DLA_Energy_Request_for_Information_(RFI)_-_SMECO.pdf

DLA Energy Request for Information – SMECO

DLA Energy Request For Information - SMECO Page 1

This Request for Information (RFI) is for market research purposes. The Department of Navy (DON), through the office of Defense Logistics Agency Energy (DLA Energy) is seeking capability information from interested parties concerning the matters described below. In accordance with FAR 15.201(e), responses to this RFI are not offers and cannot be accepted by the Government to form a binding contract. This RFI is issued solely for information and planning purposes and does not constitute a solicitation for proposals. Your response to this notice will be treated as information only.

All responses received may be held for an extended period of time or destroyed. In no case will any responses be returned to the originator. DLA Energy will not provide reimbursement for costs incurred in responding to this RFI as all costs associated with responding to this RFI will be the sole responsibility of the responding party. Respondents are advised that DLA Energy is under no obligation to acknowledge receipt of the information received or provide feedback to respondents with respect to any information submitted under this RFI. Responses to this RFI do not bind DON or DLA Energy to any further actions related to this topic.

Background:

In 2012, the Secretary of the Navy (SECNAV) established a goal for DON to produce or procure 1 GW of new renewable generation by 2020. SECNAV accelerated the goal in March 2014, to require 500 MW of new, renewable capacity in procurement by December 2014, and another 500 MW in by December 2015. DON is considering a renewable energy procurement for the Patuxent River and Indian Head installations to provide price stability for a portion of our electricity portfolio, generate cost savings over term, and support renewable energy goals and mandates.

Naval Air Station (NAS) Patuxent River and Naval Surface Warfare Center (NSWC) Indian Head are located in the service territory of Southern Maryland Electric Cooperative (SMECO) and currently subscribe to SMECO’s Standard Offer Service for their electricity supply. DON is interested in exercising Customer Choice and procuring competitive energy supply. If a procurement results, DLA Energy will contract with a load serving entity (LSE)1 to provide 100% of electricity requirements (about 205,410 MWh/year) for Patuxent River and Indian Head, of which about 84,300 – 104,800 MWh/year of the requirement will be supplied by a new2, off-site energy production facility (EPF) for a period of up to 25 years3, beginning in 2017.

Since DON is required to be the first off-taker from a new facility, built as a result of the DON’s requirement, NEPA studies will be required on the private land secured by the LSE at the

1 DLA Energy can contract with a non-LSE provided that the contractor has a subcontractor, who is an LSE approved by the state. The Maryland Electricity Supplier Coordination Tariff defines a load serving entity (LSE) as “a PJM tariff term referring to an entity that has been granted the authority or has an obligation pursuant to State or local law, regulation or franchise to sell electric energy to end-users within the PJM control area.”

http://www.pepcoholdings.com/uploadedFiles/wwwpepcoholdingscom/Content/Page_Content/2015/DPL%20Maryl and%20Supplier%20Tariff%20effective%20060115.pdf.

2 A “new” renewable generation asset is defined as one from which the DON is the first off-taker of electrons upon project COD. The asset could be new in total, in part, or appended to an existing facility.

3 Maximum total term length is 30 years, including construction. Total term for production is up to 25 years.

http://www.pepcoholdings.com/uploadedFiles/wwwpepcoholdingscom/Content/Page_Content/2015/DPL%20Maryland%20Supplier%20Tariff%20effective%20060115.pdf http://www.pepcoholdings.com/uploadedFiles/wwwpepcoholdingscom/Content/Page_Content/2015/DPL%20Maryland%20Supplier%20Tariff%20effective%20060115.pdf

DLA Energy Request For Information - SMECO Page 2

Government’s cost. DON requires that the Renewable Energy Credits (RECs) directly associated with the project’s electrical generation be retired on behalf of DON or applied to state RPS requirements.

Description:

DLA Energy is requesting information concerning the potential feasibility of soliciting for a single load serving entity (LSE) to provide 100% of the electricity requirement for Patuxent River and Indian Head installations4, a portion of which would be renewable energy supplied under a fixed price Purchase Power Agreement (PPA) using either FAR Part 41 or 10 USC 2922a authority. The government is only interested in awarding a contract that is equal to or less than our current cost of electricity in each year of the contract term. The conventional energy component would be purchased from the real-time PJM market and priced at the hourly locational marginal price (LMP). DON is hoping to better understand whether industry is capable of meeting that requirement, for what term length, and if there are any challenges foreseen.

In addition, DLA Energy is requesting insight from industry regarding the expected costs associated with a procurement of an off-site EPF5 for Patuxent River and Indian Head, including both the cost of the renewable energy commodity, as well as all other market charges associated with delivery of the energy supply through the PJM market to SMECO’s distribution infrastructure. DON is interested in better understanding the factors and/or regulations that affect how individual other market charges change over time.

Information Requested

Market Research

1. Do you have experience delivering power to SMECO’s service territory, and if so, please describe the transaction. Specifically note if the transaction included renewable and/or conventional energy.

2. What challenges (i.e. legal, economic, technical, etc.), if any, might exist for an LSE to competitively supply energy into SMECO service territory, specifically to the Patuxent River and Indian Head installations?

4 SMECO has owned and operated Patuxent River’s electric system ever since it was privatized in 2009. Patuxent River has about 760 metered accounts. Indian Head is not privatized and has three accounts.

5 The Federal Aviation Administration (FAA) and Office of the Secretary of Defense (OSD) are aware of EPF impacts to Patuxent River operations. Per the Jun 11 2014 Under Secretary of Defense (Installations & Environment) memo, "Glint/Glare Issues on or near Department of Defense (DOD) Aviation Operations", any solar projects within Class D airspace (4.5 statue mile radius around the center of the airport) must evaluate mission compatibility, and if needed, provide sufficient encroachment mitigation for a Research, Development, Test and Evaluation (RDT&E) range above and beyond the existing commercial aviation requirements. If the project is a wind facility, DON requires it to be located a certain radius beyond Patuxent River to ensure Atlantic Test Range Compatibility in accordance with the DOD Siting Clearinghouse. http://greenfleet.dodlive.mil/rsc/pax-river-compatibility/.

http://greenfleet.dodlive.mil/rsc/pax-river-compatibility/ http://greenfleet.dodlive.mil/rsc/pax-river-compatibility/

DLA Energy Request For Information - SMECO Page 3

3. For what minimum term length would a fixed price PPA be acceptable for the renewable portion of the transaction? Is a 10-year term PPA too short for a new renewable project to be financed for this procurement? Are there any scenarios under which a 10-year term would be viable? What contract term length would you recommend to minimize cost to

DON?

4. Is the use of the Production Tax Credit (PTC) required to make the project financially viable? Under what circumstances (term length, project size, renewable technology, etc.)

is the PTC necessary? Not necessary?

5. What is the most likely renewable technology that could supply Patuxent River and Indian Head, and why is it is preferred? Are baseload renewable technologies viable in this market? Why or why not? If so, what type could meet this requirement?

6. What, if any, additional information would you like to see in the event that a solicitation was released?

Pricing Information

7. The potential procurement would include an annual purchase of about 205,410 MWh of electricity to Patuxent River and Indian Head, of which 84,300 – 104,800 MWh would be supplied from a new, off-site EPF.

Please complete the table below and provide the minimum acceptable PPA price that you could potentially offer for a renewable purchase of about 84,300 – 104,800 MWh/year, assuming the following contract term lengths listed and a 2% PPA escalation rate.

Responders will not be held to this pricing, and it is only requested for DON’s internal market research.

If you would prefer to include a range of acceptable PPA prices, please include information regarding what factors affect the determination of a minimum PPA price.

Term Length Purchase Quantity Range (MWh/year)

PPA

Escalation

Rate

Minimum PPA Price in Year 1

With Tax Credit ($/kWh)

Minimum PPA Price in Year 1 Without Tax

Credit ($/kWh) 10 years 84,300 - 104,800 2% 20 years 84,300 - 104,800 2% 25 years 84,300 - 104,800 2%

8. DON understands that there are other charges associated with the supply of both renewable and conventional energy to the SMECO distribution infrastructure beyond the cost of energy. Any other charges beyond that of the energy commodity (priced at the PPA price for renewable supply and the LMP for the convention supply) will be defined

DLA Energy Request For Information - SMECO Page 4 as “Other Market Charges.” Please review the list of anticipated Other Market Charges provided below and answer the following:

a. Which Other Market Charges listed below are applicable to this procurement?

b. Which Other Market Charges are not applicable to this procurement?

c. Does the list exclude any relevant Other Market Charges that DON would incur as a result of the procurement? If so, please list them.

List of Other Market Charges

• Renewable Portfolio Standards (RPS) - Cost associated with state RPS compliance

• Capacity - Cost to secure capacity to comply with PJM capacity requirements

• Transmission - Non-utility distribution company (UDC) transmission costs associated with each account and any credits to the Government from Auction Revenue Rights (ARRs) revenues

• Transmission Congestion and PJM Losses (“Congestion”) - Congestion charges for energy and load scheduled day-ahead shall be computed as the difference between the day-ahead LMPs at the renewable energy injection point and the day-ahead LMPs at the relevant delivery zone. The congestion charges for energy and load scheduled real-time shall be computed as the difference between the real-time LMPs at the renewable energy

• Ancillary Services - Cost to secure ancillary services to comply with PJM requirements

• Reliability Must Run - Reliability Must Run cost allocations compliant with PJM requirements

• UDC Losses - UDC losses associated with each account

9. Please complete the following table. Consider the following Other Market Charges and indicate the average price for each charge in the SMECO service territory in 2015. In addition, please provide the expected price for that same charge in 2017, as well as the factors and/or regulations that might affect how this charge changes over time.

DON recognizes that many of these Other Market Charges are not controlled by the LSE.

As such, it seems reasonable to allow for some charges to be identified as pass-through to DON, or at least fixed for a short period and reevaluated every few years. In the table, please indicate the maximum length of time for which each charge could potentially be fixed for this procurement, prior to being passed through or reevaluated.

If you indicated that any of these Other Market Charges were inapplicable to this procurement, simply insert “NA” into the table. If there are additional Other Market Charges that would be applicable, please add them to the empty cells in the table.

DLA Energy Request For Information - SMECO Page 5

Other Market Charge

Average Price in

($/MWh)

Expected Price in

($/MWh)

Factors / Regulations that Affect how this Price Changes Over

Time

Minimum Length of Time Charge Could be Fixed (Years)

Renewable Portfolio Standards

(RPS)

Capacity Transmission Transmission

Congestion and PJM Losses

Ancillary Services*

Reliability Must Run

UDC Losses

Total Cost

*Please see below for the complete list of charges included in Ancillary Services.

DLA Energy Request For Information - SMECO Page 6

Response Instructions:

Responses are to include:

- A brief summary of company background

- A complete list of answers to the questions listed above.

We also encourage any additional information that would help to make a project of this scope viable to industry. We will consider all information submitted in response to this request for information.

Business Sensitive, Proprietary, Or Otherwise Confidential Information:

As information received in response to this RFI may be used to structure future solicitations, if your company chooses to submit any business sensitive, proprietary, or otherwise confidential information, it must be marked as proprietary or restricted data in the response.

Response Date and Time:

Interested parties must provide the requested information by 12:00 pm (noon) ET, Friday, November 13, 2015. Emailed submissions are acceptable and should be sent to dlaenergy.rteam@dla.mil.

Other contact information is as follows:

DLA Energy DLA Energy Attn: Christopher Archer Attn: Brandee Hynson 8725 John J. Kingman Road 8725 John J. Kingman Road Suite 4950 Suite 4950 Fort Belvoir, VA 22060-6222 Fort Belvoir, VA 22060-6222 Phone: 703-767-9334 Phone: 703-767-1965 dlaenergy.rteam@dla.mil dlaenergy.rteam@dla.mil mailto:dlaenergy.rteam@dla.mil mailto:dlaenergy.rteam@dla.mil mailto:dlaenergy.rteam@dla.mil