The Utility Industry has historically been slow in terms of technology and process improvement. It makes sense considering the importance of electricity. Electricity effects every part of our lives and can be the switch (on and off) to a strong economy, health, and wellbeing. There is little room for taking big risks.
The pace of change has started to increase in the past couple decades with the pressure for cleaner energy and costs of renewable energy resources declining.
Not only are the “new resources on the block” clean and cost effective, but they are also modular and more distributed. They don’t come in bulk like the more traditional Coal, Nuclear, or Combined Cycle resources. This means that we don’t just have to select one or two power plants to provide electricity to our whole city. We can choose multiple resources to create a more diverse and de-risked portfolio of resources.
This is where the All-Source RFP comes in. The All-Source RFP gives Utilities a way to gather information about resource options in a competitive process. This can help Utilities choose the best resources for their portfolio and ultimately their community.
History of the All-Source RFP
The All-Source RFP is a fairly recent innovation. Xcel Energy in Colorado started a competitive All-Source Competitive Solicitation in 2016-2017. The results of the process allowed Xcel to choose from a record-low prices for resources. Naturally, this piqued the interest of other Utilities.
NIPSCO in Indiana used an RFP to help feed into assumptions used in their 2018 IRP. To forecast what resources they should add, they developed assumptions on costs by simply asking the market, “What are you offering?”. This is a more tangible way of developing assumptions.
Thus, the new era of All-Source RFP was born. Other Utilities looked at this process and started to replicate it for their own resource selection. They saw the benefits. When choosing multi-million dollar capital intensive projects that are supposed to power our lives it make sense to go the extra mile and ensure you are choosing the best option.
Features
What does an All-Source RFP look like? Some key characteristics include “All-Source”, competition, and having a formal process to gather and receive bids.
All-Source
All-Source means that the RFP includes electricity generated by all sources. It eliminates the requirements for which technology the electricity is generated from and opens the gates for full competition.
Competition
The nature of an All-Source RFP is to increase competition. It is based on the theory that increased competition will lead to a better selection of resources. In many cases, lower costs too.
However, in some cases RFPs will be branded as “All-Source” but will still have some requirements on the types and sizes of technologies allowed. Allowing more bids typically leads to more work evaluating projects. Utilities might try to eliminate bids that they would not consider because of size or technology risk.
Process
The general process is typical for an RFP and includes:
- Identifying Needs
Create RFP Document Detailing Resource Needs - Gathering Bids
Reach a wide audience to ensure that competitive bids are received - Evaluation
Evaluate bids based on resource needs.
Some unique characteristics that you might see in an All-Source RFP are more on the evaluation side. To evaluate different technologies against each other you might include having bucketed proposals to evaluate resources based on their technology. For example, evaluating all Solar proposals against each other and evaluating all Wind proposals against each other. Then, you can look at your resource needs and pick and choose from the proposals that scored high in their field.
Benefits of an All-Source RFP
An All-Source RFP with more competition of resources could lead to lower cost of energy, a more diverse energy mix, and a fair process that can win over the Utility commission.
Lower cost of electricity
Having more competition among generation resources can lead to lower cost of energy. Bidders know they are being evaluated against many other bidders and are incentivized to bid in at a lower price. This can lead to less costs being passed on to ratepayers.
Energy Diversity
Allowing all resources to be considered to meet your needs could make you consider resources you might not have previously considered. This could help you increase your resource diversity. Having a more diverse resource mix could lead to lower risks of cost fluctuation and more reliability.
Fairness
At the end of the day many Investor-Owned Utilities (IOUs) need to get their resource selection approved by their governing body (usually in the form of the State Utility Commission). Costs aside, having a fair process could look favorable to the Utility Commission as a sign that you checked all the boxes and chose the right resources for your community.
Cautions
There are a couple of things to look out for in an All-Source RFP process or any RFP process for that matter.
Risky proposals
If you open the resource selection process to all types of bidders, it could lead to proposals that haven’t thoroughly or reliably done their homework.
Time/Budget
Opening the gates to many proposals can also increase the time and budget of the RFP process. It takes time to thoroughly analyze the projects and make sure the correct ones are chosen.
Scoring
Some All-Source RFPs might include a scoring method to help evaluate proposals. These can be useful to paint a picture of the proposals received relative to each other. At the end of the day, however, you can’t rely too much on the scoring and need to take a step back and look at which proposals have a high probability of coming online when you need them too and at the cost stated.
Future of the All-Source RFP
The future of the All-Source RFP might include more technologies, more diverse resources mixes, more use-cases, and more analysis.
More all source
If the trend continues with lower cost competitive resources coming out of All-Source RFPs, more RFPs will be All-Source RFPs.
More diversity
More technologies are being developed to help meet the demand for clean dispatchable energy. There is a lot of innovation in the storage, nuclear, and green hydrogen areas. If more technologies become viable, then more diverse technologies will be included in All-Source RFPs.
More uses cases
There are more than just one use case for the All-Source RFP. At a high level, the what you are doing in an All-Source RFP is asking the market what prices they can provide and what types of projects. This information can also be used to provide good cost assumptions in the Integrated Resource Planning phase. This is exactly what NIPSCO did in their 2018 IRP. NIPSCO had an All-Source RFP to gather data about the pricing they could expect from projects and fed that into the assumptions going into the IRP. Once they had results from the IRP, they then did another RFP to get updated pricing and choose resources to meet there needs as defined in the IRP.
More evaluation
More analysis on projects could help minimize risks and determine the right projects for a Utilities specific mix.
Nodal analysis
The electricity system is complex. The exact same project could have different benefits to a system depending on where it is interconnected. A nodal analysis could help determine the benefits and costs to a system considering where it is interconnected.
Risk analysis
Risk can be hard to evaluate for projects in an All-Source RFP. There is risk in the type of equipment that a supplier uses, the financing strategy used, the interconnection queue status, and siting permits. There are many risk factors that should be analyzed to ensure that the right projects are chosen.
All-Source RFP
Choosing the right electricity generating resources is an important task. The All-Source RFP is a recent development that can help Utilities choose good resources to meet their needs by opening their options and unlocking competition. An All-Source RFP can lead to lower cost of electricity and a more diverse reliable resource mix that looks good to public utility commissions. The future of the All-Source RFP could lead to a more optimized process for minimizing risk and lowering costs of resources.
