Long Term Resource Planning in the Face of an Uncertain Carbon Future<br />Art Freitas<br />La Capra Associates Inc.<br />...
ISO New England<br />Regional Transmission Organization operates transmission system and power markets<br /><ul><li>Began ...
Implemented FERC standard market design in 2003
Centralized dispatch
Multi-settlement spot energy market
Locational Marginal Pricing</li></ul>2<br />
New England Power System<br />6.5 million electricity customers, population 14 million<br />350+ generators<br />8,000+ mi...
Winter: 22,000+ MW </li></ul>400+ participants in the marketplace<br />$12 billion electric energy market (2008)<br />3<br />
New England Market Environment<br />State Policies<br /><ul><li>Heavy emphasis on demand side resource and renewable resou...
All six states are participants in Regional Greenhouse Gas Initiative (RGGI)</li></ul>Fuel Prices<br /><ul><li>Coal more e...
Traditionally at the “end of the pipe” for gas supplies
Marcellius Basin and new LNG import terminals are changing this</li></ul>4<br />
New England Generation Mix<br />5<br />
New England Energy Market<br />6<br />
New England Supply Curve<br />7<br />
Integrated Resource Planning<br />Connecticut Energy Advisory Board<br /><ul><li>Inter-departmental agency responsible for...
La Capra Associates is the technical advisor to the Board</li></ul>Project:  Review and development of Connecticut Integra...
Develop 20-year IRP for Board
Scenario based
Many stakeholders
Environmental impacts front and center</li></ul>8<br />
Findings<br />Assumptions of carbon allowance prices have a significant impact on resulting market prices for New England<...
Long Term Resource Evaluation<br />Vertically integrated utility<br />Looking at a 20-year power purchase agreement<br />H...
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Long Term Resource Planning in an Uncertain World

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I gave this presentation at the 2010 EPIS Electric Market Forecasting Conference. The attendees of this conference were all users of the AURORAxmp electric market simulation application so the implementation of the concepts are specific to AURORAxmp but the concepts themselves are generally applicable

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  • New England went through a massive generation build at the end of the 90’s into early 2000’s10,000 MW highly efficient gas combined cycle plants builtOne third of NE generating stock turned overMiddle of the supply curve all looks the sameThroughout the decade with high gas prices coal was always below the marginThis has started to change in the last few yearsCoal is beginning to be the marginal resource in some hoursPartly due to lower loadsBig factor is low gas pricesThis is a theme that will feature prominently in our planning work
  • CT legislation requires CT utilities to file 10 year integrated resource plans regularlyCEAB decided that a 20 year IRP was needed as there were a number of issues that would need to be addressed more than 10 years out. Those issues, many of them environmental, had long lead times and so needed to be looked at now.LCA tasked with two main responsibilitiesreview the utility IRPdevelop an IRP with a 20 year planning horizon
  • Had an assumed shape, mean, standard deviation, and correlation with other driversInputs developed based on available information on outlook for carbon pricesAt this point information is pretty sparseEIA analysis of the Waxman-Markey billAny other information available on the potential price of carbonGave GMP negotiators an understanding of the behavior of the contract under current pricing termsHelped them negotiate terms that better reflected their risk tolerances and portfolio objectives while still being acceptable to the counterparty
  • More legislation to regulate carbon emissions being debatedPrimarily the American Power Act (Sen. Kerry and Sen. Lieberman Sponsors)EIA evaluation of this legislation not yet completePolitical landscape continuing to shiftDue to a number of reasons support for carbon legislation appeared to be erodingAs a result there is more uncertainty surrounding the future of carbonPrice levelTimeframe for implementationPossibility of no carbon legislation at allRepresentation of Carbon price in Phase I no longer seemed appropriate for environment
  • Discrete distribution seemed to better fit problem at handDiscrete distribution not one of the default distribution typesWorking closely with Customer Support a discrete distribution was implemented through the use of a computational dataset5 potential choicesEach choice has a different probability of occurrenceCorrelations between driver variables still maintained in this solution.Discrete distribution randomly picks a 20 year carbon price to include in the dispatch for each draw.5 choices are user specifiedEach choice represents a different outlook for implementation date and price level
  • Long Term Resource Planning in an Uncertain World

    1. 1. Long Term Resource Planning in the Face of an Uncertain Carbon Future<br />Art Freitas<br />La Capra Associates Inc.<br />Presented By:Art FreitasLa Capra Associates<br />2010 Electric Market Forecasting Conference<br />Presented To:<br />September 17, 2010<br />
    2. 2. ISO New England<br />Regional Transmission Organization operates transmission system and power markets<br /><ul><li>Began operation in 1997
    3. 3. Implemented FERC standard market design in 2003
    4. 4. Centralized dispatch
    5. 5. Multi-settlement spot energy market
    6. 6. Locational Marginal Pricing</li></ul>2<br />
    7. 7. New England Power System<br />6.5 million electricity customers, population 14 million<br />350+ generators<br />8,000+ miles of high-voltage transmission lines<br />13 interconnections with systems in New York and Canada<br />31,000+ megawatts of total supply (summer)<br />2,000+ MW of demand response <br />Peak demand:<br /><ul><li>Summer: 28,000+ MW
    8. 8. Winter: 22,000+ MW </li></ul>400+ participants in the marketplace<br />$12 billion electric energy market (2008)<br />3<br />
    9. 9. New England Market Environment<br />State Policies<br /><ul><li>Heavy emphasis on demand side resource and renewable resources
    10. 10. All six states are participants in Regional Greenhouse Gas Initiative (RGGI)</li></ul>Fuel Prices<br /><ul><li>Coal more expensive than other regions in country
    11. 11. Traditionally at the “end of the pipe” for gas supplies
    12. 12. Marcellius Basin and new LNG import terminals are changing this</li></ul>4<br />
    13. 13. New England Generation Mix<br />5<br />
    14. 14. New England Energy Market<br />6<br />
    15. 15. New England Supply Curve<br />7<br />
    16. 16. Integrated Resource Planning<br />Connecticut Energy Advisory Board<br /><ul><li>Inter-departmental agency responsible for representing the state in regional energy planning activities
    17. 17. La Capra Associates is the technical advisor to the Board</li></ul>Project: Review and development of Connecticut Integrated Resource Plan<br /><ul><li>Review Utility 10-year IRP
    18. 18. Develop 20-year IRP for Board
    19. 19. Scenario based
    20. 20. Many stakeholders
    21. 21. Environmental impacts front and center</li></ul>8<br />
    22. 22. Findings<br />Assumptions of carbon allowance prices have a significant impact on resulting market prices for New England<br />In the presence of low gas prices, carbon prices do not need to be very high before coal units are above the margin<br />9<br />
    23. 23. Long Term Resource Evaluation<br />Vertically integrated utility<br />Looking at a 20-year power purchase agreement<br />Hydro based power, however price is influenced by market<br />Our assignment<br /><ul><li>Help client understand the value of this contract by itself and as part of their power portfolio
    24. 24. Client not only concerned with expected value but also the variance of the contract
    25. 25. Used the risk analysis functionality of Aurora to help analyze the problem</li></ul>10<br />
    26. 26. Risk Analysis<br />Identified four primary drivers of prices<br /><ul><li>Regional Demand
    27. 27. Oil prices
    28. 28. Gas prices
    29. 29. Carbon prices</li></ul>Parameters of risk analysis<br /><ul><li>20-year long term outlook
    30. 30. Each draw represents an internally consistent long term view of prices
    31. 31. Each Draw represents a different trend forecast</li></ul>11<br />
    32. 32. Development of Risk Inputs<br />Demand, oil prices, and gas prices have substantial history and forward looking analysis<br /><ul><li>Using available information, La Capra Associates developed a mean, standard deviation, distribution shape, and correlations</li></ul>Carbon is completely new. No historical U.S. experience and very limited analysis available.<br /><ul><li>However, the price of carbon has a significant effect on the dispatch of New England resources and therefore the resulting market prices.</li></ul>12<br />
    33. 33. Risk Analysis, Phase I – Negotiation Support<br />Carbon was given a continuous distribution like all the other drivers<br /><ul><li>Inputs developed based on available information on outlook for carbon prices
    34. 34. EIA analysis of the Waxman-Markey bill
    35. 35. Final inputs a mixture of analysis of available information as well as professional judgment of La Capra Associates team and client</li></ul>13<br />
    36. 36. Price Results of Phase I Analysis<br />14<br />
    37. 37. Risk Analysis, Phase II – Regulatory Approval<br />More legislation to regulate carbon emissions being debated<br /><ul><li>Primarily the American Power Act (Sen. Kerry and Sen. Lieberman Sponsors)</li></ul>Political landscape continuing to shift<br /><ul><li>Support for carbon legislation appeared to be eroding
    38. 38. Future of carbon is more uncertainty</li></ul>Representation of Carbon price in Phase I no longer seemed appropriate for environment<br />15<br />
    39. 39. Risk Analysis, Phase II – Regulatory Approval<br />Discrete distribution seemed to better fit problem at hand<br /><ul><li>Discrete distribution not one of the default distribution types
    40. 40. Customer Support assisted in implementing a discrete distribution using a computational dataset
    41. 41. Five potential choices
    42. 42. Each choice has a different probability of occurrence
    43. 43. Correlations between driver variables still maintained in this solution
    44. 44. Discrete distribution randomly picks a 20-year carbon price to include in the dispatch for each draw</li></ul>16<br />
    45. 45. Discrete Carbon Distribution<br />Final five option distribution<br /><ul><li>“No Regulation” - Carbon regulation never occurs over the forecast horizon
    46. 46. “Delayed Catch-Up” – Carbon Regulation is delayed until 2020; but once implemented, the country is committed to addressing carbon emissions
    47. 47. Remaining three options represent more moderate price futures
    48. 48. Two futures have an implementation date of 2016
    49. 49. One future has an implementation date of 2013</li></ul>17<br />
    50. 50. Discrete Distribution Carbon Price Futures<br />18<br />
    51. 51. Market Price Outcomes<br />19<br />
    52. 52. Product Delivered to Client<br />Robust analysis of the economics of the contract<br /><ul><li>Expected value
    53. 53. Range of potential contract value
    54. 54. Comfort that the contract is very likely to produce value to the ratepayers (i.e., it is a “good deal”)</li></ul>Analysis of effect of contract on variance of power supply portfolio cost<br /><ul><li>Utilizing the portfolio functionality of AURORAxmp</li></ul>Support in developing testimony for regulatory approval of contract<br />20<br />
    55. 55. Thoughts on Discrete Distributions in AURORAxmp<br />Extremely Flexible<br /><ul><li>Can be applied to same inputs as a generic distribution
    56. 56. Can be used in both long and short term studies</li></ul>High degree of user control<br /><ul><li>Number of choices
    57. 57. Probability of each choice
    58. 58. Values of each choice</li></ul>Fits situations where other distribution types are not appropriate or applicable<br />21<br />
    59. 59. Questions<br />  <br />Thank you<br />Art Freitas<br />La Capra Associates<br />One Washington Mall, 9th Floor<br /> Boston, Massachusetts 02108<br />617-778-5515, ext. 130<br />afreitas@lacapra.com<br />Contact Information:<br />
    60. 60. 23<br />About La Capra Associates<br /><ul><li>30-Year-Old National Practice with Solid New England Core
    61. 61. Client Diversity – Utilities, Market Participants, Publics
    62. 62. Wholesale Market Analytics – Core Practice Area
    63. 63. Objective Track Record in Regulatory Cases
    64. 64. Strong Staff with Diverse Industry Experience
    65. 65. System Planning / Resource Planning
    66. 66. Integrated Resource Planning
    67. 67. Non-Transmission Analysis
    68. 68. Procurement and Portfolio Management
    69. 69. Renewable Energy Services
    70. 70. Cost Allocation & Rate Design
    71. 71. Wholesale Market Analysis</li></ul>Provides energy planning, market analysis, and regulatory policy services in electric and natural gas industries.<br />PRACTICEAREAS:<br />

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