Fundamentals Training - S. Newell and J. Weiss Presentation - WSPP

Western Market Fundamentals
Implications of New Renewables
February 26, 2012
Sam Newell and Jurgen Weiss
The Brattle Group
Presented at:
WSPP’s Joint EC/OC Meeting
La Costa Resort, Carlsbad, CA
Copyright © 2011 The Brattle Group, Inc.
Views expressed in these slides are solely those of the author unless referred otherwise.
www.brattle.com
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Agenda
♦ Recent Prices and Market Heat Rates
♦ Key Fundamentals Looking Forward
♦ Major Driver: New Renewables
♦ Impacts of Renewables on Markets
♦ Takeaways for Traders
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Electricity Prices at Major WECC Hubs (2007-2012)
$/MWh
$/MWh
Daily On-Peak
$160
$140
$120
$100
$80
$60
$40
$20
$0
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11
Daily Off-Peak
$160
$140
$120
$100
$80
$60
$40
$20
$0
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11
3
Mid C
NP-15
SP-15
Palo Verde
Mid C
NP-15
SP-15
Palo Verde

Market Heat Rates at Major WECC Hubs (2007-2012)
Btu/kWh
Btu/kWh
20,000
Daily On-Peak
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11
20,000
Daily Off-Peak
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11
Mid C
NP-15
SP-15
Palo Verde
Mid C
NP-15
SP-15
Palo Verde
4

Key Fundamental Factors Looking Forward
DEMAND
SUPPLY
• Load growth
tempered by energy
efficiency
• Resource adequacy
requirements and
procurement
• RPS targets and
procurement
• Low gas prices
• Renewables for RPS
• Environmental
retirements
• Hydro variability
• Cap and trade
The biggest changes will come from planned and future renewables
5

Demand Projections for Renewable Energy
Annual Renewable Demand (GWh)
State RPS Requirements in WECC (% of Retail Load)
State 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Arizona 3.0% 3.5% 4.0% 4.5% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
California 18.0% 19.0% 20.0% 21.7% 23.3% 25.0% 27.0% 29.0% 31.0% 33.0%
Colorado 12.0% 12.0% 12.0% 12.0% 20.0% 20.0% 20.0% 20.0% 20.0% 30.0%
Idaho 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Montana 10.0% 10.0% 10.0% 10.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
New Mexico 10.0% 11.7% 13.3% 15.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0%
Nevada 15.0% 15.0% 18.0% 18.0% 20.0% 20.0% 20.0% 20.0% 20.0% 22.0%
Oregon 5.0% 7.5% 10.0% 12.5% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0%
Utah 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Washington 1.5% 3.0% 4.5% 6.0% 7.5% 9.0% 10.5% 12.0% 13.5% 15.0%
Wyoming 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
TOTAL 10.2% 11.1% 12.2% 13.3% 15.2% 16.3% 17.5% 18.7% 19.9% 22.1%
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Annual Demand for Renewable Energy
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Washington
Oregon
Nevada
New Mexico
Montana
Colorado
California
Arizona
♦ Demand driven by state RPS
♦ Existing demand is about 80,000
GWh (~11% of system load)
♦ Requirements increase over time
• 115,000 GWh by 2015 (~15% of load)
• 177,000 GWh in 2020 (~22% of load)
♦ CA demand > 60% of total
Sources and Notes:
[1] RPS requirements based on most recent state rules and regulations; Voluntary goals in UT are not included;
RPS requirements are interpolated based on interim targets for CA, OR, NM, and WA.
[2] Demand calculations based on EIA electricity sales for 2010 and 1.2%/yr growth rate; Grossed up by 8% for T&D losses
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Supply Projections for Renewable Energy in WECC
MW
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Existing & Planned Renewable Supply
Arizona
California
Colorado
Idaho
Partially Permitted
Testing, Under Constr. & Site Prep
Existing
Montana
Nevada
New Mexico
Oregon
Utah
Washington
Wyoming
Planned Renewable Capacity Additions
by Technology
♦ ~22 GW of existing RPS-qualified capacity
• 1/2 in CA
• 2/3 wind
♦ ~14 GW more planned by 2015
• Mostly solar and wind
• Suffices to meet 2015 RPS demand
♦ Much more needed in 2015-20 for RPS
• 25-35 GW, depending on types
• Depends on costs and state/federal policies
Source: Calculated based on unit data compiled by Ventyx, the Velocity Suite
(as of February, 2012).
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Renewables Likely to Maintain Low Energy Prices
100,000
80,000
Changes in Key Factors Relative to 2007
WECC Renewable
Generation
60,000
40,000
WECC Load
GWh
20,000
0
BPA Hydro
-20,000
-40,000
Load Net of
BPA Hydro and
Renewable Gen
-60,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Sources: Estimated based on data from EIA, Ventyx, BPA, TEPPC.
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Substantial Amounts of PV Can Have Dramatic
Impacts on Peak Prices – Germany Example
German Power Market July 16, 2011
♦ Germany installing a lot of solar
♦ Price impacts illustrated on 7/16/2011
• Solar generation (yellow) removed the
“peakiness” of residual load
• Resulting hourly prices (red on middle
graph) were almost completely flat
• Compared to a “typical” summer day
(7/16/2009 – red line in lower graph)
German Power Market July 16, 2009
♦ This is being lauded as the “price
suppression benefit of solar” and as
destroying the energy margins of
fossil generation
Sources: Solarserver.de; EEX
9

Implications for System Operations
Western Wind and Solar Integration Study
(WWSIS) for WestConnect, Phase 1 (2010)
Like other renewable integration studies,
found challenges w/high penetration
Found WestConnect can accommodate
30% wind and 5% solar with:
♦ Coordinating commitment and dispatch
regionally, across balancing areas
♦ Sub-hourly scheduling and transmission
♦ Integrating forecasts into dispatch and
operations
♦ Committing additional operating reserves
♦ Exploiting flexibility from conventional
generation (cycling/ramping) and renewable
generation (ramping down)
Sources: NREL, Stakeholder Webinar May 19, 2011 WWSIS Phase 2
10

Implications for Market Ops & Structures – Next Steps
WWSIS Phase 2 is underway:
♦ Analyze wear & tear impacts on
thermal units; mitigation options
♦ Emission impacts and optimal unit
commitment and economic dispatch
The PUC Energy Imbalance Market (EIM)
Group is working on formalizing Western
balancing area cooperation:
♦ Commissioners from AZ, CA, CO, ID,
MT, NV, NM, OR, TX, UT, WA, WY
♦ Actively investigating the costs and
benefits of a regional sub-hourly EIM
CAISO proposing “resource adequacy”
requirements for flexible capacity
Such efforts may provide opportunities
for flexible generation to earn additional
revenues (but wear & tear on units)
Sources: NREL, Stakeholder Webinar May 19, 2011 WWSIS Phase 2
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Takeaways for Traders
♦ Renewable development is one of the biggest
fundamental drivers in the West
♦ New renewables are likely to more than offset the energy
price impact of load growth (and of an expected return to
normal hydro conditions)
• Solar can depress prices especially on-peak
• Wind can depress prices especially off-peak
♦ Wind and solar variability and unpredictability will require
a more flexible system
• Opportunities for flexible fossil generation
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About The Brattle Group
The Brattle Group provides consulting and expert testimony in economics, finance, and
regulation to corporations, law firms, and governmental agencies around the world.
We combine in-depth industry experience, rigorous analyses, and principled techniques
to help clients answer complex economic and financial questions in litigation and
regulation, develop strategies for changing markets, and make critical business decisions.
Climate Change Policy and Planning
Cost of Capital
Demand Forecasting
Demand Response and Energy Efficiency
Electricity Market Modeling
Energy Asset Valuation
Energy Contract Litigation
Environmental Compliance
Fuel and Power Procurement
Incentive Regulation
Rate Design, Cost Allocation, and Rate Structure
Regulatory Strategy and Litigation Support
Renewables
Resource Planning
Retail Access and Restructuring
Risk Management
Market-Based Rates
Market Design and Competitive Analysis
Mergers and Acquisitions
Transmission
Sam Newell (sam.newell@brattle.com), Jurgen Weiss (jurgen.weiss@brattle.com)
44 Brattle Street, Cambridge, MA 02138
617-864-7900 (www.brattle.com)
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