US Energy What's next... and beyond? September 2013
What will shape US energy policy? Technologies Maturity, costs Security of supply oil imports Environmental target GHG, SOx, NOx.. Availability of resources Oil, gas, wind, solar... Competitive dynamic Who can invest Overall competitiveness Direct energy costs, cost of living Costs to rate payers - Power, natural gas, fuel Jobs (green or not) new investment, operations, fuel value chain Columbia SIP Sept 2013 vsent.pptx 1
What's the starting point emissions? Mt CO2 eq 7,000 CO2 Energy emissions USA +21% +11% 6,000 5,000 4,000 3,000 31% 2,000 38% Industry Transportation Electricity generation 1,000-1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source:Inventory of U.S. Greenhouse Gas / EPA Columbia SIP Sept 2013 vsent.pptx 2 33% 41%
What's the starting point energy independence? Quadrillion Btu Total US energy consumption and production 120 100 80 17% Consumption 30% 16% 60 Import 40 20 0 199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013 Source: EIA AEO Columbia SIP Sept 2013 vsent.pptx 3
Where will the US be in 2030? Low Beyond: 2050 Long term: 2030 CO2 intensity High Mid term : 2020 Today Medium? Energy independence High Columbia SIP Sept 2013 vsent.pptx 4
Will we (always) keep the light on? Columbia SIP Sept 2013 vsent.pptx 5
... in a context where utilities face numerous uncertainties Policy uncertainties Customer behavior uncertainties "Smart home" acceptance Retail switching Social media DR/EE uptake Economic uncertainties GDP/ demand growth Capital market access Interest rates & allowables Retail, market design Cyber CO 2 5 Transmission Decoupled rates Energy policy Rate design CSAPR, MACT, 316(b), HAPS, etc. RPS NERC Technology uncertainties Renewables EV/storage Smart meters "Smart grid" HAN/smart appliances Superconducting FCL Expectations Customers Flat rates Higher reliability Lower emissions More renewables New products/ services Customer service Shareholders Higher earnings Stable to growing dividends Quality credit Other Community service Attractive employer Grid uncertainties Transmission upgrades NERC CIP Compliance (Cyber) "Distribution 2020" Commodity price uncertainties Coal (global links) EV costs (storage) EPC equipment Natural gas (shale) Generation uncertainties Fukushima repercussions New-build technologies Renewable costs Sustainability of merchant markets Coal retirements Columbia SIP Sept 2013 vsent.pptx 6
When can renewable be a meaningful part of the solution? Average electricity price for households in 2012 in $/kwh 0.25 HI Iso-LCOE curves at a PV system price 1 of 0.20 0.15 0.10 0.05 0.00 1200 AK 1400 VT MA Generation capacity in GW (2010) NH NY CT RI MI 1600 OH NJ WI WV IN KY ME PA DE MD SC AL MN TN WA MT SD IL IA NC GA ND ID AR LA MS MO OR 1800 Residential grid parity by 2017 at current electricity prices KS OK WY NE 1. For 10kWp roof-mounted system; electrical storage not included, year end prices; does not account for accelerated depreciation benefit Note: Assumptions: Performance ratio of PV system 85%; lifetime 20 years; discount rate 5%; annual OPEX as percentage of initial CAPEX 1%; assumed electric prices grow at inflation Source: Solar Electricity Handbook (online); IEA Electricity Information 2011; LBNL; NREL database; BCG analysis Columbia SIP Sept 2013 vsent.pptx 7 FL 2000 CO TX UT 2200 CA AZ NM NV 2400 2600 Solar irradiation on optimally inclined plane in kwh/m 2 /year 4.50 $/Wp (2012) 3.20 $/Wp (2012 w/ 30% ITC) 2.50 $/Wp (2017) 2.25 $/Wp (2017 w/ 10% ITC)
What about Natural Gas? Gigatonnes of CO 2 caused by electricity generation 3 2 Today 1990 1 0 2011 2030 2050 Year BAU Gas Low emissions 1. Natural Gas heavy generation portfolio constructed from maintaining current share of nuclear and renewable generation and replacing all other generation with natural gas Columbia SIP Sept 2013 vsent.pptx 8
Sufficient cheap gas exists to supply US for 50 years at <6$MMbtu Marginal capital cost ($/MMBtu) 8 US gas supply curve 6 US consumes ~25 Tcf per year 4 2 0 0 100 Source: EIA, Deloitte 200 300 400 500 600 700 800 900 900 Tcf of gas <$4 /mmbtu 1200 Tcf of gas <$6/mmbtu marginal cost 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 Enough gas <$6 to supply US for roughly 50 years at level of 2011 demand Cumulative reserve additions (Tcf) Columbia SIP Sept 2013 vsent.pptx 9
Where will the US be in 2030? Low Beyond: 2050 Long term: 2030 CO2 intensity High Mid term : 2020 Today Medium Brown out? Renewable breakthrough Gas/ RPS Energy independence Muddle through High Columbia SIP Sept 2013 vsent.pptx 10
Are technologies already available? Direct emissions by sector Key levers and technologies CO 2 emissions (Gt) 8 6 BAU Electrification and fuel switching Bio fuel (1st and 2nd generation) 4 2 0 2010-42% vs. 2005 level 2020 2030-83% vs. 2005 level 2040 2050 Electric Generation Transportation Industrial Administration's goals Residential & Commercial Advanced ICE, PHEV Energy efficiency Wind, solar Nuclear Columbia SIP Sept 2013 vsent.pptx 11
... but how much are willing to pay? Cash flow compared to BAU Present value of savings compared to BAU Cumulative Cash Cost ($B, 2009) 3,000 2,000 1,000 0-1,000-2,000 Long term savings through reduced consumption and lower fuel and operational costs Up-front investments in energy efficiency and decarbonizing generation 2010 2020 2030 2040 2050 Peak funding of approximately $1T Note: Present value discounted to 2010 using a 3, 5, or 7% real discount rate, as shown Cumulative Discounted Cost ($B, 2009) 3 percent 5 percent Columbia SIP Sept 2013 vsent.pptx 12 3,000 2,000 1,000 0-1,000-2,000 7 percent Real discount rate
Can we be rationale about energy policies? Scenarios KPI Units BaU EE & RES Advanced Thermal Diverisified GHG emissions M tons 5.128 2.231 2.231 2.231 RES in energy demand % 21,5 43,3 33,1 37,9 Energy Price /MWh 105 124 136 119 Competiti -veness Security of supply Sustainability Implementation Source: E3MLab Primes model; BCG analysis Energy weight in GDP % 8,1 10,0 9,8 9,4 Employment Millions 0,9 1,7 1,3 1,5 Export potential Qualitative Limited Medium High Very High Imports volume M toe 1375 789 969 884 Foreign bill Bn 635 422 532 444 Ease of implementation Qualitative n.a. Very Difficult Medium Difficult Risk of not achieving results Qualitative n.a. Very High High Moderate Best 2nd best 2nd worst Columbia SIP Sept 2013 vsent.pptx 13 Worst
Can we effectively aligned stakeholders? Smart Grid Initiative ITC and PTC ARRA 20009 Energy policy Act - 2005 Loan Guarantee Program White House Congress: Energy legislation PLEX, COL CASPR Renewable network connection DOE: Security, safety and innovation FERC: interstate, transmission,reliability Nuclear regulatory Ene4rgy star Demand Response Capacity market EPA: Environmental regulation NERC/RTOs: Reliability, Wholesale markets Utilities and IPPS: Industry lobby Locals : Not In My Backyard State Local energy policy RPS, EE etc. Dept. of Interior: Land use and wide life e.g., California 33% in 2020 Bill 32 on CHG --25% Environmental groups State Public Utility Commissions Deregulation Utility rate case REC, SREC New buildin Smart meters and smart grid Columbia SIP Sept 2013 vsent.pptx 14
So what's next and beyond? Low Beyond: 2050 80 /80 Long term: 2030 CO2 intensity High Mid term : 2020 Today Medium Brown out? Renewable breakthrough Gas/ RPS Energy independence Muddle through High Gas and renewable Columbia SIP Sept 2013 vsent.pptx 15