Steve Remillard, Competitive Power Ventures, Inc. - Speaker at the marcus evans Generation Summit held in Dallas, TX, February 25-26, 2013, delivered his presentation entitled Striking the Balance between Policy and Development of New Generation in Today’s Market

1. Developing New Generation in Today’s Market
D l i N G i i T d ’ M k
“Opportunity and Challenges”
Marcus Evans 10th Annual Generation Summit
Presented by:
Steven Remillard
Vice President
Competitive Power Ventures
S I LV E R S P R I N G | BRAINTREE | SAN FRANCISCO | TORONTO

2. Overview
The Nation’s Energy Needs and Economic Recovery
Economic downturn has suppressed demand
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Historically, when economy rebounds, demand increases steeply
Current Market Conditions Creating Opportunity & Challenges
Opportunity Drivers
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• Current energy market dynamics
• Environmental policy impacts
• Reliability
• The next wave of generation
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The Challenges
• Regional market policies impeding
new generation
• Regulatory uncertainty & risks
• Long term revenue to support financing
• Financeability
www.cpv.com Clean Power – Energizing North America

3. Competitive Power Ventures (“CPV”)
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Background and Strategy
CPV is a leading North American electric power generation
development (renewable and natural gas‐fired) and asset
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management company headquartered in Silver Spring,
Maryland, with offices in Braintree, Massachusetts;
San Francisco, California; and Toronto, Canada
CPV has concentrated on a clean energy strategy utilizing
CPV has concentrated on a clean energy strategy utilizing
wind‐powered and high efficiency natural gas generation to
meet growing demand in high load areas
CPV is owned by: CPV management, Warburg Pincus and
several individual investors
Experience
CPV has significant power plant development, financing, construction,
and asset management experience.
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CPV and its team of professionals are established power plant developers and managers, with
experience in developing, acquiring, financing or selling more than 20,000 MW of power generation
assets.
Currently 85 employees led by 11 seasoned professionals with, on average, 20+ years of industry
experience
Transactional experience – acquired and monetized over $10 Billion in power generation assets
www.cpv.com Clean Power – Energizing North America

4. Status of North American Power Markets
Low Electric Demand
Load growth throughout the United States in
recent years has been anemic with
compounded annual growth rates less than
2%
Low demand drivers:
• Economic recession
• Energy efficiency programs
Some exceptions include:
• ERCOT with a compound annual
growth forecast of 2.32%
• MRO‐MAPP with a compounded
MRO MAPP with a compounded
annual growth of 2.09%
www.cpv.com Clean Power – Energizing North America

5. Status of North American Power and Energy Markets
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Low Natural Gas Prices & Abundant Supply
Increased economic pressure on older and less
efficient generation
• Shale gas reserves have been a game changer
• Natural gas generation now dispatched ahead of coal
generation
Price Stability ‐ Ab d
P i S bili Abundant supply has mitigated gas
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price volatility
Decreases in spot and forward natural gas prices in
combination with low demand for electricity have
caused energy margins to decrease for generators
d i t d f t
Natural gas provides a cost effective environmental
alternative to nation’s fleet of older, dirtier and less
efficient generation
• Evolving environmental regulations could result in
E l i i t l l ti ld lt i
50+ GW of coal generation retirements before 2020
with the largest potential share occurring in the SERC
and RFC regions of NERC
Source: The Brattle Group, “Potential Coal Plant Retirements: 2012
Update”, October 2012
www.cpv.com Clean Power – Energizing North America

6. Challenges Facing Coal & Older Less Efficient Generation
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Stricter Environmental Regulations
Evolving or approved environmental regulations
include:
• National Ambient Air Quality Standards
• Greenhouse Gas (“GHG”) Regulations‐ GHG Tailoring
Rule
• Cross‐State Air Pollution Rule (“CSAPR”) Mercury and
Air Toxics Standards (“MATS”)
• Section 316(b) ‐ Significant ramifications for existing
once‐through cooling as well as surface water intakes
• Coal Combustion Residuals (“CCR”)
DOE study released in November 2012 predicts
• New coal plant construction will effectively be put on
hold until 2040 due to evolving environmental
regulations and low natural gas prices
Economics
Increased environmental compliance cost coupled
with low natural gas prices will make older, less
with low natural gas prices will make older less
efficient coal facilities less competitive
Retirement
“….by 2030 about 90% of the lost coal‐fired
DOE studies indicate construction of coal plants will
not be cost effective until 2040 capacity would be replaced by natural gas..”
DOE
www.cpv.com Clean Power – Energizing North America

7. Challenges Facing Renewables Energy Projects
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Expiration of Production Tax Credits (“PTCs”)
The “Boom‐Bust” Cycle
• Renewable generation has experienced sharp declines
following the expiration of the PTC, the “Boom‐Bust”
cycle
PTC Extended 1 More Year
• Based on history, we can expect a significant decline in
Based on history, we can expect a significant decline in
renewable generation following the PTC expiration in
2013
Existing Renewable Generation is Exceeding
National Goals
Current renewable generation exceeds the nation’s
renewable generation targets
• Some states (IA, TX, WA and OR) are drivers in achieving
national targets
Saturation of Renewable Energy Credits (“RECs”) in
key markets are suppressing pricing and need for
RECs
Regulatory uncertainty due to changing RPS policy
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www.cpv.com Clean Power – Energizing North America

8. Challenges Facing New Nuclear Generation
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New Nuclear Generation Is Not Likely Option For the Future
Safety
• The Fukushima Daiichi nuclear power plant earthquake
The Fukushima Daiichi nuclear power plant earthquake
catastrophe in March 2011 has raised new questions about the
safety of nuclear power, especially in light of all the recent
natural disasters
Construction Cost Uncertainty
• Significant costs overruns for recent nuclear projects jeopardize
viability of developing future nuclear generation
‐ Cost overruns are largely driven the changing regulatory environment and long construction periods
• U.S. Energy Department loan guarantees for the construction of two nuclear reactors in Georgia still
require the approval of Congress the ability to finance future nuclear projects remains uncertain
require the approval of Congress – the ability to finance future nuclear projects remains uncertain
Environmental
• Long‐term storage of nuclear waste has proven politically difficult in some cases because of
environmental concerns as evidenced by the previous protracted discussions surrounding Yucca
Mountain
Safer, More Economical and Environmentally Responsive Alternatives Exist
• Natural gas generation is an environmental clean alternative and safer alternative
• Supplies of natural gas are abundant and prices are projected to remain low which make natural gas
generation very economical long‐term
• Natural gas generation provides more operational flexibility
N l i id i l fl ibili
• Natural gas generation construction costs are more certain and therefore more financeable
www.cpv.com Clean Power – Energizing North America

9. The Next Wave of New Generation
With the potential retirement of significant generation capacity, natural gas
generation is the logical replacement technology
Manageable development and construction periods (4‐5 years)
• New gas fired generation can be developed and constructed to replace the nation’s fleet
of old, dirty and uneconomic generation
Increasing combustion turbine efficiencies
i b i bi ffi i i
• Improved turbine efficiencies provide cleaner and more economical generation
Lower emissions (NOx and CO2)
Improved operational flexibility
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• Daily startup and cycling capabilities
• Faster startup times and ramp rates
• Improved turn down capabilities while
Improved turn‐down capabilities while
still maintaining emissions compliance
• Fuel flexibility
Higher availability and reliability
www.cpv.com Clean Power – Energizing North America

10. Issues Impeding the Next Wave of New Generation
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Capacity Market Structure – ISO‐NE, PJM, New York, ERCOT
Some type of revenue surety is needed to facilitate financing of new generation
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Constant changing rules capacity markets present challenges for new generation
• ISO‐NE – Recent FERC approval of major capacity market rule revisions and “pay for
performance” concept advanced by ISO NE
• PJM P
PJM – Proposed modifications to the Minimum Offer Price Rule (“MOPR”) are pending
d difi ti t th Mi i Off P i R l (“MOPR”) di
before FERC
• New York – Revised “In City Mitigation” rules coupled with reversal of previously granted
exemption for Astoria II
• ERCOT – Will a capacity market construct designed to resolve resource adequacy
CO ill i k d i d l d
concerns be enough to incent the new generation
State Procurement Processes Challenged at the Federal Level – MD and
NJ
States continue to explore the best way to address reliability concerns and overall
policy objectives (environmental and economic)
www.cpv.com Clean Power – Energizing North America

11. Financing Challenges in Today’s Market
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Traditional Financing Structures Are Being Challenged
Merchant financing is limited/rare in today s market
Merchant financing is limited/rare in today’s market
Capacity markets in most ISO markets are not forward looking
enough to incent development or of sufficient term to support financing
Some markets do not provide a forward looking capacity price indicator
Some markets do not provide a forward looking capacity price indicator – NY
Development of new generation is a multi‐year process
Capacity prices 6 or 12 months out are not enough of an indication of what capacity prices will be when new
generation enters the market
While other markets may provide a forward looking capacity price, the term may not be sufficient to
While other markets may provide a forward looking capacity price the term may not be sufficient to
support financing – PJM, ISO NE
While capacity prices 3 years forward is a helpful indicator for development, surety of 1 ‐ year term on revenue
of future prices to Development of new generation is a multi‐year process
Regulatory “Out” Risk
Allocation of regulatory uncertainties to new generation will continue to impede
development/construction
www.cpv.com Clean Power – Energizing North America

12. Balancing the Issues
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Energy Market Dynamics Indicate a Need for New Generation
Shrinking generation supply due to retirements resulting from
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economic and environmental pressure
Reserve Margins will be eroded without replacement generation
Reliability will become an increasingly more significant factor
Wildcard: What if there is an economic recovery?
How Will We Develop and Build New Generation?
Current energy markets present significant barriers for developers
• Market signals are not aligned with capital markets
• Current prices do not support new build without a long term contract suitable for financing
Need long‐term financial arrangements to facilitate financing of new generation
• State sponsored contracts
State sponsored contracts
State Sponsored Contracts, Existing Generators and Market Design
State sponsored contracting to facilitate new builds impacts on the existing markets
• Capacity prices reduce
Capacity prices reduce
– “‐” Impacts existing generators
www.cpv.com Clean Power – Energizing North America

13. Looking Forward
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What do we do?
Continue on the Current Path – Status Quo
Supply continues to shrink without
Supply continues to shrink without
replacement generation
• Result: Jeopardize reliability
Continue to dis‐incent long‐term contracts
• Result: No financing – No new builds
Shrinking reserve margins, minimal forward looking price signals and lack of long‐term stable revenue surety
• Result: No new builds – What if there is an economic recovery?
Or,
Or
Market Adaptations
Alignment of energy and capital markets
Bifurcated Capacity Markets
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A Role for States in Getting New Generation Built
Maryland, New Jersey, Connecticut and New York have all stepped in to encourage new generation
procurement where the markets have failed.
How will ISOs/FERC stymie or encourage further state involvement?
www.cpv.com Clean Power – Energizing North America

14. To Continue the Discussion:
Steve Remillard
Steve Remillard
Vice President
Competitive Power Ventures
50 Braintree Hill Office Park,
Suite 300
Braintree, MA 02184
Braintree, MA 02184
781‐848‐0253
sremillard@cpv.com
www.cpv.com Clean Power – Energizing North America