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NY Finance Briefing
- 1. March 14th // New York, NY
- 2. OPEN Network: Convene Conference Centers Password: meetings *all lowercase
- 3. #gtm Upcoming GTM Conferences Durham, NC April 3 Scottsdale, AZ May 13 Scottsdale, AZ May 14 - 15 San Diego, CA June 18 - 19
- 4. Matt DaPrato Wood Mackenzie Power & Renewables Product Suite Director Prajit Ghosh Wood Mackenzie Power & Renewables Head of Global Strategy #gtm Investing in US renewables: Weighting risks and rewards in a changing environment
- 5. woodmac.comTrusted intelligence Wood Mackenzie offices Wood Mackenzie Power & Renewables offices Wood Mackenzie is ideally positioned to support consumers, producers and financers of the new energy economy. — Acquisition of MAKE and Greentech Media (GTM) — Leaders in renewables, EV demand and grid-connected storage — Over 500 sector-dedicated analysts and consultants globally, including 75 specifically to power and renewables — Located close to clients and industry contacts About Wood Mackenzie We provide commercial insight and access to our experts leveraging our integrated proprietary metals, energy and renewables research platform
- 6. woodmac.comTrusted intelligence Market evolutions and technology revolutions have disrupted legacy business models, creating a new energy landscape The Power Market of the Past A top-down, flow from supply to demand Dispatchable Generation Transmission Distribution End Customers Tomorrow’s Decarbonized and Decentralized Power Market A bi-directional energy network with new technologies and actors at every node reshaping power market planning and operations Dispatchable Generation Transmission Distribution End Customers Intermittent Generation Energy Storage Advanced Metering Infrastructure Distributed Generation Electric Vehicles Connected Devices Demand Side Management
- 7. woodmac.comTrusted intelligence Decarbonizing disrupts markets differently 1
- 8. woodmac.comTrusted intelligence Increased renewables - particularly solar - decouple the end-use demand peak and dispatchable supply peak. California leads but how fast will others follow? Source: Wood Mackenzie Power & Renewables 0 10 20 30 40 50 60 70 80 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 $/MWh Average hourly LMP by ISO - 2018 CAISO ERCOT SPP MISO PJM NYISO ISO-NE Average LMP spread - 2018 CAISO ERCOT CAISO ERCOT
- 9. woodmac.comTrusted intelligence Cost convergence shifts the focus towards value 2
- 10. woodmac.comTrusted intelligence Wind remains cost-competitive with CCGT but is less competitive with utility PV in several state markets Solar to wind LCOE ratios of top 15 wind states by installation total, 2019e to 2028e Source: Wood Mackenzie Power & Renewables 2.0 0.0x 0.5 3.0x 1.0 1.5 2.5 ’19e ’21e’20e ’22e ’23e ’24e ’25e ’27e’26e ’28e 1 PTC phaseout WY CA, CO, NM, NY, TX IL, IA, KS, MI, MN, NE, ND, OK, SD
- 11. woodmac.comTrusted intelligence Rapid change requires openness to adaptation 3
- 12. woodmac.comTrusted intelligence FLEXIBLE RESOURCE ( 2017 IRP SELECTED PLAN) CARBON REDUCTION EXPANDED DSM EXPANDED RENEWABLES ENERGY STORAGE SYSTEMS RESOURCE MANDATES SMALL MODULAR REACTORS Description Retire Cholla in 2024; demand reducing DSM; RE above compliance, flexible battery storage & gas generation Retire Cholla in 2022, Four Corners in 2031; demand reducing DSM; RE above compliance, flexible battery storage & gas generation Retire Cholla in 2024; energy reducing DSM; RE above compliance, flexible battery storage & gas generation Retire Cholla in 2024; demand reducing DSM; RE well above compliance, flexible battery storage & gas generation Retire Cholla in 2024; demand reducing DSM; RE above compliance, additional flexible battery storage & gas generation Retire Cholla in 2024; plus expanded DSM, renewables and battery storage; gas generation Retire Cholla in 2024; SMR; demand reducing DSM; RE above compliance, flexible battery storage & gas generation Resource Contributions (2032 Namplate Capacity/% Energy Mix) Nuclear 1,146 MW / 17.1% 1,146 MW / 17.1% 1,146 MW / 17.0% 1,146 MW / 16.9% 1,146 MW / 17.0% 1,146 MW / 16.7% 1,716 MW / 22.3% Coal 970 MW / 10.7% 0 MW / 0.0% 970 MW / 10.5% 970 MW / 10.5% 970 MW / 10.7% 970 MW / 10.3% 970 MW / 10.4% Natural Gas 8,475 MW / 32.9% 9,616 MW / 42.6% 7,828 MW / 27.4% 8,259 MW / 30.4% 8,259 MW / 32.9% 7,181 MW / 26.4% 8,043 MW / 28.8% Renewable Energy (RE & DE) 4,353 MW / 18.2% 4,353 MW / 18.3% 4,353 MW / 17.8% 5,052 MW / 21.7% 4,353 MW / 18.1% 4,697 MW / 19.6% 4,353 MW / 18.2% Demand Side Management 922 MW / 13.4% 922 MW / 13.5% 1,547 MW / 20.8% 922 MW / 13.3% 922 MW / 13.4% 1,547 MW / 20.5% 922 MW / 13.4% Demand Response & Microgrids* 420 MW 420 MW 420 MW 420 MW 420 MW 420 MW 420 MW Energy Storage** 507 MW 507 MW 507 MW 507 MW 1,107 MW 1,107 MW 507 MW Market Purchase 158 MW / 7.7% 158 MW / 8.5% 158 MW / 6.5% 158 MW / 7.1% 158 MW / 7.9% 158 MW / 6.5% 158 MW / 6.8% *DR and microgrids are considered capacity resources and are not included in the energy mix. **Energy storage does not create its own energy, so energy associated with it is reported under the source that provided the charging energy. Arizona Power Service highlights how change continues to outpace even ‘aggressive’ views Source: Arizona Public Service – 2017 Resource Plan 2017 Selected Plan 507 MW by 2032 2017 Storage Case 1,107 MW by 2032
- 13. woodmac.comTrusted intelligence FLEXIBLE RESOURCE ( 2017 IRP SELECTED PLAN) CARBON REDUCTION EXPANDED DSM EXPANDED RENEWABLES ENERGY STORAGE SYSTEMS RESOURCE MANDATES SMALL MODULAR REACTORS Description Retire Cholla in 2024; demand reducing DSM; RE above compliance, flexible battery storage & gas generation Retire Cholla in 2022, Four Corners in 2031; demand reducing DSM; RE above compliance, flexible battery storage & gas generation Retire Cholla in 2024; energy reducing DSM; RE above compliance, flexible battery storage & gas generation Retire Cholla in 2024; demand reducing DSM; RE well above compliance, flexible battery storage & gas generation Retire Cholla in 2024; demand reducing DSM; RE above compliance, additional flexible battery storage & gas generation Retire Cholla in 2024; plus expanded DSM, renewables and battery storage; gas generation Retire Cholla in 2024; SMR; demand reducing DSM; RE above compliance, flexible battery storage & gas generation Resource Contributions (2032 Namplate Capacity/% Energy Mix) Nuclear 1,146 MW / 17.1% 1,146 MW / 17.1% 1,146 MW / 17.0% 1,146 MW / 16.9% 1,146 MW / 17.0% 1,146 MW / 16.7% 1,716 MW / 22.3% Coal 970 MW / 10.7% 0 MW / 0.0% 970 MW / 10.5% 970 MW / 10.5% 970 MW / 10.7% 970 MW / 10.3% 970 MW / 10.4% Natural Gas 8,475 MW / 32.9% 9,616 MW / 42.6% 7,828 MW / 27.4% 8,259 MW / 30.4% 8,259 MW / 32.9% 7,181 MW / 26.4% 8,043 MW / 28.8% Renewable Energy (RE & DE) 4,353 MW / 18.2% 4,353 MW / 18.3% 4,353 MW / 17.8% 5,052 MW / 21.7% 4,353 MW / 18.1% 4,697 MW / 19.6% 4,353 MW / 18.2% Demand Side Management 922 MW / 13.4% 922 MW / 13.5% 1,547 MW / 20.8% 922 MW / 13.3% 922 MW / 13.4% 1,547 MW / 20.5% 922 MW / 13.4% Demand Response & Microgrids* 420 MW 420 MW 420 MW 420 MW 420 MW 420 MW 420 MW Energy Storage** 507 MW 507 MW 507 MW 507 MW 1,107 MW 1,107 MW 507 MW Market Purchase 158 MW / 7.7% 158 MW / 8.5% 158 MW / 6.5% 158 MW / 7.1% 158 MW / 7.9% 158 MW / 6.5% 158 MW / 6.8% *DR and microgrids are considered capacity resources and are not included in the energy mix. **Energy storage does not create its own energy, so energy associated with it is reported under the source that provided the charging energy. Arizona Power Service highlights how change continues to outpace even ‘aggressive’ views Source: Arizona Public Service – 2017 Resource Plan February 2019 Action 850 MW by 2025 150 MW comes from 2018 ‘peaking’ RFP 7 year PPA for existing gas peaker
- 14. woodmac.comTrusted intelligence Policy is decentralized4
- 15. woodmac.comTrusted intelligence The United States could add three California’s before the 2020 election - 200 400 600 800 1,000 1,200 2019RetailSales(TWh) California Full Democratic Control 10 states equaling 2.5 California’s propose 100% targets New York Illinois Washington New Jersey Colorado Oregon Nevada Connecticut New Mexico Maine 80% targets represents 2 California’s Split Control 3 ‘split’ states equaling 0.75 California’s propose 100% targets Wisconsin Minnesota Massachusetts Republican Control 2 Republican states equaling 1.25 California’s propose 100% targets Arizona Florida A 60% target across these states represents 3 California’s
- 16. woodmac.comTrusted intelligence Thank You! Matt DaPrato Product Suite Director Matthew.DaPrato@woodmac.com
- 17. woodmac.comTrusted intelligence Investing in US Renewables Weighting risks and rewards in a changing environment
- 18. woodmac.comTrusted intelligence The Renewables & Storage paradigm is here Clean Energy growth & Reliability in focus: East meets West Source: Wood Mackenzie Power & Renewables CAISO PJM 0 5 10 15 20 25 30 35 40 45 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YearlyQueueRequests(GW) Energy Storage Solar Offshore Wind Wind Other Gas Hydro Coal Nuclear 0 10 20 30 40 50 60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YearlyQueueRequests(GW) Energy Storage Solar Offshore Wind Wind Other Gas Hydro Coal Nuclear
- 19. woodmac.comTrusted intelligence Highlights from Wood Mackenzie’s Reference forecast reiterates the Renewables Transition • SOLAR, WIND, ENERGY EFFICIENCY: 45% of generation by 2040 • DISTRIBUTED SOLAR: 30% of all solar generation in 2040 • OFFSHORE WIND: 20% of wind generation by 2040 • 150 GW of BATTERY STORAGE capacity by 2040 • BATTERY STORAGE beat out new NATURAL GAS peakers 5:1
- 20. woodmac.comTrusted intelligence -20 -10 0 10 20 30 40 50 60 2020 2025 2030 2035 2040 Real$/MWh Levelized Cost of Solar Merchant Revenue Scenarios Investing in Renewables: Value Drivers and Risks The ERCOT utility solar example Source: Wood Mackenzie Power & Renewables REFERENCE CASE Less Carbon prices Less Scarcity Less Gas Price (flat after 2025) • Energy Risk • Capacity • RECs • Basis Risk • Shape Risk • Financing
- 21. woodmac.comTrusted intelligence Assessing Risks What drives what ? Source: Wood Mackenzie Power & Renewables Digitization Energy Transition Technology & Big Data Environment & Sustainability TECHNOLOGY EVOLUTION RENEWABLESELECTRIFICATION POLICY EVOLUTION
- 23. woodmac.comTrusted intelligence Carbon Pricing Risk: Will there be carbon pricing ? What level ? Increasing focus on decarbonization, carbon pricing, and electrification mitigates uncertainty Source: Wood Mackenzie, EIA, EPA -50% -25% 0% 25% 50% 75% 100% 2000 2008 2016 2024 2032 2040 PercentaboveorbelowINDCGoals Electrification: The road to meeting economy-wide NDCsPower Sector Non-Power Sector (Transport, Industrials, ResCom) Why federal carbon pricing is our baseline expectation ? • Required for continued decarbonization of energy • Increasing momentum from non-federal actors • Market initiatives to integrate carbon into forward markets • Proxy revenue stream for future regulatory change ( RPS mandates) • BUT HOW DO WE QUANTIFY ? Carbon prices needed to decarbonize
- 25. woodmac.comTrusted intelligence Value Deflationary Risk in a renewables paradigm From 25% premium to average prices to a 3% discount Source: Wood Mackenzie -10 45 100 . . . . . . . . . . . . . Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ERCOT 2018 Solar Captured Premium 25% ERCOT 2040 Solar Captured Premium -3% AnnualCapturedPremium P05 P50 P95Price Scale: 2040SolarUtilization 2040 -10 45 100 . . . . . . . . . . . . . Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 -10% 5% 20% 35% 2018 2040
- 26. woodmac.comTrusted intelligence More solar implies value creation for Wind Source: Wood Mackenzie -45% -30% -15% 0% 2040 ERCOT 2018 Wind Captured Discount -27% ERCOT 2040 Wind Captured Discount -12%20402018 -10 45 100 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 AnnualCaptured Premium P05 P50 P95Price Scale: 2040WindUtilization
- 28. woodmac.comTrusted intelligence (2) 3 8 13 18 2018 2022 2026 2030 2034 2038 bcfdGas price risk: Rising gas prices ensure higher residual value despite value deflation North America leans more heavily on the global market to develop domestic supply Source: Wood Mackenzie Gas prices drivers LNG Other & Transport Industrial Mexico LDC Canada Power • 170 tcf of associated gas is economic <$50/bbl • 15 bcfd of dry gas supply could come online annually at sub- $2.50 HH but the market only needs 10-11 bcfd for 2019-25 • Global LNG demand drives growth despite global renewables growth @5-15% p.a. • Exhaustion of low-cost resource and higher transportation cost drive up long-term new-drill supply curve • Henry Hub • $2.50 in early 2020s; Approached $3.00 by 2028 and $4.00 in 2033. • Becomes a premium market long term with exceptions US demand & exports relative to 2017
- 30. woodmac.comTrusted intelligence Scarcity Price Risk Scarcity pricing may account for 50-70% of the power price during peak months in ERCOT Source: Wood Mackenzie 0 20 40 60 80 100 120 140 160 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Nominal$/MWh Scarcity Pricing significantly more volatile and may not materialize for years Woodmac Scarcity Price Woodmac SRMC Argus Forward Curve
- 32. woodmac.comTrusted intelligence -30 -20 -10 0 10 20 30 40 50 60 1 4 7 10 13 16 19 22 1 4 7 10 13 16 19 22 1 4 7 10 13 16 19 22 1 4 7 10 13 16 19 22 2018 2024 2030 2040 GWh Energy Storage Electric Vehicles Wind Onshore Solar Distributed Solar Hydro Other Renewable Net Trade Gas Coal Nuclear Baseline Demand Net Renewables Net Storage + EVs Regulatory Risk – Can geometry help ? Anticipating regulatory change may not be out of reach Source: Wood Mackenzie Clean Peak Energy Rent Capacity Market Flexibility
- 33. woodmac.comTrusted intelligence COST & TECHNOLOGY Risk4
- 34. woodmac.comTrusted intelligence Cost and Technology Risks Phase out of tax credits and new battery chemistries Source: Wood Mackenzie Carbon capture, coal, nuclear YOU ARE HERE! NMC 1:1:1 NMC 6:2:2 NMC 8:1:1 Solid State Lithium Sulfur 0 100 200 300 400 500 600 2015 2020 2025 2030 2035 2040 ExpectedEnergyDensity(Wh/kg) $0 $50 $100 $150 $200 $250 $300 $350 WMBaseCaseBatteryCost ($/kWh) à Next 10 years: Low cobalt/ High nickel cathodes à Decade after: Solid state electrolytes & Non-graphite anodes
- 35. woodmac.comTrusted intelligence The ELECTRIFICATION & DECENTRALIZATION paradigm will add new risks 4
- 36. woodmac.comTrusted intelligence Electrification & Decentralization: New realities and risks on the horizon Continued shifts in paradigm will create new operational realities and planning risks By 2040: • 23 mm households expected to have solar rooftops (16% of total) • 7 out of 10 cars sold are electric • Proliferation of grid edge technologies • AMI, DERMS, customer analytics, Voice enabled and connected devices.. Source: Wood Mackenzie Note: EVs includes battery electric vehicles and plug-in hybrids. Electric trucks are not included.
- 37. woodmac.comTrusted intelligence Key Takeaways • Macro factors create significant uncertainty but also a favorable investment climate • Anticipating policy and regulatory changes not out of reach • Carbon pricing should be reflected in due diligence efforts • Weighting fundamental market risks will be key and subject to energy-wide feedback effects (limited gas price downside, more scarcity price downside) • Technology surprises may be the new baseline
- 38. woodmac.comTrusted intelligence Thank You! Prajit Ghosh Head of Global Strategy prajit.ghosh@woodmac.com
- 39. Risks for Capital in a World of Low Prices Tim Short Capital Dynamics Director, Clean Energy Infrastructure Jacob Susman EDF Renewable Energy Vise President, Head of Origination Matt DaPrato Wood Mackenzie Power & Renewables Product Suite Director #gtm
- 40. Elta Kolo, Ph.D Wood Mackenzie Power & Renewables Research Manager Bridging the knowledge gap: Understanding the implications of the Grid Edge #gtm
- 41. woodmac.comTrusted intelligence Bridging the knowledge gap: Understanding the implications of the Grid Edge
- 43. woodmac.comTrusted intelligence 1. There’s more to renewables than the supply-side 2. Grid edge M&A and VC activity is signaling prospects for growth 3. The sensitivity of market design and regulation triggers uncertainty
- 44. woodmac.comTrusted intelligence Installed generation capacity varies by fuel type in each ISO/RTO territory
- 45. woodmac.comTrusted intelligence …but there’s more to renewables and distributed resources than supply Source: CAISO, ERCOT, ISO NE, MISO, NYISO, PJM, SPP 9% 3% 14% 5% 6% 15% 48% 40% 31% 3% 20% 2% 4% 54% 0% 3% 27% 16% 24% 48% 16% 8% 2% 2% 45% 3%14% 5% 23% 10% 51% 22% 6% 21% 36% 34% 19% 6% 5% Natural gas Coal Nuclear Renewables Oil Hydro Other Dual Fuel
- 46. woodmac.comTrusted intelligence Demand side resources clear 3% to 10% of the market …and this is just what participates in organized wholesale markets Source: Wood Mackenzie Power & Renewables “US Wholesale DER Aggregation” 41% 35% 8% 5% 5% 4% 2% 32 GW Manufacturing Batteries HVAC Water Heaters Lighting Misc. Loads Generator Growth opportunities EV charging A lot of batteries Connected home Microgrids Resource mix today
- 48. woodmac.comTrusted intelligence 1. The current 32 GW of available “flexible” capacity is not utilized to its full potential-tech is ahead of markets 2. Availability of the type of flexible capacity is sensitive market design changes 3. Third party business models for aggregation and market access are evolving
- 49. woodmac.comTrusted intelligence European majors are on an aggressive Grid Edge shopping spree
- 50. woodmac.comTrusted intelligence Source: Wood Mackenzie Power & Renewables - Grid Edge Data Hub January Energy Storage March E-m obility June Dem and Response September September October Dem and Response E-m obility Energy Efficiency October October November Connected Hom e E-m obility Dem and Response Q1 2017 Q2 2017 Q3 2017 Q4 2017 Residential Retailer December December E-m obility Blockchain October Q1 2018 E-m obility Energy Storage January January February Connected Hom e Residential Retailer Energy Storage March Q2 2018 April Energy Storage DER Developer May Therm al Storage May E-m obility May E-m obility June E-m obility July Q3 2018 March E-m obility August E-m obility September Solar August CHP E-m obility September November Q4 2018 Energy Storage Dem and Response DER Developer January December Solar March Solar InvestmentAcquisition 2017 2018
- 51. woodmac.comTrusted intelligence Energy majors are establishing practices catering directly to C&I customers Source: Wood Mackenzie Power & Renewables 2017 to 2019 2017 February Connected Hom e Residential Retailer DER Developer January DER Developer May Therm al Storage May 2018 December Solar Dem and Response E-m obility Residential Retailer DecemberSeptember October E-m obility Q1 2019 Energy Storage FebruaryJanuary February Dem and Response InvestmentAcquisition
- 52. woodmac.comTrusted intelligence Sample vendors pushing boundaries with resources Sample impactful policy Changes are taking place at an accelerated pace EPA backup genset regulations pushed more than 20% of total resources out of the market. To provide 20 MW supply in 2020 via residential solar plus storage to ISO NE. Coordinating 10,000 Honda EVs to participate in the day-ahead and real-time CAISO markets with 30 MW of flexibility. Congressional democrats are pushing FERC to act on aggregated DERs "driven not only by state and federal policies, but consumer interest in choosing cost-competitive technologies such as rooftop solar, smart thermostats and customer-sited energy generation and storage." The California energy commission mandates residential rooftop solar starting in 2020. To utilize the flexibility of high-rise buildings in NYC to provide ancillary services to NYISO.
- 53. woodmac.comTrusted intelligence New York system operator to pilot aggregate DER participation in markets and events along the way
- 54. woodmac.comTrusted intelligence Source: Wood Mackenzie Power & Renewables • NY 3 GW storage target by 2030 • NYPA commits up to $250 mil for flexibility & $600 mil for EE Dec • NYISO DER pilot projects expected to go live Jun • NYISO releases Distributed Energy Resource Roadmap Feb Feb • FERC approves order 841 & separates DER aggregation decision Apr • FERC holds technical conference on DER aggregation Nov • NYPA commits up to $250 mil through 2025 to tackle EV range anxiety in the state 20182017 2019 Feb • Congressional democrats push FERC to act on DER aggregation Jul • NYISO announces procurements for DER pilot
- 55. woodmac.comTrusted intelligence Demand Response Customer, Distribution and Wholesale Energy Value Streams Source: Wood Mackenzie Power & Renewables ENERGY CHARGES UTILITY PROGRAMS DEMAND CHARGES 3rd PARTY PROGRAMS SYSTEM PEAK CHARGES ISO/RTO PROGRAMS Customer Value Streams Distribution Value Streams CAPACITY / RA T&D DEFERRAL LOADING / RELIABILITY CAPACITY ENERGY SPIN / NON-SPIN RESERVES Wholesale Value Streams BLACKSTART Value Drivers • Retail electricity prices • Retail demand charges • Demand growth • Wholesale capacity prices • Wholesale energy prices • Wholesale ancillary services prices • Reformed markets for wholesale- level value streams • Emerging markets for distribution- level value streams DISTRIBUTION LOSSES Representative value streams for demand side resources
- 56. woodmac.comTrusted intelligence Thank You! Elta Kolo, Ph.D Research Manager Elta.Kolo@woodmac.com