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Financial Impacts of Renewable Energy Policies in the Pacific Northwest<br />Fred Wellington and Mark Cira<br />Navigant C...
Introduction » Navigant’s Clean Energy Service Offerings<br />Navigant Consulting has extraordinary depth of expertise in ...
Introduction<br />Presentation Overview<br />This presentation will:<br />Provide an overview of RPS regulations in Oregon...
Table of Contents<br />1<br />RPS Overview<br />RPS Gap Analysis<br />2<br />Strategic Options and Costs<br />3<br />Concl...
There are several structural variations of RPS regulations.<br />Confidential and Proprietary, ©2010 Navigant Consulting, ...
Table of Contents<br />1<br />RPS Overview<br />RPS Gap Analysis<br />2<br />Strategic Options and Costs<br />3<br />Concl...
Available Wind Resources<br />Washington and Oregon have good wind resources and have already developed 43% and 45% of eco...
Remaining Wind Resources and RPS Requirements<br />The remaining economic wind potential in Washington and Oregon is likel...
Table of Contents<br />1<br />RPS Overview<br />RPS Gap Analysis<br />2<br />Strategic Options and Costs<br />3<br />Concl...
Basic RPS Compliance Options<br />Given the wind resource situation, utilities in Oregon and Washington have three basic R...
Higher quality resources could be imported from Montana or Wyoming, although this would include transmission costs.
This strategy could mean that better resources are developed at a lower cost per MWh, although it could result in excess p...
There are limitations on RECs for compliance in Oregon.
REC supply from the broader WECC region could be constrained, especially if California allows TREC trading.</li></ul>Rely ...
Structure of Analysis<br />Navigant’s analysis compares RPS compliance costs1 of a theoretical utility with a generation p...
We constructed three portfolios that envision different compliance scenarios:</li></ul>An Accelerated scenario that procur...
Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />Structure of Analysis » ...
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Wellington&amp;Cira Law Seminars Presentation 072610

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Wellington&amp;Cira Law Seminars Presentation 072610

  1. 1. Financial Impacts of Renewable Energy Policies in the Pacific Northwest<br />Fred Wellington and Mark Cira<br />Navigant Consulting, Inc.<br />Renewable Energy in the Pacific Northwest<br />Law Seminars International Conference<br />August 5, 2010<br />Navigant Consulting, Inc.<br />One Market Street, <br />Spear St. Tower, 12 Floor<br />San Francisco, CA 94114<br />415.356.7132<br />www.navigantconsulting.com<br />
  2. 2. Introduction » Navigant’s Clean Energy Service Offerings<br />Navigant Consulting has extraordinary depth of expertise in issues that are central to the future of Clean Energy.<br />Navigant Consulting Clean Energy Service Offerings<br />Clean Energy Policy & Regulation<br />Carbon market structure advisory; emissions analysis; policy integration<br />Greenhouse Gas Business Strategy<br />Carbon market risk & opportunities; policy & regulatory response; macroeconomic analysis; market impact; investment opportunity assessment<br />Strategy; policy and standards; marketing & implementation (e.g., DSM); regulatory analysis/support<br />Energy Efficiency<br />Renewable Strategy & Management<br />Strategy; RPS management; technology and market assessments: project/technology due diligence; investments/M&A advisory<br />Cleaner Electric Generation, Transmission, & Distribution<br />Performance optimization; portfolio management; project due diligence; Smart Grid strategies; process improvements<br />Cleaner NG Production, Transport, & Marketing<br />Market risks and assessments; transport strategies; process improvements; product optimization<br />Navigant Consulting named "Best Advisory – Renewable Energy" in the 9th and 10th Annual Environmental Finance and Carbon Finance Market Survey.<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  3. 3. Introduction<br />Presentation Overview<br />This presentation will:<br />Provide an overview of RPS regulations in Oregon and Washington.<br /><ul><li>Utilities in Washington and Oregon are required to supply 15% (by 2020) and 25% (by 2025) of their energy requirement with renewable resources, respectively. </li></ul>Assess available in-state wind resources to meet both native RPS requirements and exports to California.<br /><ul><li>Projected RPS requirements coupled with current and future exports to California can drain in-state wind resources needed to meet Pacific Northwest RPS requirements.</li></ul>Demonstrate how wind resource availability can impact RPS compliance strategies and costs.<br /><ul><li>Insufficient in-state wind resources can impact compliance costs (i.e. revenue requirement) and procurement strategies</li></ul>Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  4. 4. Table of Contents<br />1<br />RPS Overview<br />RPS Gap Analysis<br />2<br />Strategic Options and Costs<br />3<br />Conclusions<br />4<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  5. 5. There are several structural variations of RPS regulations.<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />RPS Overview<br />
  6. 6. Table of Contents<br />1<br />RPS Overview<br />RPS Gap Analysis<br />2<br />Strategic Options and Costs<br />3<br />Conclusions<br />4<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  7. 7. Available Wind Resources<br />Washington and Oregon have good wind resources and have already developed 43% and 45% of economic wind potential respectively.1<br />Installed and Remaining Wind Capacity1<br />Economic Wind Capacity by Class<br />Source: Western Governors Association and DOE “Western Renewable Energy Zones – Phase 1 Report.” June 2009<br />Source: Navigant Consulting, Inc. based on EIA data and Western Governors Association/DOE report “Western Renewable Energy Zones – Phase 1 Report.” June 2009<br />1 Includes exports to California<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  8. 8. Remaining Wind Resources and RPS Requirements<br />The remaining economic wind potential in Washington and Oregon is likely not enough to meet either state’s 2020 RPS requirements.<br />Available Wind Generation Capacity and 2020 RPS Targets<br />Source: Navigant Consulting, Inc. based on Renewable Northwest Project 2009 analysis http://www.rnp.org/ (accessed July 11,2010) and AWEA Data http://www.awea.org/projects/ accessed July 11, 2010. RPS Gap estimates assume an average 30% capacity factors for projects installed in 2009.<br />This apparent wind resource shortage can lead to utilities acquiring in-state wind resources more quickly or to utilize other renewable resources.<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  9. 9. Table of Contents<br />1<br />RPS Overview<br />RPS Gap Analysis<br />2<br />Strategic Options and Costs<br />3<br />Conclusions<br />4<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  10. 10. Basic RPS Compliance Options<br />Given the wind resource situation, utilities in Oregon and Washington have three basic RPS compliance options.<br />Option<br />Comments<br />Build / Buy Incrementally Using Either In-State or Out of State Resources<br /><ul><li>This strategy could mean that lower quality / higher cost resources would be used for compliance as some PNW wind resources are exported to CA.
  11. 11. Higher quality resources could be imported from Montana or Wyoming, although this would include transmission costs.
  12. 12. This strategy could mean that better resources are developed at a lower cost per MWh, although it could result in excess power over load, leading to higher overall costs in the near term. However it could result in lower costs over the longer term.</li></ul>Build / Buy Using In-State Resources In Advance of RPS Targets<br /><ul><li>Geothermal resources are relatively abundant in Oregon and biomass is relatively abundant in Washington.
  13. 13. There are limitations on RECs for compliance in Oregon.
  14. 14. REC supply from the broader WECC region could be constrained, especially if California allows TREC trading.</li></ul>Rely on Non Wind Resources or REC Imports from WECC<br />These options entail different costs. Navigant modeled potential revenue requirements of a hypothetical utility under three different scenarios that rely on wind resources.<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  15. 15. Structure of Analysis<br />Navigant’s analysis compares RPS compliance costs1 of a theoretical utility with a generation portfolio that differs by the average quality and location of the wind contribution in the energy mix over time.<br />Description of Theoretical Utilities in Analysis<br /><ul><li>Navigant Consulting constructed a theoretical generation portfolio of a utility with a peak load of 1,500 MW and annual energy requirements of approximately 7,200 MWh. We varied the fuel mix of the portfolios to isolate the impact that the quality and location of the wind resource has on revenue requirements over time.
  16. 16. We constructed three portfolios that envision different compliance scenarios:</li></ul>An Accelerated scenario that procures wind quickly, taking advantage of higher quality, Class 4 resources before they are depleted.<br />An Incrementalscenario that procures wind incrementally and therefore relies on lower quality resources.<br />An Importscenario that relies on imports from Montana (including transmission) due to unavailable in-state resources after 2015.<br />1 Includes a simplifying assumption that RPS requirements are met solely with wind resources<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  17. 17. Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />Structure of Analysis » Wind Build Out Scenario<br />The three scenarios vary by the quality of the wind resource, the timing of its procurement and its geographical location.<br />Assumed Annual Wind Capacity Additions Under Each Scenario<br />Earlier Class 4 capacity leads to lower future capacity needs<br />Delaying capacity additions means relying on Class 3 resources<br />Imports may not be available for 5-7 years<br />MWs<br />Import<br />Scenario1<br />Incremental<br />Scenario<br />Accelerated Scenario<br />1 Includes estimates of the cost of new transmission lines from Montana<br />
  18. 18. Analysis Results » Revenue Requirement Increases<br />Procuring higher quality wind earlier reduces costs over the long term…but at higher near-term costs – balancing the two is utility-specific.<br />Annual and Cumulative Percent Change in Revenue Requirement <br />Bars on Left Axis<br />Lines on Right Axis<br />Higher rates earlier lead to lower long term costs<br />Cumulative Percent Change<br />Annual Percent Change<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  19. 19. Table of Contents<br />1<br />RPS Overview<br />RPS Gap Analysis<br />2<br />Strategic Options and Costs<br />3<br />Conclusions<br />4<br />Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  20. 20. Conclusion » Potential Shareholder Risks<br />Imprudent decisions regarding renewable energy compliance can present shareholder or ratepayer risks for utilities.<br />Potential Shareholder Risk From Poor RPS Compliance Decisions<br /><ul><li>RPS compliance costs can increase revenue requirements over a BAU scenario – the degree to which is dependant on decision regarding the quality and location of resources in the energy mix.
  21. 21. Utilities that are aggressively procuring renewablesearly are less likely to see significant increases in revenue requirements later.
  22. 22. Public utility commissions and public power utility boards will increasingly scrutinize renewable energy procurement decisions to determine whether compliance strategies are conducted in a cost effective manner.
  23. 23. If utilities commissions decide that renewable energy compliance decisions are imprudent (i.e. not cost effective), this can lead to potential disallowance of cost recovery.
  24. 24. This can lead to financial risks insofar as shareholders (in the case of IOUs) are required to bear compliance costs and not ratepayers.
  25. 25. For POUs, this can impact credit quality insofar as rating agencies believe there is risk to cost recovery.</li></ul>Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  26. 26. Conclusion » Cost Effective RPS Compliance Decisions<br />This necessitates a more strategic view of renewable energy procurement – with a focus on cost effective compliance options.<br />Examples of Options to Increase Cost Effectiveness of RPS Compliance <br /><ul><li>Utilities will need increasingly require sophisticated decision-making tools to benchmark and justify the costs of their renewable energy strategies.
  27. 27. There is no uniform strategy to increase the cost effectiveness of RPS compliance. Although at a minimum this would likely include:
  28. 28. Viewing RPS compliance in a more holistic manner alongside energy efficiency, distributed generation and carbon reduction.
  29. 29. Closer assessments of buy versus build decisions, especially as rating agencies more closely scrutinize long-term liabilities of power purchase agreements.
  30. 30. More competitive procurements of renewable PPAs to drive down costs.
  31. 31. More sophisticated benchmarking of REC prices – either to ensure best available prices for REC-only contracts or in evaluating lower cost options between REC-only or direct renewable energy purchases.
  32. 32. Pursuing new business models associated with distributed (i.e. rooftop) solar photovoltaics.</li></ul>Confidential and Proprietary, ©2010 Navigant Consulting, Inc.<br />Do not distribute or copy<br />
  33. 33. Fred Wellington, CFA<br />Managing Consultant<br />San Francisco, CA 94105<br />phone: 415.356.7132<br />fred.wellington@navigantconsulting.com<br />Mark Cira<br />Senior Consultant<br />Chicago, IL 60606<br />phone: 312-583-2722 <br />mark.cira@navigantconsulting.com<br />Questions?<br />

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