Jason Gifford REV 2012 Presentation - Drivers of Change for Distributed Resources in Vermont: Policy, Cost & Financing
Drivers of Change forDistributed Resources in Vermont: Trends inPolicy, Cost & FinancingJason Gifford, Senior ConsultantSustainable Energy Advantage, LLCOctober 1, 2012
Sustainable Energy Advantage, LLCMission: Sustainable Energy Approach: Sustainable AdvantageWe help build Renewable Energy Businesses, Markets, Policies & Projects… through Analysis, Strategy & ImplementationServices Practice Areas:• Interdisciplinary consulting & • Power market and public policy analysis, advisory services (regional & tracking, development & implementation. national) • Strategy development.• New England Renewable • Financial analysis & economic feasibility Energy Market Outlooksm • Renewable Energy supply & procurement. (REMO) subscription briefings • Quantitative analysis and modeling.• New England Eyes & Earssm • Transaction facilitation, contract development Regulatory, Policy & Legislative and negotiation support. Tracking and Analysis • Business infrastructure development. Subscription Service • Green power product development & pricing. Solar-specific version also available 1
Framing a Discussion of Key Trends for Distributed Generation• Purpose of this presentation: To stimulate a discussion of how trends in policy and cost are influencing the characteristics and volume of distributed generation in New England• Overarching questions: 1. How is the policy and market landscape for DG changing? 2. Will tomorrow’s DG projects look the same as yesterday’s? (Size, location, financing and ownership, power use/sale). 3. Is the current wave of DG proposals throughout the region anomalous, or can we expect the same level of interest in the future?• ID Drivers for Increasing () or Slowing () development 2
Policy Drivers -- Federal• Production Tax Credit (PTC): – ~$22/MWh, 10 yrs, available to wind projects on-line before 12/31/2012 (extension uncertain) – 50% of face value available to biomass, landfill gas, anaerobic digestion & small hydro• Investment Tax Credit (ITC): – 30%, for solar and small (≤ 100 kW) wind in service by 12/31/2016 (or to large wind in lieu of PTC until 12/31/12)• Section 1603 cash payment in lieu of ITC: – For projects w/ safe harbor in place by 12/31/2011• MACRS depreciation: – 50% bonus in 2012, standard thereafter 3
Policy Drivers – State (1)Policies “Tilt” toward state preferences “Tilt” Policies: Least Cost, Regional In-state or Emerging Tech. Preferences Solar REC Carve-outs, Virtual Net Interstate Commerce Clause Metering, Community-based Renewable challenges Energy Pilot Program Appetite for cost premium of Feed-in Tariffs, Standard Offers Tilt policies? and LT PPA Auctions Pushes for relaxing imports, In-State Offshore Wind Policies new ties, eligibility expansion Utility-Owned solar, LT Contract RFP; NESCOE Regional Residential PV Program; Procurement Fuel cell and AD incentives 4
Policy Drivers – State (2) • LREC, ZREC, Res PV, utility-owned & FC programs up to 40% of incremental CT CT-I demand in the 2015 to 2018 timeframe. • ZREC, LREC RFP prices << expected increase installations • Increased NM cap to 6% of load • Solar Carve-out: development skyrockets, accelerating demand target. Policymakers explore increasing 400 MW target MA • adds LT PPA set-aside for AD, biomass & hydro < 6 MW (0.4% of load) • extends sunset for utility ownership of up to 25 MW solar to 2014 • “Solarize” programs expand in MA, start in CT • DG Standard Offer for 40 MW RI • Falling prices, more could follow • SPEED Standard Offer increased by 77.5 MW to reach a total 127.5 MW over VT 10 yrsAs implementation accelerates… 5
… Price Pressure IncreasesMA • solar PPAs $60 to $100/MWh* • SRECs (broker strips) ~$175/MWh (‘12 – ’15)*CT • ZREC auction produces lower than expected bid prices (RECs only) • Solar 250 kW – 1 MW = $117/MWh • Solar up to 250 kW = $135/MWh • Based on these bids, solar < 250 kW priced at $148/MWhRI • 2011/2012 SO Ceiling Price for solar > 500 kW = $289/MWh • Most recent winning bid price: $209/MWh (1,500 kW solar project) • All recent winning bids for 151kW-500kW at cap of $316/MWh • Ceiling prices for all technologies, all sizes under reviewVT • Initial standard offer pricing produces • ~50 MW of “applications accepted” (contracts) • 126 MW in “applications not yet processed” • Review of standard offer prices to be conducted over the next several months. 6* Data are empirical. Not an offer to transact.
Wind Trends: Cost & Performance ImprovingInstalled Cost Trend“Lag between turbine prices and project costs should lead tosubstantial project-level installed capital cost reductions by2012-13”“Turbine price quotes in 2011 for “standard” technology arereportedly as low as $900/kW (Tier 1: ~$1,100-1,250/kW, withaverage at ~$1,100/kW); higher costs typical for smallerorders, larger rotors/towers, etc. (also more-favorable termsfor buyers and improved technology; balance-of-plant costsalso reportedly lower than in recent past)”Production Trend“Move to Lower Wind Speed Sites and Increased CurtailmentHide the Very Real Increases in CFs Witnessed in IndividualWind Resource Classes”“Technology advancement for lower wind speeds hasnarrowed the gap in LCOE between lower and higher windspeed sites”Source: Wind Power Economics: Past, Present, and Future Trends;Ryan Wiser Lawrence Berkeley National Laboratory, December 14,2011 7
DG Wind Snapshot Community Scale : Customer-Sited 8Source: http://www.windpoweringamerica.gov/newengland/projects.asp
Installed Cost of Solar Dropping Fast But are challenges on the horizon? Residential Real Installed Cost Trends, Various Forecasts, 2010-2025 • Recent Module Prices drop:From: NYSERDA New York Solar Study Jan. 2012 – Global supply glut – Recent cost/kW near low end of range • But… – Anti-dumping actions & trade disputes – Prices below cost – Manufacturer bankruptcies, closures – could increase or level off Source: NY Solar Study (NYSERDA, 2012) 9 9
Levelized Cost of Energy, by Technology for 2011 and 2025 (2011$)Source: NY Solar Study (NYSERDA, 2012) 10
Putting It All Together:Different Market Segments Can Diverge Sharply Based on Economics and Policy VT Dataset limited to approved Standard Offer solar Source: NY Solar Study (NYSERDA, 2012) 11
Observations on Market Development & Project Financing• Policy approaches influence financing: – Competitive bid vs. Standard Offer – Annual allocation vs. long-term target• The value of a long-term contract with a creditworthy entity should not be understated. Determines availability of debt @ project level.• Ownership & financing landscape: at least 3 types of players 1. Small developers seeking project finance partnerships w/ local banks 2. Large developers assembling portfolio of projects – for resale 3. Utility affiliates, funds, strategic investors – finance on equity basis, later apply debt at the portfolio level, have ability to be patient• Market Summary: – MA & CT: market activity, interconnection requests up sharply; current exuberance not likely sustainable, but targets likely to be met – even if expanded – as industry develops. – VT & RI: bids will exceed available contracts for foreseeable future; policy targets may limit the opportunity to develop a sustainable market were it not for the regional demand for DG. 13
Sustainable Energy Advantage, LLC Jason Gifford tel. 802.846.7627 firstname.lastname@example.org www.seadvantage.com 14
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