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2024-015 Renewable Energy ISR April 26,2024 Report No. 2024-015 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Calendar Year 2023 Renewable Energy Supply & Goal EXECUTIVE SUMMARY: For calendar year 2023, DME's power supply again was 100% renewable. However, due to the default of Delilah Solar coupled with 6.28% higher load served during the year, we did have to purchase 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. Compliance with the renewable energy supply mandate has been achieved for 2021, 2022, and now 2023. This compliance report documents the sources of Renewable Energy Credits (RECs) used to demonstrate compliance. For the purposes of this discussion, RECs are synonymous with MWhs because each REC is associated with a MWh of renewable energy production as verified by the Electric Reliability Council of Texas (ERCOT). DISCUSSION: 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 ERCOT which provides a third-party independent verification of renewable energy credits for all market participants. Consequently, when DME forecasts the number of MWhs of renewable energy required to demonstrate compliance with the DRRP, it spans two fiscal years. For calendar year 2023, the number of expected MWhs served for the months of January through September 2023, were forecasted in April of 2022 as part of the fiscal year 2023 budget. The remaining months of October through December 2023 were forecasted in April 2023 as part of the fiscal year 2024 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 2023 the EMO projected that the total DME served load would be 1,646,280 MWh. The actual calendar year 2023 load served was 1,749,737 MWh, or 6.28% more than forecasted. Recall that the summer of 2023 was one in which the ERCOT market experienced the second hottest summer on record, and DME also set new records. April 26,2024 Report No. 2024-015 For the calendar year, the EMO projected that renewable energy supply under contract would be sufficient to meet the forecasted load. However, in June of 2023, the summer forecasts continued to build week after week until it was evident that DME would experience a hotter than normal summer. The Delilah Solar project default contributed to the shortfall, however demand usage in November and December was lower than forecasted which helped reduce the overall shortfall. 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, including the Delilah Replacement Contract, 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 2024,DME's ERCOT REC account contained 1,742,944 RECs or 98,454 (5.35%)less RECs than the actual load served during calendar year 2023.DME's load forecast for calendar year 2023 was 1,646,280 MWh and less than the actual load (1,749,737) for the calendar year. Actual Load Served and Actions Taken by EMO As previously stated,DME purchased 1,749,737 MWh from ERCOT for resale to retail(non-Core Scientific) customers in calendar year 2023. With an ERCOT REC inventory of 1,742,944 for the calendar year, DME's account was 6,793 or 0.39% short of the actual load served. To balance the account DME purchased 6,793 calendar year 2023 RECs from the market to achieve 100% renewable energy supply for the year and to again achieve compliance with the DRRP goal. The 0.39% deficit in RECs at the end of the year was expected based upon the 6.28% 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 real-time and next day ERCOT markets,REC backed energy is not purchased. There is no real time or day ahead market for REC backed energy in ERGOT, 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 2023. 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. 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. April 26,2024 Report No. 2024-015 STAFF CONTACT: Terry Naulty Assistant General Manager (940) 349-7565 Tony Puente General Manager (940) 349-8487 REOUESTOR: Staff Initiated STAFF TIME TO COMPLETE REPORT: 2 hours PARTICIPATING DEPARTMENTS: Denton Municipal Electric