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Public Policy Public Policy Drivers and Drivers and Other Trends in Other Trends in Renewable Renewable EnergyEnergy
IPEDManaging Your Energy Portfolio in a Greener World
Presented by: Mon-Fen HongLa Capra Associates, Inc.
Presented to:
January 19, 2007
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 2
Renewable Energy Portfolio Requirements
Emerging Emissions Considerations
Increasing Renewable Resources in Utility Resource Portfolios
Utility Ownership of Renewable Projects
ConclusionsConclusions
Today’s Discussion
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 3
State Renewable Energy Requirements are Increasing
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 4
RPS Key Points
Every state RPS is different
Rising energy costs and available local resources motivate RPS
Map is already out-of-date (Washington state just passed RPS by vote)
Many states exempt or limit applicability for municipalities, co-ops and public power agencies
Growing push for federal RPS
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 5
Greater Attention to Emissions: Some Examples
Rating agencies looking at company carbon risk
California: reduce CO2 25% by 2020
RGGI (seven northeast states): reduce CO2 10% by 2019
Increasing expectation of federal action
Seven Participating States of RGGI: (Regional Greenhouse Gas Initiative)
Maine
Delaware
Connecticut
New Hampshire
Vermont
New Jersey
New York
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 6
Until Recently:Until Recently: Utilities Hesitant with Renewable Energy
Before 2005, very few large non-hydro renewable energy projects owned by utilities
Mid-American Energy: 360 MW of wind-power projects in Iowa
50 MW wood plant in Vermont
2 geothermal plants (Utah and CA)
Utilities regarded renewables as outside outside mainstreammainstream and perhaps not a reliable resource
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 7
Now:Now: Renewables Significant Part of Resource Plans
Integrated resource plans find renewables are cost effective option
Lawrence Berkeley National Lab: Western utility plans show 8,000 MW of new renewable energy projects by 2014
See http://eetd.lbl.gov/ea/ems/re-pubs.html
Very high percentage from wind
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 8
Utility Ownership of Wind Projects:Utility Ownership of Wind Projects: A New Trend?
Last 18 months have seen a dramatic shift
Utilities complete or announce start of over 600 MW of wind projects
Puget Sound Energy Oklahoma Gas & Electric Kansas City Power & Light
Capital cost of almost $1 billion
Also note: PSNH* has converted 50 MW coal plant to biomass
* Public Service of New Hampshire
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 9
Is the Trend Accelerating?Accelerating?
Utilities announce acquisition of development rights to over 1,100 MW of wind projects having a capital cost of almost $2 billion
Wisconsin Power & Light Wisconsin Electric Portland General Electric Mid-American
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 10
IssuesIssues for Customers
Potentially big rate base addition
More than 50% of wind project cash-flow value derives from tax benefits
How best to structure transaction for non-taxable utilities?
CREBs financing for smaller projects? Utilities have little experience with
renewables
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 11
OpportunitiesOpportunities for Customers
Utilities’ involvement may be a significant step to development of relatively new but promising resource
Long-term value of no fuel-cost resource
Price suppression
Emission-free or reduced emissions risk
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 12
So . . .
QUESTION:
Ownership vs. PPA What is best for customers?
ANSWER:
As always, it depends! Details count.
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 13
A Representative Cost Profile
Utility vs. Merchant PPA Revenue Requirements Five Year Depreciation, with PTC
$0
$20
$40
$60
$80
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
$/MWh
year
PPA with Merchant Utility Revenue Requirements Municipal Rate Recovery
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 14
Development and Operating Risks of Ownership
Development risk
Construction cost overruns (capital at risk)
Actual wind performance
Cost of capital and other costs can increase over time
Ability to use taxes/AMT issues (if applicable)
Unscheduled maintenance/longevity of equipment
Incentive to run efficiently
Public Policy Drivers and Other Trends in Renewable Energy
IPED Conference January 2007 15
Some ConclusionsConclusions
Growing national trend in RPS and other emissions-related policies
Utilities seeing that addition of wind and other renewables to the resource mix can be beneficial
Whether such additions should be by means of power purchase agreement (PPA) or ownership must be carefully considered
PPA
16Utility Ownership for Renewable Energy Projects
NASUCA Mid-Year Meeting 2006
Thanks!
End of Presentation
End of Presentation
Mon-Fen HongLa Capra AssociatesTwenty Winthrop SquareBoston, MA 02110
617-557-9100, ext. 22
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