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2025-047 Calendar Year 2024 Renewable Energy Supply Goal May 9, 2025 2025-047 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Calendar Year 2024 Renewable Energy Supply & Goal EXECUTIVE SUMMARY: For calendar year 2024, DME's power supply met the 100% renewable energy goal. However, due to unforeseen events from a renewable energy resource and time needed to replace renewable resources, DME purchased additional Renewable Energy Credits (RECs) to ensure 100% renewable energy power supply. BACKGROUND: DME previously received approval from Council to recognize the use of RECs to meet its 100% renewable energy goal as outlined in the Denton Renewable Resource Plan. Calendar Year 2021 was the first year that DME achieved it's 100%renewable energy goal, which included the use of RECs . 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 result of the accounting and crediting of RECs by the Electric Reliability Council of Texas (ERCOT) which provides a third-parry independent verification of renewable energy credits for all market participants. Consequently, when DME forecast the number of megawatts (MWhs) of renewable energy required to demonstrate compliance with the DRRP, it spans two fiscal years. For calendar year 2024, the number of expected MWhs served for the months of January through September 2024, were forecasted in April of 2023 as part of the fiscal year 2024 budget. The remaining months of October through December 2024 were forecasted in April 2024 as part of the fiscal year 2025 budget. The Energy Management Organization (EMO) uses weather normalized forecasts to predict the amount of energy to be served in the City and the generation expected from our renewable resources under long-term Power Purchase Agreements (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 2024 the EMO projected that the total DME served load would be 1,885,756 MWh. Actual calendar year 2024 load served was 1,776,322 MWh, or 5.8% less than forecasted. May 9, 2025 2025-047 For the calendar year, the EMO projected that renewable energy supply under contract would be sufficient to meet the forecasted load. However, due to a renewable energy resource default in May of 2022,DME issued a request for proposal(RFP)to procure additional renewable generation to meet the demand, learning it wouldn't be available until January of 2026. As DME became aware of the potential shortfall, a short term, fixed shaped energy supply transaction that included RECs was purchased as a replacement resource. Renewable Energy Credit Inventory— ERCOT, as the market administrator for RECs, issues RECs to each renewable energy generator monthly. 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 1,375,792 RECs or 2,110(.12%)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 1,776,322 MWh from ERCOT for resale to retail customers in calendar year 2024. With an ERCOT REC inventory of 1,375,792 for the calendar year, DME's account was 400,530 or 22.5% short against the actual load served. To balance the account, DME purchased 400,530 RECs from the market to achieve 100% renewable energy supply for the year and to again achieve compliance with the DRRP goal. The 22.5% deficit in RECs at the end of the year was expected based upon the renewable resource default and time needed to procure an additional renewable resource to replace the missing capacity. 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 the calendar year 2024 and will continue to function in this manner to efficiently true-up REC needs to meet the 100% renewable goal. 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. 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 May 9, 2025 2025-047 demonstrate compliance are fully auditable and are consistent with the findings and recommendations of the City 's March 14, 2022, EMO audit. STAFF CONTACT: Jose Gaytan Executive Manager of Power Supply (940) 349-7528 Tony Puente General Manager (940) 349-8487 REOUESTOR: Staff Initiated STAFF TIME TO COMPLETE REPORT: 2 hours PARTICIPATING DEPARTMENTS: Denton Municipal Electric