douglas arent - energy issues and implications for macrostability workshop

Energy Issues and Implica2ons for Macrostability Workshop: Technology Futures April 2016 Dr. Douglas J. Arent Execu9ve Director

JISEA’s MISSION JISEA research focuses on the intersec9ons of energy, finance, and society. JISEA provides cri9cal clarity and insights to inform decision making through leading-‐edge interdisciplinary research and objec9ve, credible, cross-‐func9onal analysis.

JISEA—Joint Ins9tute for Strategic Energy Analysis 3

$62bn$88bn

$128bn

$175bn$206bn $207bn

$274bn

$318bn$297bn

$272bn

$316bn$329bn

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Clean energy investment rose while oil & gas CAPEX fell Global clean energy investment vs oil & gas capital expenditure $500bn

Note: Oil and gas CAPEX data refers to total capital spending by integrated global oil firms and US independent E&Ps. Excludes NOCs. Source: Bloomberg Intelligence, Bloomberg New Energy

Finance

$321bn

0

20

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80

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120

140

160$146/bbl

$37/bbl

Oil and gas CAPEX down

by 36% in 2015


Implica9ons of Paris

PATHWAYS TO DECARBONIZATION •  Natural Gas •  Renewables •  Nuclear •  Efficiency •  CCUS •  EVs •  Energy Services •  Human-‐System Op?miza?on

•  Synergies •  Compe??on •  Integrated Systems

JISEA—Joint+Ins-tute+for+Strategic+Energy+Analysis++ 5+

+U.S.+Genera-on+by+Fuel+Type+

0+

500+

1,000+

1,500+

2,000+

1950+ 1955+ 1960+ 1965+ 1970+ 1975+ 1980+ 1985+ 1990+ 1995+ 2000+ 2005+ 2010+ 2015+

Terawa&

'hou

rs,

Coal+

Natural+Gas+

Nuclear+

Hydro+Petroleum+ NonMHydro+

Renewables+

The,U.S.,Power,Sector,Is,Undergoing,Profound,Transforma:on,Source:+Electric+Power+Monthly,+EIA.+


U.S. Shale Produc9on

Shale Gas Supplied 58% of Total Dry Natural Gas Produc2on in 2015 Source: Natural Gas Weekly Update, EIA.


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Prudentlimit

Insolvency zone

Source: Bloomberg Intelligence; Bloomberg New Energy Finance

US independent oil & gas producer solvency ra9os

Interest cover (EBITDA/Interest expense)

Leverage (total debt to capital %)

Note: size of bubbles represents net debt posi9on for each company

2008


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2009



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2010



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2011



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Prudentlimit

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2012



-60

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Prudentlimit

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2013



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0

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0 10 20 30 40 50 60 70 80 90 100 110 120 130 140

Prudentlimit

Insolvency zone





2014







-60

-40

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0 10 20 30 40 50 60 70 80 90 100 110 120 130 140

Prudentlimit

Insolvency zone

2015

$234 bn of US energy junk debt outstanding

52 companies filing Chapter 11 since start 2015

69 companies under credit ra2ngs review



020040060080010001200140016001800

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MarcellusHaynesvilleEagle FordFayettevilleBarnettWoodfordBakkenAntrimUticaOther ShaleGas rigs online0

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MarcellusHaynesvilleEagle FordFayettevilleBarnettWoodfordBakkenAntrimUticaOther ShaleGas rigs online

US dry shale gas produc9on by play vs rig count

Source: EIA, Bloomberg New Energy Finance

Billion cubic feet per day Number of rigs online

020040060080010001200140016001800

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MarcellusHaynesvilleEagle FordFayettevilleBarnettWoodfordBakkenAntrimUticaOther ShaleGas rigs online

Rig count down 8-‐fold 2007-‐16

Output per rig up 11-‐fold 2007-‐16


LNG export capacity by country/region (MMtpa)

Source: Bloomberg New Energy Finance

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OtherNorth AmericaRussiaEast AfricaWest AfricaAustraliaNorth AmericaAustraliaOtherRussiaWest AfricaNorth AfricaIndonesiaMalaysiaQatarDemand

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ID

Note: Pre final investment decision (Pre-‐FID) projects with <50% chance of success are excluded.


Key Issues: •  Federal Framework •  Economics

•  Corporate •  Stakeholder & Local •  State •  Federal •  United States.

•  Environment • Water •  Emissions

•  Society •  Social License…

METHANE EMISSIONS & ABATEMENT


2000 2005 2010 2015 2000 2005 2010 2015 2000 2005 2010 2015

COAL CONSUMPTION BY REGION (MTOE) OECD -‐ DECLINING CHINA -‐ FLATTENING NON-‐OECD EX CHINA -‐ SLOWING

Year on year % change Year on year % change Year on year % change


-1%

1% 3% 1% 1% 1% 2%

-2%

-11%

6%

-2%-4%

1%

-2%-1%

2000 2005 2010 2015

-1%

1% 3% 1% 1% 1% 2%

-2%

-11%

6%

-2%-4%

1%

-2%-1%

2000 2005 2010 2015

-1%

1% 3% 1% 1% 1% 2%

-2%

-11%

6%

-2%-4%

1%

-2%-1%

2000 2005 2010 2015

-1%

1% 3% 1% 1% 1% 2%

-2%

-11%

6%

-2%-4%

1%

-2%-1%

2000 2005 2010 2015

5%

10%

19%17%17%

10%9%

2%5% 4%

9%

1% 2% 0%

-4%

2000 2005 2010 2015

1%5% 3%

10%7% 6% 8%

10%9%4% 4%

12%7%11%10%

2000 2005 2010 2015

Coal consump3on (Mt/yr) Coal consump3on (Mt/yr) Coal consump3on (Mt/yr)

1,216Mt 1,042Mt

1,900Mt 1,896Mt

876Mt 533Mt


0

50

100

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1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Note: Pre-‐1913, data is available only for 10-‐year average annual consump9on Source: UK DECC, Bloomberg New Energy Finance

UK coal demand, 1860–2015 (Mt/yr)


Renewable energy propor9on of power genera9on, 10 years to 2014 (%)

Canada 76%

US 13%

Brazil 71%

China 22%

Japan 11%

Australia 16%

India 6%

9% 13%

US

61% 65%

Canada

9% 13%

Japan

16%23%

China

8% 13%

Australia

16% 16%

India

88%75%

Brazil0% Lowest

50% Mid

100% HighestNote: Includes hydro Source: BP Sta9s9cal Review of Energy, Bloomberg New Energy Finance

15%

40%Spain

4%

19%

UK

16%

44%Italy

27%

57%Denmark

10%

26%

Germany


0.1

1

10

100

1 10 100 1,000 10,000 100,000 1,000,000

2003

1976

1985

2008

Cumulative capacity (MW)

Current 2015 price

Note: Prices are in real (2015) USD. ‘Current price’ is $0.61/W Source: Bloomberg New Energy Finance, Maycock

Wind and solar experience curves

ONSHORE WIND LEVELISED COST ($/MWh) SOLAR PV MODULE COST ($/W)

Learning rate 24.3%

MODULE COSTS HAVE FALLEN

99% SINCE 1976 80% SINCE 2008

y = 3,582.42x-0.30

R² = 0.91

16

32

64

128

256

512

1,024

100 1,000 10,000 100,000 1,000,000

1985

20252014

Learning rate =19%R² = 0.91

Thailand

Brazil

Germany

US

H1 2015

19992009

1,024

512

256

128

64

32

100 1,000 10,000

16

100,000 1,000,000

Learning rate 19%

1985

1999

2009

20142025

H2 2015

Learning rate 19%

WIND COSTS HAVE FALLEN

50% SINCE 2009

Note: Pricing data has been infla9on corrected to 2014. We assume the debt ra9o of 70%, cost of debt (bps to LIBOR) of 175, cost of equity of 8% Source: Bloomberg New Energy Finance


3"

US Wind Generation Trends

Source:"EIA"and"LBNL"

US#Wind#Power#Technical#Poten3al#•  Onshore"–"11,000"GW"•  Offshore"–"4,200"GW"

6"

Wind Power PPA Trends

$0

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PPA2Execution2Date

2Interior2(20,6112MW,22122contracts)2West2(7,1242MW,2722contracts)2Great2Lakes2(3,6202MW,2482contracts)2Northeast2(1,0182MW,2252contracts)2Southeast2(2682MW,262contracts)

Levelized

2PPA

2Pric

e2(201

42$/MWh)

752MW

1502MW 502MW

8"

U.S.$Solar$Deployment$Trends$

US$Solar$Power$Technical$Poten8al$•  PV"–"154,000"GW"•  CSP"–"38,000"GW"


Source: Bloomberg New Energy Finance; ImagesSiemens; Wikimedia Commons

World record: 3-‐cent wind, sub-‐4-‐cent solar (Unsubsidised)

Loca9on: Bidder: Signed: Price:

Morocco Enel Green Power January 2016 US$ 3.0 c/kWh

ONSHORE WIND

Loca9on: Bidder: Signed: Price:

Coahuila, Mexico Enel Green Power March 2016 US$ 3.6 c/kWh

SOLAR PV


PLANNING CONSIDERATIONS FOR STORAGE

Shipping containers filled with lithium batteries on Kauai, Hawaii USA (Source: Technology Review 2015)


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Capital Cost ($/kW

h)

18650 BERR & DfT (2008):30 Bloombergy New Energy Finance Boston Consul9ng Group (2010):7 Catenacci et al (2013):411 Delucchi et al (2000):251 Deutsche Bank (2009):46-‐47 Deutsche Bank (2010a):4 Deutsche Bank (2010b):19 Electrifica9on Coali9on (2010):78 Element Energy (2012):54 Energy Storage Associa9on Gerssen-‐Gondelach Faji (2012):111 Goldman Sacks Greentech Media (2016): 80 Kalhammer et al (2007):47 Kromer (2007):43 Mayer et al (2012):14471 McKinsey (2010):35,60 McKinsey (2012) :1 McKinsey (2012):1 Navigant (2016):12 Nelson et al (2009):11 PRTM (2011):20 Rocky Mountain Ins9tute (2015):62 Roland Berger (2012):30 Shulock et al (2011);2,19-‐22 Thiel et al (2010):7146 U.S. Energy Informa9on Administra9on (2014) UBS van Essen and Kampman (2011):12; and Duleep et al (2011):29-‐30 WEC (2007):69

Literature review – barery pack costs


Tech cost Trends


Exploring Technology/Policy/Finance Scenarios •  20% Wind Energy by 2030 (2008) •  Evalua9ng a Proposed 20% Na9onal Renewable Porsolio Standard (2009)

•  SunShot Vision Study (2012) •  Renewable Electricity Futures Study – Explora9on of High-‐Penetra9on Renewable Electricity Futures (2012)

•  Beyond Renewable Porsolio Standards (2013)

•  Integrated Canada-‐US Power Sector Modeling with ReEDS (2013)

•  ReEDS Modeling of the President’s 2020 U.S. Renewable Electricity Genera9on Goal (2014)

•  Wind Vision Report (2015)

•  Ac9ve Projects • Hydropower Vision • Geothermal Vision • On the Path to SunShot


Regional Energy Deployment System (ReEDS) Model

•  Op9miza9on model of U.S. Electricity Sector

•  134 Balancing Areas •  356 Wind/CSP regions •  Explicit considera9on of RE

integra9on issues

•  Solves combined capacity expansion and dispatch out to 2050 under different assump9ons o  Economic o  Technology o  Policy


NG can be useful in lowering emissions in the near & Medium term, but low cost CCS important for Deep Decarboniza9on •  Under a low carbon target, NG usage increases over 9me with compe99ve CCS

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(TW

h) Low Target + Very Low CCS Cost

Low Target + Low CCS Cost Reference - Low Carbon Target Reference - Mid Carbon Target Reference - No Carbon Target


24#

ReEDS&ini)al&results&–&storage&capacity&

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pacity&(G

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Ref#Low#Bat#Cost# Ref#Mid#Bat#Cost# Ref#High#Bat#Cost#

Cap#Low#Bat#Cost# Cap#Mid#Bat#Cost# Cap#High#Bat#Cost#

In#all#scenarios#very#liCle#storage#is#deployed#unEl#aFer#2028.##The#high#cost#storage#trajectory#does#not#result#in#any#addiEonal#storage#capacity#in#the#reference#scenario,#but#does#in#the#carbon#cap#scenario.#

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PV#capacity#is#strongly#influenced#by#low#cost#storage#(more#than#130#GW#of#addiKonal#PV#capacity#between#the#low#and#high#baLery#cost#scenarios).##CSP#capacity#(not#shown)#is#reduced#due#to#low#cost#storage.#

•  Cost Decreases Dominate for Storage

•  Carbon Budget drives RETs


Gas and Storage Compete for Providing Flexibility.

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Stor

age

Cap

acity

(GW

)

Variable Renewable Energy Fraction

Low Nuclear Cost

Low NG Price

High NG Price


05,00010,00015,00020,00025,00030,00035,00040,000

2015 2020 2025 2030 2035 2040

ELECTRICITY DEMAND FROM EVS (TWH/YR)

Electrifica9on of transporta9on -‐ impacts

EV SALES BY REGION IN 2040 (MILLION VEHICLES)


Europe15%

USA21%

China35%

Japan3%

Rest of the world26%

Total 41m

Total global electricity demand excluding EVs

Electricity demand from EVs

Chinese car industry leadership

Around 10% addi2onal power demand

OIL DEMAND DISPLACED BY EVS (MILLION BARRELS / DAY)

02468

101214

2015 2020 2025 2030 2035 2040

Rest ofthe worldJapan

Europe

USA

China

Destruc2on of 13m bbl/day oil demand


THE ROAD FROM PARIS .

Aspira?ons…

Realiza?on…


Science Informed Decisions…

THE ROAD FROM PARIS


THE EVOLVING POWER SECTOR •  NG & RE •  Gas/Electric Coordina?on/

Dependencies •  DER •  Intelligence •  State, CPP +… •  Flexibility •  PSOF: e.g. “U?lity 2.0”

JISEA—Joint+Ins-tute+for+Strategic+Energy+Analysis++ 38+

The+Evolving+Power+System+…++

Transi'oning*today:**Restructuring,*New*Business*Models,**New*Technologies*


TECHNOLOGY IS ACCELERATING FASTER THAN EVER


US Wind Resources

US Wind Power Technical Poten2al •  Onshore – 11,000 GW •  Offshore – 4,200 GW


TECHNOLOGY EVOLUTION UNLEASHES NEW OPPORTUNITIES AND CHALLENGES


POWER SECTOR TRANSFORMATION Driving Change …

Measuring Progress…

•  Degree of innova9on •  Engagement

•  Impact


Power systems are complex and dynamical…

A HOLISTIC APPROACH TO POWER SYSTEM TRANSFORMATION


EXTENT AND SPEED OF TRANSFORMATION

Different extent and speed of change implies different modes of transformation: Adaptation, Evolution, Reconstruction, and Revolution.

Transformation is path-dependent

Technological, financial and institutional legacies have important bearing on the rate and extent of change Heavier legacies: cautious incrementalism Light legacies: more rapid change.

Source: Power Systems of the Future (2015). A 21st Century Power Partnership Report: http://www.nrel.gov/docs/fy15osti/62611.pdf


KEY DRIVERS BEHIND NEXT GENERATION PLANNING QUESTIONS

Renewable energy cost reductions Increased interactions with other sectors

Data, intelligence, and system optimization innovations

Local and global environmental concerns over air emissions

Energy security, reliability, and resilience goals Energy access imperatives

Evolving customer engagement Increasingly diverse participation in power markets

A tale of two electricity demand forecasts

Revenue and investment challenges.


Transforming Power Systems

Low capital cost op9ons,

but may require significant changes to the ins9tu9onal context


ENERGY REFORM IN MEXICO TRIGGERS SHIFTS IN PLANNING

•  Energy Sector Reform in 2014

•  New independent system and market operator (CENACE)

•  Creation of independent regulator (CRE)

•  Retention of strong central government role for power sector planning


ENERGY REFORM IN MEXICO

• Clean Restructuring v  Reconstruc9ve change

dynamics

v  Bulk power market restructuring, incorpora9ng lessons learned from the past 20 years

v  Design features to facilitate clean energy integra9on and system op9miza9on


INDIA’S 2022 100 GW SOLAR GOAL REQUIRES AN EVOLUTION IN POWER SYSTEM PLANNING

1.  More flexibility is needed to balance supply and demand

2.  More transmission might be necessary

3.  Grid services (e.g. inertial response) from wind/solar or other equipment come at additional cost

4.  Existing conventional generators are needed, but run less, affecting cost recovery

Solar (and wind) generation is variable, uncertain, and location-constrained ….raising new considerations for grid

planning and operations


Grid Moderniza9on Components

Renewable Energy

Energy Efficiency

Analysis, Modeling and Simula9on

Energy Storage

Sensors and Controls

Interconnec9on

Policy and Regula9on

Interoperability

Markets and Business Models

Technologies Scales and Challenges Solu2ons

Sustainable Transporta9on

Consumer

City

Regional

More Variable Supply and Demand Limited Grid Flexibility Aging Infrastructure Vulnerability to Extreme Events Challenges to Reliability Increasing Costs


The Evolving Power System …

Transi2oning today: Restructuring, New Business Models, New Technologies


Rethinking the Future: Solar

Source: Maycock, Bloomberg New Energy Finance

1

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1,000

10,000

100,000

1

5

50

1975 1980 1985 1990 1995 2000 2005 2010 2015

Crystalline silicon PV module price (2015 $/W(DC)) - LH scale

1

10

100

1,000

10,000

100,000

1

5

50

1975 1980 1985 1990 1995 2000 2005 2010 2015

Volume installed (MW) - RH scale Crystalline silicon PV module price (2015 $/W(DC)) - LH scale

$/W (DC) MW Installed

Costs down 150 x

Cumula2ve installa2ons up 115,000x


GOOD DATA INFORMS GOOD POLICY: LONG-TERM SCENARIO PLANNING

http://www.nrel.gov/analysis/re_futures/data_viewer/

NREL Renewable Electricity Futures Study Capacity Expansion Scenario Model – 80% RETs


Energy Policy Dynamics Increasingly Complex

52


A FEW TAKE AWAYS

•  Technology advances are changing the landscape •  Low carbon, smart, least cost solutions •  Renewables offer domestic advantages with

potential economy wide benefits: •  Price certainty, trade, water/food, health…

•  Policy, Finance/business models enable or hinder change

•  Power Sector Structural reforms underway across the globe

•  Least cost structures •  Innovation in Financing and Financial reforms

underway “in an era of lower growth”.


SUPPORT FOR POWER SYSTEM PLANNING: TECHNICAL AND POLICY ASSISTANCE

Provides technical assistance to countries – modelling, road-mapping, integration

Knowledge development & sharing – report publication and dissemination

Organizes global networks of expertise – such as today’s program

Supports governments in developing policy, program and finance solutions for clean energy deployment

Ask-an-Expert – no-cost, tailored assistance from global experts

PowerAfrica partnership - targeted support for sub-Saharan African countries


It is not the essen?al nature of a technology that maVers but its capacity to fit into the social, poli?cal, and economic

condi?ons of the day.

The Economist, March 12, 2012 “The Dream that Failed”

55


Key Examples from different stages of VRE development

Ambi2on and Confidence

Deployment and Capacity Building

Grid Infrastructure

Short-‐term System Flexibility

Long-‐term System Performance

Early Stage •  An9-‐nuclear groups encourage wind

•  1,000 roofs pilot program (expanded to 100,000)

•  Public Goods Charge to support RE

•  FIT/ Sox Loan Program/ Standardized permiyng

•  FIT/Municipali9es required to iden9fy wind sites

•  Renewable porsolio standard, Net metering

•  Transmission plan integrated with VRE goals

•  Simplify interconnec9on protocols / Required u9lity interconnec9on for VRE

•  Requirements for flexible CHP

•  Market design for flexible coal plants

•  Wind interconnec9on requires voltage ride through

•  Liberalized wholesale market

•  Formal grid integra9on and resource adequacy studies

•  Unbundling of genera9on and transmission

Intermediate Stage

•  Integrated policy framework (Energiewende)

•  Develop grassroots

poli9cal support through distributed genera9on

•  Degression in FIT tariff •  Smart inverter

requirements for PV

•  Reverse Auc9on Mechanism, California Solar Ini9a9ve

•  Expanded balancing area with complementary genera9on mix (Nordpool)

•  Designated renewable energy zones with transmission buildout

•  Bornholm grid pilot project

•  Demand response programs

•  Centralized VRE forecas9ng, fast dispatch

•  Long term procurement planning and Resource Adequacy (RA) payments

•  Thermal plants receive

ancillary services and reliability payments

Advanced Stage

•  50% RE by 2020, 100% RE by 2050

•  55% RE by 2030, 85% RE by 2050

•  50% RE by 2030

•  Offshore wind tender system

•  Incen9vize VRE dispatchability

•  Strengthen grid interconnec9on 9es within exis9ng balancing areas

•  Nodal markets (LMP)

•  Energy imbalance market and flexi ramp product

•  Markets for fast responding ancillary services

•  Market Model 2.0: (Power market redesign to accommodate high RE penetra9on)

•  EEG 3.0: (Adapt to nuclear phase-‐out)

Legend: Germany Denmark California Texas


21st Century Power Partnership •  RE Integra9on

•  Technical, Ins9tu9onal, Opera9onal, Finance, Policy & Regula9on

•  EE, Smart Grid, & DER Policies

•  Securi9za9on: Mobiliza9on of Capital

douglas arent - energy issues and implications for macrostability workshop

Economy & Finance