Navigant Ca Rps Infocast Webinar 3 Feb2011

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Navigant Ca Rps Infocast Webinar 3 Feb2011

  1. 1. California’s Evolving RenewablePortfolio StandardTrends and ImplicationsFebruary 3, 2011©2011 Navigant Consulting, Inc.Confidential and proprietary. Do not distribute or copy.D I S P U T E S & I N V E S T I G AT I O N S • E C O N O M I C S • F I N A N C I A L A D V I S O RY • M A N A G E M E N T C O N S U LT I N G
  2. 2. Important NoticeThis presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit and internal useof Infocast and/or its affiliates or subsidiaries. No part of it may be circulated, quoted, or reproduced fordistribution outside these organization(s) without prior written approval from Navigant Consulting.This presentation is incomplete without reference to, and should be viewed solely in conjunction withthe oral briefing provided by Navigant Consulting.February 3, 2011©2011 Navigant Consulting, Inc. All rights reserved. Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or publicaccounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement,merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC.©2011 Navigant Consulting, Inc. 1Confidential and proprietary. Do not distribute or copy. ENERGY
  3. 3. Navigant is a specialized consulting firm and globalleader in renewable energy technology and strategy. Navigant Energy Practice Renewable Energy (2,100 Employees) (270+ Employees) (60 Employees) • Publicly traded since • Power Systems, Professionals 1996 (NYSE: NCI) Markets and Pricing • Expertise in wind, solar, • 2009 revenues - • Business Planning and geothermal, biomass, $707 million Performance hydropower, storage and Improvement smart grid • 40 offices in North America, Europe, • Energy Efficiency • Recognized thought leaders and Asia • Emerging Technologies committed to RE and Renewable Energy Global Practice • Over 200 RE engagements world wide in last 3 yrs • Public and private sector Navigant named "Best clients in 10+ countries Advisory – Renewable Finance, North America" • 25% of clients are non-U.S. in the 9th and 10th Annual Environmental Finance and Carbon Finance Market Surveys ©2011 Navigant Consulting, Inc. 2 Confidential and proprietary. Do not distribute or copy. ENERGY
  4. 4. Overview Presentation Overview • Present an overview of the RPS policy landscape. • Highlight current renewable energy supply and demand in California and the This broader Western region. presentation • Illustrate the factors affecting valuation of Tradable Renewable Energy Credits will: (“TRECs”). • Highlight potential implications for renewable energy developers, investors and utilities.©2011 Navigant Consulting, Inc. 3Confidential and proprietary. Do not distribute or copy. ENERGY
  5. 5. Presenter Bios Dan Bradley Dan Bradley is a Director with Navigant’s Energy Practice where he specializes in resource planning, procurement, and electric markets. He has assisted clients in procuring over 2,000 MW of generation and transmission and in excess of 2,000,000 Renewable Energy Credits (RECs/SRECs), resource strategies, resource decision making, and development of market intelligence databases. Mr. Bradley regularly represents clients in meetings at the PJM Interconnect and has participated in FERC settlement conferences. Mr. Bradley holds an MBA from Clemson University. Frank Stern Frank Stern is a Director with Navigant’s Energy Practice. He works with utilities and related organizations helping them make wise choices about energy resources. Mr. Stern has over 20 years of experience, has been an invited speaker at major industry conferences, has over 20 publications in journals and conference proceedings, and has testified a variety of energy industry issues before state commissions and regulatory agencies. He is a registered professional engineer and an accredited appraiser. Fred Wellington Fred Wellington is a Managing Consultant in Navigant’s Energy Practice, where he specializes in clean energy markets. He advises project developers, financiers and investor/publicly-owned utilities on renewable energy markets, Renewable Energy Credits (REC/SREC) valuation and trading, solar business strategies, and clean energy options and costs. Mr. Wellington also advises state and federal government agencies on clean energy policies and greenhouse gas reduction strategies. Mr. Wellington has authored several publications on clean energy topics including articles in the Harvard Business Review and Public Utilities Fortnightly. He is a Chartered Financial Analyst (CFA) and holds an MS and an MBA.©2011 Navigant Consulting, Inc. 4Confidential and proprietary. Do not distribute or copy. ENERGY
  6. 6. Table of ContentsTable of Contents 1 » California RPS Policy Landscape 2 » Renewable Energy Supply and Demand 3 » Factors Influencing Forward TREC Prices Curves 4 » Implications and Key Takeaways©2011 Navigant Consulting, Inc. 5Confidential and proprietary. Do not distribute or copy. ENERGY
  7. 7. Table of ContentsTable of Contents » 1 » California RPS Policy Landscape 2 » Renewable Energy Supply and Demand 3 » Factors Influencing Forward TREC Prices Curves 4 » Implications and Key Takeaways©2011 Navigant Consulting, Inc. 6Confidential and proprietary. Do not distribute or copy. ENERGY
  8. 8. California RPS Policy Landscape>>History of California’s RPSThere has been quite a bit of activity concerning the California RPSover the past two years. CARB 33% Rules Finalized TREC Draft CARB RPS Decision Rules Released Finalized SB 722 SB 14 (33% Amended / Target) Vetoed Debated RPS Introduced 2002 2009 2010 2011 EO S-21-09 Issued Requiring 33% by 2020. SB 722 Fails to CARB Begins Rulemaking Pass Assembly CPUC Authorizes TRECs Then Stays SB 722 Decision Introduced (33% SB 23 Introduced target bill) (33% Target Bill)©2011 Navigant Consulting, Inc. 7Confidential and proprietary. Do not distribute or copy. ENERGY
  9. 9. California RPS Policy Landscape>>Major Agencies Involved in Implementing RPSThere are multiple agencies involved in the RPS in California, withCEC, CPUC, CARB, and WREGIS all playing significant roles. California Energy California Public California Air Western Renewable Energy Generation Information Commission Utility Commission Resources Board System • The CEC certifies eligible • CPUC sets the RPS • CARB is the lead • WREGIS is a renewable facilities for RPS baseline & procurement implementing agency for energy generation and generation. targets and AB 32, the state’s REC monitoring system. • CEC is also responsible approves/denies IOU Greenhouse Gas law, for siting and permitting. procurement plans and which now includes a PPAs. Renewable Energy Other Agencies: Standard requiring • CPUC also determines if • CAISO utilities to meet 33% of compliance with the RPS retail sales with • Joint Powers is achieved. Authorities such a renewable energy. SCPPA, NCPPA, TANC. • Federal agencies such as BLM, IOUs Must Comply with Both Structures FERC, Dept. of Interior.©2011 Navigant Consulting, Inc. 8Confidential and proprietary. Do not distribute or copy. ENERGY
  10. 10. California RPS Policy Landscape>>Different JurisdictionsThere are different jurisdictions that promulgate renewable energymandates in California. Market Structure Under Market Structure Under Proposed Market Structure 20% Target (CPUC) 33% Target (CARB) Under SB 23 (Assembly Bill) • This is the structure currently • Under Executive Order S-21-09, • Following the failure of SB 722 (33% governing the market. California Air Resources Board RPS bill that failed to pass in 2010), (CARB) was instructed to Senators Simitian, Kehoe and • It is administered by the promulgate rules governing a Steinberg introduced SB 23 in Dec. CPUC and results from the 33% target. 2010. original RPS law, SB1078 (2002) and revised by SB 107 • This was ordered after Gov. • SB 23 largely mirrors the structure (2006). Schwarzenegger under the in SB 722. authority of AB 32, the • The recent TREC ruling state’s sweeping greenhouse • Support for the bill and its timing is applies to this structure. gas law. unclear. • This is a separate regulation • It is also unclear how it would from the 20% target RPS. eventually interact with the existing RPS systems. Each jurisdiction envisions a different underlying market structure which can have important impacts on renewable energy development.©2011 Navigant Consulting, Inc. 9Confidential and proprietary. Do not distribute or copy. ENERGY
  11. 11. California RPS Policy Landscape>>Differences in RPS StructureThere are different market structures under the different jurisdictions,that dictate compliance with renewable energy mandates. Market Structure Under 20% Market Structure Under Proposed Market Structure Target (CPUC) 33% Target (CARB) Under SB 23 (33% Law) • 20% by 2013 Targets • 1% annually until 20% by 2010 • 20% by 2014 • 28% by 2019 • 25% by 2016 &Timing • 3 year grace period • 24% by 2017 • 33% by 2020 • 33% by 2020 • The three IOUs • The three IOUs, Covered • Electric Service Providers (ESPs) • ESPs and CCAs Entities • Com. Choice Aggregators (CCAs) • Municipal Utilities (> 200 GWh in sales) • >=50% by 2013, 65% by 2016 and 75% thereafter of renewables must • Qualifying renewable energy Location/ interconnect with CA Balancing delivered to a California Balancing • Qualifying renewable energy Type of generated in Western Authority or dynamically Authority Bundled Electricity Coordinating transferred to CATransactions • Bundled contracts that make use of Council (“WECC”) • <=25% by 2013, 20% by 2016 and dynamic transfer arrangements 15% thereafter can be firmed and shaped transactions • TRECs allowed for up to 25% of a utility’s obligation and capped atUnbundled $50/MWh until 2013. • <=25% by 2013, 15% by 2016 andTransactions • Unlimited 10% thereafter can be unbundled (TREC) • Bundled contracts that do not TRECs make use of dynamic transfer arrangements • Various – considered a Penalty • $50/MWh up to $25m annually violation of emission limitation • Delegated to CPUC under Health and Safety code©2011 Navigant Consulting, Inc. 10Confidential and proprietary. Do not distribute or copy. ENERGY
  12. 12. Table of ContentsTable of Contents 1 » California RPS Policy Landscape » 2 » Renewable Energy Supply and Demand 3 » Factors Influencing Forward TREC Prices Curves 4 » Implications and Key Takeaways©2011 Navigant Consulting, Inc. 11Confidential and proprietary. Do not distribute or copy. ENERGY
  13. 13. Renewable Energy Supply and Demand >>IOU ProgressThe IOUs are moving towards the 33% target; project delays andcancellations could impact their ability to meet the obligation. Current Level of Renewable Energy Additions for California IOUs 35,000 30,000 25,000 GWh 20,000 15,000 10,000 5,000 0 2014 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2015 2016 2017 2018 2019 2020 2016 2010 2011 2012 2013 2014 2015 2017 2018 2019 2020 PG&E SCE SDG&ESource: CPUC©2011 Navigant Consulting, Inc. 12 12Confidential and proprietary. Do not distribute or copy. ENERGY
  14. 14. Renewable Energy Supply and Demand >>IOU ProgressThe IOUs are moving towards the 33% target; project delays andcancellations could impact their ability to meet the obligation. Current Level of Renewable Energy Additions for California IOUs 35,000 Existing Projects plus Projects Online in Previous Year 30,000 33% target 25,000 GWh 20,000 15,000 10,000 5,000 0 2014 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2015 2016 2017 2018 2019 2020 2016 2010 2011 2012 2013 2014 2015 2017 2018 2019 2020 PG&E SCE SDG&ESource: CPUC©2011 Navigant Consulting, Inc. 12 13Confidential and proprietary. Do not distribute or copy. ENERGY
  15. 15. Renewable Energy Supply and Demand >>IOU ProgressThe IOUs are moving towards the 33% target; project delays andcancellations could impact their ability to meet the obligation. Current Level of Renewable Energy Additions for California IOUs 35,000 Approved Contracts in Development 30,000 Existing Projects plus Projects Online in Previous Year 33% target 25,000 GWh 20,000 15,000 10,000 5,000 0 2014 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2015 2016 2017 2018 2019 2020 2016 2010 2011 2012 2013 2014 2015 2017 2018 2019 2020 PG&E SCE SDG&ESource: CPUC©2011 Navigant Consulting, Inc. 12 14Confidential and proprietary. Do not distribute or copy. ENERGY
  16. 16. Renewable Energy Supply and Demand >>IOU ProgressThe IOUs are moving towards the 33% target; project delays andcancellations could impact their ability to meet the obligation. Current Level of Renewable Energy Additions for California IOUs 35,000 Contracts Pending Approval Approved Contracts in Development 30,000 Existing Projects plus Projects Online in Previous Year 33% target 25,000 GWh 20,000 15,000 10,000 5,000 0 2014 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2015 2016 2017 2018 2019 2020 2016 2010 2011 2012 2013 2014 2015 2017 2018 2019 2020 PG&E SCE SDG&ESource: CPUC©2011 Navigant Consulting, Inc. 12 15Confidential and proprietary. Do not distribute or copy. ENERGY
  17. 17. Renewable Energy Supply and Demand>>Projected Load and Renewable Energy DemandAdding POUs to the RPS target significantly increases the amount ofrenewable energy needed to meet the 2020 target. Projected Load for IOUs and Publicly-Owned Utilities (POUs) 350,000 Total POUs Total IOUs 300,000 Projected Load (GWh) 250,000 200,000 150,000 2020 Target 33% Target 100,000 Incl. POUs 33% Target Only IOUs 50,000 - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: CPUC 33% RPS Calculator v1.3©2011 Navigant Consulting, Inc. 13 16Confidential and proprietary. Do not distribute or copy. ENERGY
  18. 18. Renewable Energy Supply and Demand>>Major Issues Affecting Available SupplyThere are several issues that can impact the level, timing and cost ofrenewable energy generation to satisfy California’s RPS targets. Major Issues Affecting Supply Available to Meet California RPS Competition for Project Development Transmission Resources Risk • The transmission situation in • Other Western states have RPS • Renewable energy projects face California and the broader targets and demand for local multiple hurdles to bring the Western interconnect is complex, renewable energy resources. project to completions. with congestion in some areas • This can result in competition for • Issues such as permitting, and available capacity in others. the lowest cost / highest quality interconnection requirements, • This can affect not only bringing resources between local utilities financing and PPA negotiations out of state renewable resources in these states and California all can impact whether a given to serve California load, but also utilities looking to import this project will be developed, and can impact in-state generators power. equally as important, when the that need to build project will come online. • This can also impact unbundled interconnection. TREC supply insofar as • Permitting, in particular, is a big • The location of renewables with unbundling the renewable hurdle especially for major respect to the location of the attributes leaves the underlying transmission additions and for various load pockets is a major null power less attractive to local large renewable projects. factor. utilities (because it would not count towards its RPS targets).©2011 Navigant Consulting, Inc. 14 17Confidential and proprietary. Do not distribute or copy. ENERGY
  19. 19. Renewable Energy Supply and Demand>> Transmission Situation in CaliforniaThe transmission system in California is complex, with new lines beingconsidered to accommodate new renewable generation.• Depending on the level of “pre-existing” uses for High /Medium Potential Transmission Upgrades and Corridors the transmission system and the location of potential renewables, the following segments of the transmission system within California could be Captain Jack Northwest Malin heavily congested: Corridor NEVADA • The facilities between the Pacific Northwest Round Mountain Northern and Northern California Olinda Nevada Dixie Valley Corridor • The facilities between the Sacramento area Table Mountain NV Tracy Bellota-Cottle B and the Bakersfield area  Cottle B-Warnerville • The facilities between the Bakersfield area Vaca Dixon Storey1-Gregg Collinsville and Southern California Tesla Tracy Bellota Eastside 500 kV Storey2-Bordon Westley Storey1-Wilson Silver Peak • The facilities extending into Southern Bordon Control Los Banos Wilson Storey2-Wilson New Substations Gregg California from Southern Nevada and Existing W hir Gates lwi Eldorado Western Arizona High Potential nd /W Primm Medium Potential Morro Bay Carrizo1 in dhKramer 500 kV Southwest• Studies done to date by the California Midway Ivanpah ub Barren Ridge Corridor New Lines Templeton Llano Pisgah 500 kv Transmission Planning Group (CTPG) have High Potential Haskell Canyon Vincent Lugo Devers ARIZONA Medium Potential San Bernardino/Vista indicated that the “High and Medium Potential” V Mirage Red Bluff Colorado River sub. New a Coachella Valley transmission facilities and corridors shown on the Corridors High l l Palo Verde Sycamore Cyn e Dixieland El Centro map to the right of this slide could allow the State Potential y Central North Gila to meet a majority of the 33% RPS target by 2020. IID Imperial Valley• The CTPG will be continuing its studies regarding the required transmission facilities during 2011.©2011 Navigant Consulting, Inc. 15 18Confidential and proprietary. Do not distribute or copy. ENERGY
  20. 20. Renewable Energy Supply and Demand>> RPS Requirement in WECCIn addition to California, seven other states in the broader WECCregion have RPS requirements. RPS Requirements in Western States Excluding California WA MT 15% by 2015 15% by 2020 RPS mandate OR 25% (large utilities), RPS goal 5%-10% (small utilities) by 2025 NV 25% by 2025 UT 20% by 2025 goal CO 30% by 2020 (IOUs), 10% munis and co-ops AZ 15% by 2025 NM 20% (IOUs), 10% Note: While not shown on this graphic, renewable energy (co-ops) by 2020 demand in British Columbia and Alberta can also affecting available supply for the California RPS due to these Canadian Provinces being included in WECC. Source: January 2011, Database of State Incentives for Renewable Energy (DSIRE)©2011 Navigant Consulting, Inc. 16 19Confidential and proprietary. Do not distribute or copy. ENERGY
  21. 21. Renewable Energy Supply and Demand>> Current RPS Generation Queue in CaliforniaA significant number of projects in the generation queue are in veryearly stages of development; some having no estimated online date. CAISO Renewable Generation Queue by CAISO Renewable Generation Queue by Current Status Estimated Online Date 0.0% 0.0% 2.0% 0.3% 35.1% 45.2% 35% 65% 6.5% 6.8% 4.1% App Pending Feasibility Operating Estimated Online Date Permitted Proposed Restarted No Estimated Online Date Site Prep Testing Under Const©2011 Navigant Consulting, Inc. 17 20Confidential and proprietary. Do not distribute or copy. ENERGY
  22. 22. Table of ContentsTable of Contents 1 » California RPS Policy Landscape 2 » Renewable Energy Supply and Demand » 3 » Factors Influencing Forward TREC Prices Curves 4 » Implications and Key Takeaways©2011 Navigant Consulting, Inc. 18 21Confidential and proprietary. Do not distribute or copy. ENERGY
  23. 23. Factors Influencing Forward TREC Prices Curves>> CPUC TREC DecisionTRECs can now be used to comply with the California RPS. CPUC TREC Decision Update (R. 06-02-012) • Final ruling was issued January, 13, 2011 reinstated the original ruling (issued in March, 2010). • Decision allows unbundled TRECs to be used towards a utility’s RPS compliance obligation under the following conditions: • Unbundled TRECs may not be used for more than 25% of an entities compliance obligation through to 2013. • The cost of the TREC must not exceed $50/MWh through to 2013. • Decision defines a TREC transaction as: • An unbundled transaction in which an entity procures only a TREC and not the underlying energy. • A bundled transaction (conveying both TRECs and energy) where the generator’s first point of interconnection is not with a California Balancing Authority and the transaction does not make use of dynamic transfer arrangements. • TRECs cannot be banked for more than 3 years. Once retired, they can be counted towards a utility’s target under the flexible compliance rules.©2011 Navigant Consulting, Inc. 19 22Confidential and proprietary. Do not distribute or copy. ENERGY
  24. 24. Factors Influencing Forward TREC Prices Curves>> Unbundled versus Bundled Renewable EnergyTRECs convey title to renewable energy attributes and can be unbundledand sold separately from the underlying energy. “Null” Energy The underlying null energy, if (1 MWh) separated from the TREC, can be used Bundled Renewable to meet load but not an RPS obligation. Generation (1 MWh) A TREC, whether bundled with or 1 TREC unbundled from the energy, is required to demonstrate RPS compliance. Definitions differ by state California TREC Definition “A renewable energy credit (REC) for compliance with the California renewables portfolio standard (RPS) is a certificate of proof, issued through the Western Renewable Generation Information System, that one megawatt-hour of electricity was generated by an RPS-eligible renewable energy resource and delivered for consumption by California end-use retail customers. A REC includes all renewable and environmental attributes associated with the production of electricity from the eligible renewable energy resource, including any avoided emission of pollutants to the air, soil or water; any avoided emissions of carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, or any other greenhouse gases that have been determined by the United Nations Intergovernmental Panel on Climate Change, or otherwise by law, to contribute to the actual or potential threat of global climate change;* and the reporting rights to these avoided emissions, such as Green Tag reporting rights.”©2011 Navigant Consulting, Inc. 20 23Confidential and proprietary. Do not distribute or copy. ENERGY
  25. 25. Factors Influencing Forward TREC Prices Curves>> Key Variables Affecting TREC PricesTREC prices are sensitive to supply/demand, the wholesale cost of energyat which the market clears and the mix of renewables in the market. Key Variable Driver Directional Impact on TREC Prices • Increases in wholesale power prices in pools • Natural gas prices typically decrease REC prices Power Prices • Power market fundamentals • Renewable integration costs • Higher integration costs could increase TREC prices insofar as developer needs to recover costs • RPS targets and compliance rules • Increases in demand typically increase REC TREC • Future load growth prices Demand • Regulatory limits on TREC usage • Conversely, lower demand results in lower prices • Resource availability • Increases in renewable energy supply beyond • Market conditions and RPS requirements depress REC prices TREC Supply production of existing projects • Project development constraints • Localized REC demand can limit exports to other states, thereby limiting supply • Other utility demand for TRECs • Environmental constraints (e.g. • RECs prices are tied to least cost generators Renewable water, habitat, etc.) • Regions with higher capacity factor facilities (e.g., • NIMBY issues biomass, geothermal) generate lower cost RECs Supply Mix • Technological development, in larger quantities than regions that depend on particularly solar wind and solar facilities©2011 Navigant Consulting, Inc. 21 24Confidential and proprietary. Do not distribute or copy. ENERGY
  26. 26. Factors Influencing Forward TREC Prices Curves>> California Specific FactorsThere are specific factors to California influencing TREC supply anddemand, which differ in their likely impact on forward price curves. •Requiring POUs to comply with the RPS effectively increases the demand Inclusion of POUs in RPS curve which puts upwards pressure on prices. •A cap percentage on TRECs usage effectively reduces the demand curve 25% Cap of TRECs to 2013 for TRECs, leading to downward pressure on prices. $50/TREC Cap to 2013 •Price caps effectively act as ceiling on TREC price curves. Lack of TREC Price •A lack of transparency in the marketplace on transacted prices for Transparency unbundled TRECs can lead to increased price volatility. RPS Demand in Western •RPS targets in other states – or a new RPS program in a state that currently States does not have an RPS – can decrease TREC supply available for California. •The availability of unbundled TRECs necessarily requires native demand Energy Demand in Other for energy. States •Local utility demand for energy-only contracts could be small or require firming and shaping from natural gas. Renewable Project •Financing projects based on projected TREC revenue is dependant on long Financing term contracts.©2011 Navigant Consulting, Inc. 22 25Confidential and proprietary. Do not distribute or copy. ENERGY
  27. 27. Table of ContentsTable of Contents 1 » California RPS Policy Landscape 2 » Renewable Energy Supply and Demand 3 » Factors Influencing Forward TREC Prices Curves » 4 » Implications and Key Takeaways©2011 Navigant Consulting, Inc. 23 26Confidential and proprietary. Do not distribute or copy. ENERGY
  28. 28. Implications and Key Takeaways>> Implications for Developers and InvestorsThe recent reinstatement of the TREC rules reduces some uncertainty,but some questions remain. • Rule allows only 25 percent of RPS requirements to be met with TRECs until 2013. Should I CARB structure allows more. build in CA • Development outside CA may be less expensive in some cases and will depend on or outside? transmission and local demand for energy if targeting unbundled TREC sales. Do I have to • For the most part yes, under CPUC rules deliver • Not necessarily, under CARB rules. power to CA? • Permitting and interconnection processes takes time. When should • The 25% limit and $50/MWh price cap sunset in 2013. I build? • Competition for resources can lead to pricing issues. • Transmission interconnection and the development of new transmission facilities will Will there be impact timing, cost and location of project. transmission? • Developers need to understand the transmission issue. Can I use • Given competition for resources and cost consideration, valuation of TRECs will RECS for increasingly be important. financing? • Investors will have to become comfortable with the market structure and liquidity.©2011 Navigant Consulting, Inc. 24 27Confidential and proprietary. Do not distribute or copy. ENERGY
  29. 29. Implications and Key Takeaways>> Implications for UtilitiesThe recent changes in the RPS structures provide conflicting signals forutilities. TRECs provide another option for compliance, however different procurement strategies may be required. Sunset of 25% cap on TRECs provides some motivation to delay procurement plans–more options become available as the market opens up. Sunset of $50/TREC cap on TRECs provide motivation to acquire now – supply of out of state unbundled TRECs depends on local demand for energy in that state - at a higher cost and without ability to claim it against RPS targets. Competition for lowest cost resources provide motivation to secure good projects sooner, especially in other states that need them for native RPS requirements. IOUs will need to comply with both CPUC and CARB requirements, which differ in terms of structure.©2011 Navigant Consulting, Inc. 25 28Confidential and proprietary. Do not distribute or copy. ENERGY
  30. 30. Implications and Key Takeaways>> Key TakeawaysThe California RPS is Complex and Evolving – Watch This Space. Underlying RPS • The underlying RPS market structure determines when, where Market Structure is and how renewable facilities get built. Important and • The different CARB and CPUC markets structures continue to Changing change. Watch this space closely. • Forward TREC price curves are driven by supply and demand Accurate TREC characteristics in the market – which in turn is driven by RPS Valuation is Complex market structure and underlying power market fundamentals. and Increasingly • Accurate TREC valuation is increasing important to both buyers Important and sellers. Costs Will Be Driven • While significant eligible renewable resources are available for RPS compliance, transmission constraints (and timing of new by Supply and lines), project development risk and competition for resources will Demand in WECC, not dictate the value ascribed to both physical renewable energy and only California their attributes.©2011 Navigant Consulting, Inc. 26 29Confidential and proprietary. Do not distribute or copy. ENERGY
  31. 31. KeyQuestions?CONTACTS Dan Bradley Director New York, NY 917-498-3846 dbradley@navigantconsulting.com Frank Stern Director Boulder, CO 303-728-2513 frank.stern@navigantconsulting.com Fred Wellington, CFA Managing Consultant San Francisco, CA 415-356-7132 fred.wellington@navigantconsulting.com©2010 Navigant Consulting, Inc.©2011 27 30Confidential and proprietary. Do not distribute or copy. ENERGY

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