Tucson Electric Power 2017 Integrated Resource Plan. Southern Arizona Regional Solar Partnership Jeff Yockey, PE

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1 Tucson Electric Power 2017 Integrated Resource Plan Southern Arizona Regional Solar Partnership Jeff Yockey, PE May 2017

2 Integrated Resource Plan (IRP) Overview Just a Plan Additional steps for specific actions Already outdated Timing 2-year planning cycle Just completed cycle was 3 years 15-year outlook 2017 through 2032 Stakeholder Involvement Preliminary IRP (PIRP) March 2016 ACC IRP Workshop July 2016 Supplemental PIRP October 2016 TEP IRP Workshop November 2016 TEPIRP@TEP.com Reliability Least Cost Evolving Portfolio Objective Preferred Portfolio Affordability Environmental Performance Risk 2

3 IRP Key Planning Drivers 2012 Meet the Peak 2017 Balance the Grid 3

4 TEP s 2017 Portfolio Diversification Strategy Transitioning to a Balanced Portfolio Target a Balanced Mix of Coal, Natural Gas and Renewables 2017 Portfolio Energy Mix 4% Reduce coal capacity over the next five years San Juan Unit MW December 2017 Navajo Generating Station 168 MW December 2019 San Juan Unit MW June 2022 Coal Natural Gas Market Purchases Utility Scale Renewables 9% 11% 7% 69% Explore natural gas generation expansion Combined Cycle Natural Gas Fast ramping resources Distributed Generation 2032 Portfolio Energy Mix 5% Integrate cost effective renewable energy 26% 38% Operational challenges / opportunities Natural gas storage Energy storage technologies 5% 26%

5 Coal Plant Retirements Jointly-Owned Plant Off-ramps Coal Contracts Land Leases Participation Agreements 5

6 Springerville Generating Station Long-Term Base Load Arizona Resource TEP Ownership of Springerville Units 1 & 2 (793 MW) Newest coal units in TEP fleet Access to competitive coal via rail Full operational control of Units 1 & 2 Unit MW Unit MW Implement future cycling strategy to facilitate the integration of renewables

7 Renewable Energy Expansion 30% of Retail Load by 2030 Utility-Scale Fixed Solar PV Utility-Scale Tracking Solar PV Utility-Scale Wind Rooftop Solar PV Capacity Factor 23% 31% 27% 23% Peak Coincidence 34% 63% 23% 34% 2017 Capacity MW AC Capacity MW AC

8 Renewable Energy Diversification 100% Average Capacity Factor at Four Renewable Energy Resource Locations 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Hour Ending Red Horse Solar / Single-Axis Tracker DG / Fixed-Tilt Red Horse Wind NextEra Wind 8

9 Renewable Integration Challenges TEP Duck Curve 2030 Winter Day High Solar Penetration 9

10 Renewable Integration Challenges Intermittency 10

11 Renewable Integration Challenges 10-Minute Ramping Capacity Analysis Existing Ramping Capacity versus Projected Requirements Ramping Capacity Under Reference Case Plan versus Projected Requirements 11

12 Renewable Integration Opportunities 12

13 Renewable Integration Opportunities 13

14 Resource Solutions and Response Times 14

15 Levelized Cost of Energy ($/MWh) Renewable Energy Resources Intermittent Service Utility-Scale Solar PV - Single-Axis Tracking Utility-Scale Solar PV - Fixed-Tilt Panel Residential Solar PV Utility-Scale Wind $44 $51 $53 $105 Fossil Fuel Resources Baseload, Balancing, Peaking Service Natural Gas Combined Cycle - Baseload Natural Gas Combined Cycle - Load Following RICE Combustion Turbine $65 $77 $130 $157 Non-Energy Resources Conditional Service Battery Storage Customer Demand Response Customer Energy Efficiency $15 $257 $503 15

16 Energy Efficiency After 2020 Reduction in future load growth based on 2014 Technical Report by Electric Power Research Institute (EPRI) 16

17 2017 IRP Energy Efficiency Forecast Cumulative Sales Reductions Percent of Retail Sales 2,000 1,800 1,600 25% 20% 22% 1,400 1,200 15% 17% GWh 1,000 15% % % % Base Case without Credits EE Standard Including Credits Base Case Including Credits EE Base Case (No Credits) 17

18 New Energy Storage Resources Provide Ancillary Grid Services for Renewable Integration Ancillary Service Target: Frequency Regulation 10 MW in 15 minutes (2.5MWh) Battery technologies can provide various solutions Frequency support Voltage support Energy delivery TEP installed 20 MW of storage in 2017 Primary use is for frequency response and voltage support related to the integration of intermittent renewable resources Future battery projects to target 4 hour charge/discharge durations Current residential and utility applications aren t aligned Utility-scale projects more cost effective and provide system wide benefits NextEra Energy Resources The 10 MW energy storage project installed at the Demoss Petrie Substation near Grant Road and Interstate 10

19 New Flexible Generation Resources Fast Ramping Resources for Renewable Integration Natural Gas Reciprocating Engines (RICE) Historically found in marine and industrial applications. Today, under new power generation applications, there is real potential to help solve renewable integration issues Fast start and fast ramp times (Starts in 2 minutes and at full load in 5 minutes) Small modular footprint (smart grid paradigm) and reliability spread across multiple units Low gas pressure requirement and low water consumption RICE would provide additional value in EIM or RTO markets

20 Merchant Resource Opportunities Natural Gas Combined Cycle (NGCC) Resources Merchant NGCC Opportunities at Palo Verde Natural gas combined cycle capacity available at Harquahala, Gila River and Mesquite One unit could be purchased jointly by TEP and UNS Electric to meet future load serving requirements Backstop for NGS and SJGS retirements Low cost, fast ramping resources Option to lock in Natural Gas long-term Harquahala Generating Station Gila River Power Station Mesquite Generating Station

21 Arizona Gas Storage (AGS) Kinder Morgan Natural Gas Storage Project

22 Regional Transmission Projects Nogales DC Intertie Interconnection between Arizona and Mexico Reliability 3 rd import path Access to Palo Verde market Sunzia / Southline / Western Spirit Clean Line Move New Mexico Wind to the Palo Verde Hub Various stages in the permitting/approval process All projects come through our system Reliability particularly Southline Access to high capacity factor wind Transmission revenue 22

23 Regional Transmission Organizations CAISO Energy Imbalance Market SW Utility Working Group Sub-hourly balancing Share resource reserves Lower production costs Evaluate forming/joining a regional market Significant potential value exists E3 evaluation of economic benefits for TEP Majority of benefit during extreme pricing events $2.5M annual benefits TEP currently evaluating costs Mountain West Transmission Group Regional Rate Market RFP with CAISO / MISO / SPP Contracting SPP to run market Benefits of partnership Governance Diversity Geographic / Load (Peak) / Resources 23

24 IRP Production Cost Modeling Plant Parameters Fuel Price Power Price Generation Non-Fuel Expense Capital Fixed O&M Taxes Fuel Expense Purchase Power Hourly Dispatch Unit Stats Emissions Energy Efficiency Load Profile Distributed Generation Water Revenue Requirement Reserve Margin Carbon Compliance 24

25 Alternative Scenarios Capital Costs Fuel Prices Power Prices PACE Global Alternative Market Price Sensitivity High Economy Capacity Expansion Load Growth Technology Advancement Improved Efficiency Base Case High Technology Capital Costs Fuel Prices Power Prices 25

26 Reference Case Plan Modeling Results NPV Revenue Requirement Portfolio Risk Dashboard 26

27 TEP Future Resources 2017 Portfolio Reference Case 27