Energy Costs for Water Suppliers: Prospects and Options

Transcription

1 Energy Costs for Water Suppliers: Prospects and Options Bill Kemp Vice President, Business Strategy & Planning Services AMWA Annual Meeting October 20, 2008 BUILDING A WORLD OF DIFFERENCE Agenda Energy Costs in Water O&M Carbon Legislation Implications Outlook for Power and Gas Prices Energy Cost Management Strategies -2- Oct

2 Energy Costs: Major Cost for Water Suppliers Second only to labor in operating costs Typically accounts for 10-15% of operating costs Pumps Treatment processes Vehicle fleet, facilities Rising faster than other operating costs Complexity of electric rates complicates management Usage characteristics / tariff classification Multiple rate components (fuel clauses, trackers, etc.) Energy cost volatility and budget variances Impingement on short term operating budgets -3- Oct-2008 Top Overall Electric Utility Concerns - Trends Environmental issues now at top of mind Reliability, aging workforce, and aging infrastructure close behind -4- Oct

3 Carbon Emissions Legislation: Biggest Environmental Worry Environmental Issues of Most Concern for Electric IOUs Average Rating Carbon emissions legislation NOx SO2 Mercury Water Supply Nuclear fuel disposal/storage Coal transportation Particulates Water effluent Site remediation Coal production % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of IOU Respondents 1 Least Concern Most Concern Carbon issues even more dominant Water supply fading in importance as droughts ease -5- Oct-2008 BUILDING A WORLD OF DIFFERENCE Agenda Energy Costs in Water O&M Carbon Legislation Implications Outlook for Power and Gas Prices Energy Cost Management Strategies -6- Oct

4 GHG Caps Will Drive Marginal Abatement Costs 2008 Level Cap trajectories vary widely B-L-W calls for a ~30% total reduction from 2006 levels by 2030 Rapid near-term GHG reduction could balloon carbon price Recession could defer effects of legislation -7- Oct-2008 Regional GHG Initiatives Midwest GHG Reduction Accord multi-sector reduction target 60%- 80% below current levels Western Regional Climate Action Initiative economy-wide reductions 15% below 2005 levels by 2020 Regional GHG Initiative caps power plant emissions in 2009, 10% reduction Western Climate Initiative Midwestern Greenhouse Gas Reduction Accord RGGI Western Climate Initiative - Observer Midwestern Greenhouse Gas Reduction Accord - Observer Near term regional impacts RGGI - Observer -8- Oct

5 Shifting Resource Economics with Carbon Constraints Levelized Cost of Energy, $/MWh (2010) Carbon Price, $/ton CO2 Source: B&V analyses IGCC Gas CC, $10/MBtu IGCC w/ CO2 Capt. Gas CC, $7.75/MBtu Coal Biomass Wind (Gas-Firmed) Nuclear Wind (Energy Only) Geothermal Renewables and nuclear become more attractive Lower cost options likely not sufficient to meet caps -9- Oct-2008 Generation Build: Shift to Renewables + Gas Hydro Geothermal $0.4B $0.04B Billion $ US Capital Additions Solar $1.2B Biomass $3.2B (90% biofuels) Other $7.6B Natural Gas $6.1B Wind $4.4B Coal $1.5B Renewables: $9.2 Billion Fossil: $7.6 Billion Growing momentum; extended tax breaks Source: B&V Analysis -10- Oct

6 Carbon Capture: Costly Control Option Change From Adding CCS To New Base Plant of Stated Type Capital Cost Net Energy Efficiency (mmbtu per busbar MWh) Levelized Cost ($ per busbar MWh) (1) Supercritical Pulverized Coal 44% 50% 47% IGCC 22% (2) 20% 22% (2) Gas CCCT 98% 15% 53% (1) Does not include transportation and sequestration costs of $6-10/ton CO 2. Highly site-specific. (2) Does not include 33% capital cost premium for base IGCC plant over PC. Notes More processes and equipment. Energy used in capturing carbon. Higher costs, lower net output. [$1/ton CO 2 = ~$1/MWH for coal] Huge increase in fuel costs for PC. 30% parasitic load means ~3:2 ratio of gross to net output. Incremental cost for CCS lower for IGCC, but base plant more costly Capital cost of CCCT roughly doubles. Marginal cost of CO 2 abatement (PC retrofit) in $70-80/ton range by ~ Oct-2008 Electric Rate and Economic Impacts Rate increases from CO 2 abatement dependent on generation mix and market structure. Will vary by company and region. States/regions with more carbon-intensive baselines may ironically have lower costs of abatement. More allowances, cheaper reductions. Percentage market price increases bigger in coal-dominant regions, but gas increasingly on margin (price setter). Increases in total electric rates due to CO 2 abatement likely to be at least 40-60%. Spread over number of years. Long-term demand response to higher prices could be substantial; tailing off of load growth. Gentle near-term cap trajectory needed to avoid economic dislocations from blow up in carbon price. Environmental regulations driving cost increases; sound familiar? -12- Oct

7 BUILDING A WORLD OF DIFFERENCE Agenda Energy Costs in Water O&M Carbon Legislation Implications Outlook for Power and Gas Prices Energy Cost Management Strategies -13- Oct-2008 Typical Electric Utility Cost Mix (aggregate for all U.S. electricity utilities) Other Production Capital Production Non-Fuel O&M Trans. & Dist. Production Fuel Production Purchased Power T&D Capital T&D O&M Generation Customer Operations SG&A Other Capital Source: U.S. EIA Dominated by generation costs; ~50% is purchased energy -14- Oct

8 Planned Generation Additions Mostly Gas-Fired 35,000 Gas CT Gas CC Coal Nuclear Wind 30,000 Additional Capacity (MW) 25,000 20,000 15,000 10,000 5,000 Capacity Additions Technology MW ( ) Gas CT 66,183 Gas CC 228,611 Coal 23,441 Nuclear 2,716 Wind 5,292 Total 326, Source: Ventyx, B&V Analysis Carbon price concerns pushing coal off table Gas serving as the gap filler -15- Oct-2008 Gas Production Shifting to Rockies and Non-Conventional Bcf/d Lower 48 natural gas production expected to peak in 2020 at 61.5 bcf/d due to additional Alaska supplies coming to market Rockies Texas Gulf LA San Juan Mid-Cont Permian Appalachian SoCal PNW ESC Mid-West NGP Source: B&V Analysis Market-clearing supplies rising in cost -16- Oct

9 B&V Forecast for Natural Gas Prices (At Henry Hub) $16.00 $14.00 Historical B&V Forecast without CO2 B&V Forecast with CO2 $12.00 $10.00 $/MMBtu $8.00 $6.00 $4.00 $2.00 Source: Platts GASdat, B&V analysis $ Shale plays drive U.S. gas prices through 2015 North American gas still below world price levels -17- Oct-2008 Forecasted Average Wholesale Electricity Price (Eastern Interconnect, Including CO 2 Compliance Costs) Subperiod Energy Market Price ($/MWh) $200 $150 $100 $50 $- Start of carbon constraints ~5-7% CAGR Source: Enerfax, B&V Analysis Off Peak Eastern Canada Off Peak Florida Off Peak IESO (Ontario) Off Peak ISO New England Off Peak Midwest ISO Off Peak MRO Off Peak New York ISO Off Peak PJM Interconnect Off Peak Southeast Off Peak Southwest Power Pool Off Peak Historical On Peak Eastern Canada On Peak Florida On Peak IESO (Ontario) On Peak ISO New England On Peak Midwest ISO On Peak MRO On Peak New York ISO On Peak PJM Interconnect On Peak Southeast On Peak Southwest Power Pool On Peak Historical Power prices without carbon cost rising slightly below inflation ~2-3 times inflation rate with carbon cost; regulatory effects Higher and more volatile in gas-dominated power markets -18- Oct

10 BUILDING A WORLD OF DIFFERENCE Agenda Energy Costs in Water O&M Carbon Legislation Implications Outlook for Power and Gas Prices Energy Cost Management Strategies -19- Oct-2008 Energy Cost Management Options Reduce Energy Consumption Energy efficiency: process, equipment Energy re-capture: waste heat, low-head hydro Load shifting: moving more demand off-peak $ $ $ Optimize costs/risks Revise Supply Arrangements Tariff schedule negotiation: missed opportunities? Energy retailers: cost vs. risk balance Produce Energy Lowest hanging fruit -20- Oct

11 Energy Cost Management Options Reduce Energy Consumption $ $$ Optimize costs/risks Revise Supply Arrangements Produce Energy Leverage back-up generators; source of capacity value Self-generation must be competitive with utility power purchases (with environmental adjustments) Fossil-fuel generation (gas, coal) not cost-effective on small scale Economics of renewables highly location-specific. Early year costs typically higher. More attractive in higher cost regions. Tax breaks and incentive programs can sometimes bridge the gaps More options for combined water/wastewater systems Economics improving, but still utility-specific -21- Oct-2008 BUILDING A WORLD OF DIFFERENCE Agenda Energy Costs in Water O&M Carbon Legislation Implications Outlook for Power and Gas Prices Energy Cost Management Strategies Black & Veatch Background -22- Oct

12 Climate Change Pathfinder TM Phased approach to planning for climate change Robust over range of plausible GHG scenarios Internal, then external evaluation Up-side opportunities as well as compliance Implementation focus Draws on three related streams of planning services (strategic, resource, environmental) Phase 1 Assessment Climate change scenarios Conditional usage forecasts Carbon footprint Environmental risk assessment Technology assessment Phase 2 Analysis of Alternatives DSM/EE resources and programs Electric/gas/ emissions market analysis Integrated resource planning Strategic analyses (SWOT, 5 Forces) Climate change opportunities Phase 3 Strategic Synthesis Corporate + environmental strategic plans Climate change strategy Implementation plan Performance management -23- Oct-2008 Enterprise Management Solutions The Management Consulting Division of Black & Veatch Delivering broad range of strategy, process, and technology solutions through proven methodologies and practices Leverages Black & Veatch s 90 years of experience and 9,000 utility industry professionals, including the collective talents acquired from three prominent consultancies Strategy Solutions Strategy & Planning Regulatory Business Environmental Market Analysis Demand Side Management Resource Planning Risk Management Regulatory & Rate Mergers & Acquisition Planning and Evaluation Integration Process Solutions Transaction Support Asset Acquisition Asset Divestiture Asset Performance Asset Mgmt. Program Program Design Implementation / Integration Asset Condition Assessment Technology Solutions Technology Strategy Review Development Implementation Business Systems Evaluation Selection Implementation SmartUtility / SmartGrid Evaluation Implementation T&D Planning Enterprise Perspective + Technical Depth = Integrated Real-World Solutions -24- Oct