Klondike Wind Power Project, Oregon

Donald Furman Senior Vice President - Business Policy and DevelopmentDecember 3, 2009

Energy Bar Association Mid-Year Meeting

Integrating Renewables into the Electricity Grid-Tariff and Market Issues

Iberdrola Renewables:A Leader in Execution

… with excellent growth prospects… with excellent growth prospects

A collection of exceptional assets…A collection of exceptional assets…

#2 developer in the U.S. with 3.1 GWs(1,337 MWs of new wind in 2008)

#2 developer in the U.S. with 3.1 GWs(1,337 MWs of new wind in 2008)

826 employees in 28 U.S. states,DC, India and Canada

826 employees in 28 U.S. states,DC, India and Canada

636 MW of CCGT & peaking capacity on the strategic CA-OR border

636 MW of CCGT & peaking capacity on the strategic CA-OR border

155 BCF of owned & contracted natural gas storage positioned for a volatile future

155 BCF of owned & contracted natural gas storage positioned for a volatile future

U.S. represents 1/3 of earningsU.S. represents 1/3 of earnings

40% of the industry’s largest development pipeline is in the U.S.

40% of the industry’s largest development pipeline is in the U.S.

US RenewablesUS Renewables

Corporate SupportCorporate Support

Wind Power Gas 2,876 MW in‘08 536 MW CCGT

100 MW peaking155 BCF Owned

& Contracted

2

North American Asset Portfolio

Updated September 1, 2009

Wind projects owned or controlled

Wind projects under construction

Gas storage owned

Thermal generation

Biomass under construction

Biomass cogeneration

Wind Energy’s Impact to the Power System

• Four unique characteristics that affect integration:– variability– near-zero variable cost– difficulty of forecasting– remoteness

• These characteristics can be better accommodated in some markets structures than others

Balkanized US markets makes integration difficultBalkanized US markets makes integration difficult

Optimal Wind Integration Conditions

• Large balancing area with access to neighboring markets

• Short-term generation markets• Ancillary services markets• Effective use of wind forecasts by system operators• Flexible transmission services

Organized markets are far better for integrationOrganized markets are far better for integration

Benefits of Larger Balancing Areas

• Diversity benefit• Greater logistical flexibility - Larger pool of resources to

manage variations in electric supply or demand• Reduced correlation of wind resource• Result is substantial cost savings

– Midwest ISO estimates savings from consolidating its 26 balancing areas into one are 3.7 to 6.7 times greater than the costs

– Savings are large even on power systems without wind energy

• Consolidation can be done physically or virtually

Consolidate Balancing Areas

Short-term ElectricityGeneration Markets

• Hourly markets = high integration costs– Variations accomodated using regulation services– Expensive

• 10 minute markets = low integration costs– Schedules and transactions can change 6 times per hour– Parties to the transaction adjust rather than system operator

RTOs tend to provide lower integrations costsRTOs tend to provide lower integrations costs

Expanded Market Use

• Ancillary services markets provide incentives for generators, demand response, and other flexible resources to offer their services to the grid

• Markets ensure that lowest-cost resources provide needed flexibility services

Wind Forecasting

• Wind integration costs are largely due to uncertainty about the next day’s wind output

• Wind energy forecasts are already remarkably accurate

• Reliable wind forecasts allow system operators to significantly reduce their uncertainty about future wind output, thereby lowering the amount of reserves they need to hold to accommodate variations in wind output

• Largest opportunities for improvement:

– Better integrating forecasts into power system operations

– Providing grid operators with useful information

Flexible Transmission Services

• Transmission capacity is often physically available when wind output is highest, but contractual and operating rules prevent use of this capacity

• Conditional firm allows available transmission capacity to be used by others outside of a few peak hours

• Dynamic line rating determines real-time capacity of a line, instead of relying on rules of thumb that greatly underestimate available capacity

Wind Integration Solutions

HighCost

LowCost

Source: UWIG

Low Wind Penetration Level

High Wind Penetration Level

Markets

Additio

nal

Flexible

Generation

Wind

C

urtailment

Storage

Accessing Intra-hour flexibility

Price Responsive Load

Demand Response

Dynamic Scheduling

Simple Cycle GT

Combined Cycle GT

In Range of 1-2%

Pumped Storage

Batteries

Flywheels

SMES

CAES

Capacitors

PHEV

A

ccurate

Forecasting

Real time forecasting

Centralized Forecasting

Big Horn Wind Power Project, Washington

Questions?