Energy-Environment Relationship: How Much Does Environmental Regulation Affect Investment in Energy Infrastructure?

Energy-Environment Relationship: How Much Does Environmental Regulation Affect Investment in Energy Infrastructure? Marji Philips PSEG Energy Resources & Trade LLC 973-430-6893 Marji.philips@pseg.com

I can see clearly now the rain has gone RGGI CO2 reductions RSP requirements NOx and SOx reductions High cost of meeting policy goals

Here comes the sun NJ Initiatives From $300 Solar Renewable Energy Credit to $711 1 mwhr = 1 credit PSEG estimate of all in solar costs: $5,000/kw 12% capacity factor How we roughly do the calculations: ($5000/kw) (20% [carrying charge]) = $1,000Annual Carrying Cost per kw installed NOTE: carrying charges include equity, debt, O&M, depreciation, taxes, etc. $1,000/kw-year = $.95/kwhr x 1000 = $950/mwhr (.12)(8760 [hours/year])1kw

Let the sun shine (make it shine) PSEG (utility) offering to fund a 30 mw solar initiative for $100m Not a market failure; market doesn t provide sufficient revenues To achieve regulatory policy goals, can make out-ofmarket investments with some guarantee of cost recovery

I m just an old chunk of coal, but I m gonna be a diamond someday According to PJM MMU, coal plant costs are: Fixed: $44/mwh Variable: $33/mwh Total: $77/mwh Plus Environmental Upgrades? The company also adjusted its projections for the capital expenditures required to comply with the Maryland Healthy Air Act. Previously, the company had expected the expenditures to be between $1.3 to $1.5 billion by the end of 2009. In light of changes in the scope of the work and rising costs for materials, the company now expects those expenditures to be approximately $1.6 billion. (Mirant, March 5, 2007) (approximately 2,500 mws identified in filings) PSEG announced a $750m commitment to upgrade Hudson 2 (approx. 495 mws)

Windmills of your mind Bluewater Wind will build 150 energy-producing g turbines off the coast of Rehoboth Beach by about 2014 at an estimated cost of $1.6 billion (between 300-400mws) 30% capacity factor Delmarva would pay 10.59 cents per kilowatt hour for the wind energy (The Daily Times, Salisbury, MD, 9/13/07) $100 mwhr

Assumptions All-in Fuel Unit Capacity Fixed Variable SO2 & Total w/o Carbon Cost Total with $5 Fuel Tech Type CapEx ($/KW) Cost ($) Heat Rate (btu/kwh) Factor (%) Cost ($/MWh Cost ($/MWh) NOX Cost ($/MWh) Carbon ($/MWh) $5/Ton ($/MWh) Carbon ($/MWh) CC 975 8.0 7,200 70 ) 21 60 0.4 81 1.9 83 Natural CT (LM 6000) 750 8.0 10,000 15 76 82 1.0 159 2.4 161 Gas CT (LMS100) 915 8.0 9,000 25 54 74 1.0 129 2.4 131 SCPC 3,050 2.0 9,000 85 51 21 1.6 74 4.2 78 Coal IGCC 3,975 2.0 8,900 73 78 21 1.6 101 4.2 105 CFB 3,100 2.0 10,000 80 55 23 2.8 81 4.7 86 Nuclear 3,500 0.7 10,300 90 66 8-74 - 74 Biomass 3,000 2.0 15,000 85 50 40 2.5 93-93 Geothermal 4,050 - - 90 60 20-80 - 80 Hydro 2,175 - - 40 69 - - 69-69 Wind On-shore 2,250 - - 36 90 - - 90-90 Off-shore 5,500 - - 50 155 - - 155-155 Ocean Wave 7,500 - - 36 364 - - 364-364 Solar CSP 6,000 - - 38 217 - - 217-217 PV 8,000 - - 20 492 - - 492-492 Notes: (1) Includes all Fixed, O&M and Financing Costs (including IDC) in 2007 dollars (2) Does not include the cost of any required transmission upgrades (e.g. off-shore wind would increase greatly (e.g. for LIPA/FPL project goes from $5,000/KW to $5,800/KW to include grid hook-up) (3) Fossil plants include variable environmental costs (i.e. NOX @ $5000/t and SO2 @ $500/t) (4) Fossil plants (e.g. Coal IGCC) do not include carbon capture and sequestration costs (5) Recent cost disclosures: AEP Meig's County IGCC ($3,540/KW); Dominion CFB (2,735/KW); Wind: PG&E OnShore ($2080/KW) and FPL Offshore project ($5,000/KW) Source: Internal PSEG Analysis

Turn turn turn (to the spot markets?) PJM State of the Market Report prepared p by the Market Monitor stated that energy revenues were on average $53/mwh in 2006 Adding highest RPM revenue stream to date ($210/mw- day in SWMAAC) adds approximately $12.5/mwhr For total revenue of $66/mwhr

The answer is blowin in the wind?

You ain t seen nothing yet RSP Costs NJ Article predicts costs to meet solar goals (roughly 1500 mws) will cost NJ residents $6 billion over the next three decades Costs of carbon legislation based on pounds per mwh (2,240 lbs. = 1 ton) are predicted to be: $10/ton = $10/mwh (coal) $10/ton = $3.75-5/mwh (average gas) Total costs will depend on which fuel is on the margin

We need infrastructure investment We need to work as a team regulators, legislators, politicians, stakeholders to educate consumers and environmental policy makers about the costs to meet environmental social goals