Selected Findings from Scenario and Sensitivity Analysis Conducted To Date. August 6, 2015

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1 Selected Findings from Scenario and Sensitivity Analysis Conducted To Date August 6, 2015

2 Progress Since The July Council Meeting: All Planned Scenario Analysis Completed! RPM Systems 2

3 Progress Since The July Council Meeting: All Planned Scenario Analysis Completed! RPM Systems 3

4 Scope of Today s Presentation Scenario and Sensitivity Study Results Scenario Analysis Results Scenario 4A Unplanned Loss of Major Non-GHG Emitting Resource Scenario 4B Planned Loss of Major Non-GHG Emitting Resource Scenario 5B Increased Reliance on External Regional Market Sensitivity Study Results Sensitivity S2.1 Scenario 2C w/lower Natural Gas Prices Sensitivity S3.1 Scenario 2C w/o Demand Response (DR) Sensitivity S5 Scenario 1B - 35% RPS Sensitivity S9 Scenario 1B No T&D Deferral Credit 4

5 Summary of Findings: Remaining Scenarios 5

6 Scenario 4A Unplanned Loss of Major Non-GHG Emitting Resources Assumptions ~1200 NW Nameplate Resource ~1000 amw average annual generation Probability of Loss Increases Through Time 75% Probability Resource Lost by 2030, 100% by 2035 Assumes 111(d) compliance date remains unchanged from draft rule) Scenario 2B Social Cost of 3% Level Assumed as Baseline 6

7 Scenario 4B Planned Loss of Major Non-GHG Emitting Resources Assumptions ~1000 MW Nameplate Resource 855 amw annual energy generation Retired in ~855 amw in roughly equal increments every 3-years All retirements occur by 2030 Assumes 111(d) compliance date remains unchanged from draft rule Scenario 2B Social Cost of 3% Level Assumed as Baseline 7

8 Winter Peak Capacity (MW) The Least Cost Resource Strategies in Scenarios 4A and 4B Compared to Scenario 2B Rely More on Demand Response and Gas Generation to Meet Winter Capacity Demands 12,000 10,000 8,000 6,000 4,000 2,000 - DR Conservation Thermal Renewable Scenario 2B Scenario 4A Scenario 4B Scenario 2B Scenario 4A Scenario 4B Scenario 2B Scenario 4A Scenario 4B

9 The Least Cost Resource Strategies in Scenarios 4A and 4B Compared to Scenario 2B Rely on Reduced Regional Exports to Meet Energy Requirements 3,500 3,000 Annual Exports (amw) 2,500 2,000 1,500 1, Scenario 2B Scenario 4A Scenario 4B 9

10 The Least Cost Resource Strategies in Scenarios 4A and 4B Compared to Scenario 2B Have Higher Net Present Value System Costs and Risks $220 Present Value Net System Cost (billion 2012$) $200 $180 $160 $140 $120 $100 $80 Average System Cost System Risk (TailVar90) Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 4A - Unplanned Loss of Major Non-GHG Emitting Resource Scenario 4B - Planned Loss of Major Non-GHG Emitting Resource 10

11 Resource/Metric Scenarios 4A and 4B Comparison to Scenario 2B Social Cost of Carbon 4A Unplanned Resource Loss 4B Planned Resource Loss Energy Efficiency All Years No Change No Change Demand Response All Years MW MW Renewable Resources amw - 15 amw Coal Gen Small (<5%) Increase Small (<5%) Increase Existing Gas Generation Small (<5%) Increase Small (<5%) Increase New Gas Generation amw amw Exports amw amw Exports amw amw Exports amw amw PNW System CO2 Emissions Same Same NPV +$4 billion +$4 billion NPV System Risk +$8 billion +$8 billion 11

12 Observation from 4A and 4B Scenario Analysis Results Resource strategies to address both planned and unplanned resource loss rely on Increased DR (especially in planned case) Increased new gas-generation Reduced regional exports Still achieve final 111(b) + 111(d) carbon emissions reductions by 2030 Increase net system cost and risk 12

13 Scenario 5B Increased Reliance on Extra-Regional Market Assumptions Resource Adequacy Standard constraint changed from 2500 amw to 3400 amw for high load hours in winter quarter GENESYS used to estimate revised Adequacy Reserve Margins (ARMs) for capacity and energy Scenario 1B Existing Policies, No Carbon Risk Assumed as Baseline 13

14 Winter Peak Capacity (MW) The Least Cost Resource Strategy in Scenario 5B Compared to Scenario 1B Relies Less on Demand Response and Conservation to Meet Winter Peaks 12,000 10,000 8,000 6,000 4,000 2,000 Scenario 1B Scenario 5B Scenario 1B Scenario 5B Scenario 1B DR Conservation Thermal Renewable Scenario 5B

15 The Least Cost Resource Strategy in Scenario 5B Compared to Scenario 1B Slightly Reduces Regional Exports to Meet Annual Energy Requirements 4,400 Annual Exports (amw) 4,300 4,200 4,100 4,000 3,900 3,800 3, Scenario 1B - Existing Policy, No Carbon Risk Scenario 5B - Increased Reliance on External Market 15

16 The Least Cost Resource Strategy in Scenario 5B Compared to Scenario 1B Has a Lower Net Present Value System Costs and Risks $140 Present Value Net System Cost (billion 2012$) $130 $120 $110 $100 $90 $80 Average System Cost System Risk (TailVar90) Scenario 1B - Existing Policy, No Carbon Risk Scenario 5B - Increased Reliance on External Market 16

17 Scenario 5B Comparison to Scenario1B Existing Policies, No Carbon Risk Resource/Metric Energy Efficiency Energy Efficiency Energy Efficiency Demand Response All years Renewable Resource Coal Generation - All years Existing Gas Generation - All years New Gas Generation All years Exports - All years PNW System CO2 Emissions NPV System Cost NPV System Risk 5B - Increased External Market Reliance - 45 amw amw amw MW amw No Change No Change No Change Small Reduction No Change $-2.7 billion $-3.0 billion 17

18 Observations from 5B Scenario Analysis Results Resource strategies that place greater reliance on external markets rely on: Slightly less Energy Efficiency for capacity and energy Significantly less Demand Response for capacity Slightly decreased regional exports for energy Decrease Net System Cost and Risk Still achieve final 111(b) + 111(d) carbon emissions reductions Potential for large reduction in NPV system cost suggests Council should recommend review of current Resource Adequacy Assessment limits on external market reliance for winter capacity 18

19 Summary of Findings: New Sensitivity Studies Sensitivity S2.1 Scenario 2C w/lower Natural Gas Prices Sensitivity S3.1 Scenario 2C w/o Demand Response (DR) Sensitivity S5 Scenario 1B - 35% RPS Sensitivity S9 Scenario 1B No T&D Deferral Credit Staff generated after review of results from Scenario 2B_Social Cost of Carbon using 95% percentile estimate of SCC Requested by SAAC 19

20 Sensitivity Studies S2.1 and S3.1 Comparison to Scenario 2C Carbon Risk Resource/Metric S2.1 Low Natural Gas Prices S3.1 No Demand Response Energy Efficiency amw No Change Energy Efficiency amw - 15 amw Energy Efficiency amw - 70 amw Demand Response All Years No Change MW Renewable Resources amw +15 amw Coal Generation amw No Change Coal Generation amw No Change Coal Generation ,170 amw No Change Existing Gas Generation amw Small (<1%) Decrease New Gas Generation amw amw Exports amw Small (<1%) Decrease PNW System CO2 Emissions Increase by 15%-35% Same NPV - $17 billion (Not equivalent reliability) NPV System Risk - $32 billion (Not equivalent reliability) 20

21 Observation from Sensitivity Studies 2.1 and 3.1 Resource strategies in scenarios with systematically lower natural gas and electricity prices in futures where the Social Cost of Carbon is considered increase regional reliance on existing natural gas generation and reduce conservation development and coal generation Least cost strategies with lower gas and electricity prices have a lower cost and risk Resource strategies that exclude demand response in futures where the Social Cost of Carbon is considered rely on increased use of natural gas Least cost strategies without DR have a higher net system cost and risk Under both sensitivity studies the final 111(b) + 111(d) carbon emissions targets are achieved by

22 Sensitivity S9 No T&D Credit Comparison to Scenario1B Existing Policies, No Carbon Risk Resource/Metric Energy Efficiency Energy Efficiency Energy Efficiency Demand Response All years Renewable Resource Coal Generation - All years Existing Gas Generation - All years New Gas Generation 2035 Exports - All years PNW System CO2 Emissions NPV System Cost NPV System Risk S9- No T & D Deferral Credit - 60 amw amw amw +85 to 95 MW + 35 amw No Change No Change +50 amw Small (<1%) Reduction No Change $+7.7 billion $+9.5 billion 22

23 Observation from Sensitivity Study S9 Scenario 1B without Transmission and Distribution Deferral Credit Removal of T&D Credit increases cost of energy efficiency, demand response and west side natural gas-fire generation Since this effects both demand side and supply side resources it slightly reduces conservation and demand response development and modestly increases new gas-fired generation post

24 Sensitivity S6-35% RPS Comparison to Scenario1B Existing Policies, No Carbon Risk Resource/Metric Energy Efficiency Energy Efficiency Energy Efficiency Demand Response All years Renewable Resource Renewable Resource Renewable Resource Coal Generation - All years Existing Gas Generation - All years New Gas Generation 2035 Exports - All years PNW System CO2 Emissions NPV System Cost NPV System Risk S6 35% RPS - 70 amw amw amw Small (<1%) Increase +860 amw amw amw Gradually decreases by amw Gradually decreases by amw -120 amw Gradually Increases from 450 amw to 1200 amw - 7 MMTE $+34 billion $+20 billion 24

25 Observations from Sensitivity Study S5 35% RPS Compared to No Carbon Risk scenario, a policy requiring the increased use of renewable resources Slightly reduces conservation development Modestly reduces coal and gas-fired generation Increases regional exports Produces 20% lower carbon emissions Increases NPV system cost and system risk 25

26 Sensitivity S6-35% RPS Comparison to Scenario 2C Carbon Risk Resource/Metric Energy Efficiency Energy Efficiency Energy Efficiency Demand Response All years Renewable Resource Renewable Resource Renewable Resource Coal Generation - All years Existing Gas Generation - All years New Gas Generation 2035 Exports - All years PNW System CO2 Emissions NPV System Cost NPV System Risk S6 35% RPS amw amw amw Small (25 MW) Increase +860 amw amw amw Decreases by 1,035 1,450 amw Decreases by 880 1,500 amw -200 amw Increase by 480 amw to 200 amw + 4 MMTE $+10 billion $-30 billion 26

27 Observations from Sensitivity Study S5 35% RPS Compared to Carbon Risk (adding carbon cost) a policy requiring the increased use of renewable resources Modestly reduces conservation development Modestly reduces coal and gas-fired generation Increases regional exports Produces higher carbon emissions Increases NPV system cost, but reduces NPV system risk, by reducing exposure to futures with high gas prices 27

28 Carbon Reduction Policy Comparisons August 6, 2015

29 Carbon Reduction Policy Comparisons Review of Five Scenarios/Sensitivity Studies Scenario 2B Social Cost of Carbon 3% Estimate of SCC) Scenario 2C Carbon Risk Scenario 3A Maximum Carbon Reduction with Existing Technology Sensitivity S5 Social Cost of 95% Percentile Estimate of SCC Sensitivity S6 Renewable Portfolio 35% Basis of Comparison: Scenario 1B Existing Policies, No Carbon Risk 29

30 Average Conservation Development Under Alternative Carbon Emissions Reduction Policies Is Very Similar, Except for 35% Policy Which Develops Less Energy Efficiency Than Base Scenario Average Development (amw) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk 30 Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC

31 Average Demand Response Development Under Alternative Carbon Emissions Reduction Policies is Similar To Base Scenario, Except for Post-2026 in the Maximum Carbon Reduction Scenario Policy (3A) Winter Peak Capacity (MW) 1, Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 31

32 Average Renewable Resource Development Under Alternative Carbon Emissions Reduction Policies Is Very Similar to the Base Scenario, Except for the 35% Policy Average Annual Energy Dispatch (amw) 3,500 3,000 2,500 2,000 1,500 1, Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 32

33 Average New Gas Generation Development Under Alternative Carbon Emissions Reduction Policies Is Very Similar To the Base Scenario, Except for the Maximum Emissions Reduction Scenario (3A) and Social Cost of Carbon at the 95 th Percentile Policies Average Annual Energy Dispatch (amw) 3,000 2,500 2,000 1,500 1, Scenario 1B - Scenario 2B - Existing Policy, No Carbon Reduction Carbon Risk - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 33

34 Average Existing Gas Generation Dispatch Under Alternative Carbon Emissions Reduction Policies Is Generally Higher Than the Base Scenario, Except for the 35% Policy Average Annual Energy Dispatch (amw) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 34

35 Average Existing Coal Generation Dispatch Under Alternative Carbon Emissions Reduction Policies Is Significantly Reduced or Eliminated Under Most Strategies, With The Least Long Term Reduction Occurring Under the 35% Policy Average Annual Energy Dispatch (amw) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 35

36 Average Net Regional Exports Under Alternative Carbon Emissions Reduction Policies Are Generally Lower than the Base Scenario, Except for the 35% Policy 6,000 Average Annual Energy (amw) 5,000 4,000 3,000 2,000 1, Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 36

37 Changes in Average Thermal Resource Dispatch in the No Carbon Risk Scenario (1B) Are Driven by Announced Coal Plant Retirements 16,000 14,000 Annual Dispatch (amw) 12,000 10,000 8,000 6,000 4,000 2, Net Exports Coal Natural Gas - Existing Natural Gas - New Solar Wind Must Run 37

38 Changes in Average Thermal Resource Dispatch and Exports in the Social Cost of Carbon Scenario (2B) Are Driven by Increased Competiveness of Existing Gas-Fired Generation Compared to Coal- Fired Generation After Assumed Carbon Cost Are Imposed 16,000 14,000 Annual Dispatch (amw) 12,000 10,000 8,000 6,000 4,000 2, Net Exports Coal Natural Gas - Existing Natural Gas - New Solar Wind Must Run 38

39 Changes in Average Thermal Resource Dispatch and Net Exports in the Carbon Risk Scenario(2C) Are Driven by The Increased Competiveness of Existing Gas-Fired Generation Compared to Existing Coal-Fired Generation When Assumed Carbon Cost Are Imposed 16,000 14,000 Annual Dispatch (amw) 12,000 10,000 8,000 6,000 4,000 2, Net Exports Coal Natural Gas - Existing Natural Gas - New Solar Wind Must Run 39

40 Changes in Average Thermal Resource Dispatch in the Maximum Carbon Reduction with Existing Technology Scenario (3A) Are Driven by Assumed Coal and Inefficient Gas Generation Retirements 16,000 14,000 Annual Dispatch (amw) 12,000 10,000 8,000 6,000 4,000 2, Net Exports Coal Natural Gas - Existing Natural Gas - New Solar Wind Must Run 40

41 Changes in Average Thermal Resource Dispatch in the 35% Sensitivity Study (S6) Are Driven by the Addition of Low Variable Cost Renewable Resource Generation, While Both Coal and Existing Natural Gas Resources Are Dispatched To Maintain Resource Adequacy 18,000 16,000 Annual Dispatch (amw) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Net Exports Coal Natural Gas - Existing Natural Gas - New Solar Wind Must Run

42 Changes in Average Thermal Resource Dispatch in the 95 th Percentile Social Cost of Carbon Sensitivity Study (S5) Are Driven by Increased Competiveness of both New and Existing Gas-Fired Generation Compared to Coal-Fired Generation When Assumed Carbon Cost Are Imposed 16,000 14,000 Annual Dispatch (amw) 12,000 10,000 8,000 6,000 4,000 2, Net Exports Coal Natural Gas - Existing Natural Gas - New Solar Wind Must Run 42

43 The Average Annual 111(b) + 111(d) System CO2 Emissions for the Least Cost Resource Strategies for All Scenarios Are Below The EPA s Proposed Limit for 2030, and Remain So Through 2035 Three-year Rolling Average Annual Emissions (MMTE) Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk EPA Final 111(b) + 111(d) Emissions Limit for Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 43

44 The 90 th Percentile Annual 111(d) System CO2 Emissions for the Least Cost Resource Strategies for All Scenarios Are Below The EPA s Proposed Limit for 2030 Three-year Rolling Average 90 th Percentile Annual Emissions (MMTE) Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk EPA Final 111(b) + 111(d) Emissions Limit for 2030 Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 44

45 Cumulative PNW Power System CO2 Emission Under Alternative Carbon Emissions Reduction Policies Cumulative Emissions (MMTE) CAUTION: The Social Cost of Carbon (2B, S5 & S6) and Carbon Risk (2C) Scenarios assume those cost are imposed starting in Therefore, the resource dispatch and build decisions for the least cost resource strategies under these scenarios result in lower cumulative emissions, since such decisions are immediately affected. - Scenario 1B - Existing Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC 111(d) PNW System 45

46 The Average Present Value Net System Cost for Least Cost Resource Strategies Without Carbon Cost* $180 $160 Scenario 1B - Current Policy, No Carbon Risk Present Value Net System Cost (billion 2012$) $140 $120 $100 $80 $60 $40 $20 $- Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC *Carbon tax revenues were subtracted from the NPV System Cost to assess the actual resource portfolio cost, including capital, fuel and other operating cost. 46

47 Cumulative CO2 Emissions (MMTE) The Lowest PNW Power System Cumulative CO2 Emissions from Occur Under Alternative Resource Strategies That Immediately Must Respond To Carbon Reduction Policies Scenario 1B - Existing Policy, No Carbon Risk Sensitivity S6 - Scenario 2B_95th Percentile SCC Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 3A - Maximum Carbon Reduction, Existing Technology Scenario 2C - Carbon Risk Sensitivity S5 - Scenario 1B_35% RPS 47

48 The Largest PNW Power System Cumulative CO2 Emissions Reductions Also Occur Under Alternative Resource Strategies That Must Respond Immediately to Carbon Reduction Policies Cumulative CO2 Emissions Reduction (MMTE) Sensitivity S6 - Scenario 2B_95th Percentile SCC Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 3A - Maximum Carbon Reduction, Existing Technology Scenario 2C - Carbon Risk Sensitivity S5 - Scenario 1B_35% RPS 48

49 The Lowest Cost PNW Power System CO2 Emission Reduction Resource Strategies Are Those That Result From Adaptation to Carbon Cost or Direct Retirement of Coal and Inefficient Gas Generation CO2 Emissions Reduction Cost (2012$/MTE) $450 $400 $350 $300 $250 $200 $150 $100 $50 $- Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 3A - Maximum Carbon Reduction, Existing Technology Scenario 2C - Carbon Risk Sensitivity S6 - Scenario 2B_95th Percentile SCC Sensitivity S5 - Scenario 1B_35% RPS 49

50 Observations from Scenario Analysis: Carbon Emissions Reduction The least cost resource strategies that meet proposed CO2 Emissions Limits at the regional level: Meet all (or nearly all) load growth with energy efficiency Meet near and mid-term needs for capacity with demand response Retire and/or reduce the dispatch of existing coal plans and replace them by first increasing existing gas-fired generation and later with new combined cycle combustion turbines Do not significantly expand the use of renewable resources Why Increasing the dispatch of the more efficient existing gas-fired generation to offset reductions in coal-fired generation produces lower cost carbon emissions reduction than the development of renewable resources In addition, currently commercially available Renewable Resources (solar PV and wind) provide limited or no winter peaking capacity, hence are not good matches for system need, so increasing RPS is currently the most costly policy option for reducing CO2 emissions 50

51 Proposed Major Elements of Draft Resource Strategy August 6, 2015

52 Key Findings Least Cost Resource Strategies Consistently Rely on Conservation and Demand Response to Meet Future Energy and Capacity Needs Demand Response or Increased Reliance on External Markets are Competitive Options for Providing Winter Capacity Replacement of announced coal plant retirements can generally be achieved with only modest new development of natural gas generation Compliance with EPA CO2 emissions limits at the regional level, is attainable through resource strategies that do not depart significantly from those that are not constrained by those regulations. 52

53 Key Finding: Average Conservation Development Across Scenarios Varies Little Across Scenarios Except Under Sustained Low Gas Prices and Increased RPS Average Resource Development (amw) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,

54 Key Finding: Average Demand Response Development Across Scenarios Varies Little Across Scenarios Except in Scenarios with Major Resource Loss or Increased External Market Reliance Average Resource Development Winter Peak (MW) 1,200 1,

55 Key Finding: The Probability and Amount of Demand Response Varies Over a Wide Range, and is Particularly Sensitivity to Extra-Regional Market Reliance Assumptions Probability of Deployment 80% 70% 60% 50% 40% 30% 20% 10% 0% Deployment Level (Winter Peak MW) Existing Policy, No Carbon Risk Social Cost of Carbon - Base Social Cost of Carbon - High Carbon Risk Maximum CO2 Reduction Unplanned Loss of Major Resource Planned Loss of Major Resource Faster Conservation Deployment Slower Conservation Deployment Increased Market Reliance 55

56 Key Finding: Average New Renewable Resource Development Does Not Significantly Increase In Carbon Emissions Reduction Policy Scenarios Except For A Policy That Sets Renewable Portfolio Standard at 35% 3,500 RPS at 35% Annual Energy Contribution (amw) 3,000 2,500 2,000 1,500 1, Social Cost of Carbon - High Low Gas Prices with Carbon Risk Existing Policy, No Carbon Risk Maximum CO2 Reduction No Demand Response with Carbon Risk Slower Conservation Deployment No Demand Response, No Carbon Risk Social Cost of Carbon - Base Faster Conservation Deployment Carbon Risk Unplanned Loss of Major Resource Planned Loss of Major Resource Low Gas Prices, No Carbon Risk Increased Market Reliance 56

57 Key Finding: There is a Low Probability of Any Thermal Development by 2021 Except Under Scenarios That Increase RPS or Do Not Develop Demand Response Increased Market Reliance Slower Conservation Deployment Carbon Risk Faster Conservation Deployment Existing Policy, No Carbon Risk Maximum CO2 Reduction Low Gas Prices, No Carbon Risk Low Gas Prices with Carbon Risk Social Cost of Carbon - Base Unplanned Loss of Major Resource Planned Loss of Major Resource RPS at 35% No Demand Response, No Carbon Risk No Demand Response with Carbon Risk 0% 10% 20% 30% 40% 50% 60% 70% 80% Probability of Thermal Plant Option Moving To Construction 57

58 Key Finding: The Probability of Thermal Development by 2026 Is Modest Except In Scenarios That Assume All Coal Plant Retirements or Do Not Develop Demand Response RPS at 35% Existing Policy, No Carbon Risk Low Gas Prices, No Carbon Risk Slower Conservation Deployment Carbon Risk Faster Conservation Deployment Low Gas Prices with Carbon Risk Social Cost of Carbon - Base Unplanned Loss of Major Resource Planned Loss of Major Resource No Demand Response, No Carbon Risk No Demand Response with Carbon Risk Social Cost of Carbon - High Maximum CO2 Reduction 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of Thermal Plant Option Moving To Construction 58

59 Key Finding: Reduction of Regional Exports Generally Reduces Need for In Region Resource Development, Except with Increased RPS or When No Carbon Cost Risks Are Considered Planned Loss of Major Resource Unplanned Loss of Major Resource Social Cost of Carbon - High Social Cost of Carbon - Base Low Gas Prices with Carbon Risk Carbon Risk Slower Conservation Deployment Faster Conservation Deployment No Demand Response with Low Gas Prices, No Carbon Risk Increased Reliance on External Existing Policy, No Carbon Risk Maximum CO2 Reduction No Demand Response, No RPS at 35% - 1,000 2,000 3,000 4,000 5,000 Net Regional Exports in 2021 (amw) 59

60 Key Finding: Exports Have A Major Influence on Regional Resource Development Net Exports (amw) 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2, Existing Policy, No Carbon Risk Social Cost of Carbon - Base Social Cost of Carbon - High Carbon Risk Maximum CO2 Reduction Unplanned Loss of Major Resource Planned Loss of Major Resource Faster Conservation Deployment Slower Conservation Deployment Increased Market Reliance Low Gas Prices, No Carbon Risk Low Gas Prices with Carbon Risk No Demand Response, No Carbon Risk No Demand Response with Carbon Risk RPS at 35% 60

61 Key Finding: There is A Very High Probability of Meeting EPA 111(d) Emissions Limits Across All Scenarios and Future Conditions Tested Increased Market Reliance Existing Policy, No Carbon Risk Low Gas Prices, No Carbon Risk No Demand Response, No Carbon Risk Slower Conservation Deployment Faster Conservation Deployment Carbon Risk No Demand Response with Carbon Risk Low Gas Prices with Carbon Risk Planned Loss of Major Resource Social Cost of Carbon - High Unplanned Loss of Major Resource Social Cost of Carbon - Base RPS at 35% Maximum CO2 Reduction 50% 60% 70% 80% 90% 100% Probability Across All Futures of Meeting EPA CO Emission Limi 61

62 Annual Average CO2 Emissions by Scenario for 111(d) System Annual Average CO2 Emissions (MMTE) EPA 111(d) 2030 Limit Existing Policy, No Carbon Risk Social Cost of Carbon - Base Social Cost of Carbon - High Carbon Risk Maximum CO2 Reduction Unplanned Loss of Major Resource Planned Loss of Major Resource Faster Conservation Deployment Slower Conservation Deployment Increased Market Reliance Low Gas Prices, No Carbon Risk Low Gas Prices with Carbon Risk No Demand Response, No Carbon Risk No Demand Response with Carbon Risk RPS at 35% 62

63 Annual Average CO2 Emissions by Scenario PNW Power System Annual Average CO2 Emissions (MMTE) Existing Policy, No Carbon Risk Social Cost of Carbon - Base Social Cost of Carbon - High Carbon Risk Maximum CO2 Reduction Unplanned Loss of Major Resource Planned Loss of Major Resource Faster Conservation Deployment Slower Conservation Deployment Increased Market Reliance Low Gas Prices, No Carbon Risk Low Gas Prices with Carbon Risk No Demand Response, No Carbon Risk No Demand Response with Carbon Risk RPS at 35%

64 Key Finding: The Largest PNW Power System Cumulative CO2 Emissions Reductions Occur Under Resource Strategies That Must Respond Immediately to Carbon Reduction Policies Cumulative CO2 Emissions Reduction (MMTE) Social Cost of Carbon - High Social Cost of Carbon - Base Maximum CO2 Reduction Carbon Risk RPS at 35% 64

65 Key Finding: The Lowest Cost PNW Power System CO2 Emission Reduction Resource Strategies Are Those That Result From Adaptation to Carbon Cost or Direct Retirement of Coal and Inefficient Gas Generation $450 CO2 Emissions Reduction Cost (2012$/MTE) $400 $350 $300 $250 $200 $150 $100 $50 $- Social Cost of Carbon - Base Maximum CO2 Reduction Carbon Risk Social Cost of Carbon - High RPS at 35% 65

66 Seven Principle Elements Develop Conservation 1400 amw by amw by amw by 2035 Expand Use of Demand Response Prepare to develop 700 MW by 2021 Satisfy Existing Renewable Portfolio Standards Option gas-fired generation for capacity and other ancillary services as dictated by local utility circumstances Reducing regional exports in order to serve in-region energy and capacity demand can result in lower total NPV System Cost and less need for new resource development Expand Resource Alternatives (EE & Non-GHG emitting) Monitor and Be Prepared to Adapt to Changing Conditions 66

67 Net Present Value System Cost and Risk with Carbon Cost Included $300 Low Gas Prices, No Carbon Risk $250 Increased Market Reliance Existing Policy, No Carbon Risk No Demand Response, No Carbon Risk NPV (Billion 20012$) $200 $150 $100 Low Gas Prices with Carbon Risk Maximum CO2 Reduction No Demand Response with Carbon Risk Slower Conservation Deployment Carbon Risk Faster Conservation Deployment RPS at 35% $50 Social Cost of Carbon - Base Planned Loss of Major Resource $- Average System Cost w/co2$ Average System Risk w/co$ (TailVar90) Unplanned Loss of Major Resource Social Cost of Carbon - High 67

68 Net Present Value System Cost and Risk without Carbon Cost Included NPV (Billion 20012$) $300 $250 $200 $150 $100 $50 $- Average System Cost w/o CO2$ Average System Risk w/o CO2$ (TailVar90) Low Gas Prices, No Carbon Risk Increased Market Reliance Existing Policy, No Carbon Risk No Demand Response, No Carbon Risk Low Gas Prices with Carbon Risk Maximum CO2 Reduction No Demand Response with Carbon Risk Carbon Risk Slower Conservation Deployment Faster Conservation Deployment Social Cost of Carbon - Base RPS at 35% Planned Loss of Major Resource Unplanned Loss of Major Resource Social Cost of Carbon - High 68

69 Next Steps Power Committee Meeting August 11 th Review Draft Plan Chapters Review Proposed Major Elements of Draft Resource Strategy August 21 st and/or 28 th Webinars Review Scenario 3B Narrative Emerging technology options for further reducing PNW Power System CO2 Emissions Review Proposed Draft Resource Strategy 69

70 Backup Slides 70

71 Scenario 4A Assumed Probability of Resource Loss By Year Probability 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Proposed 111(d) Final Compliance Date

72 900 Scenario 4B Assumed Resource Loss by Year 800 Resource Loss (amw) Proposed 111(d) Final Compliance Date

73 Cost of Carbon (2012$/metric ton) Carbon Cost Assumptions Used in Scenario Analysis $200 $150 $100 $50 $ Scenario 2B - Social Cost of Carbon (3% Discount) Sensitivity S6 - Scenario 2B_Social Cost of Carbon (3% Discount, 95th Percentile) Scenario 2C - Carbon Risk 73

74 The Average Present Value Net System Risk for Least Cost Strategies Without Carbon Cost* Present Value Net System Risk (billion 2012$) $300 $250 $200 $150 $100 $50 $- Scenario 1B - Current Policy, No Carbon Risk Scenario 2B - Carbon Reduction - Social Cost of Carbon Scenario 2C - Carbon Risk Scenario 3A - Maximum Carbon Reduction, Existing Technology Sensitivity S5 - Scenario 1B_35% RPS Sensitivity S6 - Scenario 2B_95th Percentile SCC *Carbon tax revenues were subtracted from the NPV System Cost to assess the actual resource portfolio cost, including capital, fuel and other operating cost. 74

75 Sensitivity S1 No Coal Plant Retirements Comparison to Scenario 1B Existing Policies, No Carbon Risk Resource/Metric Energy Efficiency Energy Efficiency Energy Efficiency Demand Response All years Renewable Resource All years Coal Generation Coal Generation Existing Gas Generation - All years New Gas Generation 2035 Exports - All years PNW System CO2 Emissions NPV System Cost NPV System Risk S1 No Coal Plant Retirements - 5 amw - 40 amw amw Small (15-25 MW) Decrease No Change + 1,245 amw +1,590 amw Decreases by amw -160 amw Gradually Increases by 340 amw to 930 amw + 10 MMTE $-2 billion $-7 billion 75

76 Scenario 3B Carbon Reduction with Emerging Technology The Energy Problem Statement Annual Dispatch (amw) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 Scenario 3A Remaining Gas- Fired Generation ~ 4000 amw of Shaped Energy That Must Be Supplied by Non-GHG Producing Resources or Additional Load Reduction from Conservation

77 Scenario 3B Carbon Reduction with Emerging Technology The Capacity Problem Statement Annual Winter Peak Dispatch (MW) 6,000 5,000 4,000 3,000 2,000 1,000 Scenario 3A Remaining Gas-Fired Generation ~ 5,000 MW of Peak Capacity That Must Be Supplied by Non-GHG Producing Resources or Additional Peak Load Reduction from Conservation or Demand Response