The economics of generation dispatch in Texas has been affected by falling natural gas prices and pending environmental regulations. This webinar gives a look at what changes have been seen in the forward power curves in Texas hubs and how delayed implementation of the Cross-State Air Pollution Rule could change those dynamics in 2012. Listen at http://is.gd/UVG5Qo

1. Texas emissions and power markets
Carrie Sisto
David Givens
January 2012
London, Houston, Washington, New York, Portland, Calgary, Santiago, Singapore, Beijing,
Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Hamburg and Johannesburg

2. Argus Media
• Staff of 400 worldwide
• Cover all global energy
markets and extensively used
in indexation of physical and
financial
• Electricity, emissions, natural
gas, coal, crude, refined
products, biofuels,, LPG,
fertilizer, biomass, freight…

3. Takeaways
• Regulatory uncertainty plagues Texas generators
• Reversion to CAIR eases 2012 compliance
• Forward power curves up on capacity scarcity
• Forward spark spreads reflect weaker gas prices
• Seasonality of spark spread should dictate dispatch

4. Regulatory uncertainty
• Cross-State Air Pollution Rule on hold
– Pending review of 45 challenges
• Clean Air Interstate Rule to be enforced
– At least through 2012
• Other regulations
– Mercury and Air Toxics Standards
– Cooling intake structures
– Coal combustion residuals

5. Cross-State Air Pollution Rule States

6. States covered under CAIR

7. CSAPR group 2 SO2 prices trend lower
3,400
2,800
2,200
$/st
1,600
1,000
400
Aug-11 Sep-11 Oct-11 Nov-11 Nov-11 Dec-11
2012 2013

8. CSAPR NOx allowance prices down 90pc
5,000
4,000
3,000
$/st
2,000
1,000
0
Aug-11 Sep-11 Oct-11 Nov-11 Nov-11 Dec-11
2012 2013

9. Ercot North peak forward curves
95
80
65
$/MWh
50
35
20
Jan-12 Sep-12 Jun-13 Mar-14 Nov-14
8/25/2011 12/15/2011

10. Ercot North calendar 2013 off-peak coal spark
spreads
10
8
6
$/MWh
4
2
0
-2
Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
2012 2013

11. Ercot North ATC forward curves
65
55
$/MWh
45
35
25
Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14
12/15/2011 8/25/2011

12. Ercot Houston ATC forward curves
65
55
$/MWh
45
35
25
Jan-12 Sep-12 Jun-13 Mar-14 Dec-14
8/25/2011 12/15/2011

13. ERCOT South ATC forward curves
60
53
46
$/MWh
39
32
25
Jan-12 Sep-12 Jun-13 Mar-14 Dec-14
8/25/2011 12/15/2011

14. Ercot West ATC forward curves
65
55
45
$/MWh
35
25
15
Jan-12 Sep-12 Jun-13 Mar-14 Dec-14
8/25/2011 12/15/2011

15. Ercot North Peak Dailies belie forward curves
600
450
$/MWh
300
150
0
Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11

16. Houston Ship Channel forward gas curve
5.5
5.0
4.5
$/mmBtu
4.0
3.5
3.0
Jan-12 Sep-12 Jun-13 Mar-14 Dec-14
10/26/2011 12/15/2011

17. Ercot North calendar 2012 peak spark spreads
25
21
$/MWh
17
13
9
Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Coal Gas

18. Ercot North calendar 2013 peak spark spreads
28
24
$/MWh
20
16
12
Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Coal Gas

19. ERCOT North calendar off-peak coal spark
spreads
10
8
6
$/MWh
4
2
0
-2
Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
2012 2013

20. Allowances affect generation
• Result of purchasing allowances on 2012 ATC spark
spreads
– $8.30/MWh for PRB coal
– $15.17 for natural gas
– $17.40 for lignite

21. Key challenges to CSAPR
• Definition of “significant contribution”
– Cost threshold
– Regional vs. state emissions
• Federalism
– State authority to develop implementation plan
• Opportunity for public comment
– Additional data, new allocation methods

22. Takeaways
• Forward power curves account for:
– Capacity scarcity
– Marginal fuel price changes
• Forward gas curve
– Continued weakening in second half 2011
– Spark spreads more favorable
• Stay on CSAPR leaves everything up in the air
• Compliance much less daunting in 2012 under CAIR

23. Thank you.
David Givens
Head of gas and power services, North America
david.givens@argusmedia.com
+ 1 202 349 2891
London, Houston, Washington, New York, Portland, Calgary, Santiago, Singapore, Beijing,
Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Hamburg and Johannesburg