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Palo Alto's Power Portfolio

Uploaded: Jul 9, 2023

Palo Alto is currently reviewing its power portfolio and developing a plan to guide procurement in the coming decades. Senior Resource Planner Jim Stack gave an update to the Utilities Advisory Commission last week. No one from the public spoke at the July 5 meeting, so I’ll go over the content here to see if you have any comments or questions. Don’t worry, it’s more interesting than it sounds!

The City of Palo Alto Utilities (CPAU) owns or contracts for several different sources of electricity. Regulations constrain the mix that forms our power portfolio. The state sets rules for energy, capacity, and renewable purchases. (1) Energy refers to the amount of electricity measured in MWh. CPAU contracts for enough low-emission energy to meet its 100% carbon-neutral goal. (2) The energy the city purchases also has to meet annual renewable targets, which include 44% by 2024, 52% by 2027, and 60% by 2030. (Not all low-emission energy is considered renewable, specifically large hydropower and nuclear.) Third, the city has to ensure that energy is made available when and where it’s most needed. This “capacity” or “Resource Adequacy” rule requires power providers to buy enough power to match peak use every month (plus a reserve), and to buy some power that is local (in case of transmission issues) and that is flexible (can ramp up quickly). These Resource Adequacy constraints do not perfectly match demand with supply (for example, there is no hourly match requirement), and indeed the regulators are constantly adjusting (tightening) these rules to ensure the lights stay on. Power that meets these Resource Adequacy requirements is referred to as “Net Qualifying Capacity”. Every power provider must purchase enough of it. (3)

The energy contracts that CPAU currently has active are shown below. You can see that the primarily solar plus hydropower portfolio produces about 1000 GWh of energy each year in long-term contracts, enough to meet Palo Alto’s annual energy use. About 60% of that is renewable, more than enough to meet state requirements. The contracts also produce about 280 MW of Net Qualifying Capacity, again more than we need. (4) We can and do sell excess renewable credits and capacity to keep our rates low and to fund our electrification efforts.

Palo Alto’s current electric supply portfolio. Source: Palo Alto Utilities Advisory Commission presentation, July 2023. I made corrections to the nameplate capacity in a few cases to reflect that we only get a partial share.

So our portfolio is meeting our needs. But are we getting good value for our money? The utility staff worked with consultant Ascend Analytics to evaluate the portfolio, comparing the costs (what Palo Alto is paying) to the benefits projected by the consultant’s models (the forecast value of the energy, capacity, and renewable credits). The chart below shows what they found. If you add up the projected value of the energy (column 3), the renewable credit (column 4), and the capacity (column 5) for each contract, and then compare it to the cost (column 2), we are in the money on most of our contracts (column 6). Just two solar and two landfill gas contracts are projected to fall short.

The cost (column 2) of our contracts is in most cases less than the value (columns 3-5), as shown in column 6. Source: Palo Alto Utilities Advisory Commission presentation, July 2023.

You can see that our Collierville hydropower project is proving to be a particularly good value. That was not the case until recently, but today its ability to store power and release it at opportune times (“flexible hydropower”) is proving quite valuable. The federal hydropower project that we have been in contract with is not as flexible (5) and will have different terms, but staff has tentatively concluded that it is good value for the money. Palo Alto will continue to get much of its energy from these two large hydropower plants. (Our large federal hydropower contract is not listed here, presumably because we are still evaluating it.)

There are a couple of interesting things if you look at energy data from the two charts. See the table below.

The value of a GWh of energy varies between projects, as shown in the fourth column. Data source: Palo Alto Utilities Advisory Commission presentation, July 2023.

Solar energy is worth less than wind, which is worth less than geothermal, landfill gas and hydropower. That is because the value of energy depends on when it is available. Geothermal (for example) is available at more valuable times than solar. But there is substantial variability within a category as well. How can that be? That is because the energy value is determined not only by how much energy is produced and when, but also where it is produced. The Ox Mountain and San Joaquin landfill gas projects both create about $2.3M in energy value per year even though Ox Mountain produces almost 50% more energy. It could be that San Joaquin is in a region with transmission constraints, where local power is more valuable.

It's also interesting to look more closely at the capacity numbers. The nameplate capacity is the maximum power that a plant can produce at a given time. The net qualifying capacity (NQC) is how much power is available during peak periods, when the grid is most stressed. For a steady baseload resource, there is no difference, but some resources are variable. See the table below.

The capacity of Palo Alto's solar projects is unexpectedly high. Data source: Palo Alto Utilities Advisory Commission presentation, July 2023.

Our solar capacity is unexpectedly high for several projects, almost as high as the nameplate capacity. It took me a while to figure out why that is. The reason is that the rules for determining capacity that Palo Alto set in 2008 consider the hours from noon to 6pm to be peak demand, and solar has high production then. The state, in contrast, uses evening hours, something like 5-9pm. This chart also happens to show September data, when solar has relatively high power in the afternoon. Two solar projects show zero capacity because their power is not widely available if the grid is stressed, since they are in transmission constrained areas. All of these factors have to be accounted for when determining the value of a contract.

So, we have a good portfolio -- it meets requirements and is cost-effective -- but nevertheless we need to evolve it. Why? Demand is increasing, contracts are expiring, and the regulatory environment is changing. Let’s start with the increase in demand, which you can see in the chart below. It’s not often you see a 20% increase in just a few years! In case you are wondering, no, it’s not because of electrification. (6)

Commercial demand is increasing by almost 200 GWh/yr over the next few years due to two new data centers being deployed in Palo Alto. Source: Palo Alto Utilities Advisory Commission presentation, July 2023.

Commercial demand, which is already much greater than residential demand in the city, will grow by around 25% in the next few years. Two large customers are each deploying a massive new data center in the city, together consuming almost as much energy as our entire residential use. The city will have to move quickly to cover the looming gap in supply, as shown below.

Our energy supply (shown in colored bars) will likely fall short of demand (shown as a dark black line) in a few years. Before the two new data centers were coming online (demand shown as a dashed gray line), we were in better shape. Source: Palo Alto Utilities Advisory Commission presentation, July 2023.

Our expiring landfill and wind contracts do not make that any easier. While it will likely be possible to renew them, we don’t know yet what the terms will be. Assuming we would contract at market rate, Ascend Analytics’ preliminary modeling determines that it makes more economic sense to stick with solar and eventually some storage to meet our requirements.

But that is not the last word. Another consideration as we evaluate our portfolio is the regulatory environment. Our solar and hydropower resources underperform in fall and winter, and solar obviously underperforms at night. This exposes us to market price risk, since during those months we have to buy capacity from the market. It also means that we are continuing to rely on the largely gas-based resources that are available at those times.

Palo Alto’s current portfolio is long in the spring and summer and short in fall and winter. When we are short, we purchase capacity from the market, much of it likely gas-powered. Source: Palo Alto Utilities Advisory Commission presentation, July 2023.

Similarly, on a winter day or even a summer day, Palo Alto’s contracted energy (gray bars) doesn’t match its load (blue line) in the night hours. (Hours from 1am through midnight are shown on the x-axis, energy from 0 to 250 MWh is shown on the y-axis.) Source: City of Palo Alto Utilities Staff Report, December 2022.

The city may choose, or the state may require us, to better match our supply to our demand on an hourly or seasonal basis, which would move our portfolio away from solar and towards more baseload (e.g., geothermal) or flexible (e.g., storage) resources. Stack says that while hourly-based rules will be going into effect for larger power providers in a few years, “I’m not sure if the CAISO could impose this (on municipal utilities like CPAU) on its own, or if it would take legislation to do that. But if that was imposed on us, it would have a big effect (one that’s difficult to predict at this point) on how we manage our portfolio.” In the meantime, once the power plan is finalized, Stack will work with Ascend Analytics to determine what the cost tradeoff might be for better aligning the city’s supply with its demand on an hourly or seasonal basis.

I hope this gives you some idea of how power planning and energy markets work. As we evaluate long-term contracts, we balance competing factors such as cost, policy value, and risk. In the meantime, changes in the regulatory environment can make expensive purchases like our long-ago purchase of hydropower a better deal in the future. Technology is also changing, as is demand. Our planners try to predict all of this, evaluate our ability to mitigate (hedge) our risk, then adjust as new information comes to light.

I’d love to hear what questions you have and what you would prioritize in our portfolio.

Notes and References
0. Thank you very much to CPAU Senior Resource Planner Jim Stack, who patiently and comprehensively answered my questions, and on a Saturday no less!

1. The state also asks power providers to provide “ancillary services”, which can include resources capable of quickly regulating the frequency on the grid (batteries are good at that), of starting up after a power outage with no power other than a generator (hydropower plants can often do a “black start”), and more.

2. CPAU signs long-term contracts (“power purchase agreements”) for energy in order to achieve its carbon-neutral goal and to reduce its exposure to electricity market prices. In a few cases CPAU owns the power plants (e.g., the hydropower plant in Collierville, CA). The utility sells this owned or contracted energy into the market and then buys energy from the market to match its actual use. The energy it buys on the market is not reflected in these charts, and will often include a grid mix with gas. The city does account for these emissions when determining its carbon-neutral status.

3. Often a power provider buys capacity and renewable credits along with energy. For example, a purchase of geothermal energy would often come with good capacity value and renewable credits. But these can be bought and sold separately as well.

4. In case you are interested, this chart shows how we are meeting our capacity requirement.

Palo Alto’s current portfolio easily meets our capacity requirements. This is due to hydropower that we can deploy in the evenings, when capacity values are highest, and to solar contracts that produce a lot in the 12-6pm period, which Palo Alto uses to determine capacity. Source: Palo Alto Utilities Advisory Commission presentation, July 2023.

5. Senior Resource Planner Jim Stack says: “We can largely shape the energy allocation (for the federal hydropower) into the hours that we want to receive it. We just have to make these decisions about a day in advance, so it's not quite as flexible or responsive as Collierville.”

6. This graph shows the magnitude of the projected impact of electrifying our transportation and buildings vs that of the two new data centers.

Energy demand from two new data centers in the city dwarfs the projected increase in demand from electrification. Source: Palo Alto Utilities Advisory Commission presentation, July 2023.

Current Climate Data (May 2023)
Global impacts, US impacts, CO2 metric, Climate dashboard

June 2023 global temperatures blew away those of previous years.
Source: Zeke Hausfather on Twitter

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Posted by Seer, a resident of Adobe-Meadow,
on Jul 10, 2023 at 11:00 am

Seer is a registered user.

We just installed solar backed by Tesla powerwalls. Does Palo Alto have significant enough home solar to make any difference.

From sometime in Spring to sometime in Fall, we won't use any grid power, in fact could deliver power back in the evening. How does home solar impact all the above.

Posted by Sherry Listgarten, a Mountain View Online blogger,
on Jul 10, 2023 at 2:49 pm

Sherry Listgarten is a registered user.

There have been several comments from a reader who is unhappy about seeing this blog post on the Danville San Ramon website. It doesn't help to complain here; your comments have been removed. You want to contact the editor or publisher of the Danville San Ramon website. You can find their contact information here. Good luck!

Posted by Sherry Listgarten, a Mountain View Online blogger,
on Jul 10, 2023 at 3:20 pm

Sherry Listgarten is a registered user.

@Seer: Hmm, good question. There's a graph in this blog post that suggests we may have around 20 MW of rooftop solar installed in the city today. If you assume the capacity factor of that solar is 15%, then you get an annual contribution of about 25 GWh of behind-the-meter energy, which not much compared to the current load is about 800 GWh.

In general, rooftop solar displaces the cheapest and cleanest energy, which doesn't help much. Batteries, though, change that. I expect that since batteries are so expensive, people won't overbuy and little net evening energy will be returned to the grid. But just reducing the evening load does help to keep our rates down.

One thing to remember is that it is peak demand that really drives infrastructure and costs. So using those batteries on the really hot September afternoons will make an outsized difference, and your household will hopefully be paid accordingly.

Hope this helps some.

Posted by Sue, a resident of Adobe-Meadow,
on Jul 11, 2023 at 12:50 pm

Sue is a registered user.

@sherry/seer - The graph referenced in your blog post shows ~15,800 kW, or 15.8 MW, not 100 MW.

@seer - so you use your battery every day? And can charge enough from your solar to not need to use grid energy?

Posted by Sherry Listgarten, a Mountain View Online blogger,
on Jul 11, 2023 at 1:01 pm

Sherry Listgarten is a registered user.

@Sue, yikes, thanks, I didn't see that it was cumulative! I have updated the comment above.

Posted by pestocat, a resident of University South,
on Jul 11, 2023 at 3:19 pm

pestocat is a registered user.

For 2021 I recorded from the CAISO website the amount of natural gas required to keep the GRID up and running. There were times in the summer when the daily energy requirement from natural gas was more than 50%. The only way to lower this amount will be to have low cost energy storage arrays. People and the federal government are working on this, but it's just not available now. Do You believe if Palo Alto will invest in some of this early development? My particular favorite is Power-H2. It uses hydrogen as the energy vehicle. First it generates hydrogen by electrolysis using solar arrays and then they use the hydrogen in batteries to generate electrical power.

Posted by Sherry Listgarten, a Mountain View Online blogger,
on Jul 11, 2023 at 4:16 pm

Sherry Listgarten is a registered user.

As an FYI, I made a substantial update to this blog post after it was published. The update was about the capacity value that we have assigned to our solar farms. Capacity, or resource adequacy, is assigned when a power source is available during peak times. It is usually measured as the amount of power that is available during the evening hours (e.g., 5-9pm). It might be different in spring than in fall (e.g., for hydropower), so it's computed on a month-by-month basis.

As I've written before, solar farms provide very little capacity. The sun doesn't provide much energy from 5-9pm! When California's power providers have to meet capacity targets, as they all do, solar won't do it and they have to look elsewhere, particularly at baseload resources like geothermal, which are much more expensive.

What was interesting to me is that some of our solar farms had significant capacity value. After discussing this with Jim Stack, it became clear that this is because Palo Alto's rules for computing capacity are different. The rules were set back in 2008 when there wasn't much solar energy and the crunch period was in the afternoon (say noon to 6pm). Since then, there is much more solar and the tough period for the grid has moved later (say 5-9pm). The state has adjusted its definition over the years but Palo Alto uses a separate process and it is still using the old definition.

This rule is good for Palo Alto, because solar is inexpensive and so it can more cheaply fulfill its capacity requirement. But it does make me wonder two things. (a) Is the value that the analytics firm ascribed to our solar correct, given that our 12-6pm capacity is much easier to come by than the state-defined evening capacity? (b) Should we update our definition of capacity? It was approved by CAISO way back when but hasn't been reviewed since as far as I know.

This is just one of many ways in which municipal utilities operate by different rules than the big investor-owned utilities and the community choice organizations. I'm sorry it took a while to figure this out, but afaik the blog post is now accurate on that front.

Posted by Barron Park Denizen, a resident of Barron Park,
on Jul 11, 2023 at 7:10 pm

Barron Park Denizen is a registered user.

Thanks, Sherry, for the great effort and diligent post-publication editing. I was surprised to hear about the two giant data centers in town. These huge projects weren't described as "proposed"--are they done deals? Will there be additional costs passed along to residential and other commercial consumers?

Is any special infrastructure, and associated operation and maintenance costs, being covered by these two giant users? In case of blackout or brownout, how will the data center power needs be covered--do they have onsite generation capacity, or will the City need to scramble in an expensive competition for power?

Even if backup power is expected to be rarely used, backup generators need regular testing, typically done by directing their output into a large resistor bank. How many electric cars (thousands?) would Palo Altans need to purchase to offset this added CO2?

All seems like a really big deal. Has CC weighed in, or is such a huge arrangement delegable solely to PA Utilities? Construction impacts? Is there an Environmental Impact Statement?

Posted by Sherry Listgarten, a Mountain View Online blogger,
on Jul 11, 2023 at 10:43 pm

Sherry Listgarten is a registered user.

@pestocat: California's grid is just under half gas, so yes, there are lots and lots of days when there is more gas than not. But there are lots of ways we can improve on that. One is energy efficiency. That's a huge reason why California's load hasn't grown much. Look at the graph in footnote 6, the gray part. Another thing we can do is shift demand to the sunnier times and especially away from peak times. Both of these things would do a lot to clean up the grid.

Then you can look at finding more/cheaper baseload resources, or at least complementary-to-solar energy resources. Offshore wind? New tech for geothermal? New nuclear tech? And then, yes, you can find ways to store solar energy, either hourly storage or "long duration" (days) storage, or (yikes) seasonal storage. There are new ideas every day.

Hydrogen has two main problems afaik. Maybe three. The first is that you lose a lot of energy going from the wind/solar through electrolysis through compression through to generation of electricity from fuel cells. You lose something like 60% of the energy you started off with. That basically makes green H2 very expensive.

The second problem is that it leaks. It's really small so pretty hard to stop the leaks. The problem with the leaks is that the hydrogen protons (H+) bind with hydroxyl radicals (OH-) in the atmosphere, and those radicals are what would otherwise be breaking down methane. So the methane ends up sticking around longer, which is no bueno.

The third problem is just that H2 is a pita to store and transport.

So I think you use H2 only when you really have to, though the IRA gazillions of dollars for H2 probably muddies that water a little bit. I think it ends up being cheaper to capture and sequester emissions from gas plants, though we don't really have that working well at scale either.

Posted by Sherry Listgarten, a Mountain View Online blogger,
on Jul 11, 2023 at 10:47 pm

Sherry Listgarten is a registered user.

@BarronParkDenizen: You noticed! I was wondering when someone was going to call that out. Yes, it's a HUGE load! I think it is a done deal, at least from what they were saying in the meeting, though I think terms are still being negotiated. I think it will absolutely raise all of our electricity prices because all that new energy, and presumably it's a steady load, is going to be way more expensive than what we have under contract. I think at a minimum they need to be on a really aggressive time-of-use rate, but I don't know if they can live with that. I'm not sure what options we have, but it's worth paying attention to. (I'm sure the companies are paying for whatever substations and distribution networks have to be augmented. But I worry about the generation.) Anyway, I will let you know if I hear anything else, or someone who knows more can weigh in with a comment!

Posted by Barron Park Denizen, a resident of Barron Park,
on Jul 12, 2023 at 8:01 am

Barron Park Denizen is a registered user.

Thanks, Sherry, for furnishing what you know about the two huge data centers. I'm amazed that the story hasn't surfaced sooner. I hope Gennady is on the trail. Council and the City Manager's office must know about it already, but are maintaining radio silence.

Data centers are located near plentiful and reliable fresh water sources, as they typically evaporate lots and lots of water to generate chilled air needed to cool the tall stacks of servers, each with CPUs that act as mini hotplates. Presently, Palo Alto doesn't use all of its Hetch Hetchy allocation; now we are seeing where much of this "excess" will go. And when the next major drought arrives, guess who will be asked to conserve, and to fund the hurry-up rollout of recycled "direct reuse" wastewater. This should be covered in an Environmental Impact Statement, if one exists--it's supposed to be a public process.

Posted by Paly Grad, a resident of Leland Manor/Garland Drive,
on Jul 12, 2023 at 8:31 am

Paly Grad is a registered user.

Equinix's Palo Alto data center (SV8) is located at 529 Bryant Street, Palo Alto, CA 94301

Web Link

Posted by Sherry Listgarten, a Mountain View Online blogger,
on Jul 13, 2023 at 11:06 am

Sherry Listgarten is a registered user.

@BarronParkDenizen: Our water is so expensive -- our rates are among the highest in the entire state -- that I'd be surprised if a data center purchases a huge amount for cooling. They will find cheaper ways to cool (e.g., using our inexpensive power). But afaict this project will absolutely raise our electricity costs unless we require them to cover more of the costs of the new electricity, use more midday electricity, etc. I do think we need to hear more about it.

Posted by pestocat, a resident of University South,
on Jul 13, 2023 at 3:28 pm

pestocat is a registered user.

I agree with most of your comments regarding hydrogen electrolysis and then using in fuel cells. Yes, this is a very inefficient process. The saving grace is that it is potentially low cost and no need for exotic materials, and that has to be a requirement for large scale arrays. Now there will no need to transport hydrogen as it will be used in the location where it is generated. Regarding leakage, yes I have read that it leaks, but there won't be hydrogen ions, it will be H2, the gas. Thank you for all your research.

Posted by Eduardo, a resident of Menlo Park,
on Jul 23, 2023 at 7:04 am

Eduardo is a registered user.

Great post! It has multiple interesting points but focusing on the data centers, I'll join other commenters.

Why are the Data Centers being built in Palo Alto? Data Centers should be built close to the source of the electricity - that is what Meta, Google, Microsoft, etc, do. Building them in Palo Alto does not make sense from a Transmission and Distribution point of view. And their energy use is leveraging Palo Alto's unique long-term hydro resources, resources that are very scarce and unique.

Thanks for bringing transparency to the situation in Palo Alto.

Posted by BobB, a resident of Vintage Hills,
on Sep 14, 2023 at 8:55 am

BobB is a registered user.

Zero/low carbon energy is a solved problem. Keep old nuclear plants like Diablo Canyon going as long as we can. Build new large modular nuclear reactors and small modular nuclear reactors for the longer term. For the short-term, add as much solar and wind as we can in the interim, staying aware of the environmental impacts of all these technologies. Transition cars, trucks, and buses to electric and fuel cell hydrogen.

What we don't need to do is stop watering our lawns or using plastic straws. And for God's sake don't ask restaurants to not serve a free unasked glass of water. Make sure to throw away your straw if you use one.

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