2023-037 Calendar Year 2022 Renewable Energy Supply & Goal May 26,2023 Report No. 2023-037
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
Calendar Year 2022 Renewable Energy Supply & Goal
EXECUTIVE SUMMARY:
For the calendar year 2022, DME's power supply again was 100% renewable. However, due to
unforeseen events from a renewable energy resource coupled with a 5.3% higher load served
during the year, DME purchased additional Renewable Energy Credits (RECs) to ensure 100%
renewable energy power supply.
BACKGROUND:
DME previously received approval from City Council to recognize the use of RECs to meet its
100%renewable energy goal as mandated by the Denton Renewable Resource Plan.Calendar Year
2021 was the first year that DME achieved it's 100%renewable energy goal and that achievement
included the use of RECs too.
DISCUSSION:
DME Renewable Energy Supply Planning—
Compliance with the requirements of the Denton Renewable Energy Plan(DRRP) is measured on
a calendar year basis. This compliance period is a direct result of the accounting and crediting of
RECs by the Electric Reliability Council of Texas (ERCOT) which provides a third-party
independent verification of renewable energy credits for all market participants. Consequently,
when DME forecast the number of MWhs of renewable energy required to demonstrate
compliance with the DRRP, it spans two fiscal years. For calendar year 2022, the number of
expected MWhs served for the months of January through September 2022, were forecasted in
April of 2021 as part of the fiscal year 2022 budget. The remaining months of October through
December 2022 were forecasted in April 2022 as part of the fiscal year 2023 budget. The Energy
Management Organization (EMO) uses weather normalized forecasts to predict the amount of
energy to be served in the City of Denton and the generation expected from our renewable
resources under long-term PPAs. Renewable energy output from our contracted resources are a
function of wind speed and duration and hours and intensity of solar irradiation during each day.
Forecasting these quantities is based upon proprietary algorithms that use historical correlations of
wind and sun to forecast output from each of our contracted resources. Given the volatility of
weather,the EMO recognizes that forecasts are likely to be off from actuals but in order to maintain
the statistical integrity of the load and generation forecasts, this analytical approach is considered
a best practice in the electric utility industry.
For calendar year 2022 the EMO projected that the total DME served load would be 1,661,682
MWh. Actual calendar year 2022 load served was 1,750,135 MWh, or 5.3%more than forecasted.
Recall that the summer of 2022 was one in which the ERCOT market set eight new all-time
May 26,2023 Report No. 2023-037
records, and DME also set new records. Data Center load is fully covered through RECs at their
expense and is not reflected in above load served amount.
For the calendar year, the EMO projected that renewable energy supply under contract would be
sufficient to meet the forecasted load. However, in May of 2022, after both the fiscal years 2022
and 2023 were set, DME became aware that a renewable energy resource would default and not
supply any renewable energy despite the forecasts that included that contribution. When DME
became aware of the potential shortfall, we entered into a short term(2 year) fixed shaped energy
supply transaction that included RECs as a replacement resource.
Renewable Energy Credit Inventory—
ERCOT, as the market administrator for RECs, issues RECs to each renewable energy generator
monthly. However, Retail Energy Providers (REPS) who provide contracted energy in the
competitive retail market areas of ERCOT are not required to demonstrate compliance with the
renewable energy portfolio standards until May 1 of the year following the compliance year.
Because the REC market was developed with this compliance date in mind, renewable energy
resources do not generally finalize their REC transactions until mid-April of each year. DME's
contracted renewable energy resources do not post their RECs to DME's REC account at ERCOT
until mid-April. Consequently, DME does not know the actual level of RECs officially allocated
by ERCOT to each renewable energy resource and those resources are trueing up their ERCOT
accounts into April of each year. In early April,DME's ERCOT REC account contained 1,659,135
RECs or 2,547 (.16%) more RECs than the forecasted MWh in DME's load forecast but less than
the actual load for the calendar year.
Actual Load Served and Actions Taken by EMO —
As previously stated,DME purchased 1,750,135 MWh from ERCOT for resale to retail customers
in calendar year 2022. With an ERCOT REC inventory of 1,659,135 for the calendar year,DME's
account was 91,000 or 5.2% short against the actual load served. To balance the account, DME
purchased 91,000 RECs from the market to achieve 100% renewable energy supply for the year
and to again achieve compliance with the DRRP goal.
The 5.2% deficit in RECs at the end of the year was expected based upon the 5.3% more load
served by DME than was forecasted. However, because energy can only be purchased
prospectively, and the EMO manages the hourly load position in the real-time and next day
ERCOT markets, REC backed energy was not purchased. There is no real time or day ahead
market for REC backed energy in ERCOT, or any other regional transmission market. Unless
DME were to purposefully over procure REC backed energy as compared to the EMO's forecast,
the only way to true-up the REC amounts at the end of the year is through the bilateral REC market.
This is what was done for calendar year 2022. DME will continue to function in this manner and
this practice will be fully explained in the revised DRRP that will be issued later this year. It
should be noted that if DME were in a surplus position relative to REC inventory levels, DME
would use the same bilateral REC market to sell the surplus RECs and monetize the excess value
for the benefits of DME customers.
May 26,2023 Report No. 2023-037
The EMO believes the actions taken this year to demonstrate compliance with the DRRP are
prudent and consistent with electric industry best practices. The processes and procedures used to
demonstrate compliance are fully auditable and are consistent with the findings and
recommendations of the City of Denton's March 14, 2022, EMO audit. DME staff discussed the
actions referenced in the ISR and achievement of its Calendar Year goal with the Internal Auditor
prior to sending this IRS to City Council.
STAFF CONTACT:
Terry Naulty
Assistant General Manager
(940) 349-7565
Tony Puente
General Manager
(940) 349-8487
REQUESTOR: Staff Initiated
STAFF TIME TO COMPLETE REPORT: 2 hours
PARTICIPATING DEPARTMENTS: Denton Municipal Electric