EVALUATION OF BIDS WITH VARYING SIZES, IN-SERVICE DATES, AND CONTRACT LENGTH. PG&E’s valuation methodology is essentially blind to project size; it does not consider the extrinsic variables of MW capacity or GWh volume as positive or negative factors but rather reduces the value of the contract to a normalized $/MWh metric. To the extent project size has an impact, it reveals itself in the proposed contract price if the technology is one that provides economies of scale and enables developers to propose lower prices for larger projects. This might be the case where fixed costs for elements such as switchyards, towers, steam turbines etc. can be spread over more MW capacity. The viability scoring system, however, is not neutral to project size. It is evident that projects within California that can use the CAISO’s Small Generator Interconnection Procedures (SGIP) will score higher for the Interconnection Progress criterion than any larger project that uses the Large Generator Interconnection Procedures (LGIP), except for those that have already progressed to the LGIP Phase II study or have obtained an interconnection agreement.13 This tends to favor projects with capacity of 20 MW or less. Similarly, the larger the project, the less likely it is that the developer has succeeded in the past in developing similar or larger sized projects, owned and operated similar or larger sized projects, or financed similar or larger sized projects. So the proposal is likelier to score lower on Project Development Experience, Ownership/O&M Experience, and Project Financing Status if the project is larger. Also, in the case of newer technologies where there is limited manufacturing capacity worldwide for key components, a larger capacity project may score worse on Manufacturing Supply Chain than a smaller one, all else being equal. Xxxxxx agrees that a developer who has never previously built, financed, or owned and operated a generation facility of the same or larger MW capacity as the current proposal may 13 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already have poorer prospects for success in completing a facility on schedule than one who has two or more larger projects in her resume. This feature of the Project Viability Calculator, however, has the effect of “letting the rich get richer” by favoring proposals from developers who have successful track records and disfavoring those who lack large generation project experience. Whether this is fair or not isn’t obvious without more data on the relationship between prior project experience and success rate. As described previously, PG&E explicitly prefers proposals which propose earlier commercial operation dates to later ones, and exercises this preference in making selections for the short list. The valuation methodology, using current inputs, exhibits a slight propensity to favor projects that start later rather than earlier, all else being equal (this is related to assumptions regarding power market prices, capacity value, and discount rate), but the preference for earlier CODs appears to swamp this small effect. The valuation methodology similarly tends to favor contracts with longer duration to those with shorter terms, all else being equal.14 Since no counterparties ever seem to propose both a longer and shorter duration contract at the same contract price, this is a very minor effect, typically swamped by the lower contract price offered for the longer-term contracts. There does not appear to be a countervailing effect in the viability scoring methodology, where one might think that contracts for a solar photovoltaic project with a 30-year term would be scored lower for viability than the same project contracted for a 20- year term, given the limited expected reliable lifetime of inverters and trackers and the likelihood of declining reliability over the longer time horizon. The scoring guidelines for the Project Viability Calculator do not appear to take such issues into account.
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EVALUATION OF BIDS WITH VARYING SIZES, IN-SERVICE DATES, AND CONTRACT LENGTH. PG&E’s valuation methodology is essentially blind to project size; it does not consider the extrinsic variables of MW capacity or GWh volume as positive or negative factors but rather reduces the value of the contract to a normalized $/MWh metric. To the extent project size has an impact, it reveals itself in the proposed contract price if the technology is one that provides economies of scale and enables developers to propose lower prices for larger projects. This might be the case where fixed costs for elements such as switchyards, towers, steam turbines etc. can be spread over more MW capacity. The viability scoring system, however, is not neutral to project size. It is evident that projects within California that can use the CAISO’s Small Generator Interconnection Procedures (SGIP) will score higher for the Interconnection Progress criterion than any larger project that uses the Large Generator Interconnection Procedures (LGIP), except for those that have already progressed to the LGIP Phase II study or have obtained an interconnection agreement.13 This tends to favor projects with capacity of 20 MW or less. Similarly, the larger the project, the less likely it is that the developer has succeeded in the past in developing similar or larger sized projects, owned and operated similar or larger sized projects, or financed similar or larger sized projects. So the proposal is likelier to score lower on Project Development Experience, Ownership/O&M Experience, and Project Financing Status if the project is larger. Also, in the case of newer technologies where there is limited manufacturing capacity worldwide for key components, a larger capacity project may score worse on Manufacturing Supply Chain than a smaller one, all else being equal. Xxxxxx agrees that a developer who has never previously built, financed, or owned and operated a generation facility of the same or larger MW capacity as the current proposal may 13 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already have poorer prospects for success in completing a facility on schedule than one who has two or more larger projects in her resume. This feature of the Project Viability Calculator, however, has the effect of “letting the rich get richer” by favoring proposals from developers who have successful track records and disfavoring those who lack large generation project experience. Whether this is fair or not isn’t obvious without more data on the relationship between prior project experience and success rate. As described previously, PG&E explicitly prefers proposals which propose earlier commercial operation dates to later ones, and exercises this preference in making selections for the short list. The valuation methodology, using current inputs, exhibits a slight propensity to favor projects that start later rather than earlier, all else being equal (this is 13 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already related to assumptions regarding power market prices, capacity value, and discount rate), but the preference for earlier CODs appears to swamp this small effect. The valuation methodology similarly tends to favor contracts with longer duration to those with shorter terms, all else being equal.14 Since no counterparties ever seem to propose both a longer and shorter duration contract at the same contract price, this is a very minor effect, typically swamped by the lower contract price offered for the longer-term contracts. There does not appear to be a countervailing effect in the viability scoring methodology, where one might think that contracts for a solar photovoltaic project with a 30-year term would be scored lower for viability than the same project contracted for a 20- year term, given the limited expected reliable lifetime of inverters and trackers and the likelihood of declining reliability over the longer time horizon. The scoring guidelines for the Project Viability Calculator do not appear to take such issues into account.
Appears in 1 contract
Samples: Power Purchase Agreement
EVALUATION OF BIDS WITH VARYING SIZES, IN-SERVICE DATES, AND CONTRACT LENGTH. PG&E’s valuation methodology is essentially blind to project size; it does not consider the extrinsic variables of MW capacity or GWh volume as positive or negative factors but rather reduces the value of the contract Offer to a normalized $/MWh metric. To the extent project size has an impact, it reveals itself in the proposed contract price if the technology is one that provides economies of scale and enables developers to propose lower prices for larger projects. This might be the case where fixed costs for elements such as switchyards, towers, steam turbines etc. can be spread over more MW capacity. The viability scoring system, however, is not neutral to project size. It is evident that projects within California that can use the CAISO’s Small Generator Interconnection Procedures (SGIP) will score higher for the Interconnection Progress criterion than any larger project that uses the Large Generator Interconnection Procedures (LGIP), except for those that have already progressed to the LGIP Phase II study or have obtained an interconnection agreement.13 agreement.15 This tends to favor projects with capacity of 20 MW or less. Under current conditions it does appear that the smaller projects using SGIP are less likely to experience the delays and upfront costs that are posing impediments to speedy completion of projects that are pursuing interconnection through LGIP. Similarly, the larger the project, the less likely it is that the developer has succeeded in the past in developing similar or larger sized projects, owned and operated similar or larger sized projects, or financed similar or larger sized projects. So the proposal Offer is likelier to score lower 15 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already on Project Development Experience, Ownership/O&M Experience, and Project Financing Status if the project is larger. Also, in the case of newer technologies where there is limited manufacturing capacity worldwide for key components, a larger capacity project may score worse on Manufacturing Supply Chain than a smaller one, all else being equal. This creates an interesting situation where, hypothetically, very large projects can achieve higher valuations through economies of scale, but may suffer from lower viability scores if the Participant has never developed and operated a project on that scale previously, while very small projects may appear more viable when using the Project Viability Calculator, but may have worse valuations because they lack economies of scale and have offered a higher price. Xxxxxx agrees that a developer who has never previously built, financed, or owned and operated a generation facility of the same or larger MW capacity as the current proposal Offer may 13 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already have poorer prospects for success in completing a facility on schedule than one who has two or more larger projects in her resume. This feature of the Project Viability Calculator, however, has the effect of “letting the rich get richer” by favoring proposals Offers from developers who have successful track records and disfavoring those who lack large wholesale generation project experience. Whether this is fair or not isn’t obvious without more data on the relationship between prior project experience and success rate. But the methodology does seem to have the intended result of screening out Participants that cannot demonstrate prior success in wholesale generation project development, financing, and operation, consistent with an implicit assumption that such prior success is correlated with greater likelihood of commercial completion for the current proposal. As described previously, PG&E explicitly prefers proposals Offers which propose earlier commercial operation dates to later ones, and exercises this preference in making selections for the short list. The valuation methodology, using current inputs, exhibits a slight propensity to favor projects that start later rather than earlier, all else being equal (this is related to assumptions regarding power market prices, capacity value, and discount rate), but the preference for earlier CODs appears to swamp this small effect. The valuation methodology similarly tends to favor contracts with longer duration to those with shorter terms, all else being equal.14 equal.16 Since no counterparties Participants ever seem to propose both a longer and shorter duration contract at the same contract price, this is a very minor effect, typically swamped by the lower contract price offered for the longer-term contracts. There does not appear to be a countervailing effect in the viability scoring methodology, where one might think that contracts for a solar photovoltaic project with a 30-year term would be scored lower for viability than the same project contracted for a 20- 20-year term, given the limited expected reliable lifetime of inverters and trackers trackers, the limitations of photovoltaic panel warranties, and the likelihood of declining reliability over the longer time horizon. The scoring guidelines for the Project Viability Calculator do not appear to take such issues into account. 16 This is a feature of the inputs rather than the algorithm; with a modest discount rate and power market forwards that are extrapolated beyond a few decades, proposed renewable contract prices tend to fall below brown power market prices in the most distant years so that the longer the contract term is, the more valuable the overall contract is.
Appears in 1 contract
Samples: Power Purchase Agreement
EVALUATION OF BIDS WITH VARYING SIZES, IN-SERVICE DATES, AND CONTRACT LENGTH. PG&E’s valuation methodology is essentially blind to project size; it does not consider the extrinsic variables of MW capacity or GWh volume as positive or negative factors but rather reduces the value of the contract to a normalized $/MWh metric. To the extent project size has an impact, it reveals itself in the proposed contract price if the technology is one that provides economies of scale and enables developers to propose lower prices for larger projects. This might be the case where fixed costs for elements such as switchyards, towers, steam turbines etc. can be spread over more MW capacity. The viability scoring system, however, is not neutral to project size. It is evident that projects within California that can use the CAISO’s Small Generator Interconnection Procedures (SGIP) will score higher for the Interconnection Progress criterion than any larger project that uses the Large Generator Interconnection Procedures (LGIP), except for those that have already progressed to the LGIP Phase II study or have obtained an interconnection agreement.13 agreement.14 This tends to favor projects with capacity of 20 MW or less. Similarly, the larger the project, the less likely it is that the developer has succeeded in the past in developing similar or larger sized projects, owned and operated similar or larger sized projects, or financed similar or larger sized projects. So the proposal is likelier to score lower on Project Development Experience, Ownership/O&M Experience, and Project Financing Status if the project is larger. Also, in the case of newer technologies where there is limited manufacturing capacity worldwide for key components, a larger capacity project may score worse on Manufacturing Supply Chain than a smaller one, all else being equal. Xxxxxx agrees that a developer who has never previously built, financed, or owned and operated a generation facility of the same or larger MW capacity as the current proposal may 13 14 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already Xxxxxx agrees that a developer who has never previously built, financed, or owned and operated a generation facility of the same or larger MW capacity as the current proposal may have poorer prospects for success in completing a facility on schedule than one who has two or more larger projects in her resume. This feature of the Project Viability Calculator, however, has the effect of “letting the rich get richer” by favoring proposals from developers who have successful track records and disfavoring those who lack large generation project experience. Whether this is fair or not isn’t obvious without more data on the relationship between prior project experience and success rate. As described previously, PG&E explicitly prefers proposals which propose earlier commercial operation dates to later ones, and exercises this preference in making selections for the short list. The valuation methodology, using current inputs, exhibits a slight propensity to favor projects that start later rather than earlier, all else being equal (this is related to assumptions regarding power market prices, capacity value, and discount rate), but the preference for earlier CODs appears to swamp this small effect. The valuation methodology similarly tends to favor contracts with longer duration to those with shorter terms, all else being equal.14 equal.15 Since no counterparties ever seem to propose both a longer and shorter duration contract at the same contract price, this is a very minor effect, typically swamped by the lower contract price offered for the longer-term contracts. There does not appear to be a countervailing effect in the viability scoring methodology, where one might think that contracts for a solar photovoltaic project with a 30-year term would be scored lower for viability than the same project contracted for a 20- year term, given the limited expected reliable lifetime of inverters and trackers and the likelihood of declining reliability over the longer time horizon. The scoring guidelines for the Project Viability Calculator do not appear to take such issues into account.
Appears in 1 contract
Samples: Power Purchase Agreement
EVALUATION OF BIDS WITH VARYING SIZES, IN-SERVICE DATES, AND CONTRACT LENGTH. PG&E’s valuation methodology is essentially blind to project size; it does not consider the extrinsic variables of MW capacity or GWh volume as positive or negative factors but rather reduces the value of the contract to a normalized $/MWh metric. To the extent project size has an impact, it reveals itself in the proposed contract price if the technology is one that provides economies of scale and enables developers to propose lower prices for larger projects. This might be the case where fixed costs for elements such as switchyards, towers, steam turbines etc. can be spread over more MW capacity. The viability scoring system, however, is not neutral to project size. It is evident that projects within California that can use the CAISO’s Small Generator Interconnection Procedures (SGIP) will score higher for the Interconnection Progress criterion than any larger project that uses the Large Generator Interconnection Procedures (LGIP), except for those that have already progressed to the LGIP Phase II study or have obtained an interconnection agreement.13 agreement.14 This tends to favor projects with capacity of 20 MW or less. Similarly, the larger the project, the less likely it is that the developer has succeeded in the past in developing similar or larger sized projects, owned and operated similar or larger sized projects, or financed similar or larger sized projects. So the proposal is likelier to score lower on Project Development Experience, Ownership/O&M Experience, and Project Financing Status if the project is larger. Also, in the case of newer technologies where there is limited manufacturing capacity worldwide for key components, a larger capacity project may score worse on Manufacturing Supply Chain than a smaller one, all else being equal. Xxxxxx agrees that a developer who has never previously built, financed, or owned and operated a generation facility of the same or larger MW capacity as the current proposal may 13 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already have poorer prospects for success in completing a facility on schedule than one who has two or more larger projects in her resume. This feature of the Project Viability Calculator, however, has the effect of “letting the rich get richer” by favoring proposals from developers who have successful track records and disfavoring those who lack large generation project experience. Whether this is fair or not isn’t obvious without more data on the relationship between prior project experience and success rate. 14 On average, developers seem to prefer to have an executed PPA already in hand before paying the cost of a Phase II study, so it’s less likely that Offers to an RFO that use LGIP are in Phase II already As described previously, PG&E explicitly prefers proposals which propose earlier commercial operation dates to later ones, and exercises this preference in making selections for the short list. The valuation methodology, using current inputs, exhibits a slight propensity to favor projects that start later rather than earlier, all else being equal (this is related to assumptions regarding power market prices, capacity value, and discount rate), but the preference for earlier CODs appears to swamp this small effect. The valuation methodology similarly tends to favor contracts with longer duration to those with shorter terms, all else being equal.14 equal.15 Since no counterparties ever seem to propose both a longer and shorter duration contract at the same contract price, this is a very minor effect, typically swamped by the lower contract price offered for the longer-term contracts. There does not appear to be a countervailing effect in the viability scoring methodology, where one might think that contracts for a solar photovoltaic project with a 30-year term would be scored lower for viability than the same project contracted for a 20- year term, given the limited expected reliable lifetime of inverters and trackers and the likelihood of declining reliability over the longer time horizon. The scoring guidelines for the Project Viability Calculator do not appear to take such issues into account.
Appears in 1 contract
Samples: Power Purchase Agreement
