Steve Corneli, NRG Energy, Inc. - Speaker at the marcus evans Generation Summit 2012 held in San Antonio, TX, delivered his presentation entitled Clean Energy Trends – Costs, Policies and Initiatives

1. Power Sector Trends
Clean Energy:
Policy-Driven
or
Policy Driver?
Steve Corneli
Senior Vice President
Sustainability, Policy & Strategy

2. Key factors driving change
"You've got to be very careful if you don't know where you're going,
because you might not get there.“ Y. Berra
 Cheap shale gas and highly efficient, flexible new combined cycle units
 Dramatic ongoing reductions in renewable energy costs
 Economic pressure on older fossil coal plants
 Increasing consumer value propositions in distributed energy services
o Demand response, efficiency & energy management
o Electric vehicle charging
o Distributed generation
 Continued policy confusion, conflict and uncertainty
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3. Implication # 1: Regulated Rates Will Continue to Increase
Average US utility retail rates have
increased – even as gas and
wholesale power prices have declined
EIA Average US Utility Cost Deltas
2005 -2010
Key drivers include cost of fuel, customer service, A&G,
maintenance, and depreciation. The only significant
reduction has been in purchased power.
Future additions of gas fired power plants, scrubbers,
mandated renewables, transmission and smart grid
investments will tend to increase these drivers; gas price
recovery will increase the cost of purchased power.
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4. Implication # 2: Market prices will trend up, but should
remain highly competitive relative to “all in” retail rates
Chart Source: FERC market oversight
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5. Implication #3 : Retail choice(s) will be increasingly
favored
Market prices track marginal MW
cost, regulated rates track Generation
average cost.
Load
When marginal cost is less than
average cost, consumers can
save money by shifting from
regulated to market-based
pricing.
Historical swings have been 0 1 2 3 4 time
driven by both supply and
demand (overbuild and tight
reserve margins) and by Price
Average cost
technology changes (turbine v. (rates)
boiler technology).
This time, gas supply technology
and demand side technologies Marginal cost
(market)
will also play major roles.
Will distributed resources
dampen cycle in the future?
0 1 2 3 4
time
dereg reg dereg reg
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6. Declining renewable energy costs -- a game changer
• Historical data show exponential
reductions in solar module cost (e.g.
„Moore‟s law‟)
• Module prices in 2012 are already
lower than projected 2020 levels
• Balance of system costs now comprise
more than half of solar costs
Source: Ramez Naam, Scientific American Guest Blog
• Continued innovation and competition
are also reducing BOS costs
• Combining panel and BOS trends
points to solar being highly competitive
with both retail and on-peak wholesale
power in many markets
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7. Impacts will vary by state and utility rate levels
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8. Summary
 Due to increasing utility cost structures and competing technologies that
offer consumers savings customers are poised to demand more
competitive choices -- from increased retail choice of electric supplier to
smart energy services, EV charging and distributed generation
 These trends will show up first in states with high electric rate levels, but
some (and perhaps many) will have broad customer appeal
 They offer great potential to create value by meeting customer‟s desire to
control their energy costs and, increasingly, its supply
 But they also have the potential to fundamentally change competitive
power markets, the distribution system, and the way utilities are regulated
 These changes will be smoother if they build on the successes and lessons
learned since the last wave of regulatory reforms in the power sector
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9. How does the industry get there?
 Tell customer “yes” v. Tell customer “no”
 Embrace competition v. Fight competition
 Emulate retail success (TX) v. Replicate retail failure (CA crisis)
 Phase in distributed resources v. Wait until fully competitive to start
 Incent distribution investment v. Dissuade distribution investment
 Allocate distribution costs by v. Allocate distribution costs just to
broad benefits of clean tech early adopters
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10. Implications for generation
Resource Economics Ownership Models
Gas Cheap & Easy… until demand and Merchant / PPA /
carbon catch up Ratebase / ”Hybrid”
Coal Not while gas is cheap .. and getting ??
harder all the time (without CC / EOR )
Nuclear Not cheap and not easy .. But likely Ratebase / multi-owner-
essential from a carbon perspective project finance – PPA
Solar Getting cheaper fast, easy, good peak PPA / customer owned /
coincidence, likely essential leased
Wind Getter cheaper, easy, but blows at night PPA / Ratebase /
Merchant
Storage Easy, needs to get cheaper, likely ??
essential with wind
More competitive models will best achieve
innovation and customer needs
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