Renewable and Clean Mechanisms 2.0 Study Phase I: Scenario Analysis Winter 2017 New England States Committee on Electricity
Overview Context Analytical Approach and Modeling Assumptions Scenario Analysis Mechanisms Analysis Modeling Results, Capacity, and Emissions Missing Money Phase I: Scenario Analysis - Observations Next Steps 2
What the Analysis will Not Provide The modeling is illustrative, rather than predictive. It is based on many assumptions, any one or more of which history may prove wrong to varying degrees. The analysis will provide directionally indicative information about a range of hypothetical scenarios. It is not a plan, and it is a not a collective or individual state view of or preference about the future. The costs LEI s model identifies are based on assumptions and therefore should not be interpreted as an actual price tag. The Study does not attempt to: Precisely forecast the timing of future generator retirements, or infrastructure development. Evaluate cost-effectiveness under an avoided cost approach. Optimize the level, timing, or location of renewable and clean energy resources. Suggest winners or losers. This study should be viewed accordingly, and critically. NESCOE welcomes from market participants or others any facts or data that clarify, correct, or should be considered in reviewing the study results. 3
Context for Mechanisms 2.0 Study 4
Mechanisms 2.0 Analytical Approach Scenario Analysis Prices Emissions Missing Money Scenario Analysis provides information from predefined scenarios Mechanism Analysis Renewable Portfolio Standard Clean Standard Contracts for Renewable or Clean Power Attributes Capacity $ Transmission Centralized Procurement Capacity Mechanism Analysis provides information to evaluate possible paths forward to meet objectives As in the background paper, producing information about a range of mechanisms is not intended to, and should not be interpreted to, suggest a preference for any particular mechanism. The work product is not a plan: it will only provide a directionally indicative sense of a range of hypothetical futures. 5
LEI Modeling and Economic Analysis Modeling results inform and Capacity Revenues Going Forward Cost Estimates "Missing Money" (or Profits) LEI developed going forward cost estimates for new and existing resource types Existing Resources New Resources Missing Money estimates for each resource type inform the mechanisms analysis This assumption affects the results and should be considered when interpreting Missing Money estimates 6
Scenario Analysis Design Expanded RPS: Renewables with Added Transmission Expanded RPS 35-40: - 35% by 2025-40% by 2030 Resource and Infrastructure Expansion Scenarios Clean Imports: Imports with Added Transmission : - 40% by 2025-45% by 2030 Renewable and Clean : Renewables, Imports, Transmission, and Existing Clean Resources Gas Prices Hypothetical "What If" Scenarios s: Assumed Accelerated Expanded RPS Without Transmission: Renewables with No Transmission ( ) **For Illustrative Purposes; this is not designed to reflect a realistic outcome** 25% Increase in Gas Prices 50% Increase in Gas Prices 7
Mechanisms 2.0 Represents Business As Usual A variation on London Economics International s (LEI) multi-client Continuation of existing state policies related to RPS and carbon emissions Current RPS targets with transmission transfer limits based on recent ISO-NE analysis LEI adds on-shore wind capacity until transmission interfaces constrain new entry Current RGGI allowance price forwards through 2020 are escalated at an assumed inflation rate (2%) Just in time economic new entry and retirements based on forecasted market dynamics Results of Forward Capacity Auctions (FCA) through FCA 10 incorporated into new entry and retirements Integrated energy and capacity market modeling through the study period; includes convex demand curves Cost of New Entry (CONE): Combined Cycle Gas Turbine is Offer Review Trigger Price ($9.46/kWmonth) based on recent FCA results and perceived CONE trend Baseline expectations for load growth under weather normal conditions ISO-NE CELT 50/50 Load Forecast, net of Efficiency and behind-the-meter Solar PV LEI s proprietary fuel price forecasts, based on known and committed infrastructure projects Levelized Cost of Pipeline model for Algonquin City Gate natural gas delivered prices Current forwards and actual historical prices escalated at EIA-forecasted growth rates for oil and coal Imports from neighboring systems assumed to continue historical trends over existing ties No Clean RFP respondents have been included in the 8
Alternative Scenarios ***Inherit Assumptions from *** Scenario Design - Assumptions Scenario Generation Transmission Imports Expanded RPS 35% by 2025 40% by 2030 40% by 2025 45% by 2025 Clean Imports s Combined Renewable and Clean No Transmission s FCA 10 FCA 10 + 1,155 MW On-Shore Wind + 277 MW Solar PV + 30 MW Off--Shore Wind + 2,194 MW Natural Gas 3,350 MW units retire by 2025 New Entry 2025 2030 +2,750 MW On-Shore Wind +600 MW Solar PV +1,500 MW Off-Shore Wind +1,694 MW Natural Gas +4,250 MW On-Shore Wind +1,000 MW Solar PV +2,000 MW Off-Shore Wind +1,694 MW Natural Gas FCA 10 + 1,155 MW On-Shore Wind + 402 MW Solar PV + 30 MW Off--Shore Wind + 3,694 MW Natural Gas +3,575 MW On-Shore Wind +1,000 MW Solar PV +2,000 MW Off-Shore Wind +1,694 MW Natural Gas +5,500 MW On-Shore Wind +1,250 MW Solar PV +2,500 MW Off-Shore Wind +1,694 MW Natural Gas ISO-NE RSP List (June 2016 PAC Transmission Transfer Capabilities Update) + 2,400 MW HVDC + 3,600 MW HVDC Historical trends continue over existing ties +1,694 MW Natural Gas + 2,694 MW Natural Gas +1,000 MW HVDC +1000 MW CSO (7.9 TWh/year) + 5,194 MW Natural Gas + 7,194 MW Natural Gas +4,250 MW On-Shore Wind +1,000 MW Solar PV +2,000 MW Off-Shore Wind +1,694 MW Natural Gas +4,250 MW On-Shore Wind +1,000 MW Solar PV +2,000 MW Off-Shore Wind +1,694 MW Natural Gas +5,500 MW On-Shore Wind +1,250 MW Solar PV +2,500 MW Off-Shore Wind +2,194 MW Natural Gas +5,500 MW On-Shore Wind +1,250 MW Solar PV +2,500 MW Off-Shore Wind +1,694 MW Natural Gas +3600 MW HVDC +1000 MW HVDC +1000 MW CSO (7.9 TWh/year) +3600 MW HVDC 9
Scenario Design: Assumptions Scenario 1: Expanded RPS 35%-40% ( Expanded ) 2: RPS 40%-45% ( ) 3: Clean Imports ( Imports ) 4: Combined Renewable and Clean ( Combined ) 5: s ( No ) 6: Expanded RPS Without Transmission ( No Transmission ) 10
Forecasted Market Prices $75 s Gas x 1.5 Dollars per Megawatt-Hour ($/MWh) $70 $65 $60 $55 $50 $45 $40 $35 s Gas x 1.25 s Clean Imports Expanded RPS 35-40 without Transmission $30 2025 2030 Combined Renewable and Clean 11
Forecasted Capacity Market Prices Dollars Per Kilowatt-Month ($/kw-month) $16 $14 $12 $10 $8 $6 $4 2025 2030 s Clean Imports Expanded RPS 35-40 RPS 40-45 Combined Renewable and Clean 12
Forecasted Power Sector Carbon Emissions 2025 2030 45 Million Short Tons Carbon Dioxide 40 35 30 25 20 15 10 s Gas x 1.5 s Gas x 1.25 s Clean Imports Potential 2025 RGGI Target: 23.3 Million Tons Expanded RPS 35-40 Potential 2030 RGGI Target: 20.5 Million Tons without Transmission Combined Renewable and Clean 13
Market Competitive Dynamics Market Supply Curve 2025: Annual Average Market Supply Curve 2025: Summer v. Winter $200 $200 Market Supply Offers ($/MWh) $150 $100 $50 $0 Summer Demand Range Winter Demand Range 0 5,000 10,000 15,000 20,000 25,000 30,000 Market Supply (MW) Market Offer Price ($/MWh) $150 $100 $50 $0 Seasonal Natural Gas Price Effect 0 5,000 10,000 15,000 20,000 25,000 30,000 Market Supply (MW) Hydro Wind Solar Biomass Natural Gas Fuel Cell Dual Fuel Oil Hydro Wind Solar Biomass Natural Gas Fuel Cell Dual Fuel Oil 14
Scenario Analysis and Market Competition Market Offer Price ($/MWh) $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Annual Demand Range 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Market Supply (MW) s Clean Imports Expanded RPS 35-40 Combined Renewable and Clean 15
Excess Supply Effect on Production Biomass Existing Wind 100% Capacity Factor (% ) 80% 60% 40% 20% 0% 2025 2030 2025 2030 2025 2030 2025 2030 2025 2030 2025 2030 Clean Imports Expanded RPS Expanded RPS Expanded RPS 35-40 40-45 without Transmission 40-45 Combined Renewable and Clean 16
Estimated Missing Money: Selected Resource Types - 2025 Existing Natural Gas Existing Dual Fuel New Dual Fuel Existing Wind Existing Solar New Solar New Wind New Off-Shore Wind $120 Missing Money ($/MWh) $100 $80 $60 $40 $20 $0 -$20 -$40 Gas*1.5 Gas*1.25 Clean Imports Expanded RPS 35-40 w/ Tx Cost w/ No Tx w/ Tx Cost Combined Renewable and Clean w/ Tx Cost 17
Estimated Missing Money: Selected Resource Types - 2030 Existing Natural Gas Existing Dual Fuel New Dual Fuel Existing Wind Existing Solar New Solar New Wind New Off-Shore Wind $115 Missing Money ($/MWh) $95 $75 $55 $35 $15 -$5 -$25 -$45 -$65 -$85 Gas*1.5 Gas*1.25 Clean Imports Expanded RPS 35-40 w/ Tx Cost w/ No Tx w/ Tx Cost Combined Renewable and Clean w/ Tx Cost 18
Estimated Missing Money: Existing Natural Gas 2025 2030 $20 Missing Money ($/MWh) $0 -$20 -$40 -$60 Gas*1.5 Gas*1.25 Clean Imports Expanded RPS 35-40 w/ No Tx Combined Renewable and Clean 19
Estimated Missing Money: New Dual Fuel 2025 2030 $25 $20 Missing Money ($/MWh) $15 $10 $5 $0 -$5 Gas*1.5 Gas*1.25 Clean Imports Expanded RPS 35-40 w/ No Tx Combined Renewable and Clean 20
Estimated Missing Money: Existing Solar PV 2025 2030 $100 Missing Money ($/MWh) $80 $60 $40 $20 $0 Gas*1.5 Gas*1.25 Clean Imports Expanded RPS 35-40 w/ No Tx Combined Renewable and Clean 21
Expanded RPS Scenarios and Treatment of Transmission for New On-Shore Wind Resources Scenario: Transmission for Deliverability Assumption of Transmission Costs Responsibility Expanded RPS 35%-40% RPS 40%- 45% Included in the Model (assumes adequate transmission has been built), Enabling Renewable Delivery Included in the Model (assumes adequate transmission has been built), Enabling Renewable Delivery Outside of the Markets as an Elective Transmission Upgrade ( ETU ) or Public Policy Project Paid for by New On-Shore Wind Resources in their interconnection agreements Outside of the Markets as an ETU or Public Policy Project Paid for by New On-Shore Wind Resources in their interconnection agreements RPS 40%- 45% without Transmission Not modeled, resulting in Congestion and Curtailments None 22
Estimated Missing Money: New On-shore Wind Resources 2025 2030 $120 $100 Missing Money ($/MWh) $80 $60 $40 $20 $0 Gas*1.5 Gas*1.25 Clean Imports Expanded RPS 35-40 Expanded RPS 35-40 w/ Tx Cost w/ No Tx w/ Tx Cost Combined Renewable and Clean Combined Renewable and Clean w/ Tx Cost 23
Phase I: Scenario Analysis Observations 1. When the LEI model adds new renewable generating resources or additional clean energy imports to the New England system with zero or very low marginal costs, those added resources have the effect of decreasing the amount of money that all resources earn from New England s capacity and energy markets. 2. Under load conditions, if the region adds more than 25,000,000 MWh (annually) of new renewable resources and/or clean energy imports by 2025, existing renewable and clean energy resources produce less power. The assumed load forecast in all scenarios includes regional energy efficiency programs and distributed generation impacts consistent with the 2016 ISO-NE Capacity Loads and Transmission ( CELT ) Report s load forecast net of passive demand resources and behind-the-meter solar photovoltaics. 3. In the, if New England maintains current RPS targets and does not add transmission for new on-shore wind, the modeling shows that there will not be enough renewable resources to satisfy the states aggregated RPS targets in 2025 and 2030. 4. If New England does not build new transmission to allow new on-shore wind resources to move power to population centers, both new and existing on-shore wind resources will operate less often and earn less revenue in 2025 and 2030. 5. Under every hypothetical scenario, LEI s analysis projects that nuclear units, existing oil combustion turbines, oil internal combustion turbines, oil steam, and pumped storage remain profitable in 2025 and 2030. 6. If New England s nuclear resources retire and/or if New England has only enough renewable resources to meet current RPS levels, New England s emissions will increase significantly. 7. Different types of renewable and clean energy resources have different effects on wholesale electricity costs and emissions. 24
NESCOE welcomes from market participants or others any facts or data that clarify, correct, or should be considered in reviewing the study results Questions? information is available at nescoe.com 25