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California Energy Markets:Where We Have Been & Where We
Are
Independent Energy Producers AssociationAnnual Meeting
September 20, 2012
William A. MonsenMRW & Associates, LLC
Oakland, [email protected]
Overview of Presentation Hypothesis Technological Changes Policy Changes Resulting Market Changes Wild Cards
2
Hypothesis Over the past 10-15 years, we have seen
huge technological and policy changes These changes caused major changes in
the electric and natural gas markets in California
Market changes then induced additional technological and policy changes
3
Technological Changes Generation Technology
Combustion turbines and combined cycles Improved efficiency and operating characteristics
Solar & Wind Decreased costs, particularly with photovoltaics
Natural Gas Extraction Technology Drilling technology Hydraulic fracturing
4
Key Policy Changes Wholesale Market Structure
CAISO and PX QF and IPP programs
Resource Planning Approach Environmental Concerns
Limit fossil fuel use through RPS and Energy Efficiency
Reduce GHG emissions Control thermal emissions from OTC plants
5
Changes in Wholesale Market Structure In late 1990s, merchant generators would
replace QFs as the main generation competitors for the IOUs
Rise and fall of the California Power Exchange (PX) day-ahead and hour-ahead market
CAISO introduces MRTU Upgrade in 2009 Introduced nodal pricing Integrated forward market and day-ahead
market
6
Change in QF Policy QF procurement policy defined SRAC pricing linked to market Utilities relieved of must-buy obligation (large QFs)
7
Market Index Formula
Resource Planning After the Energy Crisis, shift from market-based
resource development to a more centralized planning process Result is longer-term PPAs and utility-owned generation
SB 1389 in 2002 requires the CEC to adopt a biennial Integrated Energy Policy Report (IEPR)
SB 1078 in 2002 establishes 20% RPS Originally 20% by 2017, then amended in 2006 to 20% by
2010, followed in 2011 by an increase to 33% by 2020 Targets to be met through annual renewable RFOs
2003 interagency Energy Action Plan sets new priorities Establishes “Loading Order”
8
Renewable Cost Containment Supplemental Energy Payments (SEPs)
Established by SB 1078 in 2002 CEC funds available to generators to cover costs
above the Market Price Referent Above Market Funds (AMF)
In 2007 SB 1036 replaced SEPs with AMF program Electric corporation now responsible for cost
recovery of above-market transactions Maintained total cap on available funds Utility AMFs exhausted by the end of 2009
New cost-containment approach being developed pursuant to SB1X-2
9
Energy Efficiency Policy Energy Action Plan established energy efficiency
as the first priority in California’s loading order AB 32 emphasized energy efficiency savings CPUC has been active in this area
D.07-09-043 authorized the RRIM, an reward/penalty system to encourage utility energy efficiency savings
Long-Term Energy Efficiency Strategic Plan adopted in September 2008, setting goals for maximizing efficiency savings through 2020 and beyond
Current CPUC rulemaking proceeding (R.09-11-014) is examining post-2012 energy efficiency policies, programs, and evaluation approaches
10
GHG Regulation California Global Warming Solutions Act of
2006 (AB 32) Set goals for GHG emissions reduction by 2020 Directed California Air Resources Board to
oversee implementation Rise and Fall of Western Climate Initiative California Trudges On
Cap and Trade regulation First Seller Approach First Auction to take place this November for
compliance in 2013
11
Current Plans for Once-through Cooling Units CAISO identified a need of ~2,400 MW of replacement OTC generation
in the Western LA Basin with similar flexibility characteristics as existing units (more capacity if less flexible or farther from coast)
Huntington Beach re-started in response to SONGS outage; ultimate outcome for both SONGS and Huntington Beach uncertain
12
Markets React to Technology and Policy Changes Changes in resource mix
Lots of development with greater fuel and size diversity
Need for integrating resources New transmission projects
Fuel prices Lower gas prices push down cost of fossil
generation Creates benchmark competition for renewables
Power prices
13
California In-State Generation Mix
14Source: CEC Energy Almanac
20112000
Source of Imported Electricity
15
Imported electricity has become less carbon intensive
Source: CEC Energy Almanac
New Constraint on Planning Process Need for renewable integration has
created demand for flexible generation Planning reserve margin concept is
evolving Additional flexibility requirements may
pre-empt planning reserve margin Risk is shifting from a generation outage
risk to a grid outage risk
16
A Decade of Transmission Policy Transmission development not a major issue prior to
the energy crisis; now part of daily dialogue 2003 Energy Action Plan identifies upgrading and
expanding transmission and distribution infrastructure as one of its critical actions
SB 1565 in 2004 requires CEC to adopt a Strategic Transmission Investment Plan in its biennial IEPR
Several new planning schemes have sprung up in last decade: RETI, Federal transmission corridors, California Transmission Planning Group (CTPG)
17
Post-Energy Crisis Historical Gas and Electricity Prices
18
Source: Megawatt Daily and Platt’s Gas Daily.
Recession and RPS Affect Wholesale Electric Market Lower loads and more must-run resources
increase reserve margins and drive down market heat rates
19
Adjusting to The New Market Realities (a.k.a. Dealing with Collateral Damage) To meet aggressive RPS targets, regulators
expand range of procurement options Greater concerns about rates increases
focus on renewable cost containment Offtakers expect option to order economic
curtail generation from new renewables Starting to see impacts of GHG legislation
in forward prices
20
Policymakers Pursue Range of Renewable Projects to Meet RPS Game is no longer only about large project
solicitations New market options create opportunities
for renewable projects of all sizes Renewable Auction Mechanism (1-20 MW) Feed-in Tariffs (less than 3 MW) Net Metering (less than 1 MW)
21
Some Wild Cards Still Lurking Nuclear future
Current licenses expire in 2022 and 2024 Prior assumption that plants would be re-
licensed and operate for at least another 20 yrs SONGS 2&3 steam generators and Diablo
seismic studies Energy efficiency and demand response
How to integrate “uncommitted resources” into planning process
Development of formal capacity market
22
Supporting Materials
24
Demand Forecasts
25
Demand Forecasting: Expect Bumps in the Road
26
Source: CEC Demand Forecasts 2000, 2007 and 2012
Current Demand Forecast
27
Source: CEC Demand Forecast 2012
Generation Technology and Cost
28
Combustion Turbines and Combined Cycles
29
2000 CCGT CT
Heat Rate (Btu/kWh) 6,800 9,100
Overnight Capital Costs ($/kW) 600 360
Purpose Baseload Peaking
Flexibility Poor-Fair Good-Excellent
2009
Heat Rate (Btu/kWh) 6,470 8,550
Overnight Capital Costs ($/kW) 957 801
Purpose Intermediate Peaking
Flexibility Fair-Excellent Good-Excellent
Sources: “Market Clearing Prices Under Alternative Resources Scenarios,” CEC Staff Report, February 2000; Klein, Joel. 2009. Comparative Costs of California central Station Electricity Generation Technologies, California Energy Commission, CEC-200-2009-017-SD. January 2010
Behind-the-Meter Solar PV Cost
30
Source: Barbose, Galen et al. Lawrence Berkeley National Laboratory. Tracking the Sun IV: An Historical Summary of the Installed Cost of Photovoltaics in the United States from 1998 to 2010. September 2011
Utility-Scale Solar PV Cost
31
Source: Barbose, Galen et al. Lawrence Berkeley National Laboratory. Tracking the Sun IV: An Historical Summary of the Installed Cost of Photovoltaics in the United States from 1998 to 2010. September 2011
Levelized Cost of Wind Energy without Incentives
32
Source: Wiser, Ryan et al. Lawrence Berkeley National Laboratory and National Renewable Energy Laboratory. Recent Developments in the Levelized Cost of Energy from U.S. Wind Power Projects. February 2012
EIA Estimated Levelized Cost of Energy (without incentives)
33
Source: EIA AEO (July 12,2012)
Market Share and Development
34
35
California In-State Generation Mix
Source: CEC Energy Almanac
Renewables Natural Gas Nuclear Hydroelectric In-State Coal
2000 11% 49% 20% 19% 1%
2001 12% 57% 17% 12% 2%
2002 13% 50% 18% 17% 2%
2003 12% 49% 18% 19% 2%
2004 12% 53% 15% 17% 2%
2005 12% 48% 18% 20% 2%
2006 11% 50% 15% 22% 2%
2007 12% 57% 17% 13% 2%
2008 12% 59% 16% 12% 2%
2009 13% 56% 15% 14% 2%
2010 12% 53% 16% 17% 2%
2011 14% 45% 18% 21% 2%
California In-State Generation Mix
36Source: CEC Energy Almanac
20112000
Electricity Imports
37
Imports’ share of total generation has been steady since the Energy Crisis
Source: CEC Energy Almanac
Source of Imported Electricity
38
Imported electricity has become less carbon intensive
Source: CEC Energy Almanac
New Conventional Plant Development (CEC Jurisdictional)
39
Source: CEC Project Database
Combined Heat and Power Forecasted Market Penetration
40
Base Medium
High
Source: ICF International, Combined Heat and Power: Policy Analysis 2011-2030 Market Assessment, Prepared for the California Energy Commission, June 2012
Statewide Renewable Development (All generators, including IOUs and POUs)
41
Source: CEC Energy Almanac
Transmission
42
Major RPS-related Transmission ProjectsProject Status Renewable
Potential (MW)Online
Tehachapi 1-3 Completed4,500
2009
Tehachapi 4-11 Approved 2015
Sunrise Completed 1,700 2012
Devers-Palo Verde No. 2 Approved4,700
2013
West of Devers No Permit 2017
Eldorado-Ivanpah Approved 1,400 2013
Lugo-Pisgah On Hold 1,750 2017/18
Path 42 Approved 1,400 2014
Green Path North Cancelled N/A N/A
43
Impact of GHG on Market Pricing
44
Greenhouse Gas Costs In Forward Power Prices
45
Source: Dumoulin-Smith, Julien. UBS. “Energy Investment: What’s Driving Fossil Resources?” Presentation to the Climate Trust in Portland OR, July 2012. p. 10.
Greenhouse Gas Costs in Implied Market Heat Rate
46
Sources: Platts Forward Electricity Price Curve and NYMEX Natural Gas Futures Prices
SP15 Implied Market Heat Rate
Demand-Side Resources
47
Uncommitted Energy Efficiency High expectations, but what do we do with it?
48
Forecasted Mid-Case Incremental Uncommitted Energy Efficiency Savings
Source: California Energy Commission. Estimates of Incremental Uncommitted Energy Savings Relative to the California Energy Demand Forecast 2012-2022
How Real Have Energy Efficiency Savings Been?
49
2006-2008 PG&E SCE SDG&E SCG Total
CPUC Goals
Energy (GWh) 2,826 3,135 638 - 6,599
Peak (MW) 613 672 122 - 1407
Natural Gas (MMth) 45 - 10 57 112
Reported
Energy (GWh) 5,251 3,898 850 - 9,999
Peak (MW) 845 690 47 - 1,682
Natural Gas (MMth) 66 - 7 67 140
Evaluated
Energy (GWh) 1,766 1,963 364 - 4,093
Peak (MW) 320 384 72 - 776
Natural Gas (MMth) 22 - 3 32 57
Source: Lewis, Kae, Che McFarlin, Cynthia Rogers, Doug Kemmer. 2011. Achieving Cost-Effective Energy Efficiency for California 2011-2020. California Energy Commission, Electricity Supply Analysis Division. CEC-200-2011-007-SD. Appendix B, pp. B-2 – B-3
