. Globally, increased GHG emissions contribute to climate change. The immediate impact of warmer temperature associated with climate change for tropical islands is higher 1
One such alternative is the Community Choice Aggregation option that has been adopted into law in seven U.S. states: California, Illinois, Massachusetts, New Jersey, New York, Ohio, and Rhode Island. Renewable Energy Integration. http://dx.doi.org/10.1016/B978-0-12-809592-8.00024-X Copyright © 2017 Lawrence E. Jones. Published by Elsevier Inc. All rights reserved.
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electricity demand through increased usage of air conditioners (A/C), potentially leading to higher costs. Climate change is also believed to cause risks of rising sea levels and increased frequency and severity of tropical storms, which pose serious environmental threats to island communities. Fishing, an important industry for many islands, is impacted significantly by climate change and associated environmental degradation. Islands are generally sensitive to GHG emissions and resulting climate change; and although the direct environmental impact of its own GHG emission on any island is negligible, the perceived consequences of global climate change on islands raise the awareness of its inhabitants regarding their own contribution to the problem and its solution. Furthermore, the long-term macroeconomic impact of climate change is significant. Studies in the Caribbean indicate that the effects of climate change could cost the region up to 5% of GDP in 2025 and almost 22% of GDP by 2100 [3]. These economic and environmental concerns naturally lead to social and political pressures on island utilities to reduce dependency on imported fossil fuel and to seek alternative options with lower and more stable costs. Fortunately, many islands have great RES potentialdthe most prominent opportunities being wind and solar resources. Utility-scale wind power has become recognized as one of the lowest cost resources in recent years, and many leading island communities are exploring its potential [4e6]. The scalability, transportability, and ease of installments have also made PV a popular option, especially for tropical islands that have high solar insolation year round. The short-run marginal costs of wind and PV resources are virtually zero; so when contrasted against the fuel cost of traditional thermal generators, the avoided fuel costs will more than likely cover the comparatively higher capital costs of these alternative resources. Therefore replacing power produced from imported fossil fuel addresses both the power cost and environmental concerns and has become a popular political agenda. Examples of such political goals include the following: • • • • • •
The Hawaiian Clean Energy Initiative aiming for 100% of delivered energy to come from renewable resources by 2045; The U.S. Virgin Islands aiming to reduce fossil energy consumption by 60% by 2025; Aruba aiming at becoming 100% oil free by 2020; Saint Lucia targeting renewable energy penetration level of 35% by 2020; Bermuda’s GHG reduction goal that translates to generating 30% of electricity from renewable resources by 2020; and The Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS) adopted by Caribbean Communities (CARICOM) aiming at 47% renewable power capacity, 33% reduction in energy intensity through energy efficiency, and 36% reduction in CO2 emission, all by 2027.
While these policies developed among different island communities are not identical, most define successful renewable integration as utilizing the potential of the variable resources with minimum curtailment, resulting in maximum reduction of fossil fuel usage and the overall operating cost of generation. Unlike the island jurisdictions within the United States where federal tax incentives or grants could support investments, RES projects on island nations need to be economically viable without subsidies. The high power cost on these islands is helping to make renewable energy economically competitive.
2. Lessons from renewable integration in larger systems Numerous renewable integration studies have been completed in the past two decades. Many start with assessing the operational characteristics of RES, so system operators can maintain the reliability of the
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power system. Once the operational characteristics are understood and further the technical capabilities of these resources are improved, the study focus typically shifts to the economic viability of integrating RESdhow to best utilize increasing amounts of these variable resources at least cost. At very low penetration levels, the cost of integrating these alternative resourcesdthe cost for the system to react to unexpected output changes from RESdtends to be negligible because the fluctuation of RES output is small compared to the normal variability in load. However, increasing the penetration level eventually necessitates costly operational and potentially investment changes to accommodate the larger aggregate fluctuations from RES and load (combined, net load) to keep the system in balance (i.e., to ensure that production equals consumption at all times). The prevailing framework for RES integration is centered around utilizing the flexibility of traditional generation resources (in many cases fossil fuel based) that are capable of modulating their output to counterbalance the net load variability associated with increased RES. While the specific methods and assumptions may vary, many studies point to improving ancillary service products (including reassessing their quantity) as one of the most cost-effective solutions to provide adequate response to the increasing magnitude and faster rate of output fluctuations from RES, but also to the production deviation from forecast. Studies, including those focused on islands, have identified opportunities to increase the flexibility of existing resources through retrofits, changes in operational procedures, or by adding new flexible resources of various types including storage. Retrofit options discussed for islands include improving dynamic response through increasing ramp rates, reducing minimum output levels of existing generation resources, or increasing unit responsiveness, and may include upgrading fuel types to those that allow more flexible operations (such as replacing heavy fuel oil with liquefied natural gas). Changes in operational processes include the redesign of ancillary service requirements or the move towards shorter dispatch cyclesdsuch as dispatching resources on 5-min intervals as generally observed in liberalized wholesale markets in the United States and Europedto reduce the uncertainty and duration of the period (and therefore the overall quantity) for which ancillary services need to be provided. Small-scale portable storage technologies, such as batteries and flywheels, have been recognized as key solutions for RES integration in island systems.2 At the same time, technologies used for RES by themselves have improved and many newer resources can themselves provide the various grid support services through certain ancillary services.3 For example, many of the new wind turbines today have capabilities to ride through lowvoltage events rather than disconnecting and can provide frequency, inertia, and voltage control. The advanced electronics coupled with RES allows operators to control the output at a faster rate (milliseconds rather than seconds) and more accurately compared to conventional synchronous generator resources. These advanced electronics can also control the inertia provided while inertia responses from conventional synchronous generator resources are typically uncontrolled. In addition to enhancing ancillary services, studies for larger interconnected systems often highlight better regional coordination that confers diversification benefits of both supply and demand. Regional coordination reduces net load variability and associated forecast deviation because it diversifies both the 2 These new storage technologies do not require land mass and can be installed quickly (within months, compared to years for new generation resources) even at remote locations and be designed to provide various services, including ancillary services and dynamic grid support. 3 There are other reliability contributions, such as (even if partially) capacity contribution toward meeting resource adequacy goals.
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load and renewable profiles while allowing the system operator to seek the needed flexibility from a larger pool of resources.4 A larger pool of resource also diversifies fuel and may reduce the price volatility risk associated with any single fuel. Furthermore, interconnected systems can share operating reserves with their neighbors. A robust transmission system is often seen as key to such coordination [7]. Some studies highlight the benefits of expanding the region itself, aiming for further increased diversification benefits [8]. Regional coordination backed by a robust transmission system may have additional benefits, such as increasing market competition and improving network resiliency, hence such decisions are typically made in conjunction with other objectives. However, island systems with no external connections cannot enjoy these regional coordination benefits. Island systems operate autonomously, and the continuous balancing of the system can only be addressed by the operational flexibility provided through ancillary services from internal resources. Therefore there is a distinct correlation between reduction in renewable curtailment and resulting economic benefits, and system flexibility (including reducing forecast deviation) for island systems as illustrated in Figure 1.
3. Small scale of islands magnifies the challenges The small scale of island systems exacerbates the technical challenge of securing operational flexibility and other grid services needed for renewable integration. Island loads are generally small with little diversity. The load profiles, especially for those located in tropic areas with mild and constant weather, tend to be smooth and predictable with modest growth over years. For example, on islands where tourism is the main industry, the A/C load could account for nearly two-thirds of the island load. A/C load is highly correlated with temperature, which is readily forecasted, and does not grow year by year unless the number of residential dwellings and/or hotels to accommodate tourists increases. These islands
FIGURE 1 Operational flexibility and renewable energy sources integration. (For color version of this figure, the reader is referred to the online version of this book.) 4 Renewable production profiles across different geographic locations are not perfectly correlated and the correlation declines with geographic distance. Hence, the combined variability of RES decreases by pooling assets in different locations, with benefits generally increasing the further apart the resources are located, or the more diverse the geography around them.
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typically have little annual change in load outside of the tourism industry. Load profiles for other types of island systems, such as military bases and mines, are oftentimes based on the known schedule and needs of the corresponding industry and share similar characteristics. Thus, many island systems do not have difficult load forecasting problems. Generation resources for these island systems, mostly oil-fueled RICE units, have been designed to serve these small, smooth, and predictable loads, i.e., without needing much operational flexibility. The usage of heavy fuel oilda fuel known for its high viscositydin some islands further limits the RICE units’ ramping rates, operating ranges, and overall responsiveness.5,6 There are islands where existing RICE units cannot provide regulation. Furthermore, island generators are developed with small capacities for both economic and operational reasons.7 First, smaller generators are easier to transport and install. Generators, along with the heavy construction machinery required for installation, have to be imported. The ease and associated cost of transportation and installation are key factors for the generation resource selection. Second, the small incremental growth of island loads only requires small units to match it. Third, system planners limit generator capacities to avoid exaggerating the largest contingency in the system. Should a generator become the largest contingency, it could increase operating reserve needs.8 Many island systems are approaching renewable integration with these operationally limited resources. The long-term planning for RES on islands needs to account for these short-term operational limitations, unless additional means to provide or aid operational flexibility are identified. Island systems’ flexibility requirements (as a percentage of load) are typically higher than those of interconnected systems because they lack the diversity benefits for both supply and demand resources.9 Operating reserve quantity can often be larger than the combined capacity of the two largest resources, which is rarely the case for interconnected systems.10 For example, the operating reserve quantity for the Maui system is determined by three wind plants’ combined output, which is driven by wind conditions. Some islands tend to lose wind when it rains, and therefore the operating reserve requirements for RES are even higher, with weather conditions (i.e., rain in this example) becoming the large contingency (that leads to the loss of production from both wind and PV).11 RES that have 5 Gas fuel provides the greatest flexibility and solid fuels provide the least flexibility for furnace/combustion control. Out of all liquid fuels, heavy fuel oil, the heaviest commercial fuel obtained from crude oil, is the closest to solid fuel. Heavy fuel oil is the remnants of the crude oil refining process and requires preheating to be used as liquid fuel. The higher viscosity also causes issues such as start-up failures for RICE units (by the pistons “sticking”). Light fuel oil, which can cost nearly as twice as much as heavy fuel oil, provides more flexibility than heavy fuel oil. 6 New RICE units fueled by natural gas today have wide operating ranges (roughly 20% to 100% of its capacity) and ramping rates of nearly 20 MW per minute. So a 10-MW RICE unit can operate between 2 MW and 10 MW and adjust its output within that range with less than a minute. By comparison, heavy fuel oil-fueled RICE units have a much smaller operating range (roughly 70% to 100% of its capacity), only allowing the same 10-MW RICE unit to operate between 7 MW and 10 MW, providing only 3 MW of flexibility. 7 Sometimes the island size and geological characteristics by themselves do not allow for building larger size plants. 8 Islands seeking proposals for RES often limit their capacity to be developed for the same reason. 9 Islands also require higher capacity reserve margins (i.e., excess generation capacity over peak load). For example, the Hawaiian systems require about twice as much margin when compared to continental U.S. [13]. 10 Operating reserve quantities in many of the U.S. interconnected systems are around 150% of the systems’ largest plant. 11 Loss of wind has been observed for even larger regions. ERCOT, which covers nearly 75% of Texas (or over 200,000 square miles), has experienced times (hours or longer) when essentially all of the wind production in its region is lost, or returns to high power, over short time frames [14]. England lost all its power from wind because a widespread storm made wind blow too hard, above the operating limits of the plants [15].
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limited rotating mass replacing thermal generators with inertia exacerbate fluctuations in frequency. As such, some island systems require developers of variable resources to also secure means to provide ancillary services, such as through storage equipment.12 Looking beyond integration to resource adequacy and energy economics, one of the main renewable integration purposes is to lower power costs by displacing generation from fossil fuel. The amount of electricity produced by a given RES capacity can vary significantly over longer time periods. For example, wind generation for a given island can differ (between a strong and a weak wind year) by over 60%. If RES are to put a reliable cap on the annual cost of generation, planners likely need to err on the side of overbuilding renewables, such as by considering output during a weak wind year. Combined with this operation versus planning dilemma is the difficulty of optimizing capacity and installation costs. With small loads, a single plant can account for a very large portion of an island resource mix and immediately lead to a very high renewable penetration level. For example, installing ten 3-MW wind turbines in a system with a 80 MW peak load will raise the wind penetration level (the amount of energy being served by wind) from 0% to over 30%da penetration level higher than most interconnected systemsdwithin the few months of installation.13 However, smaller installations will increase the unit cost (per MW cost) dramatically because there are substantial fixed costs associated with installing wind turbines; mobilization costs of the heavy construction equipment and shipping costs of the turbines themselves significantly increase the per unit capital costs required to install wind plants on islands as the number of units installed declines.14 Therefore, any economically sized (from the installation cost perspective) wind plant could easily lead to high wind penetration with overall system impact from variability and forecast uncertainty being acute. It could also lead to significant drop in available flexibility because the RES by themselves replace the traditional generation resources that are providing the flexibility and other grid services needed to integrate the variable resources. Island system planners face multidimensional difficulties in determining the optimal RES capacity. Despite these technical challenges, many islands have successfully launched their first utility-scale RES project. However, they have been hesitant to move to subsequent projects because of the various issues associated with higher renewable penetration levels. The global rise of distributed energy resources (DERs) is contributing to this slowdown. Led by the progress of PV, DERs installed on customer premises, or “behind the meter,” are less visible and less controllable by system operators, creating additional challenges for balancing the system.15 Today, many system operators are becoming aware of the growth in DERs and are trying to incorporate the associated uncertainty in their operations. Here again, the small scale of islands exacerbates the challenge. The higher power prices on islands lead to a higher degree of large and affluent customers installing DERs, which then leads to a 12
Hokkaido Electric (operates in the northern island of Japan), Maui, and Puerto Rico are examples where the utilities required such means. 13 This example assumes 50% annual capacity factor of wind (average hourly output of 15 MW) and average load factor of 60% (average load is 60% of peak load or 48 MW), resulting in 31.25% (15/48 ¼ 0.3125) of the load being served by wind on average. 14 For example, consider the rent cost of large cranes (and other heavy equipment) for installation. Assume it takes 4 days for shipping the crane to the island (8 days round-trip) and the crane can install one wind turbine per day. Building one turbine will require 9 days of the crane (9 crane days per turbine plus the entire shipping cost) and building 10 turbines will require 18 days of the crane (1.8 crane days per turbine plus 1/10 of the shipping cost). In this example, the per turbine cost will be significantly lower (1/5 of the crane rent cost and 1/10 of the crane shipping cost) when building ten turbines. 15 PV is the most obvious resource that is oftentimes located behind the meter partially because of its scalability: a small PV panel can generate just as much electricity per unit of surface as a larger one.
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lower but more volatile net load served by the utility, effectively increasing the renewable penetration level and associated operational challenges. The prominent difficulty of pursuing higher penetration levels (through subsequent renewable projects) at the project level is the diminishing return. Early projects usually provide solid economic benefits but also use up most of the limited existing operational flexibility. Therefore the subsequent projects face larger curtailment risks and have diminishing benefits (associated with reducing fossil fuel usage) unless means to provide the needed flexibility and grid services are added. Many islands have sought technical remedies from storage technologies. While the cost of storage is still considered high in many interconnected systems, the even higher cost of power produced with imported fuel oil justifies the use of storage more easily in islands when used in conjunction with RES. With the technical solution at hand, the question becomes who pays for it. Most islands require external funding for RES projects and seek international investments. In many cases, early projects are driven by low-cost funding from large international organizations, such as the United Nations or the World Bank, and therefore funding issues can be addressed, at least initially. For subsequent projects, islands need to deal with the developers directly. Developers generally view island business as riskier for a number of reasons. First the market risk is higher. The market size is limited and yet there is no good exit strategy should the business outcome turn unfavorable.16 In addition to the power market risks, island investments face local macroeconomic risks. Second, the policy risk and associated currency risk are generally higher. These risks are further aggravated because many small island nations do not have well-defined business legislature and regulations. Because typical market-based options are rarely feasible (due to the small scale of island markets), the standardized internal due diligence approach of developers often need customized adjustments.17 These conditions all lead to a higher risk premium that may sway away smaller developers, leaving only large international conglomerates with higher risk tolerance. The power balance between the multinational conglomerates and small cash-stranded islands often leads to a negotiation dilemma of allocating the benefits and costs of the RES projects between the investor and the island utility (and ultimately the end-use customersdthe island residents). A deal that result in the foreign entity reaping all benefits with little left for the island end-use customers will be viewed as a failure by island residents. Therefore, one of the criteria for measuring success in island renewables becomes the reduction in end-use customer costdeffectively measuring the level of price suppression. Price suppression contributes mostly toward increasing consumers’ surplus, rather than maximizing the total economic surplus (the combination of producers’surplus and consumers’surplus, representing the societal benefit)da metric that is commonly used in large interconnected systems.18 Another dilemma is associated with maintaining the financial health of the island utility. Maintaining the utility’s financial health is critical for sustaining the system with higher renewable 16 A generation asset installed on an island cannot practically sell to a different market. In the continental U.S. there are several examples of generators “switching” from one market to an adjacent market because the outcome of the initial market was unfavorable compared to the prospect of the second market. 17 For islands, the development of clear policy frameworks and compensation schemes (incentives and streamlined procedures) on which investors (mostly foreign) can build a solid business plan to access the necessary finance is another challenge because of their limited resources, particularly, qualified human resources for planning, implementation, and execution. 18 Project evaluation by many system operators in the United States today include (and oftentimes are centered around) production cost-reduction benefits, which captures the total economic benefits, rather than the level of price suppression, which only captures the consumers’ benefits.
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penetration levels. The ownership and contract of the renewable assets have implications to the utility’s revenue. Utility tariffs are oftentimes volumetric and hence proportional to the quantity of power served (i.e., produced and sold) by the utility. If RES is not utility-owned but the power is contractually sold to the utility, it erodes the utility’s net revenue for covering its own costs. Furthermore, the contracts, typically power purchase agreements or lease agreements, are with a fixed price (so the developer can recoup its investment cost), leaving the utility vulnerable to price risk (i.e., when oil prices go down the utility still has to pay the fixed price, even if generating by burning oil is cheaper). At the same time, if the utility is still responsible as the provider of last resort to consumer at all times, it needs to maintain some of the traditional generator resources (even if they do not produce any power throughout the year) for unanticipated events when the RES become unavailable.19 All this ends up raising the power rates or impacting the financial health of the utility. The impact of renewable resources on island utility’s business extends even further. Island utilities oftentimes have subtle roles, including leading national policy and R&D initiatives, functioning as a budget allocation/collection agency on behalf of the government and creating jobs for island residents.20 RES displacing thermal generation can lead to job losses for the island utilitiesdthe operation and maintenance crew for RICE units far outweigh that needed for a wind or PV plant.
4. Change in approach Recognizing these intertwined technical and nontechnical challenges, several of the leading islands are exploring alternative means to integrate RES. Islands are developing a more holistic vision for accommodating larger amounts of the alternative resources at lower total system cost, by coplanning the electricity sector with other sectors of the economy. In many cases, this holistic vision started with attempts to increase the overall island load to accommodate RES. Higher load does not typically reduce consumption of fossil fuel or GHG emissions. However, increasing load with other beneficial infrastructure can reduce the renewable curtailment and therefore lower the average cost of electricity, while increasing the sales revenues for the utilities. Oftentimes it also helps maintain utility jobs, which in the long run can help the island economy. Various innovative attempts have been made to increase electric loadsdexamples include electrifying ports and requesting ships to charge power from the island grid rather than keep running their diesel engines while docked, electrifying the transportation sector by introducing electric vehicles (EVs) in both the public and private sectors, and cooptimizing power production and water desalination, another key island nation industry that is energy intensive. Some islands have tried to increase load flexibility as renewable penetration levels increase. This is done by creating a more centrally coordinated load management system and associated opportunities for customers to be compensated for providing various system services. Using EVs as a source of flexibility (such as during charging) is one example that many island studies discuss and recommend. Using water desalination as a potential buffer for flexibility is also being considered. While the tradeoff between the efficiency of desalination process and curtailing renewable resources is still being debated, several islands have recognized new investment opportunities to cooptimize the two 19
Capacity reserve margins for islands are much higher than those for interconnected systems [13]. Some islands add “trash collection fees” to utility bills because people will try to avoid taxes but pay utility bills without much delay. 20
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industriesdsuch as occasions where upgrading the water desalination equipment is economically viable when the benefits of both the power and water industry is considered, but not when only one of the industry is assessed. This leads to better allocation of the island budget and resources, potentially relievingdalbeit by a small amountdthe financial limitations. Several island utilities have been seeking opportunities with hotelsdadding two-way communication tools to control the A/C (or heating) load and using thermal storage to provide the needed flexibility to integrate renewables (i.e., turning off or increasing the A/C for a short time will not affect the room temperature). This approach and associated infrastructure upgrades are ideally performed at the moment when the hotels are replacing their aging A/C equipment and the utility and hotels share the cost. The same approach can be used for heating needs at colder locations, such as isolated systems in rural Alaska.21 There are examples of building excess RES (compared to the original electricity needs), adding electric heating (while maintaining the oil-based heating as a backup), and utilizing electric heating to provide the flexibility for integrating RES while reducing fossil fuel consumption originally used for heating. In these examples, the fuel oil reduction can be quite significant with some systems reducing their total fuel oil usage (including transportation fuels) by nearly 50% [9]. Other innovative types of demand response programs, such as adjusting street lights to manage system variability (and emergency situations), have been explored. The proliferation of smarter infrastructure, much of it deployed at the customer site (smart meters, smart thermostats, smart appliances, all enabled by smarter software), could enable participation of increasing amounts of demand in activities that help mitigate the variability of renewable generation.22 Improving price signals to end users, for example, in the form of time-varying retail tariff structures and means to compensate end users for providing ancillary services, are oftentimes discussed as incentives to provide demand response along with tariff change suggestions that ideally reflect the real-time marginal costs rather than the average cost over a longer period. However, the homogenous generation resource of islands using the same fuel type often does not provide enough marginal cost difference that results in price signals to incentivize demand response. Given this nature of the island resource mix and the political difficulty of changing tariffs, some island utilities have therefore entertained the idea of giving out rebates to compensate for such services.23 Effectively these islands are creating a microgrid at a slightly larger scale than the typical microgrid found in interconnected systems. This integrated energy infrastructure with both load and energy resources covers everything from power generation, storage, system control (including measurements and management), conversion, and consumption in a holistic way. A typical microgrid development, while closely tied to local (i.e., national) policy decisions and regulatory framework, oftentimes resembles and requires the adaptation of the power system framework, which traditionally has been based on a centralized model. In some ways, islands are more adaptable to accommodate the development of microgrids because the electricity industries are largely still vertically integrated without liberalized markets and still maintain the centralized decision-making structure. Furthermore, the small scale results 21 Other examples from rural Alaska include adding a heat recovery system that captures excess heat from the power plant and transfers to the water plant, which reduced oil consumption by a significant amount. This example does not help integrate renewables but supports the overall objective of introducing renewablesdto lower fossil fuel usage and lower GHG emissions. 22 Many island residents may not be able to afford these means. However, the larger more affluent commercial end users, such as resort hotels, have shown interest in these measures and can afford them. 23 In many jurisdictions, regulators typically provide flexibility in interpreting legislature. Some islands do not have dedicated regulators and therefore the utilities are governed directly by legislature, leaving limited flexibility [1].
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in very limited distinction between transmission and distribution for planning, operations, and even regulatory framework, allowing for more coordination, regardless of the interconnection location and type of the renewable resources.24 These approaches represent a framework that differs significantly from the traditional renewable integration framework. Rather than addressing the challenges associated with incrementally growing RES capacity, it takes into account the broader ultimate objectives of renewable integration, such as to reduce economy-wide reliance on imported fuel oil and GHG emissions. This more holistic approach therefore evolves to encompass other sectors, such as buildings (space and water cooling/heating) and transportation, which traditionally were not part of the planning and operating role of traditional utilities. RES and other resources crossing over different sectors are coplanned and codeveloped. Okinawa, for example, has introduced policies aimed at enhancing the development and manufacturing industry’s network of smaller EVs (EVs are more optimized for the narrow and often winding island roads) [10]. The policy effectively combines the attempt to increase electric load and economic development. As the island examples illustrate, RES are no longer considered a marginal add-on. The holistic approach sustains the island utility’s financial health and jobs, provides opportunities to better optimize budgets among the currently subdivided sectors, and has the potential to avoid further grid defection while providing other benefits, such as economic development. These innovative approaches that represent a different framework for renewable integration have started to gain recognition in interconnected systems as well. For instance, New York City’s 80 50 initiative is one such integrated effort across sectorsdbuildings, energy, and transportationdto achieve 80% reduction in GHG emissions by 2050 (thus 80 50). A number of other cities around the world, including Berlin, Copenhagen, and Vancouver have committed to essentially 100% renewable energy use and at least 80% GHG reductions by mid-century [11]. In these examples, the phrase “alternative” energy source no longer applies because the entire system is designed around RES, with wind and solar often being the largest component. However, these efforts are still at smaller system levels, such as cities, rather than system-wide for a large interconnected system. Island innovations may be useful models for these urban initiatives.
5. Conclusion The technical and socioeconomic challenges of RES integration faced by islands today may not yet be relevant for larger systems. However, the combination of improving economics of wind and PV resources and climate change-related policies worldwide will likely require most existing fossil fuel-based resources to be replaced with nonemitting resources over the next few decades. Discussions and negotiations at the United Nations Framework Convention on Climate Change have led over 190 countries to sign (and over 110 countries to ratify) the Paris Agreement that calls for such global GHG emission reductions [12]. The agreement aiming at zero net emissions by 2050 indicates that the future generation portfolio is viewed globally to be largely comprised of non-GHG emitting renewable resources, with wind and solar being the leading technologies (absent breakthroughs of other technologies). Therefore the various technological challenges faced by islands today that are associated with high renewable penetration levels discussed throughout this chapter will become relevant to larger interconnected 24
One of the difficulties faced in the United States is the jurisdiction border between the federal agencies regulating transmission (wholesale) and the state agencies regulating distribution (retail).
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systems. And the socioeconomic issues faced by islands today, while the degree may not be as acute and will vary system by system, are likely to emerge in larger interconnected systems as well. The holistic approach being explored by leading islands todaydan approach that no longer sees RES as an alternative, or add-on, but rather the center of developmentdmagnifies the interaction of the numerous issues that are treated separately from renewables in interconnected grids, ranging from smart grid, distributed generation, climate policy, and system resilience to storage technologies, and will likely be adopted globally in the near future. Island systems are being made a test bed for innovative technologies that can potentially shape the future of large interconnected systems.
References [1] Country profiles. Clean Energy Info Portal e reegle. http://www.reegle.info/index.php. [Assessed October 2016]. [2] International Monetary Fund Working Paper. Caribbean energy: macro-related challenges. March 2016. [3] Turner-Jones Therese. Inter-American development bank, why we need a long-term strategy for investment in clean energy. Caribbean Renewable Energy Forum 2016 presentation. October 2016. [4] Lazard levelized cost of energy analysis 9.0. https://www.lazard.com/media/2390/lazards-levelized-cost-ofenergy-analysis-90.pdf. [Accessed November 2016]. [5] International Renewable Energy Agency. Renewable power generation costs in 2014. http://www.irena.org/ DocumentDownloads/Publications/IRENA_RE_Power_Costs_2014_report.pdf. [Accessed January 2017]. [6] International Renewable Energy Agency. A path to prosperity: renewable energy for islands. 3rd ed. http:// www.irena.org/DocumentDownloads/Publications/IRENA_Path_to_Prosperity_Islands_2016.pdf. [Accessed January 2017]. [7] National Renewable Energy Laboratory. Eastern renewable generation integration study. http://www.nrel. gov/docs/fy16osti/64472.pdf. [Accessed November 2016]. [8] Leaders’ Statement on a North American Climate. Clean energy, and environment partnership. https:// obamawhitehouse.archives.gov/the-press-office/2016/06/29/leaders-statement-north-american-climate-cleanenergy-and-environment. [Accessed January 2017]. [9] Several examples are available from the Alaska Native Tribal Health Consortium website. https://anthc.org/ what-we-do/rural-energy/case-studies/. [Accessed November 2016]. [10] Deregulation plan for the Japanese electric industry. Ministry of Economic Trade and Industry. http://www. meti.go.jp/committee/sougouenergy/kihonseisaku/denryoku_system/seido_sekkei_wg/pdf/04_05_05.pdf. [Accessed July 2016]. [11] For an overview of 100% renewable energy cities and efforts, see http://www.go100percent.org/cms/. [Accessed November 2016]. [12] United Nations Framework Convention on Climate Change. The Paris Agreement. http://unfccc.int/paris_ agreement/items/9485.php. [Accessed November 2016]. [13] Nexant. Caribbean regional electricity generation, interconnection, and fuels supply strategy. http://documents. worldbank.org/curated/en/2011/03/13747269/caribbean-regional-electricitygeneration-interconnection-fuelssupply-strategy. [Accessed July 2016]. [14] Konrad Tom. Why geographic diversification smooths wind power. April 2011. http://www.renewableenergy world.com/articles/2011/04/why-geographic-diversification-smooths-wind-power.html [Accessed November 2016]. [15] Jonathan Dennis, The University of Queensland Australia, Large centralised renewable generation final report. http://escornwall.com.au/reports/final-report-jonathan-dennis.pdf. [Accessed November 2016].
Renewables Integration on Islands
24 Toshiki Bruce Tsuchida The Brattle Group
1. Introduction Increasing generation from renewable energy sources (RES), represented mostly by wind and solar photovoltaic (PV) technology, has been a global trend with many large interconnected systems showcasing the successful integration of these indigenous and variable resources. Small island systems face different and more complex challenges when diversifying their generation portfolio to include these alternative resources. This chapter focuses on the integration of RES for island systems with peak demand below a few hundred megawatts (MWs). While the discussion and illustration may center around systems for physical islands located in tropical regions, such as the Caribbean and Hawaii, similar systems can be found in remote coastal or even inland areas (for example, there are over 180 electrically isolated communities in Alaska), military bases, mines, and other rural settlements. Lessons can be applied to grid resiliency or for various jurisdictions of smaller scale, such as cities and communities that are seeking alternative options for achieving ambitious renewable energy targets.1 Since the early days of electrification, power generation in island systems, with the exception of those with hydro or geothermal resources, has largely depended on resourcesdmostly reciprocating internal combustion engines (RICE units)dfueled by imported oil because of the ease of transportation and storage compared to other fuels [1]. However, the high and volatile oil prices experienced in the last decade have wreaked havoc on many island economies. The oil price impact on island systems is magnified because the transportation means for delivery (ships and barges to physical islands, trucks to remote inland locations, and planes to extreme isolated areas) are also oil based. Some island nations view reducing reliance on imported oil as a path towards achieving energy independencedoften as part of a larger national security strategy. Oil prices also have macroeconomic impacts. Statistics for tourismintensive economies in the Caribbean indicate that a 10% increase in real oil price reduces real gross domestic product (GDP) growth by 0.5% points over 5 years and real effective exchange rate by 2.8% points over 5 years [2]. Environmental concerns accompany these high and volatile fuel costs. Many islands estimate that roughly two-thirds of their greenhouse gas (GHG) emissions come from the power sector and another quarter from transportation. Globally, increased GHG emissions contribute to climate change. The immediate impact of warmer temperature associated with climate change for tropical islands is higher 1
One such alternative is the Community Choice Aggregation option that has been adopted into law in seven U.S. states: California, Illinois, Massachusetts, New Jersey, New York, Ohio, and Rhode Island. Renewable Energy Integration. http://dx.doi.org/10.1016/B978-0-12-809592-8.00024-X Copyright © 2017 Lawrence E. Jones. Published by Elsevier Inc. All rights reserved.
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electricity demand through increased usage of air conditioners (A/C), potentially leading to higher costs. Climate change is also believed to cause risks of rising sea levels and increased frequency and severity of tropical storms, which pose serious environmental threats to island communities. Fishing, an important industry for many islands, is impacted significantly by climate change and associated environmental degradation. Islands are generally sensitive to GHG emissions and resulting climate change; and although the direct environmental impact of its own GHG emission on any island is negligible, the perceived consequences of global climate change on islands raise the awareness of its inhabitants regarding their own contribution to the problem and its solution. Furthermore, the long-term macroeconomic impact of climate change is significant. Studies in the Caribbean indicate that the effects of climate change could cost the region up to 5% of GDP in 2025 and almost 22% of GDP by 2100 [3]. These economic and environmental concerns naturally lead to social and political pressures on island utilities to reduce dependency on imported fossil fuel and to seek alternative options with lower and more stable costs. Fortunately, many islands have great RES potentialdthe most prominent opportunities being wind and solar resources. Utility-scale wind power has become recognized as one of the lowest cost resources in recent years, and many leading island communities are exploring its potential [4e6]. The scalability, transportability, and ease of installments have also made PV a popular option, especially for tropical islands that have high solar insolation year round. The short-run marginal costs of wind and PV resources are virtually zero; so when contrasted against the fuel cost of traditional thermal generators, the avoided fuel costs will more than likely cover the comparatively higher capital costs of these alternative resources. Therefore replacing power produced from imported fossil fuel addresses both the power cost and environmental concerns and has become a popular political agenda. Examples of such political goals include the following: • • • • • •
The Hawaiian Clean Energy Initiative aiming for 100% of delivered energy to come from renewable resources by 2045; The U.S. Virgin Islands aiming to reduce fossil energy consumption by 60% by 2025; Aruba aiming at becoming 100% oil free by 2020; Saint Lucia targeting renewable energy penetration level of 35% by 2020; Bermuda’s GHG reduction goal that translates to generating 30% of electricity from renewable resources by 2020; and The Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS) adopted by Caribbean Communities (CARICOM) aiming at 47% renewable power capacity, 33% reduction in energy intensity through energy efficiency, and 36% reduction in CO2 emission, all by 2027.
While these policies developed among different island communities are not identical, most define successful renewable integration as utilizing the potential of the variable resources with minimum curtailment, resulting in maximum reduction of fossil fuel usage and the overall operating cost of generation. Unlike the island jurisdictions within the United States where federal tax incentives or grants could support investments, RES projects on island nations need to be economically viable without subsidies. The high power cost on these islands is helping to make renewable energy economically competitive.
2. Lessons from renewable integration in larger systems Numerous renewable integration studies have been completed in the past two decades. Many start with assessing the operational characteristics of RES, so system operators can maintain the reliability of the
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power system. Once the operational characteristics are understood and further the technical capabilities of these resources are improved, the study focus typically shifts to the economic viability of integrating RESdhow to best utilize increasing amounts of these variable resources at least cost. At very low penetration levels, the cost of integrating these alternative resourcesdthe cost for the system to react to unexpected output changes from RESdtends to be negligible because the fluctuation of RES output is small compared to the normal variability in load. However, increasing the penetration level eventually necessitates costly operational and potentially investment changes to accommodate the larger aggregate fluctuations from RES and load (combined, net load) to keep the system in balance (i.e., to ensure that production equals consumption at all times). The prevailing framework for RES integration is centered around utilizing the flexibility of traditional generation resources (in many cases fossil fuel based) that are capable of modulating their output to counterbalance the net load variability associated with increased RES. While the specific methods and assumptions may vary, many studies point to improving ancillary service products (including reassessing their quantity) as one of the most cost-effective solutions to provide adequate response to the increasing magnitude and faster rate of output fluctuations from RES, but also to the production deviation from forecast. Studies, including those focused on islands, have identified opportunities to increase the flexibility of existing resources through retrofits, changes in operational procedures, or by adding new flexible resources of various types including storage. Retrofit options discussed for islands include improving dynamic response through increasing ramp rates, reducing minimum output levels of existing generation resources, or increasing unit responsiveness, and may include upgrading fuel types to those that allow more flexible operations (such as replacing heavy fuel oil with liquefied natural gas). Changes in operational processes include the redesign of ancillary service requirements or the move towards shorter dispatch cyclesdsuch as dispatching resources on 5-min intervals as generally observed in liberalized wholesale markets in the United States and Europedto reduce the uncertainty and duration of the period (and therefore the overall quantity) for which ancillary services need to be provided. Small-scale portable storage technologies, such as batteries and flywheels, have been recognized as key solutions for RES integration in island systems.2 At the same time, technologies used for RES by themselves have improved and many newer resources can themselves provide the various grid support services through certain ancillary services.3 For example, many of the new wind turbines today have capabilities to ride through lowvoltage events rather than disconnecting and can provide frequency, inertia, and voltage control. The advanced electronics coupled with RES allows operators to control the output at a faster rate (milliseconds rather than seconds) and more accurately compared to conventional synchronous generator resources. These advanced electronics can also control the inertia provided while inertia responses from conventional synchronous generator resources are typically uncontrolled. In addition to enhancing ancillary services, studies for larger interconnected systems often highlight better regional coordination that confers diversification benefits of both supply and demand. Regional coordination reduces net load variability and associated forecast deviation because it diversifies both the 2 These new storage technologies do not require land mass and can be installed quickly (within months, compared to years for new generation resources) even at remote locations and be designed to provide various services, including ancillary services and dynamic grid support. 3 There are other reliability contributions, such as (even if partially) capacity contribution toward meeting resource adequacy goals.
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load and renewable profiles while allowing the system operator to seek the needed flexibility from a larger pool of resources.4 A larger pool of resource also diversifies fuel and may reduce the price volatility risk associated with any single fuel. Furthermore, interconnected systems can share operating reserves with their neighbors. A robust transmission system is often seen as key to such coordination [7]. Some studies highlight the benefits of expanding the region itself, aiming for further increased diversification benefits [8]. Regional coordination backed by a robust transmission system may have additional benefits, such as increasing market competition and improving network resiliency, hence such decisions are typically made in conjunction with other objectives. However, island systems with no external connections cannot enjoy these regional coordination benefits. Island systems operate autonomously, and the continuous balancing of the system can only be addressed by the operational flexibility provided through ancillary services from internal resources. Therefore there is a distinct correlation between reduction in renewable curtailment and resulting economic benefits, and system flexibility (including reducing forecast deviation) for island systems as illustrated in Figure 1.
3. Small scale of islands magnifies the challenges The small scale of island systems exacerbates the technical challenge of securing operational flexibility and other grid services needed for renewable integration. Island loads are generally small with little diversity. The load profiles, especially for those located in tropic areas with mild and constant weather, tend to be smooth and predictable with modest growth over years. For example, on islands where tourism is the main industry, the A/C load could account for nearly two-thirds of the island load. A/C load is highly correlated with temperature, which is readily forecasted, and does not grow year by year unless the number of residential dwellings and/or hotels to accommodate tourists increases. These islands
FIGURE 1 Operational flexibility and renewable energy sources integration. (For color version of this figure, the reader is referred to the online version of this book.) 4 Renewable production profiles across different geographic locations are not perfectly correlated and the correlation declines with geographic distance. Hence, the combined variability of RES decreases by pooling assets in different locations, with benefits generally increasing the further apart the resources are located, or the more diverse the geography around them.
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typically have little annual change in load outside of the tourism industry. Load profiles for other types of island systems, such as military bases and mines, are oftentimes based on the known schedule and needs of the corresponding industry and share similar characteristics. Thus, many island systems do not have difficult load forecasting problems. Generation resources for these island systems, mostly oil-fueled RICE units, have been designed to serve these small, smooth, and predictable loads, i.e., without needing much operational flexibility. The usage of heavy fuel oilda fuel known for its high viscositydin some islands further limits the RICE units’ ramping rates, operating ranges, and overall responsiveness.5,6 There are islands where existing RICE units cannot provide regulation. Furthermore, island generators are developed with small capacities for both economic and operational reasons.7 First, smaller generators are easier to transport and install. Generators, along with the heavy construction machinery required for installation, have to be imported. The ease and associated cost of transportation and installation are key factors for the generation resource selection. Second, the small incremental growth of island loads only requires small units to match it. Third, system planners limit generator capacities to avoid exaggerating the largest contingency in the system. Should a generator become the largest contingency, it could increase operating reserve needs.8 Many island systems are approaching renewable integration with these operationally limited resources. The long-term planning for RES on islands needs to account for these short-term operational limitations, unless additional means to provide or aid operational flexibility are identified. Island systems’ flexibility requirements (as a percentage of load) are typically higher than those of interconnected systems because they lack the diversity benefits for both supply and demand resources.9 Operating reserve quantity can often be larger than the combined capacity of the two largest resources, which is rarely the case for interconnected systems.10 For example, the operating reserve quantity for the Maui system is determined by three wind plants’ combined output, which is driven by wind conditions. Some islands tend to lose wind when it rains, and therefore the operating reserve requirements for RES are even higher, with weather conditions (i.e., rain in this example) becoming the large contingency (that leads to the loss of production from both wind and PV).11 RES that have 5 Gas fuel provides the greatest flexibility and solid fuels provide the least flexibility for furnace/combustion control. Out of all liquid fuels, heavy fuel oil, the heaviest commercial fuel obtained from crude oil, is the closest to solid fuel. Heavy fuel oil is the remnants of the crude oil refining process and requires preheating to be used as liquid fuel. The higher viscosity also causes issues such as start-up failures for RICE units (by the pistons “sticking”). Light fuel oil, which can cost nearly as twice as much as heavy fuel oil, provides more flexibility than heavy fuel oil. 6 New RICE units fueled by natural gas today have wide operating ranges (roughly 20% to 100% of its capacity) and ramping rates of nearly 20 MW per minute. So a 10-MW RICE unit can operate between 2 MW and 10 MW and adjust its output within that range with less than a minute. By comparison, heavy fuel oil-fueled RICE units have a much smaller operating range (roughly 70% to 100% of its capacity), only allowing the same 10-MW RICE unit to operate between 7 MW and 10 MW, providing only 3 MW of flexibility. 7 Sometimes the island size and geological characteristics by themselves do not allow for building larger size plants. 8 Islands seeking proposals for RES often limit their capacity to be developed for the same reason. 9 Islands also require higher capacity reserve margins (i.e., excess generation capacity over peak load). For example, the Hawaiian systems require about twice as much margin when compared to continental U.S. [13]. 10 Operating reserve quantities in many of the U.S. interconnected systems are around 150% of the systems’ largest plant. 11 Loss of wind has been observed for even larger regions. ERCOT, which covers nearly 75% of Texas (or over 200,000 square miles), has experienced times (hours or longer) when essentially all of the wind production in its region is lost, or returns to high power, over short time frames [14]. England lost all its power from wind because a widespread storm made wind blow too hard, above the operating limits of the plants [15].
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limited rotating mass replacing thermal generators with inertia exacerbate fluctuations in frequency. As such, some island systems require developers of variable resources to also secure means to provide ancillary services, such as through storage equipment.12 Looking beyond integration to resource adequacy and energy economics, one of the main renewable integration purposes is to lower power costs by displacing generation from fossil fuel. The amount of electricity produced by a given RES capacity can vary significantly over longer time periods. For example, wind generation for a given island can differ (between a strong and a weak wind year) by over 60%. If RES are to put a reliable cap on the annual cost of generation, planners likely need to err on the side of overbuilding renewables, such as by considering output during a weak wind year. Combined with this operation versus planning dilemma is the difficulty of optimizing capacity and installation costs. With small loads, a single plant can account for a very large portion of an island resource mix and immediately lead to a very high renewable penetration level. For example, installing ten 3-MW wind turbines in a system with a 80 MW peak load will raise the wind penetration level (the amount of energy being served by wind) from 0% to over 30%da penetration level higher than most interconnected systemsdwithin the few months of installation.13 However, smaller installations will increase the unit cost (per MW cost) dramatically because there are substantial fixed costs associated with installing wind turbines; mobilization costs of the heavy construction equipment and shipping costs of the turbines themselves significantly increase the per unit capital costs required to install wind plants on islands as the number of units installed declines.14 Therefore, any economically sized (from the installation cost perspective) wind plant could easily lead to high wind penetration with overall system impact from variability and forecast uncertainty being acute. It could also lead to significant drop in available flexibility because the RES by themselves replace the traditional generation resources that are providing the flexibility and other grid services needed to integrate the variable resources. Island system planners face multidimensional difficulties in determining the optimal RES capacity. Despite these technical challenges, many islands have successfully launched their first utility-scale RES project. However, they have been hesitant to move to subsequent projects because of the various issues associated with higher renewable penetration levels. The global rise of distributed energy resources (DERs) is contributing to this slowdown. Led by the progress of PV, DERs installed on customer premises, or “behind the meter,” are less visible and less controllable by system operators, creating additional challenges for balancing the system.15 Today, many system operators are becoming aware of the growth in DERs and are trying to incorporate the associated uncertainty in their operations. Here again, the small scale of islands exacerbates the challenge. The higher power prices on islands lead to a higher degree of large and affluent customers installing DERs, which then leads to a 12
Hokkaido Electric (operates in the northern island of Japan), Maui, and Puerto Rico are examples where the utilities required such means. 13 This example assumes 50% annual capacity factor of wind (average hourly output of 15 MW) and average load factor of 60% (average load is 60% of peak load or 48 MW), resulting in 31.25% (15/48 ¼ 0.3125) of the load being served by wind on average. 14 For example, consider the rent cost of large cranes (and other heavy equipment) for installation. Assume it takes 4 days for shipping the crane to the island (8 days round-trip) and the crane can install one wind turbine per day. Building one turbine will require 9 days of the crane (9 crane days per turbine plus the entire shipping cost) and building 10 turbines will require 18 days of the crane (1.8 crane days per turbine plus 1/10 of the shipping cost). In this example, the per turbine cost will be significantly lower (1/5 of the crane rent cost and 1/10 of the crane shipping cost) when building ten turbines. 15 PV is the most obvious resource that is oftentimes located behind the meter partially because of its scalability: a small PV panel can generate just as much electricity per unit of surface as a larger one.
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lower but more volatile net load served by the utility, effectively increasing the renewable penetration level and associated operational challenges. The prominent difficulty of pursuing higher penetration levels (through subsequent renewable projects) at the project level is the diminishing return. Early projects usually provide solid economic benefits but also use up most of the limited existing operational flexibility. Therefore the subsequent projects face larger curtailment risks and have diminishing benefits (associated with reducing fossil fuel usage) unless means to provide the needed flexibility and grid services are added. Many islands have sought technical remedies from storage technologies. While the cost of storage is still considered high in many interconnected systems, the even higher cost of power produced with imported fuel oil justifies the use of storage more easily in islands when used in conjunction with RES. With the technical solution at hand, the question becomes who pays for it. Most islands require external funding for RES projects and seek international investments. In many cases, early projects are driven by low-cost funding from large international organizations, such as the United Nations or the World Bank, and therefore funding issues can be addressed, at least initially. For subsequent projects, islands need to deal with the developers directly. Developers generally view island business as riskier for a number of reasons. First the market risk is higher. The market size is limited and yet there is no good exit strategy should the business outcome turn unfavorable.16 In addition to the power market risks, island investments face local macroeconomic risks. Second, the policy risk and associated currency risk are generally higher. These risks are further aggravated because many small island nations do not have well-defined business legislature and regulations. Because typical market-based options are rarely feasible (due to the small scale of island markets), the standardized internal due diligence approach of developers often need customized adjustments.17 These conditions all lead to a higher risk premium that may sway away smaller developers, leaving only large international conglomerates with higher risk tolerance. The power balance between the multinational conglomerates and small cash-stranded islands often leads to a negotiation dilemma of allocating the benefits and costs of the RES projects between the investor and the island utility (and ultimately the end-use customersdthe island residents). A deal that result in the foreign entity reaping all benefits with little left for the island end-use customers will be viewed as a failure by island residents. Therefore, one of the criteria for measuring success in island renewables becomes the reduction in end-use customer costdeffectively measuring the level of price suppression. Price suppression contributes mostly toward increasing consumers’ surplus, rather than maximizing the total economic surplus (the combination of producers’surplus and consumers’surplus, representing the societal benefit)da metric that is commonly used in large interconnected systems.18 Another dilemma is associated with maintaining the financial health of the island utility. Maintaining the utility’s financial health is critical for sustaining the system with higher renewable 16 A generation asset installed on an island cannot practically sell to a different market. In the continental U.S. there are several examples of generators “switching” from one market to an adjacent market because the outcome of the initial market was unfavorable compared to the prospect of the second market. 17 For islands, the development of clear policy frameworks and compensation schemes (incentives and streamlined procedures) on which investors (mostly foreign) can build a solid business plan to access the necessary finance is another challenge because of their limited resources, particularly, qualified human resources for planning, implementation, and execution. 18 Project evaluation by many system operators in the United States today include (and oftentimes are centered around) production cost-reduction benefits, which captures the total economic benefits, rather than the level of price suppression, which only captures the consumers’ benefits.
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penetration levels. The ownership and contract of the renewable assets have implications to the utility’s revenue. Utility tariffs are oftentimes volumetric and hence proportional to the quantity of power served (i.e., produced and sold) by the utility. If RES is not utility-owned but the power is contractually sold to the utility, it erodes the utility’s net revenue for covering its own costs. Furthermore, the contracts, typically power purchase agreements or lease agreements, are with a fixed price (so the developer can recoup its investment cost), leaving the utility vulnerable to price risk (i.e., when oil prices go down the utility still has to pay the fixed price, even if generating by burning oil is cheaper). At the same time, if the utility is still responsible as the provider of last resort to consumer at all times, it needs to maintain some of the traditional generator resources (even if they do not produce any power throughout the year) for unanticipated events when the RES become unavailable.19 All this ends up raising the power rates or impacting the financial health of the utility. The impact of renewable resources on island utility’s business extends even further. Island utilities oftentimes have subtle roles, including leading national policy and R&D initiatives, functioning as a budget allocation/collection agency on behalf of the government and creating jobs for island residents.20 RES displacing thermal generation can lead to job losses for the island utilitiesdthe operation and maintenance crew for RICE units far outweigh that needed for a wind or PV plant.
4. Change in approach Recognizing these intertwined technical and nontechnical challenges, several of the leading islands are exploring alternative means to integrate RES. Islands are developing a more holistic vision for accommodating larger amounts of the alternative resources at lower total system cost, by coplanning the electricity sector with other sectors of the economy. In many cases, this holistic vision started with attempts to increase the overall island load to accommodate RES. Higher load does not typically reduce consumption of fossil fuel or GHG emissions. However, increasing load with other beneficial infrastructure can reduce the renewable curtailment and therefore lower the average cost of electricity, while increasing the sales revenues for the utilities. Oftentimes it also helps maintain utility jobs, which in the long run can help the island economy. Various innovative attempts have been made to increase electric loadsdexamples include electrifying ports and requesting ships to charge power from the island grid rather than keep running their diesel engines while docked, electrifying the transportation sector by introducing electric vehicles (EVs) in both the public and private sectors, and cooptimizing power production and water desalination, another key island nation industry that is energy intensive. Some islands have tried to increase load flexibility as renewable penetration levels increase. This is done by creating a more centrally coordinated load management system and associated opportunities for customers to be compensated for providing various system services. Using EVs as a source of flexibility (such as during charging) is one example that many island studies discuss and recommend. Using water desalination as a potential buffer for flexibility is also being considered. While the tradeoff between the efficiency of desalination process and curtailing renewable resources is still being debated, several islands have recognized new investment opportunities to cooptimize the two 19
Capacity reserve margins for islands are much higher than those for interconnected systems [13]. Some islands add “trash collection fees” to utility bills because people will try to avoid taxes but pay utility bills without much delay. 20
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industriesdsuch as occasions where upgrading the water desalination equipment is economically viable when the benefits of both the power and water industry is considered, but not when only one of the industry is assessed. This leads to better allocation of the island budget and resources, potentially relievingdalbeit by a small amountdthe financial limitations. Several island utilities have been seeking opportunities with hotelsdadding two-way communication tools to control the A/C (or heating) load and using thermal storage to provide the needed flexibility to integrate renewables (i.e., turning off or increasing the A/C for a short time will not affect the room temperature). This approach and associated infrastructure upgrades are ideally performed at the moment when the hotels are replacing their aging A/C equipment and the utility and hotels share the cost. The same approach can be used for heating needs at colder locations, such as isolated systems in rural Alaska.21 There are examples of building excess RES (compared to the original electricity needs), adding electric heating (while maintaining the oil-based heating as a backup), and utilizing electric heating to provide the flexibility for integrating RES while reducing fossil fuel consumption originally used for heating. In these examples, the fuel oil reduction can be quite significant with some systems reducing their total fuel oil usage (including transportation fuels) by nearly 50% [9]. Other innovative types of demand response programs, such as adjusting street lights to manage system variability (and emergency situations), have been explored. The proliferation of smarter infrastructure, much of it deployed at the customer site (smart meters, smart thermostats, smart appliances, all enabled by smarter software), could enable participation of increasing amounts of demand in activities that help mitigate the variability of renewable generation.22 Improving price signals to end users, for example, in the form of time-varying retail tariff structures and means to compensate end users for providing ancillary services, are oftentimes discussed as incentives to provide demand response along with tariff change suggestions that ideally reflect the real-time marginal costs rather than the average cost over a longer period. However, the homogenous generation resource of islands using the same fuel type often does not provide enough marginal cost difference that results in price signals to incentivize demand response. Given this nature of the island resource mix and the political difficulty of changing tariffs, some island utilities have therefore entertained the idea of giving out rebates to compensate for such services.23 Effectively these islands are creating a microgrid at a slightly larger scale than the typical microgrid found in interconnected systems. This integrated energy infrastructure with both load and energy resources covers everything from power generation, storage, system control (including measurements and management), conversion, and consumption in a holistic way. A typical microgrid development, while closely tied to local (i.e., national) policy decisions and regulatory framework, oftentimes resembles and requires the adaptation of the power system framework, which traditionally has been based on a centralized model. In some ways, islands are more adaptable to accommodate the development of microgrids because the electricity industries are largely still vertically integrated without liberalized markets and still maintain the centralized decision-making structure. Furthermore, the small scale results 21 Other examples from rural Alaska include adding a heat recovery system that captures excess heat from the power plant and transfers to the water plant, which reduced oil consumption by a significant amount. This example does not help integrate renewables but supports the overall objective of introducing renewablesdto lower fossil fuel usage and lower GHG emissions. 22 Many island residents may not be able to afford these means. However, the larger more affluent commercial end users, such as resort hotels, have shown interest in these measures and can afford them. 23 In many jurisdictions, regulators typically provide flexibility in interpreting legislature. Some islands do not have dedicated regulators and therefore the utilities are governed directly by legislature, leaving limited flexibility [1].
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in very limited distinction between transmission and distribution for planning, operations, and even regulatory framework, allowing for more coordination, regardless of the interconnection location and type of the renewable resources.24 These approaches represent a framework that differs significantly from the traditional renewable integration framework. Rather than addressing the challenges associated with incrementally growing RES capacity, it takes into account the broader ultimate objectives of renewable integration, such as to reduce economy-wide reliance on imported fuel oil and GHG emissions. This more holistic approach therefore evolves to encompass other sectors, such as buildings (space and water cooling/heating) and transportation, which traditionally were not part of the planning and operating role of traditional utilities. RES and other resources crossing over different sectors are coplanned and codeveloped. Okinawa, for example, has introduced policies aimed at enhancing the development and manufacturing industry’s network of smaller EVs (EVs are more optimized for the narrow and often winding island roads) [10]. The policy effectively combines the attempt to increase electric load and economic development. As the island examples illustrate, RES are no longer considered a marginal add-on. The holistic approach sustains the island utility’s financial health and jobs, provides opportunities to better optimize budgets among the currently subdivided sectors, and has the potential to avoid further grid defection while providing other benefits, such as economic development. These innovative approaches that represent a different framework for renewable integration have started to gain recognition in interconnected systems as well. For instance, New York City’s 80 50 initiative is one such integrated effort across sectorsdbuildings, energy, and transportationdto achieve 80% reduction in GHG emissions by 2050 (thus 80 50). A number of other cities around the world, including Berlin, Copenhagen, and Vancouver have committed to essentially 100% renewable energy use and at least 80% GHG reductions by mid-century [11]. In these examples, the phrase “alternative” energy source no longer applies because the entire system is designed around RES, with wind and solar often being the largest component. However, these efforts are still at smaller system levels, such as cities, rather than system-wide for a large interconnected system. Island innovations may be useful models for these urban initiatives.
5. Conclusion The technical and socioeconomic challenges of RES integration faced by islands today may not yet be relevant for larger systems. However, the combination of improving economics of wind and PV resources and climate change-related policies worldwide will likely require most existing fossil fuel-based resources to be replaced with nonemitting resources over the next few decades. Discussions and negotiations at the United Nations Framework Convention on Climate Change have led over 190 countries to sign (and over 110 countries to ratify) the Paris Agreement that calls for such global GHG emission reductions [12]. The agreement aiming at zero net emissions by 2050 indicates that the future generation portfolio is viewed globally to be largely comprised of non-GHG emitting renewable resources, with wind and solar being the leading technologies (absent breakthroughs of other technologies). Therefore the various technological challenges faced by islands today that are associated with high renewable penetration levels discussed throughout this chapter will become relevant to larger interconnected 24
One of the difficulties faced in the United States is the jurisdiction border between the federal agencies regulating transmission (wholesale) and the state agencies regulating distribution (retail).
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systems. And the socioeconomic issues faced by islands today, while the degree may not be as acute and will vary system by system, are likely to emerge in larger interconnected systems as well. The holistic approach being explored by leading islands todaydan approach that no longer sees RES as an alternative, or add-on, but rather the center of developmentdmagnifies the interaction of the numerous issues that are treated separately from renewables in interconnected grids, ranging from smart grid, distributed generation, climate policy, and system resilience to storage technologies, and will likely be adopted globally in the near future. Island systems are being made a test bed for innovative technologies that can potentially shape the future of large interconnected systems.
References [1] Country profiles. Clean Energy Info Portal e reegle. http://www.reegle.info/index.php. [Assessed October 2016]. [2] International Monetary Fund Working Paper. Caribbean energy: macro-related challenges. March 2016. [3] Turner-Jones Therese. Inter-American development bank, why we need a long-term strategy for investment in clean energy. Caribbean Renewable Energy Forum 2016 presentation. October 2016. [4] Lazard levelized cost of energy analysis 9.0. https://www.lazard.com/media/2390/lazards-levelized-cost-ofenergy-analysis-90.pdf. [Accessed November 2016]. [5] International Renewable Energy Agency. Renewable power generation costs in 2014. http://www.irena.org/ DocumentDownloads/Publications/IRENA_RE_Power_Costs_2014_report.pdf. [Accessed January 2017]. [6] International Renewable Energy Agency. A path to prosperity: renewable energy for islands. 3rd ed. http:// www.irena.org/DocumentDownloads/Publications/IRENA_Path_to_Prosperity_Islands_2016.pdf. [Accessed January 2017]. [7] National Renewable Energy Laboratory. Eastern renewable generation integration study. http://www.nrel. gov/docs/fy16osti/64472.pdf. [Accessed November 2016]. [8] Leaders’ Statement on a North American Climate. Clean energy, and environment partnership. https:// obamawhitehouse.archives.gov/the-press-office/2016/06/29/leaders-statement-north-american-climate-cleanenergy-and-environment. [Accessed January 2017]. [9] Several examples are available from the Alaska Native Tribal Health Consortium website. https://anthc.org/ what-we-do/rural-energy/case-studies/. [Accessed November 2016]. [10] Deregulation plan for the Japanese electric industry. Ministry of Economic Trade and Industry. http://www. meti.go.jp/committee/sougouenergy/kihonseisaku/denryoku_system/seido_sekkei_wg/pdf/04_05_05.pdf. [Accessed July 2016]. [11] For an overview of 100% renewable energy cities and efforts, see http://www.go100percent.org/cms/. [Accessed November 2016]. [12] United Nations Framework Convention on Climate Change. The Paris Agreement. http://unfccc.int/paris_ agreement/items/9485.php. [Accessed November 2016]. [13] Nexant. Caribbean regional electricity generation, interconnection, and fuels supply strategy. http://documents. worldbank.org/curated/en/2011/03/13747269/caribbean-regional-electricitygeneration-interconnection-fuelssupply-strategy. [Accessed July 2016]. [14] Konrad Tom. Why geographic diversification smooths wind power. April 2011. http://www.renewableenergy world.com/articles/2011/04/why-geographic-diversification-smooths-wind-power.html [Accessed November 2016]. [15] Jonathan Dennis, The University of Queensland Australia, Large centralised renewable generation final report. http://escornwall.com.au/reports/final-report-jonathan-dennis.pdf. [Accessed November 2016].