Transcript Competitive Markets & Wind Power Challenge and Opportunity Paul J. Hibbard Governors’ Wind Energy Coalition November, 2011 BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON.

Competitive Markets & Wind Power
Challenge and Opportunity
Paul J. Hibbard
Governors’ Wind Energy Coalition
November, 2011
BOSTON
CHICAGO
DALLAS
DENVER
LOS ANGELES
MENLO PARK
MONTREAL
NEW YORK
SAN FRANCISCO
WASHINGTON
Governors’ Wind Energy Coalition, November 2011
Overview
New England competitive market structure
 Somewhat representative of entire Northeast
Treatment of transmission
 Reliability v. public policy
Current resource mix
 And potentially significant changes
New development interests
 Gas vs. renewables
Page 2
Governors’ Wind Energy Coalition, November 2011
Markets: Electricity (New England Example)
Energy, capacity, reserves, ancillary services, transmission rights
Financial signals for development stem from
 Long-term capacity market signal (in strong revision)
 Shorter-term energy, reserve, ancillary market revenues
 Bilateral contracts indexed to regional markets
 Transmission right revenues for new transmission development
Demand response and energy efficiency a key player in capacity, energy
markets (approaching 10% of market need)
Renewables development booming
Robust competition, major transmission investment
Page 3
Governors’ Wind Energy Coalition, November 2011
Transmission Development in the Market Context
Reliability
 ISO-NE identifies reliability needs, “backstop” transmission solution
 Market can identify non-transmission solution (local generation, demand
response, merchant transmission etc.)
 Current efforts to better align the two …
 Absent market response, “backstop” transmission pursued
 Costs socialized
Generation Interconnection
 Viewed as a development cost (resource-neutral)
 Level playing field for all generation options competing to meet need at lowest
delivered price of electricity
 Includes interconnection, any needed system reliability upgrades

(i.e., generator must be able to connect, and to do so without diminishing existing level of system
reliability)
 Developer pays – RESOURCES COMPETE ON DELIVERED PRICE BASIS
Page 4
Governors’ Wind Energy Coalition, November 2011
Combined Market Context
Consistent with current legislative proposals
 Policymakers set the standards (RPS with alternative compliance cost “cap”)
 Let competitive markets produce the lowest-cost compliance path
Financial signals for development flow from capacity, energy, and RPS
markets, and emerging environmental requirements
 Increasing renewable generation and development
 Decreasing fossil generation and development?
Compliance path (resources) not predetermined
Encourages innovation, spurs new technologies, resources, compliance
strategies
Minimizes rate impacts on delivered price basis
Page 5
Governors’ Wind Energy Coalition, November 2011
New England: New gas dominates, but wind is
emerging
5%
8%
10%
Coal
Gas
Nuclear
Oil
22%
42%
Hydro
Other
45,000
13%
40,000
35,000
Operational Capacity (MW)
Source: SNL
30,000
25,000
20,000
15,000
10,000
5,000
1950
1960
1970
Coal
Source: SNL
Gas
1980
Nuclear
Oil
1990
Hydro
Wind
2000
Other
2010
Page 6
Governors’ Wind Energy Coalition, November 2011
Environmental Compliance
• New England is at risk of substantial retirements
• Primarily aging coal and oil; possibly some gas
Will diminish
surplus
•
Many could be
in key
locations
•
What will we
be left with??
2010 Existing New England Power Plant Units
Summary of Heat Rate and Fuel Type by Year of Operation
1949 - 2010
17,000
Coal
Gas
Oil
15,000
13,000
Heat Rate (Btu/kWh)
•
11,000
9,000
7,000
5,000
1949
1959
1969
1979
Initial Year of Operation
Source: GE Multi Area Production Simulation (MAPS)
1989
1999
Page 7
2009
Governors’ Wind Energy Coalition, November 2011
Options
•
Not likely: Coal, oil, nuclear
•
Demand response: continued strength,
or diminishing returns?
•
Gas
• Relatively cheap, relatively easy to
develop
• Shale resources, sustained (?) low
prices
•
Wind
• No fuel risk
• Strong policy support
• Strong transmission development
interest
Page 8
Governors’ Wind Energy Coalition, November 2011
Comparable Economics (if wind is coupled…)
Average New Unit Generation by LMP Bucket
1,400
1,200
Average Unit Generation (MW)
1,000
800
600
400
200
0
1200 MW Wind
400 MW Ga s
400 MW Wind/Hydro
0-39
40-59
60-79
80-99
1200 MW Ga s
1200 MW Wind/Hydro
100+
Notes:
[1] New unit generation computed as the simple average of unit generation when hourly, New England, load-weighted LMPs are within the specified ranges.
Page 9
[2] Unit generation was reported as zero when units were not dispatched and when units were on maintenance. Therefore, results above are a lower bound of average unit generation.
Governors’ Wind Energy Coalition, November 2011
But, transmission is an issue for wind (not gas)
Page 10
Governors’ Wind Energy Coalition, November 2011
Outlook
Huge development interest for wind in the Northeast
Market opportunities will emerge, supported by policy
But natural gas outlook will challenge economics
Key factor: state efforts to provide the right development
conditions
 Coordinated procurement/long-term contract options
 Coordinated siting for transmission
Order 1000: will FERC force the issue
 Sets stage if states want to go there
 But socialization of transmission jeapordizes region’s commitment
to competitive electricity markets
Page 11
Governors’ Wind Energy Coalition, November 2011
Paul J. Hibbard
Vice President
[email protected]
617.425.8171
Analysis Group, Inc.
111 Huntington Ave., 10th Floor
Boston, MA 02199
ph: 617-425-8000
fax: 617-425-8001
www.analysisgroup.com
Page 12