Item 1: Draft Austin Energy’s Resource, Generation, and Climate Protection Plan Part 3 of 4 — original pdf

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» Affordability — Stakeholders continued to talk about equity in their affordability discussions. The concept of energy burden should be considered when looking at affordability. » Reliability — Predictability is just as important as reliability, especially with the understanding that perfect power isn’t attainable. Though 100% reliability may not be possible, there are those for whom energy supply is critically important, like those with medical needs. • Workshop #2 — Building Foundational Understanding The second stakeholder workshop had two main goals: to provide an introduction to the ERCOT market and have Dr. Michael Webber with the University of Texas at Austin provide his expert insight into energy market trends, resource options and potential risks and tradeoffs. Some top themes from the ERCOT 101 presentation included: » By law, Austin Energy is bound to the ERCOT market and its rules. » The ERCOT market, like any market, has benefits and risks. Decisions made in the marketplace have tradeoffs. » Decisions in the 2035 Plan will affect what tools are available to maximize benefits and minimize risks in the ERCOT market. Some top themes from Dr. Webber’s presentation included: » Electric utilities, Austin Energy included, need to prepare for an era of unprecedented electricity consumption. and carbon management. » “Do your best, clean up the rest” — through a combination of efficiency, electrification » The key lens through which energy options should be considered: trade-offs. The group was able to ask presenters questions and dive deeper into the topics. • Workshop #3 — Input on Values and Objectives The main focus of the third stakeholder workshop was the Resource Planning Trade-offs Exercise. This exercise allowed participants to highlight the trade-offs they were comfortable making around the values of reliability, affordability and environmental sustainability. Participants prioritized the three values with scores ranging from 5 to 10, with 10 being the highest priority. After prioritizing the values, participants held group discussions to hear from each other. Then, they reallocated their priorities if they wanted. The score range shows the lowest and highest ranking a value received. Here are the results of the exercise: Value Reliability Affordability Environmental Sustainability 9.08 7.91 7.95 9.21 7.91 7.82 8 to 10 7 to 10 6 to 10 Original Allocation Reallocation Score Range The exercise showed that, across the board, reliability was the community’s top priority. The discussion around objectives also started in Workshop #3. Participants filled out a survey where they circled or wrote in the objective statement that best aligned with their perspectives on the values of reliability, affordability and environmental sustainability. The results of this survey were explored further in the fourth work shop. In addition, the group saw a presentation on the Texas Energy Poverty Research Institute’s (TEPRI) Community Voices in Energy Survey (CVES). Austin Energy summarized its take-aways around energy equity and also shared information about our low-income customer programs. 30 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Austin Energy Resource, Generation and Climate Protection Plan to 2035 | 31 • Workshop #4 — Final Value and Objective Input; Introduction to Modeling At the fourth stakeholder workshop, participants went over the results from the Resource Planning Tradeoff Exercise and reviewed key takeaways. They discussed and provided feedback on the value and objective statements for reliability, affordability and environmental sustainability. They also heard how the values drive the objectives and how in turn, objectives drive actions. The last topic in this presentation introduced the modeling framework Austin Energy used to study resources and strategies to meet community values. At the end of the meeting, the group shared their biggest takeaways from the workshops, what they learned along the way and what they’d like Austin City Council to know as the 2035 Plan developed. Other key takeaways from the meeting include: » Stakeholders thought Austin Energy was moving in the right direction with the value and objective statements. » Stakeholders liked the idea that Austin Energy is looking at multiple options around objectives and actions to reflect community values. • Workshop #5 — Final Value and Objective Statements; Resource Generation Plan Toolkit At the fifth and final workshop, participants took a final look at their value and objective statements and made no additional changes. After that, Austin Energy staff walked them through initial categories and working examples of key actions for the 2035 Plan. These categories and examples were informed by key insights and trade-offs that came from the modeling process and community engagement. Managing Our “Toolkit” Prioritize Customer Energy Solutions Develop Local Solutions Continued Commitment to Decarbonization Further a Culture of Innovation Participants had questions and comments on: » Transmission line upgrades. » Battery storage. » Natural gas peaker units. » Previous Decker Steam Unit operating costs. » Emphasizing cost predictability. » The difference between congestion costs now and years past. » Affordability targets as it relates to business and commercial entities. 32 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents At the end of the meeting, participants heard about opportunities for continued partnership. They were also invited to the Nov. 19 Austin Energy Utility Oversight Committee meeting so their time, effort and dedication to helping develop the 2035 Plan could be recognized. 32 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Austin Energy Resource, Generation and Climate Protection Plan to 2035 | 33 The Electric Utility Commission — The Electric Utility Commission is an advisory board made up of 11 members appointed by the City Council. The group reviews Austin Energy’s policies and procedures and provides recommendations to City Council. This partnership is one of the ways our community has a voice in how we serve them. In this resource planning process, the EUC actively participated in shaping the 2035 Plan. When Austin Energy first worked to update the previous resource generation plan, the EUC formed a working group to specifically evaluate the issues we are facing. Their efforts produced recommendations, and Austin Energy used their work to guide principles and measures in the 2035 Plan. Continuing that promise of collaboration, Austin Energy met with EUC members — in various formats — more than 50 times over 10 months. These interactions helped all of us work through thoughts, options and paths forward. During their monthly meetings, the EUC received updates from other partners in the process, including the Webber Energy Group and Rifeline, and they actively participated in the modeling for the 2035 Plan. EUC members provided valuable input during this process, including weighing in on the inputs and assumptions and designing their own portfolios of resources to include in evaluations. CORE VALUES FOR THE 2035 PLAN Community collaboration fosters transparency. Building a better understanding of the complexities around Austin Energy, the electric industry and our community helped us come together to create the value statements that define this plan. Here are the values we collectively established as the foundation of the 2035 Plan: • Reliability — Providing consistent and predictable electric service that will power our community as it continues to grow. • Affordability — Assessing the impacts and promoting fairness of costs for customers while continuing to provide the public-power benefits that enhance our community’s quality of life. • Environmental Sustainability — Maintaining flexibility in support of clean and innovative technologies and programs while taking a holistic assessment of the community and environmental impacts. • Energy Equity — Evaluating and expanding access to the services Austin Energy provides so they can reach those who need them most while reducing any negative impact of our operations on the community. COMMUNITY OBJECTIVES FOR THE 2035 PLAN In addition to setting the collective values for the 2035 Plan, we also developed objectives with our community stakeholders. Our values give us direction. These objectives highlight how the community feels we should head in this direction — to meet our values and thrive in the future. An equity component is incorporated into each objective. • Reliability — Prioritize reliability and resilience. Mitigate the risk of long-duration statewide and localized system outage events and provide timely communications. Limit the exposure of vulnerable populations to outages. 34 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents • Affordability — Limit the impact of bill increases to the most vulnerable customers while allowing acceptable and predictable increases of greater than 2% for other customers in support of reliability and environmental sustainability. • Environmental Sustainability — Reduce emissions and other environmental impacts as much as possible. Mitigate any remaining emissions, while supporting affordability and reliability. THE POWER OF ENERGY EQUITY Austin Energy strives to incorporate energy equity in all of our operations and services. We manage a multitude of programs that support low-income customers through bill discounts, education, weatherization, emergency financial assistance and more. We have a program to help medically vulnerable customers prepare for unexpected outages. In addition, Austin Energy has programs dedicated to providing clean energy access with a goal of reaching all customer types, including renters and low– to moderate–income (LMI) customers. Our community stakeholders told us how critical energy equity was to them — how important it is to take care of the most vulnerable in the community. For our stakeholders, this is a broad group, including low-income customers, specific neighborhoods, the medically vulnerable, renters and small businesses. Though energy equity isn’t a new topic for Austin Energy, we heard our community and worked to incorporate this value into the 2035 Plan. Energy Equity in Central Texas With the community’s equity value in mind, Austin Energy examined information from the Texas Energy Poverty Research Institute (TEPRI) to get a better understanding of energy equity in and around our area. Specifically, we looked at the Community Voices in Energy Survey (CVES). One of the objectives of the CVES is to provide “data-driven insights to inform stakeholders such as utilities, government agencies, policymakers, and community-based organizations in developing solutions to improve energy access for Texans.” The CVES surveyed more than 6,500 households, mostly low- to moderate-income, across Texas on four key electric- related issues: affordability, sustainability, reliability and resiliency. Here are some of the key insights we gathered for Central Texas (Region 7): • Affordability and resiliency were the top two concerns for LMI households. • Despite the economic prosperity of Region 7, nearly 50% of respondents reported that their energy bills were not affordable. • Across Region 7, the average LMI household experiences a 6.9% energy burden compared to an average of 3.69% for all households. An energy burden above 6% is considered unaffordable. • 92% of respondents in Region 7 expressed at least some concern about weather-related outages, with consistent results for owners and renters. • Survey results reported that 10% of respondents in Region 7 are currently enrolled in clean energy programs, mirroring the statewide participation average of 10%. 34 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Austin Energy Resource, Generation and Climate Protection Plan to 2035 | 35 This information shows how important energy equity is when considering future programs and energy resource investments. Incorporating Energy Equity into the 2035 Plan Progress in energy equity doesn’t happen by chance. It requires intention. Though no approach is perfect, we wanted to improve equity in participation and outcomes in the resource planning process and the 2035 Plan. When we talk about energy equity, we see it framed into three aspects: • Procedural Equity focuses on ensuring fair, inclusive participation in the decision-making process. • Recognition Equity aims to understand and address past and present energy inequities. • Distributional Equity focuses on the just and equitable distribution of benefits and impacts in Austin’s clean energy transition. Those aspects formed the energy equity lens that was applied to the 2035 Plan. From the make-up of our community stakeholder group to the TEPRI survey takeaways to the public meetings and survey, we realized that energy equity touches every part of the work we are doing. When boxes are outlined with a different color than their shading, multiple aspects apply to that piece. Community-Informed Process for the 2035 Plan Through this energy equity lens, we were able to gather information to help make decisions, consider the impact of our operations on vulnerable populations of our community and make sure our energy equity efforts are adaptive and ongoing. In the end, it helps us better serve individual and community needs. Procedural Equity Recognition Equity Distributional Equity Electric Utility Commission Community Stakeholder Workshops Energy Inequities Analysis Public Meetings Survey of Austin Energy Customers Identify Energy Equity Outcomes Prioritize Strategies Technical Teams Equity Affordability Reliability and Resiliency Environmental Sustainability Power Production Customer Programs Customer Driven. Community Focused. Austin Energy Resource, Generation and Climate Protection Plan to 2035 36 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Specifically, here are some examples of how energy equity shaped the resource planning process and the 2035 Plan. • Community Stakeholder Workshops (Procedural Equity) — As we started this resource planning process, Austin Energy knew we needed a diverse and inclusive representation of our community to help develop the 2035 Plan. We gathered that broad range of voices and experiences to give us better insight into the issues we face and the effects on those we serve. They are essential perspectives to have in this process. • Electricity Burden Output (Recognition Equity) — We included electricity burden as a primary output in the modeling analysis. This builds the principle of equity into the technical process so that it can be measured alongside the other metrics and outputs when weighing decisions. Electricity burden is the percentage of a household’s monthly income that goes to their electric bill. • Solar for All (Distributional Equity) — We are dedicated to creating programs that help the most vulnerable in our community and open up access to new technologies. One example is the federal Solar for All grant, which allows Austin Energy to fund solar and battery installations to benefit low- income customers. With these values and objectives established, the 2035 Plan has a guiding light for the path to an equitable, clean energy future for our community. 36 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Austin Energy Resource, Generation and Climate Protection Plan to 2035 | 37 EXPLORING FUTURE POWER OPTIONS MODELING HIGHLIGHTS TRADE-OFFS IN RESOURCES AND TECHNOLOGIES In developing the 2035 Plan, modeling allows Austin Energy to test how resource strategies could meet our collective values and objectives while reducing our risks in the electric landscape. This testing considers normal and various extreme conditions. When it comes to modeling, a mix of resource options is called a portfolio, and the modeled world it performs in is called a scenario. With this information, we worked together with the EUC to develop different portfolios and establish scenario inputs so we could see how each option performed. This was how we came to the actions outlined in the 2035 Plan. Modeling and portfolios don’t give answers. They give information and highlight trade-offs. There are hundreds of variables that make up a model, and it can’t predict the future with 100% accuracy. This process helps us shape strategies for the risks we currently face and build flexibility to address whatever the future may hold. The graphic below shows, in general, the flow of the modeling process to come up with outputs. In the rest of this section, we cover these pieces and how they build on one another. Modeling Flow Model Inputs and Assumptions Portfolios Scenarios Sensitivity Analysis Output Results Portfolio A Portfolio B Portfolio C Portfolio D Portfolio E Portfolio F Portfolio G Extreme Weather Events Local Congestion Regulatory Change Portfolio B Levelized Cost Portfolio D Bill Impact Portfolio G Emissions Examples: high load growth, fuel costs, etc. Reliability Risk Hours Liquidity Risk Electricity Burden 38 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents FORMING THE FOUNDATION — INPUTS Inputs are how the model defines what’s going on in the electric world now and into the future. If you look at it like a board game, inputs are the rules around how the game works. The boards for chess and checkers may be the same, but the way you’re supposed to play those games is very different. Inputs are those rules that lay out how the model will work. Setting these inputs is a foundational step, and they are outlined below: Modeling Inputs ERCOT Market Costs Economic Parameters Emissions Load Forecast (Austin Energy and ERCOT) Technology-Specific Capital and O&M Costs Inflation Rate Fuel Costs Cost of Capital Unit-Specific Emission Factors (NOx, CO2, SOx, PM) Technology-Specific Emission Factors (New Sources) Generation Additions/Retirements (ERCOT) Generation + PPA Additions/Retirements (Austin Energy) Transmission Projects Discount Rate % Debt Diving Deeper with the DNV Market Potential Study Forecasting how much energy customers will use is essential in resource planning. Getting a deeper understanding of how demand-side management (DSM) programs and technologies can change customer demand is key to a clearer view of the electric landscape. There are many technologies and programs that give customers more control of their energy and energy use. From home energy efficiency improvements to demand response programs to rooftop solar and residential batteries, how people use energy is changing. Austin Energy has an entire business unit — Customer Energy Solutions — dedicated to exploring, developing and sharing DSM programs and technologies with customers. DSM programs can reduce the amount of power we need to serve customers or the timing of when we need to provide that power. Because these programs change how customers use energy, we need to factor that into our model and planning. 38 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Austin Energy Resource, Generation and Climate Protection Plan to 2035 | 39 Austin Energy has made huge strides in DSM, and for the 2035 Plan, we wanted to see how much further those programs could go. We selected DNV Energy Insights USA Inc. (DNV) to do a market potential study on that topic so we would have a better idea of the energy savings we could get out of these technologies. DNV has an in-depth understanding of Austin’s DSM market. Prior to their work with the 2035 Plan, they provided studies and benchmarking on this resource for Austin Energy in 2012, 2015 and 2021. For the 2035 Plan, DNV analyzed demand response, energy efficiency, electrification and local solar and batteries to determine the maximum technical and economic potential for those programs. In the 2035 Plan model, we added DNV’s numbers to the existing expectations for our programs so we could compare tradeoffs while maximizing DSM technologies in our resource mixes. PROJECTING THE FUTURE — SCENARIOS It’s one thing to plan for the current conditions, but Austin Energy also wants a plan that will provide guidance for what the future may hold. That’s where the scenario portion of modeling comes into play. Resource planners often consider scenarios to be future worlds, and they want to see how different portfolios perform in those worlds. It helps us analyze some “what if” situations. If inputs are the rules for the board game, scenarios are the paths to follow on the board. Scenarios are where those inputs are applied to make a potential future. This shows how portfolios would perform in furthering our values and reducing risk. It’s kind of like Chutes and Ladders™. There are multiple ways to move through the board, and scenarios are different paths to a future. The path you follow depends on how your piece progresses on the board. Since we don’t know exactly how the future will look, the model has multiple scenarios. That way, we gain more information on how resources perform in uncertain futures and where flexibility is needed to meet our needs and values. For the 2035 Plan, the model used four different scenarios to represent potential futures. • Normal Conditions The normal conditions scenario is built around the inputs we believe are most likely to happen. It includes current and future market and grid data from ERCOT as well as expected retirements for Austin Energy power plants and purchase power agreements. For Austin Energy demand, the scenario accounts for continued significant growth to reflect the historical trend. • Extreme Weather This scenario tests the effects of extreme weather and uncertainty in supply and demand. We call these high-impact, low-frequency events. This scenario matches ERCOT’s projections for these kinds of situations — adjusting summer conditions to be more severe than what the Texas grid saw during 2011, Texas’ hottest summer on record. For winter conditions, adjustments are based on the 2021 winter peak because of Winter Storm Uri. 40 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents I N O T A R E N E G , E C R U O S E R Y G R E N E N T S U A I I 5 3 0 2 O T N A L P N O T C E T O R P E T A M L C D N A I 40 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 • Local Congestion This scenario tests the effects of local transmission congestion on Austin Energy’s system and the community. In recent years, Austin Energy has experienced a significant increase in costs because of local transmission congestion, and if it isn’t addressed in certain cases, it can lead to controlled outages within our service area. • Regulatory Changes This scenario considers the impact of potential regulatory changes from the legislature and the Public Utility Commission of Texas. Specifically, this scenario maps changes in how ERCOT forms market prices for dispatchable capacity and how costs are assigned to electric utilities serving customers. With this, we can estimate the net cost to our customers if this future world comes to be. The future is unpredictable, and Austin Energy wants to further account for that uncertainty. In modeling, we turn to sensitivities to test those extremes. TESTING THE EXTREMES — SENSITIVITIES Even with the best predictions for the future, there are still extreme events that can cause significant disruption to the community and electric operations. Scenarios are those potential futures we want to be ready for, but we also want to know how our portfolios will perform when faced with specific extremes in key variables. Sensitivities test those extremes. Going back to the board game analogy, sensitivities are like action or chance cards. Think of Monopoly™, and a chance card that said “Advance to go (collect $200).” Cards like this change how to move across the board and can change the result. Sensitivity analyses are similar to scenarios and modeled in the same way as the scenarios discussed above, but with a narrower focus on the impact of changes to just one key input parameter. Sensitivities give us a structured framework to analyze how these extreme conditions could affect the utility and the community. Understanding these effects gives us more information to find the path that best aligns with needs and priorities. We included three sensitivities: • Demand — Significantly increases Austin Energy demand growth from additional population, data centers, home electrification and EV adoption. • Fuel Prices — Increases the price of natural gas throughout the ERCOT market. • Energy Import and Export Capacity — Adjusts energy import and export capacity constraints to limit how freely electricity flows between Austin Energy’s load zone and the ERCOT grid. 42 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents I N O T A R E N E G , E C R U O S E R Y G R E N E N T S U A I I 5 3 0 2 O T N A L P N O T C E T O R P E T A M L C D N A I 42 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Austin Energy Resource, Generation and Climate Protection Plan to 2035 | 43 Sand Hill Energy Center / Natural Gas Peaker Unit South Texas Project / Nuclear 44 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Nacogdoches Generating Facility / Biomass I N O T A R E N E G , E C R U O S E R Y G R E N E N T S U A I I 5 3 0 2 O T N A L P N O T C E T O R P E T A M L C D N A I 44 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents Austin Energy Resource, Generation and Climate Protection Plan to 2035 | 45 MEASURING DIFFERENT MIXES — PORTFOLIOS So far in the modeling board game analogy, we have: • Rules — inputs. • Different paths to take — scenarios. • Action cards — sensitivities. Now we just need the player characters. In modeling, those are the energy resource portfolios. In chess, the various pieces move and behave in different ways. Portfolios are similar, each one having different characteristics that make its progression through the model unique. A portfolio is a mix of solar, wind, batteries, energy efficiency, demand response, thermal generation and other energy technologies. Each portfolio has a different mix of resource technologies, locations (like West Texas wind vs. South Texas wind) and years for construction of facilities. These differences give the portfolios various characteristics in how they perform in the model. As part of the modeling process, we started with 13 portfolios to run through the model to test how they perform and gain initial information The first five were intended for reference purposes. Portfolio Description Porfolio #1 Porfolio #2 Porfolio #3 Porfolio #4 Porfolio #5 Porfolio #6 Porfolio #7 Porfolio #8 Porfolio #9 A bare-minimum reference case. Nothing new was added over the next 10 years, and it kept existing DSM commitments. A reference case that studied achieving the 2030 Plan, including 100% carbon-free by 2035 and 65% renewable energy by 2027. It retired existing local natural gas generation in 2034 and procured new wind and solar power purchase agreements (PPAs). An edge case for reference, aiming for the highest level of reliability. This portfolio included the maximum DSM predictions, a mix of local storage and natural gas generation, and kept existing local natural gas generation running. An edge case for reference, reaching for the most affordable outcome. This portfolio included the lowest cost resources and a mix of DSM, as well as new and existing local natural gas generation. An edge case for reference, aiming for the lowest emissions. This portfolio purchased remote wind and solar resources and retired all existing local natural gas generation. This portfolio studied a future with increased DSM projections beyond maximum levels, local storage and new wind and solar PPAs to replace those that are expiring in the next 10 years. This portfolio matched #6 but increased new wind and solar PPAs to reach 65% renewable energy by 2027 and beyond. This portfolio studied a future with local peaker units that can run on carbon-free fuel alternatives. It also increased new wind and solar PPAs to reach 65% renewable energy by 2027 and beyond.  This portfolio matched #8 but replaced half of the local peakers with local storage of various durations. Porfolio #10 This portfolio was similar to #9 except it kept existing local natural gas generation running through 2035 instead of adding generation that can run on carbon-free fuel alternatives. Porfolio #11 This portfolio studied a future where FPP continues running through 2028 and is then replaced with local natural gas generation. All other portfolios have FPP retiring at the end of 2024. Porfolio #12 Designed by the EUC and based on recommendations from the EUC Working Group, this portfolio increases DSM, local storage and remote wind and solar PPAs beyond any other portfolio in this initial run. Existing local natural gas generation retired by 2035. The levels for both DSM and local storage were significantly higher than what is considered feasible based on market analysis and research. Porfolio #13 Designed by the EUC, this portfolio was similar to #12 but with DSM values returning to maximum projections and increased local storage levels. 46 | Austin Energy Resource, Generation and Climate Protection Plan to 2035 Return to Table of Contents