Portfolio Wide Renewable Energy Opportunity Screening

Transcription

1 Helping Clients Succeed Portfolio Wide Renewable Energy Opportunity Screening 11 May 2011 This document is business proprietary and is intended solely for the use and information of the recipient(s) 0

2 1 Table Of Contents Challenges Renewable Screening Model Overview An Army Case Study

3 2 Federal agencies face steep challenges regarding renewable energy and must effectively identify their top opportunities to partner with private industry on the development of large-scale renewables Recent budget cuts and increased operation costs make third party funding and private-public ventures a critical piece in solving the DoD s energy challenges Booz Allen s Renewable Resource Screening Tool goes beyond laboratory technical studies by evaluating the market drivers that impact renewables development to identify projects that should be executed The model identifies enterprise-wide scalable projects that can be executed within 2-4 years and that can effectively assist the DoD s effort to meet largely unfunded energy mandates However, the model and accompanying feasibility studies do not replace the in-depth analyses required to determine project viability

4 3 To meet these goals most cost-effectively, Federal agencies need an enterprise-wide planning and execution process CURRENT PLANNING PROCESS ENTERPRISE-WIDE PLANNING PROCESS Certain federal agencies require all garrisons meet energy mandates, regardless of overall project economics or technical feasibility at locations Example: Marine Corps installations in North Carolina struggling to meet goals, despite lack of renewable market in state Process fails to capitalize on economies of scale in projects (i.e., renewables) that may make over-compliance at one location the best option from a service perspective Ex.: Edwards and Fort Irwin EULs Finally, process ensures services need to plan and maintain hundreds of small projects A sophisticated enterprise-wide system would be built around several key principles: Energy economics is driven as much by local regional regulatory structures as by economics It is better for the DoD to over-comply at key locations than to try to rigidly comply at each location Some technologies offer signficant benefits, but only in very specified locations Federal agencies must have a rigorous system for deciding best project execution mode, particularly for public-private ventures

5 Percent of project costs 4 Without both Federal and State policies renewable energy projects struggle in parity with fossil fuel generation As much half of project value can be contained in incentives, RECs, etc. Project viability is driven as much by policies as by technical potential State Renewable Portfolio Standards that create Renewable Energy Credits (RECs) are complex - the details matter Other State/Utility Policies include: Net metering Investment tax credits Accelerated depreciation Interconnection policies Direct subsidies Solar access laws Representative contribution of Federal and State policy subsidies to renewable power project costs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Wind Small Wind (<100kw) Solar Distributed Solar Biomass Geothermal State Tax Credits/Direct Rebates State Renewable Energy Credits Fed. Investment Tax Credit Fed. Production Tax Credit Power sales Note: Estimates, actual percentage contribution varies widely based on project size and technology

6 Cents per kwh Example: NJ has favorable policies that make solar economical New Jersey incentives & regulation SRECs are extremely valuable in NJ 2008-above $0.25/kWh 2008 penalty price $0.50/kWh+ RPS of 22.5% by 2021 (2.12% from solar) Approx. 1,500 MW of solar capacity by 2021 Installed rebate for smaller scale: $2.30/W above 100kW, $1.85/W kW Solar PV example JCP&L s solar plan By end of year RPS steps Total renewable energy Solar energy % 0.22% % 0.31% % 0.39% % 0.50% % 0.62% % 0.77% % 0.93% % 1.12% % 1.33% % 1.57% % 1.84% % 2.12% Near parity for solar PV in NJ when RECs are valued Jersey Central Power & Light plans to solicit SRECs to satisfy approximately 60% needed to meet RPS in SRECs would equal 50% of the incremental purchases in 2011, and 40% in 2012 In total, JCP&L expects phase-in of approximately 30 MW through May 31, 2012 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 $ $ $ Recent announcements include 2.36 MW project at Atlantic City Convention Center Commercial Electricity Solar PV w/ NJ REC Solar PV w/o NJ REC 5

7 6 Table Of Contents Challenges Renewable Screening Model Overview An Army Case Study

8 7 The Booz Allen model uses three screens to identify the best installations at which to execute renewable energy projects Preliminary Candidates Finalist Candidates Potential Installations for Renewable Energy Projects All Installations Installations in states with good policy and demand for renewable power Installations with sufficient land and renewable resource Installations to proceed with energy projects Stage 1 State Policy and Economic Analysis Renewable Portfolio Standard (RPS) Interconnection rules State financial incentives Economics of state utility market Stage 2 Resource and Land Availability Analysis of renewable resource potential Analysis of land availability at installation level Stage 3 Market & Project Feasibility Availability of transmission infrastructure Near-term market opportunity Developer interest/financial feasibility

9 State policies and economic factors were broken down into individually weighted sub-elements in order to evaluate the relative attractiveness of renewables in each location Key Factors and Relative Weights State Renewable Policy Financial Incentives Critical Sub-elements Renewable Portfolio Standard (RPS) Renewable Energy Credits (RECs) Interconnection Standards Presence of Feed-in Tariffs (FITs) Tax incentives Renewable energy grants, loans, and rebates Utility Costs and Generation Mix Utility prices Renewable generation percentage Development Costs State Construction Costs 8 8

10 Many policy factors contribute to a state s overall renewable policy score and Booz Allen s model weights them by importance to encouraging profitable projects 9 Maximum Points Overall Weight Primary Policy Drivers 30 50% Renewable Portfolio Standard 10 17% Technology Set-aside Bonus & Compliance Payment 7 12% Renewable Energy Certificates 3 5% Net-Metering 1 2% Interconnection Standards 4 7% Feed-In Tariffs 4 7% Required Green Power or Green Power Purchasing 1 2% Overall weights for key factors broken up into critical sub-elements Sub-elements assigned weights according to their relative importance for spurring renewable energy development Relative weights can be altered to consider utility-scale vs. small-scale Primary policy drivers broken down into 7 sub-elements Each sub-element is a critical component to renewable policy at the state level Each shapes scale and type of possible renewable energy projects

11 10 Examples of scoring breakdown for Renewable Portfolio Standards Booz Allen model utilizes logical approach allowing for comparison of policies across all states Detailed data was compiled on each sub-element Scoring metrics were developed for each sub-element Sample State RPS Scores Connecticut 8 points Mandates 23% renewable by 2020 (8 points) Solar, wind, biomass eligible Utah 2 points Goal of 20% by 2025, not a mandate (2 points) Solar, wind, biomass, geothermal eligible Deadline of RPS prior to 2020 Deadline of RPS 2020 or later RPS Scoring Breakdown: RPS Standard Points No RPS 0 Goal 2 MW Limit 3 Less than 10% 6 10% % 7 15% % 8 20% % 9 25% or more 10 Less than 10% 5 10% % 6 15% % 7 20% % 8 25% % 9 30% or more 10

12 11 Examples of scoring breakdown for Delta: RPS % - Renewable Generation % States with Renewable Portfolio Standards have made varying progress against mandates States near their current goals are less attractive than states further behind Utilities will more aggressively pursue projects in states lagging behind the RPS requirements Booz Allen s model captures this by attributing scores to states based on their progress with respect to their RPS High delta: low progress, more attractive, high score Low delta: high progress, less attractive, low score Sample State RPS/Delta Scores California 5 points RPS requirement: 33% by 2020 Current renewable generation: 10.41% Delta: 22.59% (5 points) Washington 2 points Delta RPS requirement: 15% by 2020 Current renewable generation: 5.12% Delta: 9.88% (5 points) Renewable Generation % Scoring: Points 0% 0 1% - 4% 1 5% - 9% 2 10% - 14% 3 15% - 19% 4 20% - 24% 5 25% or more 6

13 12 Booz Allen conducts further analysis of DoD installations located in the top states and ranked the opportunities by potential for financial viability and value return for the DoD From the initial list of states, Booz Allen conducted a feasibility study to further assess potential development opportunities Study examined land and infrastructure availability as well as financial returns to the DoD to determine top priority projects Analysis produced a list of potential projects for the DoD to pursue in the specified states, prioritized by financial viability and potential value Further analysis will be required to validate potential values and identify other constraints Booz Allen engineered basic developer Project Tier Net Present Value pro formas to determine financial viability 1st Tier >$40M Potential value return to the DoD for each project based on industry-standard 2nd Tier $5M-$40M revenue-shares By necessity Booz Allen made assumptions on the availability of land at the 3rd Tier <$5M installation level, transmission infrastructure, etc.

14 13 Table Of Contents Challenges Renewable Screening Model Overview An Army Case Study

15 14 To identify actionable renewable project opportunities, the Army tasked Booz Allen to develop an analytic tool that captured critical project success factors Policies that impact all project types Renewable resource potential Electricity prices Large/utility-scale projects that sell power in the wholesale markets State Renewable Portfolio Standard (RPS) mandates Federal Production Tax Credit (wind, biomass, geothermal) Federal Investment Tax Credit (solar) Accelerated depreciation Transmission policies Physical access to sufficient transmission Interconnection and transmission costs Distributed/retail projects that sell power directly to the Army Direct rebates and cash incentives Investment tax credits/deductions Federal Investment Tax Credit (solar and small wind) Applicability of RECs to distributed generation (DG) Net metering requirements Renewable energy credits and multipliers State Production Tax Credits and other financial incentives Resource Potential Policy Incentives Transmission access or DG market support Economical Renewable Energy Project Electricity Prices

16 15 Booz Allen s feasibility study examined the potential to use two financing vehicles for executing renewable energy projects: power purchase agreements (PPAs) and enhanced use leases (EULs) EULs were considered at locations where land and resource availability may allow for projects sized much greater than the garrison s need for electricity PPAs were considered where the breakeven price of electricity (i.e., LCOE) from the project is comparable to the current electric rate paid by the garrison In many cases it may be most attractive to execute a PPA in parallel with an EUL, thus achieving economies of scale while providing cheap renewable power to the Army PPAs Utility purchase contract Results in lower electricity price for the base Electricity provided to the base Double credit for renewable goal with replacement RECs Limits size of project to base need Financing Vehicles EULs Real estate transaction Supports states with a Renewable Portfolio Standard Electricity sold to market; allows for larger-scale projects (economies of scale increase viability) Strategic in-kind consideration can contribute to RE goals

17 16 The top opportunities prioritized for immediate action are concentrated in the southwest where renewable energy markets are already mature Army Garrison Fort Irwin, California Hawthorne Army Depot, Nevada Fort Bliss, Texas/New Mexico White Sands Missile Range, New Mexico Yakima Training Center, Washington Fort Huachuca, Arizona Sierra Army Depot, California Yuma Proving Ground, Arizona Piñon Canyon Maneuver Site, Colorado Rock Island Arsenal, Illinois Fort Lewis, Washington Schofield Barracks, Hawaii Kahuku Training Area, Hawaii Fort Carson, Colorado Technologies Solar, Geothermal, Wind Solar, Geothermal Geothermal, Solar Geothermal, Solar Geothermal Solar, Geothermal Geothermal Solar, Geothermal Wind, Solar, Geothermal Biomass Biomass Solar Wind Solar, Geothermal Project Tier Top Tier Projects 2nd Tier Projects 3rd Tier Projects

18 17 Fort Bliss, TX/NM: Solar, Geothermal Opportunities Potential Use(s) & Value 37 MW Solar: $510k per year ($7.3M NPV) Strong solar resource: 22.8% CF for CSP, 20.9% for PV Breakeven price: $0.1785/kWh for CSP, $0.1977/kWh for PV 30 MW Geothermal: $2.4M per year ($34.3M NPV) Potential geothermal resource identified by INL Breakeven price: $0.0681/kWh Issues: Transmission availability Potential Issues & Next Steps Compatibility with development at White Sands Missile Range Navy Geothermal Program Office lead on geothermal on DOD land Next Steps: Engage with Navy Geothermal Program Office on geothermal opportunity Begin deeper-dive business case analysis on development opportunities to verify financial viability and identify constraints Coordinate with key external stakeholders such as local utility and state regulators Market & Land Details New Mexico ranked #2 state for renewable energy development RPS Requirement: 20% by 2020 Advanced Energy Tax Credit: 6% of capital costs Renewable Energy Production Tax Credit: $0.027/kWh for solar Local Utility: El Paso Electric (EPE) Average electricity retail price (NM, 2009): $0.0824/kWh Garrison electricity rate (FY07): $0.0571/kWh Fort Bliss occupies approx. 1,100,000 acres Project size determination based on assumption of 1% of land available for projects or local utility s RPS requirement

19 18 Booz Allen recommends the Army conduct additional, more detailed business case analyses on the top opportunities Research to-date serves as a preliminary assessment on the feasibility of the projects discussed and should not be seen as determinative of project viability These deeper analyses require deeper divers on multiple fronts: Operational information Development Climate Environmental assessments Archeological review Infrastructure and utility analysis Legal issues QD Arcs identification Topography data sets Water Availability Market Overview Financial Analysis Communications Plan For the Geothermal opportunities, Booz Allen recommends the Army continue dialogue with the Navy Geothermal Office for further development of projects Biomass opportunities will require further due diligence to investigate potential issues such as competing projects, non-attainment areas, and transportation access/impacts

20 19 Renewable Energy Opportunity Screening Contact Information: Scott Thigpen, Senior Associate (210) David Swanson, Lead Associate (210) Michelle Isenhouer, Associate Isenhouer (210)