The U.S. electric generating fleet has been undergoing major transformations driven by regulatory policy, generation costs, renewables, technology developments, and customer expectations. Because of this transition, traditional planning and operating processes have all been shaken up, and require generation companies to think and act differently. Here we will survey the current landscape of electric generation, and examine how these key transformations are forcing changes. This presentation, provided at the EUCI Negotiation and Purchasing Strategies for Gas-Fired Power Generation Equipment Conference, reviews the energy sector, baseload retirements, and the ‘new normal' for baseload generation in the U.S. For more information, please visit www.scottmadden.com.

1. Copyright © 2017 by ScottMadden, Inc. All rights reserved.Copyright © 2017 ScottMadden, Inc. All rights reserved.
The Energy Generation Market – It’s
the End of the World as We Know It
(And I Feel Fine)
Todd Williams, ScottMadden
Presentation to EUCI
September 2017

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Agenda
￭Energy Sector – The View from Wall Street
￭Stressing the System – Baseload Retirements
￭The New Normal – Renewables and Gas
￭Summary
￭Questions
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Energy Sector: The View from Wall Street
Companies seek to put capital to work with a focus on improving earnings in a
challenging environment. Each sector is positioned differently, but there are common
themes.
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Cross-cutting Themes
￭ Increasing capital
spending and
allocating capital
between projects and
sectors
￭ Making strategic
moves and pursuing
opportunities for
growth
￭ Cutting costs and
raising cash
￭ Preparing for rate
cases and regulatory
activity
Sector Investment Themes

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Stressing the System: Baseload Retirements Accelerate
Creative Destruction – A Sign Markets are Working or Road to Ruin?
￭ Who decides whether to add or subtract generation? How?
￭ Open to debate: What, if anything, needs to be done?
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Energy Markets “Under Pressure”

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Stressing the System: Baseload Retirements Accelerate
(Cont’d)
￭ The average size of retired
plants has been increasing, with
retired coal plants more than
tripling since 2000, while the
average size of retired gas
steam turbine plants has doubled
￭ The average age of baseload
units at retirement has increased
gradually since 1990
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Average Size of Retired Generating Unit by Technology Type Average Age of Retired Generating Unit by
Technology Type (in Years)

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Baseload
63%
Mid-Merit /
Peaking
37%
Stressing the System: Baseload Retirements Accelerate
(Cont’d)
￭ Current operating baseload capacity is approximately 63% of total operating capacity
￭ Close to a third of current operating baseload capacity is over the age of 40
￭ Close to 10% of current operating baseload capacity is over the age of 50
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0
20
40
60
80
100
120
140
160
180
200
0 - 10 11 - 20 21 - 30 31 - 40 41 - 50 > 50
OperatingCapacity(GW)
Age in Years
Current Operating Capacity (GW) Age of Current Operating Baseload Capacity
415 GW
706 GW
85 GW
164 GW
67 GW
152 GW
172 GW
65 GW

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Stressing the System: Baseload Retirements Accelerate
(Cont’d)
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Coal Gas – Combined Cycle Gas – Steam Turbine Nuclear
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
-30
-20
-10
0
10
20
30
40
50
GWs
Net Baseload Additions

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The New Normal: Gas and Renewables
What does the future look like?
￭ Coal replaced with natural gas, growth in renewables, and new technologies (storage,
distributed generation, etc.)
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Source: EIA, Annual Energy Outlook 2017, Reference Case, Released 01/17
Coal
Combined
Cycle
Renewable
Sources

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The New Normal: Turbine Sales Return to Historical Levels
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Annual averages
2006-2016 69 109
1970-1997 61 106
# MW

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The New Normal: Turbine Sales Return to Historical Levels
(Cont’d)
￭ Heavy-duty turbine sales outpaced
aeroderivative turbine sales in each of the
past three years
￭ General Electric sold the most total
turbines over the past three years.
However, Siemens had the most heavy-
duty turbine sales
￭ Mitsubishi turbines had the largest
average operating capacity in 2014 and
2016
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0
10
20
30
40
50
60
2014 2015 2016
NumberofTurbines
Aeroderivative Heavy Duty Industrial Other
Turbine Sales by Type
Turbine Sales by Manufacturer Turbine Sales by Average Size

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The New Normal: Renewables Are Continuing to Expand
￭ Operating capacity from utility scale renewables will increase approximately 60% by 2027
based on projects currently under development or construction
￭ An additional 71,000 MW of operating capacity from utility scale renewables has been
announced, but development has not begun
￭ Distributed energy resources (e.g., rooftop solar) are not included in the above chart
Changing Generation Landscape
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0 20,000 40,000 60,000 80,000 100,000 120,000
Geothermal
Solar
Water
Wind
Other
OperatingCapacity(MW)
Planned Capacity Current Capacity

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The New Normal: Wind Power Generation
￭ Gangbusters growth – 25,819 MW of wind capacity under construction or in advanced
development as of the end of the second quarter of 2017, a 41% year-over-year increase
￭ 28% of the installed capacity for the year is contracted to corporate and other non-utility
purchasers
￭ Production tax credit boom bust – phase down from 2017-2019
Changing Generation Landscape
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0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
AnnualCapacityInstalled(MW)
U.S. Annual and Cumulative Wind Power Capacity Growth
Annual Capacity Installations (MW) Cumulative Capacity (MW)
Source: American Wind Energy Association, Second Quarter 2017 Market Report
CumulativeCapacity(MW)

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The New Normal: Solar Power Generation
￭ On December 18, 2015, the U.S. congress extended the 30% Investment Tax Credit (ITC)
for solar through 2021
• +25 GW of extra solar capacity (2016-2020) and $40 billion in incremental investment
￭ Solar prices will likely continue to decline although at a slower rate
Changing Generation Landscape
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Source: GTM Research, US Solar Market Insight Report 2Q 2017
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Capacity(MW-dc)
U.S. Annual PV Deployments – Historic and Forecasted
Residential Non-Residential Utility Without ITC Credit

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Summary
￭ Generation development – “not dead yet”
• Focus on gas, wind, and solar, “the new normal”…until it isn’t
• Gas continues to replace coal
• Despite a political “all of the above” political strategy
￭ Gas prices continue to stay low – even with exports
￭ Wholesale markets – zero or near-zero marginal costs continue to hammer coal and
nuclear
• State and market issue in valuing capacity
• States losing jobs, markets losing diversity
￭ Load growth approaching zero (aggregate)
• Peakier peaks
• How will it impact generation installation decisions?
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Summary (Cont’d)
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Increasing change and complexity HighLow
Traditional Vertically
Integrated Utility
n Continued focus on central
station generation, long-haul
transmission
n Technology initiatives focus
on improving the existing
integrated system
n May see reduced loads due
to energy efficiency and
distributed resources, but
customers do not secede
n Utilities driving the
“discussion”
Think Global, Act Global
(Controlled centrally,
one integrated system)
Disaggregated
Supply and Demand
n High penetration of DG
(combined heat & power and
renewables)
n Emergence and increased
penetration of microgrids
n Others driving the
“discussion”
Think Local, Act Local
(Control is dispersed,
many systems loosely
tied)
Think Global, Act Local
Managed Network
n High penetration of DG
(combined heat & power and
renewables)
n Emergence and increased
penetration of microgrids
n Initiatives focus on
integrating new grid
components
n Utilities orchestrating the
“discussion”
(A Centrally
Orchestrated Network)
The traditional utility business model must evolve.

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Summary (Cont’d)
Recommendations
￭ Plan Strategically
￭ Use Real Options
￭ Collaborate
￭ Don’t Forget the Basics
￭ Advocate
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Todd Williams
Partner
ScottMadden, Inc.
3495 Piedmont Road
Building 10, Suite 805
Atlanta, GA 30305
toddwilliams@scottmadden.com
O: 404-814-0020
Contact Us
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