Privatizing Bellefonte: The Good, The Bad & The Ugly. October 2013

Transcription

1 Privatizing Bellefnte: The Gd, The Bad & The Ugly Octber

2 SACE s Respnse t Bttrff & Haney Nuclear Privatizatin Scheme SACE strngly supprts the retirement f TVA cal-fired pwer plants B&H nuclear privatizatin scheme: Simplistically cnstructed Cntains numerus factual errrs Offers unrealistic prmises n rates and schedule SACE strngly resists thse wh use uninfrmed plitical pressure in an attempt t benefit sub-regins f the TVA service territry and/r enrich frmer bard members and plitical dnrs 2

3 Prblems with Bttrff & Haney Nuclear Privatizatin Scheme Privately financed nuclear pwer still unwise High risk, high cst t cnsumers Current privatizatin cnversatins are driving up TVA s cst f brrwing nw Natural gas pivtal t TVA, B&H cncepts Scale f gas plants reflects supply-side preference Industrial rate reductin is unfair TVA already has lw industrial rates B&H rate reductin amunts t $1.8 billin transfer t direct serve industrial custmers by brrwing n backs f all ther custmers Lwer risk chices: energy efficiency, wind, slar 3

4 With Watts Bar 2, TVA has sufficient baselad thru 2023 Bellefnte cst cmpares prly with Watts Bar, NGCC $575 M/yr Bellefnte $250 M/yr Watts Bar 2 $140 M/yr NGCC Bellefnte is unlikely t qualify fr Prductin Tax Credits Nt a pst-1993 advanced nuclear pwer facility Unlikely t be have an in-service date befre January 1, 2021 Surce: TVA, Cngressinal Briefing (September 13, 2013). Facility must be wned by a taxpayer (TVA is nt a taxpayer, it is a federal agency) Jhn Sevier cmbined cycle style lease (TVA hlds tax title) cannt be used t transfer benefits between TVA and a private nuclear plant wner 4

5 Cst f Capital at 5%; equity share nly 10% Assumes leaseback requires bps premium ver TVA rate Sensitivity restricted t a 6% study, csts culd easily g higher Windfall t prject finance team culd be ver $250 millin in fees TVA privatizatin review is driving brrwing csts up Unclear if B&H prpsal is linked t this larger issue Prject cst assumed lwer than TVA TVA: Unit $8.1 billin by 2021 B&H: Unit $7 billin by 2018, Unit $4 billin by 2020, plus cnstructin interest and $0.8 billin fr peratins B&H: Cst includes 40% cntingency, but still appears lw B&H: O&M csts are tday s best-case csts, n frecasting Prject cst assumes n cst verruns r delays N sensitivity tests n scheduling delays, cnstructin interest risk Bellefnte unit 2 requires 500 kv transmissin line with feasibility issues, 500 kv transmissin lines generally require a decade t cmplete Key cntract terms aren t spelled ut Prpsal desn t credit TVA with benefits f PTC; Wuld this represent a financial windfall fr develpers? Wh bears substantial financial risks assciated with PTC? Take-r-pay PPA prvisins PTC terms ptentially in cnflict with peratinal cntrl Failure t deliver due t an utage, replacement pwer Failure t meet in-service deadline fr reasns utside B&H cntrl Surces: TVA, Cngressinal Briefing (September 13, 2013); Btthrff and Haney, TVA Strategic Cnsideratins (September 2013). 5

6 Flawed Scheme Overstates Opprtunity: Cal Retirement Cst Savings While cal retirements wuld cut TVA csts substantially, this prpsal may slightly verstate TVA s remaining cst savings pprtunities. Plant (B Baselad) B&H Retain B&H 39 Unit Retirement Scenari TVA Idling Annunced Units Capacity Units Capacity CapEx* 2021 O&M* TVA Hasn t Annunced Idling Units Capacity CapEx* 2021 O&M* Allen MW $ 54 m $ 71 m/yr Bull Run B MW $ 105 m $ 20 m/yr Clbert MW $ 152 m $ 73 m/yr Cumberland B MW Gallatin MW $ 96 m $ 103 m/yr Jhn Sevier MW $ 102 m $ 35 m/yr Jhnsnville 2* 282 MW* MW $ 138 m n/a Kingstn MW Paradise B MW $ 55 m $ 210 m/yr Red Hills B MW Shawnee MW $ 150 m $ 111 m/yr Widws Creek MW $ 23 m $ 71 m/yr Ttal Units MW MW $ 392 m $ 108 m/yr MW $ 483 m $ 586 m/yr * Ntes: B&H presentatin has a typ: the prpsal discusses retirement f 39 units, nt 29 units. B&H presentatin indicates 2 Jhnsnville units t be retained, even thugh TVA has annunced idling fr all Jhnsnville units must be retired by 2017; presumably this relates t lcal service requirements fr an industrial custmer. All CapEx estimates are frm B&H presentatin. All MW are summer capability. Surces: TVA public annuncements; Btthrff and Haney, TVA Strategic Cnsideratins (September 2013). 6

7 Flawed Nuclear Privatizatin Scheme: Cal Retirement Opprtunities B&H analysis rests n prspect f: $875 millin in avided CapEx expenditures, $694 millin in avided annual O&M csts, and Assuming aviding envirnmental cntrls at 29 TVA cal plant units representing 9737 MW f summer capacity. The B&H analysis has several bvius flaws: The 39 units selected fr retirement are nt the result f a standard utility planning mdel analysis. TVA wuld likely identify a different set f pririties fr retirement. Several f the cited dates fr idling and retirement are mistaken. T&D csts wuld be substantial as plants are idled; prpsed retirements aren t ptimized fr reliability. Jhnsnville: Tw units already scheduled fr idling nt included in B&H analysis; n O&M savings at all. Duble cunting: 45% f CapEx and 15% f O&M savings pprtunities estimated by B&H are assciated with 17 units that TVA has already idled r scheduled fr idling. Implicatins f duble cunting: Remaining 22 units identified by B&H as gd candidates fr retirement represent nly 6934 MW with estimated CapEx f $483 millin and 2021 O&M savings f $586 millin. The B&H analysis rests n several uncertain assumptins: Envirnmental cntrls fr cal plants assumed t cst $24.7 per kw. O&M savings basis is nt explained. B&H estimate in cntext: Retiring nearly 60% f TVA s cal capacity, which wuld therwise be upgraded with envirnmental cntrls that wuld add O&M csts, represents less than 20% f TVA s current O&M csts. Bttm line n cal retirement pprtunities: Mistakes in representing TVA s current idling annuncements verstate ptential savings pprtunities. Assumptins abut capital and O&M csts assciated with keeping specific plants nline may understate ptential cst savings. While cal retirements wuld cut TVA csts substantially, this prpsal may slightly verstate the remaining cst savings pprtunities. 7

8 Natural Gas: Grwing Rle at TVA TVA s plans fr additinal natural gas generatin Cngressinal briefing cites favrable csts fr natural gas cmpared t Bellefnte TVA als anticipates adding abut 3-4 GW f additinal capacity Retirements drive needs fr new pwer surces at key pints n TVA transmissin system that Bellefnte can t supply. B&H discuss, but dn t analyze, natural gas expansins Describe 3,160 MW f additinal natural gas capacity N financing assumptins included in B&H presentatin N reserve margin assumptins in B&H presentatin (ptentially understating capacity need) Assumes 25 years fr lifetime f capacity value (Duke using 35 years fr CT unit) TVA is making these decisins within a unified resurce planning framewrk 8

9 Fuel Cst Rate Base Rate 30% cut 5.7 c/kwh 4.0 c/kwh TVA has demnstrated that its industrial rates remain amng the lwest in the US. B&H prpse 30% cut in industrial rates Tday: 5.7 c/kwh, (inc. 2.4 c/kwh fuel) B&H prpsal: 4.0 c/kwh Equivalent t 50% base rate cut Industrial custmers cntributin t fixed csts wuld be less than 1/3 rd that f ther custmers. B&H prpsed $1.8 billin direct serve industrial rate cut is nt pssible withut well ver $14 billin in private financing B&H financing t be repaid by ther residential, cmmercial and industrial custmers Surces: TVA, Cngressinal Briefing (September 13, 2013); Btthrff and Haney, TVA Strategic Cnsideratins (September 2013). 9

10 Resurce Planning Can Deliver Clean Energy Resurces TVA is starting its resurce planning prcess. Resurce planning cnsiders energy alternatives in a cmprehensive framewrk. SACE anticipates that a lw carbn slutin will fcus n energy efficiency, wind, and slar. Efficiency is the least-cst fuel, drives dwn rates, takes pressure ff generatin build schedules Wind is an pprtunity fr retiring cal plants HVDC transmissin ffers the lw-cst ptin In-Valley wind will als cmpete favrably n cst Slar can augment wind t prvide cmpelling alternative t Bellefnte n cst, perfrmance and risk 10

11 Energy Efficiency Culd Mitigate Need t Build Gas Capacity TVA appears t anticipate abut 1,500 MW f EE/DSM npeak capacity cntributin by 2020 A strng, well-funded EE/DSM prgram shuld be able t achieve ver 3,500 MW by 2020 Energy efficiency is the ONLY system resurce ptin with the ptential t drive dwn energy bills fr the majrity f custmers SACE s study f Gergia Pwer shwed that a prgram that reaches 50-60% f its custmers ver 10 years will reduce their bills by as much as 15-20% n average 11

12 Energy efficiency csts abut the same as the cheapest pwer plant ($850 per kw) with n fuel csts Benefit far exceeds cst Sutheast utility experience: EE Benefit: $ per MWh EE Cst: $10-30 per MWh B&H frecast csts: Bellefnte: $45 per MWh Natural Gas: $56 per MWh Efficiency Benefit ($ per MWh) Duke Carlinas 97 Duke Prgress 113 SCE&G 92 TVA (2010) 91 Pacificrp (Utah) 87 Avista (Washingtn) 88 Average 95 Surces: SACE analysis f PURPA rates filed by utilities, generally fr 2012: SACE analysis f Duke Carlinas (2012) and Duke Prgress (2012) IRPs; SC&G IRP (2012); Pacificrp IRP (2011); and Avista IRP (2011). Average excludes Gergia Pwer. 12

13 Wind: The Real Opprtunity fr Retiring Cal Plants B&H best-case private finance scenari ffers pwer at $48 / MWh Prject delivers 2,520 MW n-peak Baselad is unnecessary (see slide 4) Unrealistic assumptins (see slide 5) HVDC wind ffers pwer at $44 / MWh Clean Line P&E ffers pwer at $44 / MWh Declining market price fr wind suggests bulk f cst estimate is lw risk (assumes cst f capital f 9%) Cst assumes meeting PTC deadline Even if 20% f energy ges unsld due t minimum lad (turndwn capability), price nly increases t abut $55 / MWh (Clean Line) Clean Line can deliver effective n-peak capacity f 2,205 MW (4375 x 50.4% n-peak EC) Suthern Crss can deliver n-peak capacity f MW (3000 MW in bi-directinal mde) Surces: Clean Line Energy Partners, materials supplied t TV-RIX (April 2013, August 2013). 13

14 In-Valley Wind Will Cmpete In-Valley wind at $45-60 / MWh with 48% net capacity factr GE Wind & Pineer Green Energy estimates 3,200 MW f pprtunity in regin, multiple develpers waiting fr custmer interest Shinbne Wind Prject already under develpment Develpers are being enabled by new fcus n turbines designed fr lwer windspeed areas Lnger rtrs capture lwer winds Turbine designs generate mre energy & mre n-peak capacity Surces: General Electric Wind, Pineer Green Energy, materials supplied t TV-RIX (August 2013). 14

15 Hw Slar Culd Augment Wind Slar price trends are headed way dwn virtually guaranteeing that In-Valley slar pwer will undercut Bellefnte csts Slar pwer in western Oklahma r Texas differs frm in-valley slar in several respects Apprximately 25% mre electric prductin Peak ccurs apprximately 1 hur later 5% transmissin lss penalty Verdict uncertain: HVDC develpers have nt yet mdeled ecnmics f slar + wind ptin During n-peak resurce perids, up t 1,000 MW f delivery capacity n HVDC lines shuld remain available at n cst (same prject csts spread ver a larger delivery) Hwever, when wind and slar are bth peaking, pwer delivery wuld be cnstrained Pwer delivery cnstraints shuld be balanced against benefits f western-sited slar lad shape t determine viability Surce: Clean Line Energy Partners, Plains & Eastern Clean Line Prject Prpsal (July 2010). 15

16 Wind and Slar Offer Baselad / Intermediate Generatin Flexibility HVDC Tx prjects are superir alternatives t Bellefnte 1 & 2 Similar n-peak capacity at a lwer cst Enhancements include In-Valley wind Slar (In-Valley r HVDC) Advantages include N water resurce needs Surce: TVA, Cngressinal Briefing (September 13, 2013). Reduced risk f maintenance utages Immediate availability fr minimum lad turndwn Private PPA develpment n lease-back management respnsibility 16