ies webinar: energy outlook, wind ppas, rate updates and regulatory impacts
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WEBINAR SERIES INSIDE ENERGY & SUSTAINABILITY
Q4 ENERGY OUTLOOK UPDATE: WIND PPAS, RATE UPDATES, AND REGULATORY IMPACTS
December 1, 2016
WELCOMEOUR PRESENTERS
IAN BOWMAN | PRODUCT MANAGEMENT
DIRECTOR
JONATHAN LEE | SENIOR ENERGY MARKET INTELLIGENCE MANAGER
INSIDE ENERGY & SUSTAINABILITY
TODAY’S TOPICS
WIND POWER PURCHASE AGREEMENTS (PPA) More corporations are beginning to take on wind power purchase
agreements in order to meet their high renewables targets.
ENERGY MARKET UPDATE: Q4 2016 Natural Gas Production, Storage: Supply rebalancing with demand What a potential La Niña could mean for this upcoming winter
RATE AND REGULATORY IMPACTS FOR 2017 Utilities looking to increase reliability, while weighing the traditional business model with
emerging technologies. Regulatory environment facing uncertainty heading into 2017.
INSIDE ENERGY & SUSTAINABILITY
WIND POWER PURCHASE AGREEMENTS (PPAS)
INSIDE ENERGY & SUSTAINABILITY
RMI BUSINESS RENEWABLES MEETING – NOVEMBER 17TH RECAP BACKGROUND: A few corporate (Fortune 100) have successfully
completed Wind PPAs Reporting back that it was difficult, but worthwhile
PURPOSE OF THE NOV 17TH MEETING: How can we learn from these initial deals and
overcome barriers So it is easier for many more companies to use PPAs
TO MAKE PPAS ACCESSIBLE FOR THE NEXT LEVEL OF CLIENTS . . . Deal sizes need to come down to around 5MW Which requires an Aggregator – Developers are not
geared for this role Buyers want shorter tenors and don’t want basis risk Standard T&C contracts (like NAESB) Most buyers need strong financial incentive There is little guidance on how much fractional deals
can be considered to “cause” new renewables
INSIDE ENERGY & SUSTAINABILITY
INDICATIVE LEVELIZED PPA COST FOR NEW WIND CAPACITY IN 2018
http://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf
$34 weighted average represents a good wind area like Texas. Unsubsidized, it might be around $51, but includes a Production Tax credit of ~$17 due to ‘Commencing Construction’ in 2017.
PTC Steps down Each year until 2019 Based on when Project “Commenced Construction” Year PTC (Approximate)2016. . . .$232017. . . .$172018. . . .$142019. . . . $92020. . . . $0
INSIDE ENERGY & SUSTAINABILITY
SUBSIDIZED WIND HAS DRIVEN DOWN WHOLESALE PRICES IN TXIMPLICATIONS: In 2013 & 2014, it was easier to portray PPAs as ‘cost saving’ vs higher wholesale grid prices but as wind has saturated the market, wholesale prices have dropped. Going forward, PTC Phases out, so PPAs will climb, but TX wholesale market will not likely recover quickly, requiring more patient outlook from potential future PPA buyers
$/M
Wh
Impact of PTC Step Down“Commenced Construction” Year PTC (Approximate)
2016. . . .$232017. . . .$172018. . . .$142019. . . . $92020. . . . $0
2017
E
2018
E
2019
E
2020
E
2021
E
West TX Grid Prices
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WHAT COULD CAUSE THESE SAGS IN WIND CAPACITY ADDITIONS?
1. 2017-2018, similar to 2013-2014 are rebuilding yearsafter late last minute PTC extensions. New deals are signedbut few are completed til 2019
1
2 By 2022-2023, PTC is fully phased out, and wholesale Markets in prime wind areas like TX are assumed saturated
INSIDE ENERGY & SUSTAINABILITY
KEY TAKEAWAYS ON WIND PPAS
LARGE COMPANIES ARE USING THEM TO GREEN LARGE CHUNKS OF LOAD AT A TIME WITHOUT HAVING TO WORRY ABOUT SPECIFIC SITE ISSUES THAT ARISE WITH ON-SITE APPROACHES.
IF YOU THINK YOU WANT TO DO PPAS, NOW IS THE TIME TO ACCELERATE YOUR EVALUATIONS TO ENSURE YOU CAN MAXIMIZE PTC CREDIT.
SAVINGS AND STRONG CLAIMS TO ADDITIONALITY (CAUSING RENEWABLES TO BE BUILT) WILL BE TOUGHER IN SMALLER DEALS.
DON’T UNDERESTIMATE WHOLESALE PRICE RISKS.
INSIDE ENERGY & SUSTAINABILITY
Q4 2016 ENERGY MARKET UPDATE
INSIDE ENERGY & SUSTAINABILITY
ELECTRIC AND NATURAL GAS MARKET DRIVERS1 December 2016
Bearish – Market Influencers Driving Prices Lower:
Natural Gas Production – Declined from February high, but still in line with last year at this time.
Natural Gas Storage – Reached record high of 4,047 Bcf prior to withdrawal season.
Economy – Although Q3 2016 GDP grew at 3.2% annualized rate, sustained growth yet to be realized.
Coal – Weak coal prices lower baseline electric generation costs.
Regional Generation Variations – Subsidizedwind generation in West Texas, localized shale in PJM providing cheap gas to power plants, and incremental pipeline capacity easing in the Northeast.
Bullish – Market Influencers Driving Prices Higher:
Demand – Gas-fired generation remains elevated, residential/commercial heating demand rising.
Weather Forecast – Winter temperatures forecast to be colder than last year, supporting wholesale natural gas and electric prices.
LNG – Sabine Pass LNG exporting supplies to global markets.
Mexico Pipeline Exports – Exports up to 3.8 Bcf/day.
ISO Reliability – Retiring coal plants forcing ISO’s to evaluate grid reliability.
Interest Rate Hike – Fed considering a December interest rate hike, which would increase the cost of capital and could slow natural gas and oil production.
INSIDE ENERGY & SUSTAINABILITY
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$/M
MBt
u
12-Month Strip Lows1/28/2002: $2.374/19/2012: $2.562/25/2016: $2.10
On February 25th, the strip fell to its lowest level since early-1999.
Since that point, the strip has climbed back above $3.00, which is slightly higher than 2015 levels.
Katrina & Rita
Polar Vortex
Commodity Bubble & Collapse
Cold Winter, Supply/Demand
rebalance
Shale Gas Revolution
Supply Glut
Hurricane Ivan
NATURAL GAS 12-MONTH STRIP HOVERING AROUND $3.00$/MMBtu – 30 November 2016
Budget Impact:Natural gas 12-month strip is 34% above last year at this time and 56% above February’s 17-year low.
INSIDE ENERGY & SUSTAINABILITY
12-MonthRolling Strip
NYMEX Correlation
ERCOT HZ 93.7%
NY ISO J 68.1%
PJM West 56.9%
NEPOOL 52.3%
MISO 84.6%
PG&E NP-15 94.6%
ELECTRIC 12-MONTH STRIPS STEADY BEFORE WINTER$/MWh – 30 November 2016
$20
$30
$40
$50
$60
$70
$80
$90
$/M
Wh
ERCOT AVG NY ISO J PJM NEPOOL MISO PG&E NP15 W
Budget Impact:Wholesale electric 12-month strip 6-9% higher than last year in ERCOT, MISO, and PG&E. However, 5-15% lower than last year in New York, PJM, and New England.
INSIDE ENERGY & SUSTAINABILITY
WINTER 2016/2017 OUTLOOKNOAA, AccuWeather, Farmers’ Almanac – November 2016
Cold temperatures are expected to spread from the Midwest through New England. The severity could depend on how low the jet stream dips. Regional price volatility likely in those regions.
INSIDE ENERGY & SUSTAINABILITY
LA NIÑA WINTER IMPACTNOAA, AccuWeather – November 2016
NOAA saying 55% chance of La Niña prior to winter.
Current 3-month running average SST anomalies in the Niño 3.4 region -0.7oC below-normal.
All La Niña events have occurred within 2 years of El Niño.
La Niña typically brings colder-than-normal winters to
Midwest, Northeast.
INSIDE ENERGY & SUSTAINABILITY
Record high storage entering heating season at 4,047 Bcf.
Even though injections were below-normal throughout much of the year, prolonged mild temperatures in October led to higher builds late-season.
Storage levels currently 1.3% above last year and 5.6% above the five-year average.
GAS SUPPLIES SET RECORD HIGH END OF SEASONEIA – November 2016
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Natural gas production peaked in Feb 2016 at 79.4 Bcf/day and bottomed out in Oct 2016 at 75.9 Bcf/day.
During 2017, production is expected to climb above 80 Bcf/day.
DECLINING NATURAL GAS PRODUCTION EXPECTED TO RECOVEREIA – November 2016
Budget Impact:Slower production has tightened the supply and demand balance, resulting in higher prices.60
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Natural G
as Rig C
ount
Mar
kete
d Pr
oduc
tion
(Bcf
/Day
)
Natural Gas Rig CountTotal marketed production (left axis) billion cubic feet per day
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GENERATION CAPACITY SHIFTING TO NATURAL GAS AND RENEWABLESEIA – November 2016
U.S. to add about 11.6 GW of natural gas-fired, 6.8 GW solar, and 7.1 GW wind generation capacity between Sept 2016 and Aug 2017.
U.S. to retire about 3.1 GW of coal-fired and 2.4 GW nuclear generation capacity between Sept 2016 and Aug 2017.
INSIDE ENERGY & SUSTAINABILITY
OUTLOOK: NATURAL GAS PRICINGEIA – November 2016
In general, pricing is expected to gradually rise through 2017. The EIA anticipates Henry Hub spot prices will average $2.50/MMBtu through 2016 and $3.12 in 2017.
INSIDE ENERGY & SUSTAINABILITY
OUTLOOK: COMMERCIAL ELECTRIC PRICINGEIA – November 2016
Average 2017 Commercial Rates Compared to 2016:
East North Atlantic: +2.2%Mid-Atlantic: +2.0%New England: +2.2%Pacific: +1.9%South Atlantic: +3.2%South Central: +2.9%
$60
$80
$100
$120
$140
$160
$180
$200
$/M
Wh
East North Central Mid-Atlantic New EnglandPacific South Atlantic South Central
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PROMINENT ELECTRIC RATE CASES IN 2017November 2016
Colorado Springs Utilities: +12.5% Jan 2017 PEPCO MD: +10.0% Oct 2016 Minnesota Power: +9.6% Jan 2017 Penelec: +9.1% Jan 2017 United Illuminating: +8.4% July 2017 Ameren MO: +7.8% June 2017 Gulf Power FL: +7.6% July 2017 Arizona Public Service: +6.1% July 2017 NIPSCO: +6.0% Oct 2016 Atlantic City Electric/JCPL: +5.8% Jan 2017 City of Seattle: +5.5% Jan 2017 Tucson Electric Power: +5.5% Jan 2017 Duke FL: +5.5% Jan 2017 Florida Power & Light: +4.4% Jan 2017 LADWP: +3.9% Jan 2017 First Energy OH: Base Rate Freeze 2017 AEP OH: -3.0% Jan 2017 Duke Energy NC: -6.3% Jan 2017
NV
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REGULATORY/RATE DESIGN 2017November 2016
REGULATORY Clean Power Plan – DC Circuit Court of Appeals heard
arguments, ruling pending. Potential softening or elimination of CPP under new administration
Cross-State Air Pollution Rule – EPA reworking the rule; MD, NY, CT, MA, NH, RI, and VT petitioned EPA to force Midwest states to limit emissions
Nuclear Power Plant Subsidies – Illinois and New York Renewable Portfolio Standards – states increasing
targets (HI 100% by 2045, VT 75% by 2032, NY, CA, OR, RI, DC 50%)
RATE DESIGN New York Reforming the Energy Vision (REV) Net Metering debate continues between industry and
utilities. Utilities exploring default time-of-use rates for all
customers, increased fixed charges Energy storage
INSIDE ENERGY & SUSTAINABILITY
CALIFORNIA ISO’S PROPOSAL FOR A NEW TOU FRAMEWORK BY 2021November 2016 Net Load 13,003
MW on 2/21/2016Solve w/ ‘Super Off
Peak’
3-hour ramp10,892 MW on
2/1/2016 – Solve w/Super On Peak
Off Peak at Mid-Day
On Peak is 4-9pmNoon-9 during the summer
INSIDE ENERGY & SUSTAINABILITY
SCE’S 2024 MARGINAL COSTS MODEL ALIGNS WITH CAISO
Columns: HoursRows: Months ** 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 20 21 22 23 24 Average
1 0.049 0.048 0.047 0.048 0.048 0.049 0.053 0.064 0.048 0.046 0.045 0.044 0.041 0.043 0.044 0.046 0.069 0.1 50 0.098 0.067 0.060 0.056 0.052 0.050 0.057 2 0.044 0.043 0.043 0.042 0.043 0.044 0.047 0.045 0.042 0.041 0.041 0.040 0.040 0.040 0.041 0.041 0.046 0.1 29 0.1 1 4 0.065 0.055 0.051 0.046 0.044 0.051 3 0.047 0.046 0.046 0.046 0.046 0.047 0.048 0.044 0.043 0.041 0.041 0.038 0.037 0.040 0.041 0.043 0.044 0.1 99 0.078 0.065 0.061 0.060 0.053 0.048 0.054 4 0.047 0.047 0.047 0.046 0.047 0.047 0.046 0.043 0.043 0.042 0.042 0.041 0.039 0.041 0.043 0.044 0.046 0.1 93 0.069 0.064 0.069 0.060 0.053 0.048 0.054 5 0.047 0.047 0.046 0.046 0.047 0.047 0.043 0.044 0.044 0.044 0.044 0.044 0.043 0.044 0.045 0.046 0.048 0.1 69 0.075 0.061 0.068 0.065 0.056 0.049 0.055 6 0.043 0.043 0.043 0.042 0.043 0.042 0.038 0.039 0.040 0.043 0.040 0.040 0.040 0.041 0.042 0.044 0.046 0.1 33 0.382 0.1 1 1 0.071 0.060 0.051 0.045 0.065 7 0.048 0.047 0.047 0.047 0.047 0.047 0.042 0.044 0.046 0.047 0.049 0.050 0.052 0.053 0.057 0.058 0.059 0.1 91 0.096 0.073 0.070 0.065 0.061 0.053 0.060 8 0.049 0.048 0.048 0.047 0.048 0.048 0.046 0.046 0.047 0.048 0.048 0.049 0.050 0.052 0.055 0.057 0.095 0.265 0.489 0.1 1 1 0.082 0.065 0.062 0.053 0.084 9 0.045 0.044 0.044 0.044 0.044 0.044 0.044 0.043 0.043 0.044 0.044 0.044 0.045 0.046 0.049 0.055 0.1 85 2.275 0.993 0.279 0.090 0.059 0.053 0.047 0.1 96
1 0 0.049 0.049 0.049 0.048 0.049 0.049 0.053 0.048 0.047 0.047 0.047 0.047 0.047 0.048 0.049 0.049 0.1 23 0.1 67 0.067 0.073 0.065 0.060 0.054 0.050 0.060 1 1 0.044 0.043 0.043 0.042 0.043 0.044 0.046 0.044 0.042 0.042 0.042 0.041 0.041 0.042 0.042 0.043 0.1 28 0.1 51 0.062 0.059 0.054 0.050 0.046 0.044 0.053 1 2 0.048 0.048 0.047 0.047 0.048 0.048 0.053 0.054 0.048 0.048 0.047 0.047 0.046 0.046 0.047 0.048 0.057 0.241 0.077 0.069 0.063 0.061 0.056 0.050 0.060
Hourly Average * 0.047 0.046 0.046 0.046 0.046 0.046 0.047 0.047 0.045 0.044 0.044 0.044 0.044 0.045 0.046 0.048 0.079 0.355 0.21 7 0.091 0.067 0.059 0.054 0.048 0.071
Columns: HoursRows: Months ** 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 20 21 22 23 24 Average
1 0.051 0.050 0.049 0.049 0.049 0.050 0.051 0.069 0.046 0.042 0.043 0.038 0.037 0.034 0.036 0.044 0.051 0.1 68 0.088 0.066 0.060 0.056 0.053 0.051 0.056 2 0.046 0.045 0.045 0.045 0.045 0.046 0.046 0.045 0.040 0.034 0.039 0.038 0.033 0.037 0.038 0.039 0.051 0.073 0.1 47 0.063 0.055 0.051 0.050 0.047 0.050 3 0.049 0.049 0.049 0.048 0.048 0.048 0.048 0.043 0.034 0.028 0.029 0.028 0.01 4 0.020 0.034 0.042 0.057 0.1 77 0.073 0.062 0.062 0.064 0.060 0.051 0.051 4 0.038 0.037 0.037 0.037 0.037 0.037 0.034 0.024 0.031 0.028 0.025 0.028 0.01 7 0.01 6 0.01 6 0.043 0.033 0.1 37 0.039 0.042 0.051 0.050 0.046 0.039 0.038 5 0.042 0.042 0.042 0.042 0.042 0.042 0.027 0.030 0.030 0.033 0.032 0.032 0.032 0.030 0.020 0.036 0.049 0.1 32 0.059 0.049 0.052 0.053 0.051 0.045 0.044 6 0.047 0.047 0.047 0.047 0.047 0.046 0.034 0.023 0.035 0.040 0.040 0.040 0.040 0.041 0.043 0.044 0.058 0.1 38 0.079 0.060 0.061 0.065 0.059 0.049 0.051 7 0.043 0.043 0.043 0.042 0.042 0.041 0.035 0.031 0.037 0.038 0.040 0.041 0.042 0.042 0.043 0.044 0.045 0.1 68 0.077 0.062 0.060 0.057 0.052 0.045 0.050 8 0.044 0.043 0.043 0.043 0.043 0.043 0.039 0.036 0.038 0.039 0.040 0.041 0.041 0.042 0.043 0.092 0.071 0.1 04 0.1 1 5 0.061 0.066 0.064 0.058 0.046 0.054 9 0.049 0.048 0.048 0.048 0.048 0.048 0.046 0.039 0.040 0.041 0.042 0.044 0.045 0.046 0.047 0.049 0.051 0.51 1 0.1 51 0.082 0.068 0.062 0.059 0.050 0.073 1 0 0.044 0.044 0.044 0.044 0.044 0.044 0.045 0.037 0.037 0.038 0.039 0.039 0.040 0.041 0.042 0.044 0.1 1 7 0.1 29 0.058 0.066 0.057 0.051 0.047 0.045 0.052 1 1 0.056 0.055 0.055 0.055 0.055 0.055 0.056 0.053 0.045 0.048 0.048 0.045 0.043 0.047 0.049 0.053 0.1 45 0.1 94 0.081 0.077 0.067 0.063 0.059 0.056 0.065 1 2 0.051 0.051 0.050 0.050 0.050 0.050 0.051 0.050 0.046 0.040 0.044 0.043 0.043 0.043 0.044 0.047 0.053 0.244 0.067 0.067 0.061 0.060 0.055 0.051 0.059
Hourly Average * 0.047 0.046 0.046 0.046 0.046 0.046 0.043 0.040 0.038 0.038 0.038 0.038 0.035 0.037 0.038 0.048 0.065 0.1 81 0.086 0.063 0.060 0.058 0.054 0.048 0.054
Weekdays
Weekends and Holidays
Strengthens potential for Demand Management. Utilities will do individual rate cases but seem roughly aligned. Does not take into account the potential for HIGH penetration of storage
Mid-day is the new Off Peak!
INSIDE ENERGY & SUSTAINABILITY
MAJOR TAKEAWAYS
UNDERSTAND WHETHER OFFSITE WIND POWER PURCHASE AGREEMENT TRENDS FIT INTO YOUR COMPANY’S ENERGY STRATEGY.
UPCOMING WINTER WEATHER EXPECTATIONS FUELING NATURAL GAS PRICES. As supply and demand continue to rebalance, natural gas and electricity prices will face upward pressure.
REGIONAL POWER MARKETS MAY HAVE BETTER BUYING OPPORTUNITIES THAN REFLECTED IN NATIONAL BENCHMARKS. Some regional electric markets have decoupled from natural gas during the recent rally, so monitoring pricing at
a more regional level may uncover more buying opportunities.
VOLATILITY STILL EXISTS IN NEW ENGLAND, NEW YORK, AND PJM DURING COLD TEMPERATURES SPELLS. Wholesale natural gas and electricity prices are expected to slowly rise during 2017. Opportunities still exist to
contract electric and natural gas contracts in deregulated markets.
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