Our Managing Partner Murray Clay was a featured keynote at the 2015 Asia Pacific Resilience Innovation Summits & Expo where he discussed the importance of an in-depth discussion on electric utility fuel costs.

1. Utility Fuel Costs:
Volatility & Risk
Asia Pacific Resilience Innovation
Summits & Expo
August 24, 2015

2. Why Focus on Electric Utility Fuel Costs?
• Fuel
costs
dwarf
/ixed
costs
• Fuel
costs
are
the
source
of
most
of
the
risk
• To
date
the
discussion
of
risk
has
not
been
adequate
– Single
price
forecast
line
– High,
expected,
and
low
price
forecast
– Such
forecasts
cannot
capture
the
true
variability
in
future
fuel
prices

3. Typical Fuel Price Forecast
0.00
5.00
10.00
15.00
20.00
25.00
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Fuel
Oil
&
Natural
Gas
Forecast
Energy
Informa8on
Administra8on
-­‐
2015
Annual
Energy
Outlook
Residual
Fuel
Oil
Natural
Gas

4. EIA Year 2000 Annual Energy Outlook
Here’sWhatWas Forecasted ...
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
$/
Barrel
2010
Dollars
Oil
Prices
-­‐
EIA
2000
Annual
Energy
Outlook
LOW
Oil
Price
REF
Oil
Price
HIGH
Oil
Price

5. . . . And This is What We Actually Got:
Prices That Peaked at 3.8 x EIA’s “High” Forecast
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
$/
Barrel
2010
Dollars
Oil
Prices
-­‐
EIA
2000
AEO
vs
Actual
LOW
Oil
Price
REF
Oil
Price
HIGH
Oil
Price
Hawaii
Fuel
Oil

6. • Complete
view
of
volatility
and
risk
• Generates
many
possible
price
paths
• Based
on
historical
data
• Veri/ied
by
others
• Easily
updated
• Uses
generic
software
• Used
broadly
Used
by
uFliFes
&
energy
planning
orgs
(e.g.,
Northwest
Power
&
ConservaFon
Council;
Federal
Govt.,
e.g.,
DOE/NETL
and
EPA;
and
Fortune
500
companies)
Monte Carlo 101

7. Monte Carlo to Explore Fuel Cost Risk
Assumptions & Data

8. Monte Carlo to Explore Fuel Cost Risk
Assumptions & Data
Compare
fuel
cost
risks
across
portfolios

9. Monte Carlo to Explore Fuel Cost Risk
Assumptions & Data
Compare
fuel
cost
risks
across
portfolios
5-­‐year
status
quo;
25-­‐year
future
portfolio

10. Monte Carlo to Explore Fuel Cost Risk
Assumptions & Data
Compare
fuel
cost
risks
across
portfolios
5-­‐year
status
quo;
25-­‐year
future
portfolio
Fossil
fuel
plus
levelized
cost
of
combined
cycle
gas
plants

11. Monte Carlo to Explore Fuel Cost Risk
Assumptions & Data
Compare
fuel
cost
risks
across
portfolios
5-­‐year
status
quo;
25-­‐year
future
portfolio
Fossil
fuel
plus
levelized
cost
of
combined
cycle
gas
plants
Renewable
PPA
prices
include
/ixed
asset
costs

12. Monte Carlo to Explore Fuel Cost Risk
Assumptions & Data
Compare
fuel
cost
risks
across
portfolios
5-­‐year
status
quo;
25-­‐year
future
portfolio
Fossil
fuel
plus
levelized
cost
of
combined
cycle
gas
plants
Oil/diesel
blend
(75%
LFSO/
25%
ULSD)
and
natural
gas
• Power
consumption
/ixed
at
2014
level
• Renewable
portfolio
de/ined
with
fossil
fuels
/illing
the
balance
• Data
sources:
Renewable
PPA
prices
include
/ixed
asset
costs

13. What’s Not Included and Caveats

14. What’s Not Included and Caveats
Costs
for
natural
gas
infrastructure

15. What’s Not Included and Caveats
Costs
for
natural
gas
infrastructure
Grid
upgrades

16. What’s Not Included and Caveats
Costs
for
natural
gas
infrastructure
Grid
upgrades
O&M
costs
for
fossil
fuel
plants

17. What’s Not Included and Caveats
Costs
for
natural
gas
infrastructure
Grid
upgrades
O&M
costs
for
fossil
fuel
plants
Emissions
costs

18. What’s Not Included and Caveats
• This
analysis
demonstrates
principles
in
planning
for
and
evaluating
risk
of
volatile
fuel
prices
—
does
not
provide
an
exact
answer
• The
accuracy
of
the
results
depends
upon
the
accuracy
of
the
assumptions
Costs
for
natural
gas
infrastructure
Grid
upgrades
O&M
costs
for
fossil
fuel
plants
Emissions
costs
Lower
costs
of
renewables

19. The Size of the Prize or . . .
The Scale of the Catastrophe
Key:
SQ
=
Status
Quo,
RE
=
Renewable
Energy,
HH
=
Henry
Hub
+
$10/mmBTU,
Oil
linked
=
15%
Discount
to
(LSFO
75%
ULSD
25%)
Blend
• Monte
Carlo:
80%
chance
of
total
fuel
costs
over
30
years
of:
Ø $42
-­‐
$201
billion
total
value
Ø $17
-­‐
$55
billion
PV
(8%
discount
rate)
$-­‐
$20.0
B
$40.0
B
$60.0
B
$80.0
B
$100.0
B
$120.0
B
1%
5%
10%
20%
30%
40%
50%
60%
70%
80%
90%
95%
99%
Status
Quo
Total
Fuel
Cost
SQ-­‐Total
Cost
PV
SQ-­‐Total
Cost
SQ-­‐Total
Cost
PV
1%
$
27.1
B
$
12.2
B
5%
$
35.5
B
$
14.9
B
10%
$
41.6
B
$
16.9
B
20%
$
51.9
B
$
20.0
B
30%
$
61.5
B
$
22.6
B
40%
$
72.1
B
$
25.5
B
50%
$
83.3
B
$
28.4
B
60%
$
97.5
B
$
32.2
B
70%
$
116.9
B
$
36.7
B
80%
$
144.9
B
$
43.3
B
90%
$
201.3
B
$
55.5
B
95%
$
261.2
B
$
68.2
B
99%
$
444.4
B
$
105.1
B

20. Why Natural Gas?
Henry
Hub
LNG
Oil/Diesel

21. Why Natural Gas?
Key:
SQ
=
Status
Quo,
RE
=
Renewable
Energy,
HH
=
Henry
Hub
+
$10/mmBTU,
Oil
linked
=
15%
Discount
to
(LSFO
75%
ULSD
25%)
Blend
• Savings:
$0
-­‐
$31.7
billion
PV
if
90%
of
fossil
fuel
generation
replaced
by
natural
gas
at
Henry
Hub
+
$10/mmBTU
• Status
quo
(oil/diesel
blend):
Less
than
10%
chance
would
be
cheaper
$(80.0
B)
$(70.0
B)
$(60.0
B)
$(50.0
B)
$(40.0
B)
$(30.0
B)
$(20.0
B)
$(10.0
B)
$-­‐
$10.0
B
$20.0
B
1%
5%
10%
20%
30%
40%
50%
60%
70%
80%
90%
95%
99%
Difference:
SQ
RE
w/
HH
linked
Gas
vs.
SQ
SQ
RE-­‐HH
Gas
Minus
SQ-­‐Total
Cost
PV
SQ
RE-­‐HH
Gas
Minus
SQ-­‐Total
Cost
SQ
RE-­‐HH
Gas
Minus
SQ-­‐Total
Cost
PV
1%
$
(354.4
B)
$
(74.8
B)
5%
$
(191.5
B)
$
(42.6
B)
10%
$
(139.1
B)
$
(31.7
B)
20%
$
(89.9
B)
$
(21.3
B)
30%
$
(65.0
B)
$
(16.0
B)
40%
$
(48.4
B)
$
(12.2
B)
50%
$
(36.3
B)
$
(9.3
B)
60%
$
(26.3
B)
$
(6.8
B)
70%
$
(16.9
B)
$
(4.6
B)
80%
$
(8.7
B)
$
(2.4
B)
90%
$
0.3
B
$
0.0
B
95%
$
7.2
B
$
2.0
B
99%
$
52.3
B
$
13.6
B

22. • “HH
LNG
vs
Oil-­‐Indexed
LNG-­‐Total
Fuel
Expense
Monte
Carlo”
video
to
be
inserted
here
Which Natural Gas?
Henry Hub or Oil Linked?
Henry
Hub
LNG
Oil/Diesel-­‐Indexed
LNG

23. Which Natural Gas?
Henry Hub or Oil Linked?
Key:
SQ
=
Status
Quo,
RE
=
Renewable
Energy,
HH
=
Henry
Hub
+
$10/mmBTU,
Oil
linked
=
15%
Discount
to
(LSFO
75%
ULSD
25%)
Blend
• Cheaper
compared
to
what?
• Status
quo
>
Natural
Gas
(Lixed
discount)
>
Henry
Hub
linked
gas
• What’s
more
important:
beating
the
status
quo
or
total
cost?
$(50.0
B)
$(40.0
B)
$(30.0
B)
$(20.0
B)
$(10.0
B)
$-­‐
$10.0
B
$20.0
B
$30.0
B
1%
5%
10%
20%
30%
40%
50%
60%
70%
80%
90%
95%
99%
Difference:
SQ
RE
w/
HH
linked
Gas
vs.
Oil
linked
Gas
SQ
RE-­‐HH
Gas
Minus
Oil
Indexed
Gas-­‐Total
Cost
PV
SQ
RE-­‐HH
Gas
Minus
Oil
Indexed
Gas-­‐Total
Cost
SQ
RE-­‐HH
Gas
Minus
Oil
Indexed
Gas-­‐Total
Cost
PV
1%
$
(192.0
B)
$
(40.0
B)
5%
$
(103.9
B)
$
(22.6
B)
10%
$
(72.7
B)
$
(16.4
B)
20%
$
(45.9
B)
$
(10.8
B)
30%
$
(32.5
B)
$
(7.8
B)
40%
$
(23.5
B)
$
(5.7
B)
50%
$
(16.8
B)
$
(4.1
B)
60%
$
(10.8
B)
$
(2.6
B)
70%
$
(5.8
B)
$
(1.4
B)
80%
$
(1.1
B)
$
(0.2
B)
90%
$
4.1
B
$
1.3
B
95%
$
9.1
B
$
2.8
B
99%
$
92.2
B
$
21.6
B

24. Status Quo Renewables Plus Gas or . . .
High Renewables Plus Gas for the Balance?
• High
Renewables:
costs
$0.5
B
for
protection
against
$8.3
B
catastrophe
• Oil-­‐linked
gas:
pays
ratepayers
$0.9
B
for
protection
against
$15.7
B
catastrophe
Key:
SQ
=
Status
Quo,
RE
=
Renewable
Energy,
HH
=
Henry
Hub
+
$10/mmBTU,
Oil
linked
=
15%
Discount
to
(LSFO
75%
ULSD
25%)
Blend
$(5.0
B)
$-­‐
$5.0
B
$10.0
B
$15.0
B
$20.0
B
1%
5%
10%
20%
30%
40%
50%
60%
70%
80%
90%
95%
99%
SQ
RE
with
High
Gas
Minus
High
RE
with
Low
Gas
Total
Cost
PV
SQ
RE-­‐HH
Gas
Minus
High
RE-­‐HH
Gas-­‐Total
Cost
PV
SQ
RE-­‐Oil
Indexed
Gas
Minus
High
RE-­‐Oil
Indexed
Gas-­‐Total
Cost
PV
SQ
RE-­‐HH
Gas
Minus
High
RE-­‐HH
Gas-­‐Total
Cost
PV
SQ
RE-­‐Oil
Indexed
Gas
Minus
High
RE-­‐Oil
Indexed
Gas-­‐Total
Cost
PV
1%
$
(1.2
B)
$
(1.8
B)
5%
$
(1.1
B)
$
(1.4
B)
10%
$
(1.0
B)
$
(1.1
B)
20%
$
(0.9
B)
$
(0.6
B)
30%
$
(0.8
B)
$
(0.1
B)
40%
$
(0.6
B)
$
0.4
B
50%
$
(0.5
B)
$
0.9
B
60%
$
(0.3
B)
$
1.6
B
70%
$
(0.1
B)
$
2.4
B
80%
$
0.3
B
$
3.7
B
90%
$
1.1
B
$
5.9
B
95%
$
2.3
B
$
8.3
B
99%
$
8.3
B
$
15.7
B

25. • “High
RE
w
LNG
vs
SQ
RE
w
LNG-­‐Total
Fuel
Expense
Monte
Carlo”
video
to
be
inserted
here
What’s the Tipping Point for RE Prices to
Provide “Free” Insurance?
High
Renewable
Energy
w/LNG
Status
Quo
Renewable
Energy
w/LNG

26. • Renewables
with
HH
gas:
nearly
free
insurance
against
$8.1
billion
catastrophe
• Oil-­‐linked
gas:
rate-­‐payers
“paid”
$1.4
billion
against
a
$15.5
billion
catastrophe
Key:
SQ
=
Status
Quo,
RE
=
Renewable
Energy,
HH
=
Henry
Hub
+
$10/mmBTU,
Oil
linked
=
15%
Discount
to
(LSFO
75%
ULSD
25%)
Blend
$(5.0
B)
$-­‐
$5.0
B
$10.0
B
$15.0
B
$20.0
B
1%
5%
10%
20%
30%
40%
50%
60%
70%
80%
90%
95%
99%
SQ
RE
with
High
Gas
Minus
High
RE
($0.14/KWh)
with
Low
Gas-­‐Total
Cost
PV
SQ
RE-­‐HH
Gas
Minus
High
RE
($0.14/KWh)-­‐HH
Gas-­‐Total
Cost
PV
SQ
RE-­‐Oil
Indexed
Gas
Minus
High
RE
($0.14/KWh)-­‐Oil
Indexed
Gas-­‐Total
Cost
PV
SQ
RE-­‐HH
Gas
Minus
High
RE
($0.14/KWh)-­‐HH
Gas-­‐Total
Cost
PV
SQ
RE-­‐Oil
Indexed
Gas
Minus
High
RE
($0.14/KWh)-­‐Oil
Indexed
Gas-­‐Total
Cost
PV
1%
$
(0.7
B)
$
(1.3
B)
5%
$
(0.6
B)
$
(0.9
B)
10%
$
(0.5
B)
$
(0.6
B)
20%
$
(0.4
B)
$
(0.1
B)
30%
$
(0.3
B)
$
0.4
B
40%
$
(0.2
B)
$
0.9
B
50%
$
(0.0
B)
$
1.4
B
60%
$
0.1
B
$
2.0
B
70%
$
0.4
B
$
2.9
B
80%
$
0.7
B
$
4.2
B
90%
$
1.5
B
$
6.4
B
95%
$
2.7
B
$
8.9
B
99%
$
8.1
B
$
15.5
B
What’s the Tipping Point for RE Prices to
Provide “Free” Insurance?

27. Fuel Choices and Risk: Bottom Line

28. Fuel Choices and Risk: Bottom Line
Costs
passed
on
to
ratepayers

29. Fuel Choices and Risk: Bottom Line
Costs
passed
on
to
ratepayers
LNG
can
save
ratepayers
billions

30. Fuel Choices and Risk: Bottom Line
Costs
passed
on
to
ratepayers
LNG
can
save
ratepayers
billions
May
be
locked
in
for
30+
years

31. Fuel Choices and Risk: Bottom Line
Costs
passed
on
to
ratepayers
LNG
can
save
ratepayers
billions
May
be
locked
in
for
30+
years
RE
can
provide
“free
insurance”
and
protect
ratepayers
The
answer
seems
clear:
• Maximize
low-­‐cost
renewables
and
consider
natural
gas
for
the
balance
• Do
not
simply
replace
all
oil
capacity
with
gas