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TucsonElectricPowerCompany
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TucsonElectricPower
2016PreliminaryIntegratedResourcePlan
March1,2016
2016PreliminaryIntegratedResourcePlan
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TucsonElectricPowerCompany
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Foreword New environmental regulations, emerging technologies and changing energy needs have reinforced the importance of long‐term resource planning to Tucson Electric Power (“TEP”) and other electric utilities. Whatever the future may bring, our 2016 preliminary Integrated Resource Plan (“IRP”) outlines our plan to ensure that TEP’s safe, affordable and reliable service remains a constant in our complex, evolving industry. We will continue to expand our use of cost‐effective renewable energy resources and energy efficiency programs for customers. We expect our renewble energy portfolio to exceed 370 megawatts (“MW”) by the end of 2016. We also will expand our energy effficiency resources through several new programs available this year. In the future, demand response partnerships with customers could help TEP manage peak load demands while reducing the need for new infrastructure. As requested by the Commission, this preliminary IRP report addresses the status of emerging resource options like energy storage technologies and small nuclear reactors. Two 10‐MW storage projects will be installed on TEP’s local distribution system in 2016, and we will continue to evaluate the potential for other new technologies as part of our resource planning process. We will study how natural gas‐fired resources can be best used to replace existing coal capacity. While we remain open to the possibility of using additional natural gas power plants to meet base load requirements, we will also study fast‐response generating resources like reciprocating natural gas engines, which can be used to stabilize intermittent renewable resources. While the status of the Clean Power Plan (“CPP”) is in question after the U.S. Supreme Court issued a stay suspending its enforcement pending further ligitation,TEP continues to evaluate its potential impact. The resource plan outlined in this document should put us in a strong position to comply with the new rules, which would require a 32‐percent reduction in carbon dioxide (“CO2”) emissions from Arizona power plants. Our drive to reduce CO2 emissions must be balanced against our continued need for reliable, cost‐effective generating resources, such as Springerville Generating Station (“SGS”). Although we previously decided to acquire half of Unit 1 upon the expiration of TEP’s long‐term lease, we are preparing for the potential acquisition of the other half as part of the resolution of ongoing legal disputes with the other co‐owners of that 387‐MW unit. TEP also owns Unit 2 at that eastern Arizona facility, so this would anchor our long‐term baseload resource in our newest and most efficient coal plants. TEP will continue to look for opportunities to economically reduce its interest in its other coal‐fired facilities. Strategies may include changes in plant ownership shares, unit shutdowns or the sale of generation assets. We remain committed to a long‐term strategy that diversifies our energy resource portfolio as demonstrated by recent coal plant retirement commitments at our Sundt and San Juan generating stations. TEP will continue to look for new resource options and cost‐effective ways of providing reliable electric service to our customers. We intend to provide more robust resource planning information in TEP’s final IRP in 2017. David G. Hutchens President and CEO
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Acknowledgements
TucsonElectricPowerCompanyIRPTeam
VictorAguirre,Manager,ResourcePlanningJeffYockey,Manager,EnvironmentalandLong‐TermPlanningKevinBattaglia,LeadResourcePlannerLucThiltges,LeadResourcePlannerGregStrang,SeniorForecastingAnalystStephanieBrowne‐Schlack,SeniorForecastingAnalystDeniseRicherson‐Smith,Director,CustomerServices&Programs,CustomerCareCenterRonBelval,Manager,TransmissionPlanningJimTaylor,SeniorDirector,T&DOperationsJeffKrauss,Manager,RenewableEnergyJoeBarrios,Supervisor,MediaRelations&RegulatoryCommunicationsErikBakken,SeniorDirector,TransmissionandEnvironmentalServicesMikeSheehan,SeniorDirector,FuelsandResourcePlanning
IRPConsultantsandForecastingServices
PaceGlobalhttp://www.paceglobal.com/GaryW.Vicinus,ExecutiveVicePresident,‐ConsultingServicesMelissaHaugh‐ConsultingServicesAnantKumar‐ConsultingServicesWoodMackenzie‐ConsultingServiceshttp://public.woodmac.com/public/homeEPIS‐AuroraXMPSoftwareConsultingServiceshttp://epis.com/
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TABLEOFCONTENTSForeword............................................................................................................................................................................................................3Acknowledgements........................................................................................................................................................................................4
CHAPTER1‐EXECUTIVESUMMARY2016PreliminaryIntegratedResourcePlan......................................................................................................................................9UpdatesonTEP’sResourcePlanningStrategySincethe2014IRP.......................................................................................10CoalResources...............................................................................................................................................................................................10NaturalGasResources................................................................................................................................................................................13TransmissionResources............................................................................................................................................................................13Targeting30%Renewablesby2030...................................................................................................................................................14SupportingFutureRenewableIntegration.......................................................................................................................................14NaturalGasReciprocatingEngines......................................................................................................................................................14BatteryStorage..............................................................................................................................................................................................152016EnergyEfficiencyImplementationPlan.................................................................................................................................15CompliancewiththeCleanPowerPlan..............................................................................................................................................16EnergyEfficiencyintheCleanPowerPlan........................................................................................................................................20PowerGenerationandWaterImpactsofResourceDiversification......................................................................................22
CHAPTER2‐LOADFORECASTGeographicalLocationandCustomerBase.......................................................................................................................................25LoadForecastProcess................................................................................................................................................................................27RetailEnergyForecast................................................................................................................................................................................28PeakDemandForecast...............................................................................................................................................................................29DataSourcesUsedinForecastingProcess........................................................................................................................................29
CHAPTER3‐LOADSANDRESOURCESFutureLoadObligations............................................................................................................................................................................34SystemResourceCapacity........................................................................................................................................................................35PreliminaryLoadsandResourceAssessment.................................................................................................................................36CommunityScaleRenewablesandDistributedGeneration......................................................................................................37OverviewoftheUNSRenewablePortfolio........................................................................................................................................39EnergyEfficiency..........................................................................................................................................................................................40Transmission..................................................................................................................................................................................................42PinalCentraltoTortolita500kVTransmissionUpgrade..........................................................................................................43
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CHAPTER4‐EMERGINGTECHNOLOGIESSmallModularNuclearReactors...........................................................................................................................................................45ReciprocatingInternalCombustionEngines....................................................................................................................................47TheFutureoftheDistributionGrid......................................................................................................................................................49EnergyStorage...............................................................................................................................................................................................51TEPEnergyStorageProject.....................................................................................................................................................................54Lazard’sStorageAnalysis:KeyFindings............................................................................................................................................55CostCompetitiveStorageTechnologies.............................................................................................................................................55FutureEnergyStorageCostDecreases...............................................................................................................................................56
CHAPTER5‐OTHERRESOURCEPLANNINGTOPICS
EnergyImbalanceMarket.........................................................................................................................................................................57NaturalGasStorage.....................................................................................................................................................................................58TheIntegrationofRenewables...............................................................................................................................................................60UtilityOwnershipinNaturalGasReserves.......................................................................................................................................62
CHAPTER6‐FUTURERESOURCEASSUMPTIONSFutureResourceOptionsandMarketAssumptions.....................................................................................................................65GenerationResources–MatrixofApplications..............................................................................................................................66ComparisonofResources..........................................................................................................................................................................67LevelizedCostComparisons....................................................................................................................................................................68RenewableTechnologies–CostDetails.............................................................................................................................................69ConventionalTechnologies–CostDetails.........................................................................................................................................70Lazard’sLevelizedCostofEnergyAnalysis:KeyFindings.........................................................................................................71CostCompetivenessofAlternativeEnergyTechnologies..........................................................................................................71TheNeedforDiverseGenerationPortfolios.....................................................................................................................................72TheImportanceofRationalandTransparentEnergyPolicies................................................................................................72RenewableElectricityProductionTaxCredit(“PTC”).................................................................................................................73EnergyInvestmentTaxCredit(“ITC”)................................................................................................................................................74ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts.........................................................................................76ImpactsofDecliningPTCandTechnologyInstalledCosts........................................................................................................77
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CHAPTER7‐MARKETASSSUMPTIONS&SCENARIOSMarketAssumptions...................................................................................................................................................................................78PermianNaturalGas...................................................................................................................................................................................78PaloVerde(7x24)MarketPrices...........................................................................................................................................................78EnergyStorageCase....................................................................................................................................................................................79SmallNuclearReactorsCase....................................................................................................................................................................79LowLoadGrowthCaseandExpandedEnergyEfficiency..........................................................................................................79ExpandedRenewablesCase.....................................................................................................................................................................80MarketBasedReferenceCase.................................................................................................................................................................80HighLoadGrowthCase‐LargeIndustrialCustomerExpansions..........................................................................................80FullCoalRetirementCase.........................................................................................................................................................................80
CHAPTER8‐RISKANALYSISANDSENSITIVITIESFuel,MarketandDemandRiskAnalysis............................................................................................................................................81PermianNaturalGasPrices......................................................................................................................................................................82PaloVerde(7x24)MarketPrices...........................................................................................................................................................83LoadGrowthSensitivity............................................................................................................................................................................84CoalPriceSensitivity...................................................................................................................................................................................85
CHAPTER9‐ACTIONPLAN2016–2017ActionPlan...........................................................................................................................................................................87
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TucsonElectricPowerCompany
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Executive Summary
Introduction
TucsonElectricPowerCompany’s(TEP’sortheCompany’s)2016preliminaryIntegratedResourcePlan(“IRP”)introducesanddiscussestheissuesthatTEPplanstoanalyzeindetailforthefinal2017IntegratedResourcePlan.Thepurposeofthisreportistoprovideregulators,customersandotherinterestedstakeholdersanopportunitytounderstandthecurrentplanningenvironmentandprovidefeedbackontheCompany’sfutureresourceplanspriortothe2017finalIRPsubmittalonApril1,2017.InadditiontoprovidingasnapshotofTEP’scurrentloadsandresources,thisreportprovidesanoverviewofcurrentresourcecostassumptions,forwardmarketconditionsaswellasadiscussiononsomenewemergingtechnologies.ThisreportalsohighlightsanumberofchangesintheCompany’sresourceplanssincethe2014IRPanddiscussessomeofthenewinfrastructurerequirementsandpolicydecisionsthatmustbeaddressedoverthenextfewyears.
2016PreliminaryIntegratedResourcePlanRequirements
InaccordancewithDecisionNo.75269(DocketNo.E‐00000V‐15‐0094),theCommissionorderedtheArizonaloadservingentitiestofileapreliminaryIRPonMarch1,2016withthefinalIRPreportdueApril1,2017.ThisorderstipulatedthatthepreliminaryIRPincludesthefollowingtopics;
LoadForecast
LoadandResourceTable(includingtechnologydiscussion)
SourcesofAssumptionsandTechnologiesEvaluated
StatusupdateonCompany’splantoparticipateintheEnergyImbalanceMarket(“EIM”)
ScenariosRequestedin2014IRPDecision(No.75068)
EnergyStorage
SmallNuclearReactors
ExpandedRenewables(includingdistributedresources):biogas,solar,wind,geothermal,etc.
ExpandedEnergyEfficiency/demandresponse/integratedemandsidemanagement(whichshallincludetheeffectofmicro‐gridsandcombinedheatandpower)
ProposedSensitivities
FutureActionPlan
Chapter1
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Updates on TEP’s Resource Planning Strategy Since the 2014 IRP
Coal Resources
H.WilsonSundtGeneratingStation
In2015,thedepletionoftheCompany’sexistingcoalinventoryattheSundtGenerationStationandlownaturalgaspricessupportedthetransitiononSundtUnit4fromcoaltonaturalgastwoandhalfyearsaheadoftheDecember2017deadlineinitsagreementwiththeEnvironmentalProtectionAgency(“EPA”).ThistransitiontonaturalgaswillreduceTEP’snear‐termfuelsupplycostsforcustomersandmarkstheendofSundt’stwentysevenyearsofoperationsoncoal.
SanJuanGeneratingStation
AkeycomponentofTEP’s2014IRPwastheplannedreductionofcoalcapacityattheSanJuanGeneratingStation(“SanJuan”).InOctober2014,theEPApublishedafinalruleapprovingarevisedStateImplementationPlan(“SIP”)coveringBestAvailableRetrofitTechnology(“BART”)requirementsforSanJuan,whichincludestheclosureofUnits2and3byDecember2017andtheinstallationofSelectiveNon‐CatalyticReduction(“SNCR”)onUnits1and4.InJanuary2016,anewcoalsupplyandparticipantrestructuringagreementsbecameeffective,whichenablesTEPtoreduceitscoalcapacityatSanJuanfrom340MWto170MWbytheendofDecember2017.ThesenewagreementsenabletheCompanytotakeadvantageofsignificantlylowercoalsupplycostsforthenextsevenyearswhileprovidingacommerciallyviableoptiontoexitSanJuanUnit1inJuly2022.
FourCornersPowerPlant
Aspartoftheprevious2014IRPfiling,TEP’sresourceplansassumedthattheCompanywouldmaintainitsownershippositionsinUnits4and5attheFourCornersPowerPlant(“FCPP”)throughJuly2031.Thisdecisionwasaresultofthenegotiationsbetweentheco‐ownersatFourCornersandtheEPAthatresultedinanalternativeBARTcomplianceplanthatrequiredthepermanentclosureofUnits1,2,and3byJanuary1,2014andinstallationandoperationofSelectiveCatalyticReduction(“SCR”)controlsonUnits4and5byJuly31,2018.TEPexpectstheplantoperatortocompletetheSCRupgradesonbothunitsbyApril2018.
BarringanyfutureenvironmentalregulationsontheNavajoNationthatwouldsignificantlychangetheeconomicsoftheplant,TEPplanstoremainaplantparticipantthroughthetermofitsexistingcoalsupply(“CSA”)agreement,whichisJuly2031.TEPwillcontinuetoevaluatethelong‐termviabilityofitscoaloperationsatFCPPandwilldeterminewhetherornotitwillremaininthefacilitybeyond2031insubsequentIRPplanningcycles.TEPowns110MWor7%ofFourCornersUnits4and5.
NavajoGeneratingStation
InFebruary2013,theEPAissuedaproposedBARTrulefortheNavajoGeneratingStation(“NGS”)undertheRegionalHazeRuleoftheCleanAirAct.EPA'sproposalrequiredSCRemissioncontroltechnologytobeinstalledonallthreeNGSunitsby2018.GiventhedirecteconomicimpactsapotentialclosureofNGSwouldhaveontheNavajoandHopiTribes,theEPAinvitedtheplantownerstosubmita“Better‐than‐Bart”alternativethatwouldresultingreateremissionreductionsthanEPA’soriginalproposal.Asaresult,aTechnicalWorkGroup(“TWG”)wasformedandconsistedofrepresentativesfromtheCentralArizonaWaterConservationdistrict,theEnvironmentalDefenseFund,theGilaRiverIndianCommunity,theNavajoNation,SaltRiverProject,theU.S.DepartmentoftheInterior,andWesternResourceAdvocates.InJuly2013,theTWGsubmitted
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analternativeplantotheEPAforfinalconsideration.TheTWGproposalincludedtwoemissionreductionalternativesthatwouldachieve“Better‐than‐BART”results.Basedonthecurrentstatusofnegotiationswiththeowner‐participantsofNGS,bothLosAngelesDepartmentofWaterandPower(“LADWP”)andNVEnergy(“NVE”)havemadecommitmentstoexittheprojectbytheendof2019.WiththedepartureofLADWPandNVE,theremainingNGSparticipantswillceaseoperationsofoneofthree750MWunitsatthepowerplantbyJanuary1,2020andconsolidatetheremainingownershipintotheothertworemainingunits.Inaddition,thealternativethatTWGproposedrequiresSCRcontrolstobeinstalledby2030inorderforthefacilitytoremainin‐servicebeyondthatdate.InlightofthepotentialenvironmentalemissionguidelinesundertheCleanPowerPlan,andthesignificantcostofSCRinvestmentsrequiredtokeeptheplantinoperationbeyond2030,theCompanywillevaluatetheviabilityofitscoaloperationsatNGSandwilldeterminewhetherornotitwillremaininthefacilitybeyond2030insubsequentIRPplanningcycles.TEPowns168MWor7.5%ofNGSUnits1‐3.
SpringervilleGeneratingStation
Priorto2015,TEPoperated387MWor100%ofSpringervilleUnit1(“SGSUnit1”)underoperatingleasesandpursuanttoprojectagreementsenteredintoin1986.Today,TEPowns192MWor49.5%ofSGSUnit1.Theremaining195MWor50.5%ofSGSUnit1isownedbytwothird‐partyowners(the“Co‐Owners”).TEPcontinuestooperate100%ofSGSUnit1pursuanttoagreementsenteredintoin1986.
Aspartofthe2014IRP,TEPwasplanningtouseitsexpiringleaseobligationstoreduceitscoalcapacitycommitmentsonSGSUnit1from387MWto192MWattheendof2014.Beginninginlate2014,theCo‐OwnersinstitutedvariouslegalproceedingsagainstTEPregardingSGSUnit1.Additionally,sinceJanuary2015,theCo‐OwnershavefailedtopaytheirshareofO&MandcapitalexpensesofSGSUnit1.Inresponse,TEPfiledaseparatelegalproceedingtorecovertheseamounts.InFebruary2016,thepartiesagreedtoasettlementoftheselegalmatters,thetermsofwhichincludeTEP’sacquisitionoftheCo‐OwnersinterestinUnit1,subjecttoFERCapproval.ThisacquisitionwouldresultinatemporaryincreaseinTEP’scoal‐firedcapacity.
OverviewofCoal‐FiredGenerationinArizonaandNewMexico
Chapter5providesadetailedsummaryontheremainingeightcoal‐firedgeneratingplantslocatedinArizonaandNewMexico.ThissummaryonPage63providesanoverviewofcurrentplantoperations,ownershipparticipationaswellasanupdateonthestatusofcurrentoperatingandcoalsupplyagreements.
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TEP’sLong‐TermResourceDiversificationStrategy
AsshowninFigure1below,TEP’sexistinggenerationfleetfacesanumberofuncertaintiestiedtoplantparticipationandfinaloutcomesonStateImplementationPlanstiedtotheCleanPowerPlan(“CPP”).Giventhisuncertainty,TEPmayconsideroptionsthatincludechangesinplantownershipshares,unitshutdownsorsaleofgenerationassetstothirdparties.TEPiscommittedtofollowthroughonitslong‐termportfoliodiversificationstrategytotakeadvantageofothernear‐termopportunitiestoreduceitscoalexposureathighercostTEPownedcoalfacilities.TEPplanstofilemoredetailsonitsdiversificationstrategyinthefinalIRPthatisdueApril1,2017.
Figure1‐TEP’sLongTermResourceDiversificationStrategy
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Natural Gas Resources
GilaRiverUnit3
InDecember2014,TEPandUNSElectricacquiredUnit3attheGilaRiverGeneratingStationfor$219million.GilaRiverUnit3isa550MWnaturalgascombined‐cyclepowerplantlocatedinGilaBend,Arizona.Today,lownaturalgaspricesmakeGilaRiverUnit3oneoflowestcostgenerationassetsforbothTEPandUNSElectric.GilaRiver’sfastrampingcapabilities,alongwithitsreal‐timeintegrationintoTEP’sbalancingauthority,providebothTEPandUNSElectricwithanidealresourcetosupporttheintegrationoffuturerenewables.
Transmission Resources
PinalCentraltoTortolita500kVTransmissionUpgrade
InNovember2015,TEPenergizeditsnewest500kVtransmissionexpansionprojectatPinalCentral.ThePinalCentraltoTortolitalinewillhelpmeetTucson’sfutureenergydemandsbyaddingasecondextrahighvoltage(“EHV”)transmissionconnectionbetweenTucsonandthePaloVerdewholesalepowermarket.ThislinetiesintheexistingSaltRiverProjectSoutheastValleytransmissionprojectthatextendsfromPaloVerdetoPinalCentralintoTortolita.ThisnewtransmissioninterconnectionwillfurtherimproveTEP’saccesstoawiderangeofrenewableandwholesalemarketresourceslocatedinthePaloVerdeareawhileimprovingTEP’ssystemreliability.
Figure2‐TortolitaSubstation
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Targeting30%Renewablesby2030
AsstatedinTEP’sIRPfilingsandTEP’scurrentratecase,theCompanyplanstomeetatargetof30%ofTEP’sretailenergyneedswithrenewableenergyresourcesby2030.ThistargetisdoublethatofthecurrentArizonaRenewableEnergyStandardthattargets15%by2025(A.A.C.R14‐2‐1804).
Figure3–TEPPortfolioEnergyMix
SupportingFutureRenewableIntegration
AspartofthisIRPplanningcycle,TEPisevaluatinganumberoftechnologiestosupportTEP’srampupinrenewableresources.Technologiessuchasreciprocatingenginesandbatterystoragearetwotechnologiesbeingconsideredtosupportrenewableintegration.
NaturalGasReciprocatingEngines
Reciprocatingengines,whilenotnewtechnology,areemergingaspotentialalternativesinlarge‐scaleelectricgeneration.Advancesinengineefficiencyandtheneedforfast‐responsegenerationmakereciprocatingenginesaviableoptiontostabilizevariableandintermittentelectricdemandandrenewableresources.AspartoftheCompany’scommitmenttotargethigherlevelsofrenewables,TEPisevaluatingthecostandoperationalcharacteristicsofreciprocatingenginesasanalternativetobothframeandaeroderivativenaturalgascombustionturbines.Aspartofthe2017IRPfiling,TEPplanstoprovideanin‐depthanalysisoncosts,usesandpotentialbenefitsofthistechnologytosupportrenewableintegration.
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BatteryStorage
Inthespringof2015,TEPissuedarequestforproposals(“RFP”)forthedesignandconstructionofutility‐scaleenergystoragesystems.CurrentlyTEPisworkingwithtwovendorstofinalizetheplansfortwo10MWlithiumionbatterystorageprojects.While20MWrepresentsonly1%ofTEP’speakretailload,theseprojectsarelargeenoughtohaveameasurableimpactonsupportinggridoperations.Assumingtheperformancefromthesefirsttwoinstallationsisfavorable,TEPwouldthenconsiderfutureenergystorageprojectsasaviableoptionforregulationandfrequencyresponsetosupporttheexpandeduseofrenewableresources.BothoftheseprojectsawaitCommissionapprovalthroughTEP’s2016RenewableEnergyStandardandTariffImplementationPlan(A.A.C.R14‐2‐1813)(DocketE‐01933A‐15‐0239).Ifapproved,TEPanticipatesthatthependingstorageprojectswillbeinserviceduringtheearlypartof2017.Chapter6providesmoredetailontheseTEPspecificprojectsalongwithanin‐depthanalysisbyLazard1onstoragetechnologiesthathighlightstoragecosts,end‐usesandtechnologycombinations.
EnergyEfficiencyImplementationPlan
TEP’s2016EnergyEfficiencyImplementationPlan,approvedinFebruary2016bytheArizonaCorporationCommission,includesnewprogramsandmeasuresthatcanhelpcustomerssavemoney,reduceimpactsontheenvironment,andlimitthelong‐termneedfornewenergyresources.
Thenewofferings,whichwillbecomeavailableinthecomingmonths,includeaprogramtohelpschoolsimprovetheirenergyefficiency.WhileschoolsmayparticipateinotherTEPEnergyEfficiencyprograms,thisnewprogramwillbedevelopedspecificallyfortheirneeds.Preferencewillbegiventoschoolsthathavenotrecentlyinstalledenergyefficiencymeasures.
Inaddition,TEPcustomerscannowreceiverebatesforthepurchaseofenergyefficientvariable‐speedpoolpumpsfromqualifiedpoolprofessionals.Variable‐speedpumpslastlongerthanregularpoolpumpsastheycanbeprogrammedtooperateathighspeedonlywhennecessary.Withpropercalibration,variable‐speedpumpscanreduceenergyuseby70percent.
AnothernewprogramwillprovideinstantdiscountsforresidentialcustomerswhopurchasecertainEnergyStar‐certifiedproductsfromparticipatingretailers,includingairconditionersandwashingmachines.
Newincentiveswillbeavailabletohomeownersandapartmentownerswhoimprovetheefficiencyoftheirexistingheating,ventilationandairconditioning,orHVAC,systemswith“advancedtune‐up”measures.“Tuningup”anexistingHVACsystemcancostsignificantlylessthanbuyinganewunit.HomeownerswhoarrangeforaTEP‐qualifiedHVACprofessionaltoperformathoroughHVACtune‐upwillreceiveadiscountthroughthenewprogramandwillbeeligibletopurchasesmartthermostatsatadiscount.
Since2011,TEPhashelpedcustomerssavemorethan812,000megawatt‐hours,enoughenergytopowernearly78,000homesforayear.ThesesavingshelpTEPworktowardthegoalsintheArizonaElectricEnergyEfficiencyStandards(“EEStandard”),whichcallsonutilitiestoachievecumulativeenergysavingsof22percentby2020.
1 Lazard is a preeminent financial advisory and asset management firm. More information can be found at https://www.lazard.com
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CompliancewiththeCleanPowerPlan
OnOctober23,2015,theEPApublishedafinalruleregulating,forthefirsttime,“CO2”emissionsfromexistingpowerplants.Ingeneral,thisfinalrule,referredtoasthe“CleanPowerPlan”(“CPP”),aimstoreduceCO2emissionsfromU.S.powerplantsby32%from2005levelsby2030.Morespecifically,theruleestablishesemissionguidelinesbasedonEPA’sdeterminationofthe“bestsystemofemissionreductions”,whichstatesandtribes(heretoreferredtoas“states”)mustusetosetstandardsapplicabletotheaffectedplantsintheirjurisdictions.
Arizonaisoneof27stateschallengingtheEPA’srulemakingauthorityandArizonahasfiledsuitagainsttheEPA.OnFebruary9,2016,theUnitedStatesSupremeCourtissuedastayoftheCPP2meaningthattherulehasnolegaleffectpendingtheresolutionofthestateandindustrychallengetotherule.ThatchallengeiscurrentlybeforetheU.S.CourtofAppealsfortheD.C.Circuit,whichwillhearoralargumentsonJune2,2016.Inalllikelihood,thismeansaD.C.Circuitdecisionwillnotbeissueduntilearlyfall,attheearliest.Givenallthat’satstake,eitherenbancreviewontheD.C.Circuitorapetitionforcertiorarilikelywillfollow.
TheCPPestablishesemissiongoalsfortwosubcategoriesofpowerplantsintheformofanemissionrate(lbs/MWh)thatdeclinesovertheperiodfrom2022to2030.Thosesubcategoriesare:
Fossilfiredsteamelectricgeneratingunits(“SteamEGUs”)‐includescoalplantsandoilandnaturalgas‐firedsteamboilers
Naturalgas‐firedcombined‐cycleplants(“NGCC”)Thenusingtheserates(“SubcategoryRates”)andtheproportionalgenerationfromsteamEGUsandNGCCplantsineachstate,theCPPderivesstatespecificgoals(“StateRates”).TheCPPalsoconvertstheseemissionrategoalstototalmass(i.e.shorttons)goalsforeachstate.EachstateisrequiredtodevelopaStatePlanthatwillregulatetheaffectedplantsintheirjurisdiction.TEPhasaffectedplantsinthreeseparatejurisdictions,Arizona,NewMexico,andtheNavajoNation,andtherefore,willbesubjecttothreeStatePlans.Table1belowshowstheapplicablerategoals.
Table1–CPPRateGoals
CO2Rate(lbs/MWh) 2022‐2024 2025‐2027 2028‐2029 2030+
SubcategorizedRate‐SteamEGUs 1,671 1,500 1,308 1,305SubcategorizedRate‐NGCC 877 817 784 771
StateRate‐Arizona 1,263 1,149 1,074 1,031StateRate‐NewMexico 1,435 1,297 1,203 1,146StateRate‐NavajoNation 1,671 1,500 1,380 1,305
TherearethreeprimaryformsoftheStatePlanavailabletostates(withsub‐options):
Rate Plantsarerequiredtomeetanemissionratestandard(lbs/MWh)equaltotheplant’semissionsdividedbythesumofitsgenerationandthegenerationfromqualifying
2http://www.supremecourt.gov/orders/courtorders/020916zr3_hf5m.pdf
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renewableenergyprojectsand/orverifiedenergyefficiencysavings.Arateplancouldbeadministeredthroughtheuseofemissionratecredits(“ERCs”),wheresourceswithemissionsabovethestandardgeneratenegativeERCswhentheyoperate,andsourceswithemissionsbelowthestandard(ornoemissions)generatepositiveERCs.Attheendofacomplianceperiod,eachaffectedplantmusthaveatleasta“zero”balanceofERCs.
Undertherateapproach,stateshavetheoptionofmeasuringcomplianceagainsttheStateRateortheSubcategoryRates.
Mass Plantsareallocated(orotherwiseacquire)allowances,thetotalofwhichequalsthestate’smassgoal,andeachplantmustsurrenderanallowanceforeachtonofCO2emittedduringacomplianceperiod.Ownersofplantsthatdonothavesufficientallowancescanreduceemissionsbycurtailingproduction,re‐dispatchingtoaloweremissionresource,orretiringtheplantandre‐distributingallowancestotheirremainingplants.
StateMeasures Insteadofregulatingpowerplantsdirectly,astatecouldimplementpoliciesthatwillhavetheeffectofreducingemissionsintheirstatesuchasbuildingcodes,renewableenergymandatesorenergyefficiencystandards.Complianceismeasuredbasedonemissionsfromtheaffectedplants.
NavajoNation
IntheproposedFederalPlanandModelRules3,EPAaskedforcommentsonwhetheritwas“necessaryorappropriate”toregulateEGUsontheNavajoNationundertheCPP.TEP’sparentcompany,UNSEnergyCorporation,submittedcommentsstatingthatitwasnotappropriateornecessarytoregulatetheEGUsontheNavajoNationbecauseEGUretirementsthathavealreadyoccurredorareplannedpriorto2022willachieveessentiallythesameemissionreductionsaswillbeachievedthroughimplementationoftheCPP.
IftheEPAdeterminesthatitisinappropriateorunnecessarytoregulateEGUsontheNavajoNation,thenTEPwillberelievedofanyCPPrequirementsfortheNavajoGeneratingStationandtheFourCornersPowerPlant.IfEPAelectstoproceedwithregulatingtheseEGUsundertheCPP,detailsofthatregulationwillbeprovidedinthefinalFederalPlan,whichisexpectedlaterin2016.
NewMexico
RatherthanbesubjecttoaFederalImplementationPlan,theStateofNewMexicointendstosubmitaStateImplementationPlan(“SIP”)aswell,believingthataNewMexicodevelopedSIPwillprovidetheflexibilityneededtominimizecostspassedontoitscitizens.Ithasinitiatedaseriesofoutreachmeetingsatdifferentlocationsthroughthestate.TEPattendedameetingonNovember13,2015forownersoftheaffectedplants.TheStateofNewMexicoistheearlystagesoftheirstateplanningprocessandintendstosubmitaninterimplaninSeptember2016,witharequestforatwo‐yearextension.However,thetimingofthissubmittalwillbedelayedinlightoftheU.S.SupremeCourtstayoftherule.
3FederalPlanRequirementsforGreenhouseGasEmissionsforElectricUtilityGeneratingUnitsConstructedonorBeforeJanuary8,2014;ModelTradingRules;AmendmentstoFrameRegulations;ProposedRule[80FR64966]datedOctober23,2015
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Arizona
TheStateofArizonahasbeenproactiveinplanningforCPPcompliance.FollowingsubmittalofcommentstoEPA’sproposedrule,andpriortotheEPAissuingthefinalrule,theArizonaDepartmentofEnvironmentalQuality(“ADEQ”)continuedworkingwithstakeholders,andthroughaseriesofmeetingsaccumulatedalistofPotentialComplianceStrategies4.Afterthefinalrulewasissued,ADEQcontinuedtomeetwithstakeholdersandoneofitsinitialstepswastodevelop10PrincipalsofanArizonaResponsetotheCleanPowerPlan5.DuringthisphaseofCPPplanningADEQformedaTechnicalWorkingGrouptoassistinevaluatingtechnicalaspectsoftheplan.
TheStateofArizonahaspreviouslystateditiscommittedtodevelopingaStatePlan.DuetothecomplexitiesinherentindevelopingaStatePlan,theStateofArizonaalsoindicatedthatitwouldfileaninterimplanpriortoSeptember6,2016,andrequestatwo‐yearextensionforfilingthefinalStatePlan.However,thistimingwillbedelayedinlightoftheU.S.SupremeCourtstayoftherule.
Inpreparingfortheinitialplansubmittal,ADEQorganizedtheoptionsfortheformofaStatePlanintosubsetsofRateorMass,andhasexpressedaninterestinfocusingonthemostlikelyoptions.
Chart1–ADEQRegulatoryFrameworkOptions6
4http://www.azdeq.gov/environ/air/phasetwo.html5http://www.azdeq.gov/environ/air/phasethree.html6Ibid,ADEQ“EPA’sFinalCleanPowerPlan:Overview,SteveBurr,AQD,SIPSection,September1,2015
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PACEGlobalArizonaCPPAnalysis
TohelpevaluatetherelativebenefitsofRateversusMassforArizona,theArizonautilitieshiredPACEGlobal(“PACE”)toconductamodelingassessmentoftherelativecompliancepositioncomparedtotheStateRateandMassgoalsbasedonabasecaseoutlook.Theresults7ofthatassessmentindicatethatArizonawouldlikelyfallshortoftheallowancesneededtocoveremissionsusingamassapproach.However,Arizonawasabletomeettherategoalsforthevastmajorityofthecomplianceperiodstudied.Aratebasedplan,ingeneral,betteraccommodatestheneedtomeetfutureloadgrowthwithexistingplants,andthesubcategoryrateapproachisgenerallyconsideredbetterforresourceportfolioswithahighpercentageofcoal‐firedgeneration.
Figure4–PACEGlobalArizonaCPPAnalysis
WhilethefinallegalstatusoftheCPPhasyettobedetermined,itisworthnotingthatTEP’songoingresourcediversificationplanisconsistentwiththegoalsoftheCPPincludingreducedrelianceoncoal,andgreateruseofnaturalgas,renewableenergy,andenergyefficiency.
7MoreinformationcanbefoundatADEQ’swebsitehttp://www.azdeq.gov/environ/air/phasethree.html#technical
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Energy Efficiency in the Clean Power Plan
Inthefinalrule,EPAidentifiesavarietyofenergyefficiencymeasures,programs,andpoliciesthatcancounttowardcomplianceoftheCPP.Theseincludeutilityandnonutilityenergyefficiencyprograms,buildingenergycodes,combinedheatandpower,energysavingsperformancecontracting,stateapplianceandequipmentstandards,behavioralandindustrialprograms,andenergyefficiencyinwaterandwastewaterfacilities,amongothers.
EnergyEfficiencyunderMassBasedComplianceProgramsUnderamassbasedapproach,energyefficiencyinherentlycountstowardcomplianceandstatescanuseanunlimitedamounttohelpachievetheirstategoals.Energyefficiencyinherentlycountstowardcomplianceunderamassbasedapproachsinceitdisplacesactualfossilgenerationandtheassociatedemissionsunderamasscap,freeingupallowancesforsourcesusetowardstheirremainingeffectedEGUsortotrade.Thereisnolimitontheuseofenergyefficiencyprogramsandprojects,andenergyefficiencyactivitiesdonotneedtobeapprovedaspartofastateplan,therefore,Evaluation,MeasurementandVerification(EM&V)isgenerallynotrequiredformassbasedapproachesundertheCleanPowerPlan.
EnergyEfficiencyunderRateBasedComplianceProgramsUnderratebasedplans,quantifiedandverifiedmegawatthours(MWh)fromeligibleenergyefficiencymeasuresinaratebasedstatecanbeusedtogenerateERCsandadjusttheCO2emissionrateofanaffectedEGU,regardlessofwheretheemissionreductionsoccur.EnergyefficiencyunderateratebasedplanmustundergoEM&V.ThefinalCPPgivesstateswithratebasedplanstheabilitytodesigntheirprogramssothattheyarereadyforinterstatetradingofERCs,includingthoseissuedforenergyefficiency,withouttheneedforformalarrangementsbetweenindividualstates.ThesestateplansrecognizeERCsissuedbyanystatethatalsousesaspecifiedEPAapprovedorEPAadministeredtrackingsystem.
EnergyEfficiencyandtheCleanEnergyIncentiveProgram(“CEIP”)EPAhasalsoproposedanearlycreditoptionforstatescalledtheCEIP.TheCEIPawardsearlycreditforlow‐incomeenergyefficiencyprogramsandcertainrenewableenergyprojectsimplementedin2020and2021.Theprogramoffersatwo‐to‐onematchforstateenergyefficiencysavingsinordertoincenttheseeffortspriortothestartofthecomplianceperiod.Thefinalrulealsorequiresstatestoincorporatetheneedsoflow‐incomeandunderservedcommunitieswithintheircomplianceplans,andfullyengagethesecommunitiesalongwithotherstakeholdersduringtheplanningprocess.
TransmissionandDistributionEfficiencyMeasuresEPA’sfinalrulealsoallowstransmissionanddistribution(“T&D”)measuresthatimprovetheefficiencyoftheT&Dsystemtocounttowardsemissionreductionsandcomplianceoptions.ThisincludesT&Dmeasuresthatreducelinelosses8ofelectricityduringdeliveryfromageneratortoanend‐userandT&Dmeasuresthatreduceelectricityuseattheend‐user,suchasconservationvoltagereduction(CVR)9.
8 T&Dsystemlosses(or‘‘linelosses’’)aretypicallydefinedasthedifferencebetweenelectricitygenerationtothegridandelectricitysales.TheselossesarethefractionofelectricitylosttoresistancealongtheT&Dlines,whichvariesdependingonthespecificconductors,thecurrent,andthelengthofthelines.TheEnergyInformationAdministration(EIA)estimatesthatnationalelectricityT&Dlossesaverageabout6percentoftheelectricitythatistransmittedanddistributedintheU.S.eachyear. 9 Volt/VAroptimization(VVO)referstocoordinatedeffortsbyutilitiestomanageandimprovethedeliveryofpowerinordertoincreasetheefficiencyofelectricitydistribution.VVOisaccomplishedprimarilythroughtheimplementationofsmartgridtechnologiesthatimprovethereal‐timeresponsetothedemandforpower.TechnologiesforVVOincludeloadtapchangersandvoltageregulators,whichcanhelpmanagevoltagelevels,aswellascapacitorbanksthatachievereductionsintransmissionlineloss.
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PlanningfortheFutureofEnergyEfficiency
TEP'senergyefficiencyprogramswillcontinuetocomplywiththeArizonaEnergyEfficiencyStandardthattargetsacumulativeenergysavingsof22%by2020.Infutureplanningcycles,TEPplanstoexpanditsenergyefficiencyresourceportfoliotobecompliantreadyundertheprovisionsoftheCPP.TEPplanstopartnerwithstatesandlocalorganizationstoleverageEPA’sCEIPtoidentifyopportunitiestoimproveenergyefficiencyforlowandmoderateincomecustomerswhilesupportingprivatesectorandfoundationinitiatives.Inthe2017FinalIRP,TEPplanstohighlightthecompany'sstrategyonhowitplanstomakethistransition.ThistransitionfromthecurrentArizonaEnergyEfficiencystandardtocomplianceundertheCPPwillplayakeyroleinachievinglowcostenergyalternativesforTEP'scustomers.
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PowerGenerationandWaterImpactsofResourceDiversification
TheCPPachievesCO2emissionreductionsprimarilybyreplacinggenerationfromhigheremittingcoal‐firedresourceswithacorrespondingamountofgenerationfromloweremittingNGCCplantsandzero‐emissionrenewableresources10.Fortunately,wateruseamongthesepowergenerationtechnologiesisanalogoustotheirrespectiveCO2emissions.SeeChart2belowforaveragewaterconsumptionratesforvariouselectricitygenerationtechnologies.Basedonthesewaterconsumptionrates,implementationoftheCPPshouldresultinlowerwaterconsumptionforpowergenerationoverall.
Chart2–LifeCycleWaterUseforPowerGeneration11
However,unlikeCO2emissions,waterconsumptionhasamuchmorelocalizedenvironmentalimpact.Theavailabilityofwaterthatiswithdrawnfromsurfacewaters,asinthecaseoftheNavajoGeneratingStation(LakePowell),theFourCornersPowerPlant(MorganLakeandtheSanJuanRiver),andtheSanJuanGenerating(SanJuanRiver),ishighlydependentonprecipitationandsnowpack,aswellasotheruses.
10EnergyEfficiencyisalsoanimportanttoolforachievingtheCO2emissionreductionscalledforundertheCPP.11AdaptedfromMeldrumet.al.“Lifecyclewateruseforelectricitygeneration:areviewandharmonizationofliteratureestimates”,publishedMarch3,2013,http://iopscience.iop.org/article/10.1088/1748‐9326/8/1/015031
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Similarly,theavailabilityofwaterthatiswithdrawnfromgroundwateraquifers,asinthecaseofSpringerville,Sundt,GilaRiver,andLunapowerplants,isdependentontherechargetoandotherwithdrawalsfromtheaquifer,butisalsoafunctionofthehydrogeologicalcharacteristicsoftheaquiferitself.
Totheextentthatthe“replacement”powergenerationislocatedatorneartothecoal‐firedgenerationitisreplacing,wateravailabilitywillbecomelessofanissueunderCPPimplementation.However,ifthe“replacement”powergenerationislocatedelsewhere,thewateravailabilityinthatareamayneedtobeevaluated.
Thereisover6,000MWofexistingNGCCcapacitylocatedwestofPhoenix,Arizona(inproximitytothePaloVerdeNuclearGeneratingStation)thatislikelytoseeasignificantincreaseingenerationasaresultofCPPimplementation.Whilethesegeneratingfacilitiesareexpectedtohavetherequisitelegalrightstowithdrawtheamountofwaternecessarytomeetexpectedhigherdemandforelectricity,theriskassociatedwiththecumulativeimpactofhighergroundwaterwithdrawalonhydrogeologicalavailabilityshouldbeassessed.TEPplanstoincludeaqualitativeassessmentaspartofthe2017FinalIRP.
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TucsonElectricPowerCompany
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LOAD FORECAST IntheIRPprocess,itiscrucialtoestimatetheloadobligationsthatexistingandfutureresourceswillberequiredtomeetforbothshortandlongtermplanninghorizons.Asafirststepinthedevelopmentoftheresourceplan,alongtermloadforecastisproduced.ThischapterwillprovideanoverviewoftheanticipatedlongtermloadobligationsatTEP,adiscussionofthemethodologyanddatasourcesusedintheforecastingprocess,andasummaryofthetoolsusedtodealwiththeinherentuncertaintysurroundinganumberofkeyforecastinputs.
GeographicalLocationandCustomerBase
TEPcurrentlyprovideselectricitytomorethan400,000customersintheTucsonmetroarea(PimaCounty).PimaCountyhasexperiencedpositivegrowthoverthelastdecadeandisnowestimatedtohaveapopulationofapproximately1,000,000people.Tucsonisthesecond‐largestcityinArizonaandtheseatofPimaCounty.ItislocatedinthesoutheastpartofthestateontheSantaCruzRiver.Tucsonisagrowing,importantandpopularvacationdestination.Visitorsareattractedtoitssunny,warm,anddryclimate,makingtourismanimportantcomponentofthecity’seconomy.TEPprovideselectricservicetomajorindustriesinaerospaceanddefensesystemsandalsotolargeelectronic,biotechnology,opticsandmanufacturingcompaniesinTucson.Tucsonalsoservesasamajorcommercialanddistributioncenterforagriculturalandminingindustries.ThecityisalsohometotheUniversityofArizona,PimaCommunityCollegeandotherinstitutionsofhigherlearning.
CustomerGrowth
Inrecentyears,populationgrowthinPimaCountyandcustomergrowthatTEPhavesloweddramaticallyasaresultofthesevererecessionandsubsequenteconomicweakness.Whilecustomergrowthiscurrentlyreboundingfromitsrecessionarylows,itisnotexpectedtoreturntoitspre‐recessionlevel.Chart3outlinesthehistoricalandexpectedcustomergrowthintheresidentialrateclassfrom2000‐2030.AscustomergrowthisthelargestfactorbehindgrowthinTEP’sload,thecontinuingcustomergrowthwillnecessitateadditionalresourcestoservetheincreasedloadinthemediumterm.
Chapter2
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Chart3‐EstimatedTEPCustomerGrowth2000‐2030
RetailSalesbyRateClassIn2015,TEPexperiencedaretailpeakdemandofapproximately2,214MWwithapproximately9,026GWhofsales.Approximately68%of2015retailenergywasprovidedtotheresidentialandcommercialrateclassesandapproximately32%soldtotheindustrialandminingrateclasses.Chart4depictsadetailedbreakdownoftheestimated2016retailsalesbyrateclass.
Chart4–Estimated2016RetailSales%byRateClass
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030
Growth, %
Residen
tal Customers
Average Annual Residential Customers % Growth
Residential42.56%
Commercial25.22%
Industrial23.43%
Mining8.41%
Other0.39%
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Load Forecast Process
Methodology
TheloadforecastpresentedinthisPIRPwasderivedusinga“bottomup”approach.Amonthlyenergyforecastwaspreparedforeachofthemajorrateclasses(residential,commercial,industrial,andmining).Asthefactorsimpactingusageineachoftherateclassesvarysignificantly,themethodologyusedtoproducetheindividualrateclassforecastsalsovaries.However,theindividualmethodologiesfallintotwobroadcategories:
1) Fortheresidentialandcommercialclasses,forecastsareproducedusingstatisticalmodels.Inputsmayincludefactorssuchashistoricalusage,weather(e.g.averagetemperatureanddewpoint),demographicforecasts(e.g.populationgrowth),andeconomicconditions(e.g.grosscountyproductanddisposableincome).
2) Fortheindustrialandminingclasses,forecastsareproducedforeachindividualcustomeronacasebycasebasis.Inputsincludehistoricalusagepatterns,informationfromthecustomersthemselves(e.g.timingandscopeofexpandedoperations),andinformationfromTEPstaffwhoworkcloselywiththeminingandindustrialcustomers.
Aftertheindividualmonthlyforecastsareproduced,theyareaggregated(alongwithanyremainingmiscellaneousconsumption)toproduceamonthlyenergyforecastforthecompany.
Afterthemonthlyenergyforecastforthecompanywasproduced,theanticipatedmonthlyenergyconsumptionwasusedasaninputforanotherstatisticalmodelusedtoestimatethepeakdemand.Thepeakdemandmodelisbasedonhistoricalrelationshipbetweenhourlyloadandweather,calendareffects,andsalesgrowth.Oncetheserelationshipsareestimated,morethan60yearsofhistoricalweatherscenariosaresimulatedtogenerateaprobabilisticpeakforecast.
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RetailEnergyForecast
AsillustratedinChart5,aftertheperiodofrelativelyrapidgrowthfrom2005to2008,TEPsweather‐normalizedretailenergysalesexperiencedagradualdecrease.Whileusepercustomerisexpectedtoremainweakoverthenear‐term,thelargestimpactonnear‐termsalesistheanticipatedcurtailmentofcopperminingoperationsrecentlyannouncedbyTEP’slargestretailcustomer.TEP’sforecastassumesthatcommoditypriceswilleventuallyrecoverandthatminingloadswillincreaseduetotheresumptionofexistingminingoperationsandtheanticipatedadditionoftheRosemontcoppermine.After2020,salesgrowthisdominatedbyresidentialandcommercialsalesbutatapacebelowthehistoricalaverage.
Chart5‐RetailEnergySales(WeatherNormalized)
RetailEnergyForecastbyRateClass
Theretailenergysalesforecastassumessignificantshort‐termchangesforthenextfewyearsfollowedbyslowsteadygrowthbeginningin2020.However,thegrowthratesvarysignificantlybyrateclass.TheenergysalestrendsforeachmajorrateclassaredetailedinChart6.
Chart6‐RetailEnergySalesbyRateClass
6,000
7,000
8,000
9,000
10,000
11,000
12,000
2005 2008 2011 2014 2017 2020 2023 2026 2029
Retail Sales, GWh
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2005 2008 2011 2014 2017 2020 2023 2026 2029
TEP Retail, GWh
Residential Commercial Industrial Mining
2020 ‐ 2030 Long Term Growth Average Annual Rate of 0.7%
History Forecast
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Afterexperiencingconsistentyear‐over‐yeargrowththroughoutthepast,bothresidentialandcommercialenergysalesfellorremainedflatfrom2008to2015.BothclassesareassumedintheRetailEnergySalesForecasttoincreasesteadilyafter2016.However,industrialenergysalesareexpectedtoincreasemuchmoreslowlythanthoseineithertheresidentialorcommercialclasses.Inaddition,miningsalesareassumedtosignificantlyfallinthecomingyearsduetotheknownminecurtailmentrelatedtolowcommodityprices,andthenreboundasthesepricesreturntomorehistoricalaverages.
PeakDemandForecast
AsshowninChart7below,afterdecliningfrom2007to2015,demandisexpectedtodropin2016.Thisislargelyattributedtotheminingclass.Afterward,TEP’sretailpeakdemandisexpectedtogrowovertime.
Chart7‐PlanPeakDemand
DataSourcesUsedinForecastingProcess
Asoutlinedabove,thedevelopmentoftheloadforecastisdependentonabroadrangeofinputs(demographic,economic,weather,etc.)andsources.Forinternalforecastingprocesses,TEPutilizesanumberofsourcesforthesedata:
IHSGlobalInsight
TheUniversityofArizonaForecastingProject
ArizonaDepartmentofCommerce
U.S.CensusBureau
NationalOceanicandAtmosphericAdministration (“NOAA”)
WeatherUndergroundForecastingService
2,000
2,050
2,100
2,150
2,200
2,250
2,300
2,350
2,400
2,450
2005 2008 2011 2014 2017 2020 2023 2026 2029
TEP Retail Peak Dem
and, M
W
2020 – 2030 Long Term Growth
Average 0.47%
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FirmWholesaleEnergyForecastInadditiontoretailsalesdirectlytocustomers,TEPiscurrentlyundercontracttoprovidewholesaleenergyanddemandtofiveelectricpowercustomers:
1) SaltRiverProject(“SRP”)throughMay2016
2) NavajoTribalUtilityAuthority(“NTUA”)throughDecember2021
3) TohonoO’odhamUtilityAuthority(“TOUA”)throughAugust2019
4) TricoElectricCooperative(“TRICO”)throughDecember2024
5) ShellthroughDecember2017
6) NavopacheElectricCooperative(“Navopache”)fromJanuary2017throughDecember2041
TEP’s100MWon‐peaksalescontractwithSaltRiverProjectexpiresinMayof2016.Inthefallof2015,TEPsignedanewwholesalesalesagreementwithNavopacheElectricCooperativetoprovidewholesaleenergybeginninginJanuary2017.TEP’sexpectedfirmwholesaleobligations,coincidenttopeakretaildemand,aredetailedTable2below.Itisimportanttonotethatcontractextensionshavenotbeenassumed.However,thereisapossibilitythatanyorallagreementscouldbeextended.Thiswouldrequirecurrentresourceplanstoberevisedtoaccountfortheadditionalenergysalesandpeaksummerloadrequirements.
Table2‐FirmWholesaleRequirements
Firm Wholesale, GWh 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
SRP 205
NTUA 253 262 266 277 288 291
TOUA 26 26 26 17
TRICO 40 31 83 112 133 127 163 182 185
Shell 355 234
Navopache 315 401 401 403 401 401 401 403 401 401
Total Firm Wholesale Sales 879 868 776 807 824 819 564 583 588 401 401
Coincident Peak Demand, MW 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
NTUA 51 53 53 53 53 53
TOUA 4 4 4 4
TRICO 50 50 85 85 85 85 85 85 85
Shell 100 100
Navopache 44 44 44 44 44 44 44 44 44 44
Total Firm Demand 205 251 186 186 182 182 129 129 129 44 44
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SummaryofLoadForecast
AsummaryoftheRetailandFirmWholesaleLoadForecastinpresentedinTable3,includingreductionsinloadduetotheimpactofdistributedgenerationandenergyefficiency.
Table3‐TEPForecastSummary
Retail Sales, GWh 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Customer Count, 000 420 426 432 438 444 449 455 460 466 471 475
Residential 3,608 3,638 3,679 3,727 3,767 3,817 3,869 3,921 3,969 4,012 4,043
Commercial 2,138 2,158 2,185 2,221 2,258 2,295 2,334 2,366 2,401 2,438 2,464
Industrial 1,986 1,980 1,995 1,993 1,993 1,988 1,988 1,987 1,988 1,983 2,003
Mining 713 617 735 1,317 1,833 1,813 1,813 1,813 1,818 1,813 1,813
Other 33 33 33 33 33 33 33 33 33 33 33
Total Retail 8,477 8,425 8,627 9,290 9,883 9,946 10,036 10,120 10,209 10,279 10,356
Residential Sales Growth % ‐2.4% 0.8% 1.1% 1.3% 1.1% 1.3% 1.4% 1.3% 1.2% 1.1% 0.8%
Commercial Sales Growth % 0.5% 0.9% 1.3% 1.7% 1.6% 1.7% 1.7% 1.4% 1.4% 1.5% 1.1%
Industrial Sales Growth % ‐3.5% ‐0.3% 0.8% ‐0.1% 0.0% ‐0.2% 0.0% 0.0% 0.0% ‐0.3% 1.0%
Mining Sales Growth % ‐35.9% ‐13.4% 19.1% 79.2% 39.2% ‐1.1% 0.3% ‐0.3%
Other Sales Growth % 0.6%
Total Retail Sales Growth % ‐6.1% ‐0.6% 2.4% 7.7% 6.4% 0.6% 0.9% 0.8% 0.9% 0.7% 0.8%
Firm Wholesale Sales, GWh 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
SRP 205
NTUA 253 262 266 277 288 291
TOUA 26 26 26 17
TRICO 40 31 83 112 133 127 163 182 185
Shell 355 234
Navopache 315 401 401 403 401 401 401 403 401 401
Total Firm Wholesale 879 868 776 807 824 819 564 583 588 401 401
Retail Peak Demand, MW 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Retail Demand 2,109 2,122 2,153 2,336 2,414 2,417 2,424 2,439 2,446 2,479 2,512
Retail Demand Growth % 4.76% 0.62% 1.49% 8.47% 3.34% 0.14% 0.29% 0.64% 0.29% 1.34% 1.33%
Firm Wholesale Peak Demand, MW 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
NTUA 51 53 53 53 53 53
TOUA 4 4 4 4
TRICO 50 50 85 85 85 85 85 85 85
Shell 100 100
Navopache 44 44 44 44 44 44 44 44 44 44
Total Firm Demand 205 251 186 186 182 182 129 129 129 44 44
Total Retail & Firm Peak Demand, MW 2,314 2,372 2,339 2,521 2,595 2,599 2,553 2,568 2,575 2,523 2,537
2016PreliminaryIntegratedResourcePlan
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TucsonElectricPowerCompany
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TEP Loads and Resources
AcriticalcomponenttotheIRPplanningprocessistheassessmentoffirmloadobligationscomparedtoautilitiesfirmresourcecapacity.AspartofTEP’slong‐termplanningprocess,theCompanytargetsa15%reservemargininordertocoveranysystemcontingenciesrelatedtounplannedoutagesonitsgenerationandtransmissionsystem.
Table4–FirmLoadObligations,SystemPeakDemand(MW)onPage34summarizesTEPgrossretailpeakdemandsbyyearbasedonitsJanuary2016loadforecastprojections.ThesedemandsarebrokendownbycustomerclassandtheCompany’sassumptionsoncoincidentpeakloadreductionsfromdistributedgenerationandenergyefficiency.Inaddition,TEPincludesasummaryofprojectedfirmwholesalecustomerdemandsalongwithdemandassociatedwithsystemlosses.Finally,Table4summarizestheCompany’sreservemarginpositionsbasedonthecapacityresourcesshowninTable5.
Table5onPage35summarizesTEP’sfirmresourcecapacitybaseditscurrentplanningassumptionsrelatedtoitscoalandnaturalgasresources.Table5alsoreflectsTEP’splantosource30%ofTEP’sretailloadsfromrenewablegenerationresourcesby2030.Additionalresourcessuchasdemandresponseprograms,short‐termmarketpurchasesalongwithcapacitysourcedfromitsproposedbatterystorageprojectarealsoshownintheTEPresourceportfolio.BasedonTEP’sassumptionsinthisMarch1,2016filing,theCompanyisshowing15%reservemarginforboth2016and2017.Beyond2017,TEPplanstofileitsReferenceCaseplaninApril2017thatwilldetailitsstrategytomeetbothitsshortandlong‐termresourcerequirementsoverthefifteenyearIRPplanninghorizon.Chart8onPage36showsavisualdepictionoftheCompany’sloadsandresourceassessment.
Chapter3
2016Prelim
inaryIntegratedResourcePlan
Page‐34
Future Load
Obligations
Thetablesshownonthenexttw
opagesprovideadatasum
maryonTEP’sloadsandresources.Table4below
showsTEP’sprojectedfirmload
obligationswhichincludesretail,firmwholesale,systemlossesandplanningreserves.
Table4–FirmLoadObligations,SystemPeakDem
and(MW)
Dem
and, M
W
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Residen
tial
1,139
1,101
1,115
1,212
1,259
1,269
1,281
1,296
1,308
1,332
1,354
1,377
1,401
1,425
1,455
1,473
1,494
Commercial
508
479
475
516
536
540
545
552
557
567
576
586
596
606
619
627
636
Industrial
485
444
443
482
500
504
509
515
520
529
538
547
557
566
578
586
594
Mining
124
292
337
366
380
383
387
392
395
402
409
416
423
430
439
445
451
Other
28
5
5
5
5
5
5
6
6
6
6
6
6
6
6
6
6
Gross Retail Peak Dem
and
2,284
2,321
2,375
2,581
2,680
2,703
2,728
2,760
2,785
2,836
2,882
2,933
2,983
3,034
3,097
3,137
3,182
Distributed Gen
eration
‐32
‐35
‐39
‐42
‐45
‐48
‐51
‐54
‐56
‐58
‐59
‐60
‐62
‐63
‐65
‐68
‐69
Energy Efficiency
‐143
‐163
‐183
‐202
‐221
‐237
‐253
‐268
‐283
‐299
‐312
‐327
‐341
‐356
‐383
‐394
‐411
Net Retail Peak Dem
and
2,109
2,122
2,153
2,336
2,414
2,417
2,424
2,439
2,446
2,479
2,512
2,546
2,580
2,615
2,650
2,676
2,702
Firm
Wholesale Dem
and
205
251
186
186
182
182
129
129
129
44
44
44
44
44
44
0
0
System
Losses
209
211
214
232
240
240
241
242
243
246
249
253
256
260
263
266
268
Total Firm Load
Obligations
2,524
2,583
2,552
2,754
2,835
2,839
2,794
2,810
2,818
2,769
2,806
2,843
2,880
2,919
2,957
2,942
2,970
Reserve Margin
432
457
74
‐108
‐159
‐144
‐243
‐246
‐227
‐166
‐169
‐206
‐211
‐244
‐250
‐402
‐541
Reserve Margin, %
15%
15%
3%
‐4%
‐6%
‐5%
‐10%
‐10%
‐9%
‐6%
‐6%
‐8%
‐8%
‐9%
‐9%
‐16%
‐22%
TucsonElectricPow
er
Page‐35
System Resource Cap
acity
Table5showsTEP’sprelim
inaryfirmresourcecapacitybasedonaresource’scontributiontosystempeak.
Table5–CapacityResources,SystemPeakDem
and(MW)
Firm
Resource Cap
acity (MW)
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Four Corners
110
110
110
110
110
110
110
110
110
110
110
110
110
110
110
110
Navajo
168
168
168
168
168
168
168
168
168
168
168
168
168
168
168
San
Juan
340
340
170
170
170
170
Springerville
598
793
793
793
793
793
793
793
793
793
793
793
793
793
793
793
793
Rem
ote Coal Resources
1216
1411
1241
1241
1241
1241
1071
1071
1071
1071
1071
1071
1071
1071
1071
903
793
Sundt 1‐4
422
422
422
422
422
422
422
422
422
422
422
422
422
422
422
422
422
Luna En
ergy Facility
185
185
185
185
185
185
185
185
185
185
185
185
185
185
185
185
185
Gila River Power Station
374
374
374
374
374
374
374
374
374
374
374
374
374
374
374
374
374
DeM
oss Petrie CT
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
75
North Loop CT 1‐4
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
95
Sundt CT 1‐2
49
49
49
49
49
49
49
49
49
49
49
49
49
49
49
49
49
Total N
atural G
as Resources
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
1200
Utility Scale Ren
ewables
97
110
136
149
176
189
215
228
255
268
301
301
334
334
367
367
367
Dem
and Response
19
24
29
35
40
45
45
45
45
45
45
45
45
50
50
50
50
Total Ren
ewable & EE Resources
116
134
165
184
216
234
260
273
300
313
346
346
379
384
417
417
417
Short‐Term
Market Resources
425
275
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Future Storage Resources
0
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Total Firm Resources
2956
3040
2626
2645
2677
2695
2551
2564
2591
2604
2637
2637
2670
2675
2708
2540
2430
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inaryIntegratedResourcePlan
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Prelim
inary Load
s an
d Resource Assessm
ent
Chart8–TEP’s2016PreliminaryLoadsandResourceAssessm
ent
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Community Scale Renewables and Distributed Generation
RenewableOverview
Overthelastseveralyears,TEPhasconstructedorenteredintopowerpurchasedagreements(“PPAs”)forsolarandwindresourcestoproviderenewableenergyforitsserviceterritory.ThisispartofTEP’scommitmenttomeetingtheArizonaAnnualRenewableEnergyRequirementof15%by2025assetforthinA.A.C.R14‐2‐1804(the“AnnualRenewableEnergyRequirement”).Table6belowlistsTEP’sexistingandplannedrenewableresources.
Table6–TEP’sExistingRenewableResources
Resource‐ Counterparty Owned/PPA Location Operator‐
Manufacturer
Completion/Estimated
Date Capacity MW
Fixed Photovoltaic
Springerville Owned Springerville, AZ Various Dec‐2010 6.4
Solon UASTP III Owned Tucson, AZ Solon Jan‐2012 5
Gato Montes PPA Tucson, AZ Astrosol Jun‐2012 6
Solon Prairie Fire Owned Tucson, AZ Solon Oct‐2012 5
TEP Warehouse Owned Marana, AZ Various 2012 0.5
Ft Huachuca I Owned Sierra Vista, AZ Solon Dec‐2014 17.2
Ft Huachuca II Owned Sierra Vista, AZ Solon Q3 2016 5
Community Solar Owned Tucson, AZ TBD Q4 2016 5
Single‐Axis Tracking Photovoltaic
Solon UASTP I Owned Tucson, AZ Solon Dec‐2010 1.6
E.On UASTP Owned Tucson, AZ Suntech Dec‐2010 6.6
FRV Picture Rocks PPA Tucson, AZ MEMC Oct‐2012 25
NRG Solar Avra Valley PPA Tucson, AZ First Solar Oct‐2012 35
E.On/TEP Valencia PPA Tucson, AZ Areva Jul‐2013 13.2
Avalon Solar I PPA Sahuarita, AZ Avalon Dec‐2014 35
Red Horse Solar PPA Willcox, AZ Torch Sep‐2015 51.25
Avalon Solar II PPA Sahuarita, AZ Avalon Feb‐2016 21.53
Concentrated Photovoltaic
Amonix UASTP II PPA Tucson, AZ Amonix Apr‐2011 2
Cogenera PPA Tucson, AZ Cogenera Jul‐2014 1.38
Areva Solar Owned Tucson, AZ Areva Dec‐2014 5
Wind
Macho Springs PPA Deming, NM Element Power Nov‐2011 50.4
Red Horse Wind PPA Willcox, AZ Torch Sep‐2015 30
CommunityScaleRenewables
TEP’scurrentrenewableacquisitionstrategyfocusesondevelopinganumberofsmalltomid‐scalerenewableprojectsdiversifiedacrossawide‐rangeoftechnologies,projectsandcounterparties.ThetableaboveliststheexistingandcontractedrenewableenergyprojectsinTEP’sresourcemix.Inthe2014IRP,TEPhadacombinedtotalofapproximately157MWofrenewableprojectsinserviceasoftheApril1,2014filing.Sincethen,TEPhasaddedanadditional161MWofrenewableprojectsandplanstohaveapproximately328MWofrenewableprojectsonlinebytheendof201612.TEPiscurrentlyover‐compliantontheRESandexpectstocontinuetomeetorexceedthestandard.The2017FinalIRPtobefiledinAprilof2017willdetailTEP’sexpandedcommitmenttorenewableenergy.
12 Project totals represent AC capacities of owned and contracted renewable resources.
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LocationsofUNSRenewablesProjects
Figure5–UNSRenewableProjects
DistributedGeneration
Bytheendof2015,TEPhadapproximately86MWofrooftopsolarPVandsolarhotwaterheatingcapacity.Distributedgenerationisexpectedtosupplyatleast159GWhofenergyin2016.OnlyasmallportionofthisgenerationisattributabletoTEP’srooftopsolarplanthatwasinitiatedin2015.
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OverviewoftheUNSRenew
ablePortfolio
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Energy Efficiency
Overview
ThissectionisanoverviewoftheDemand‐SideManagement(“DSM”)programsthattargettheresidential,commercialandindustrial(“C&I”)sectors,aswellastheirassociatedproposedimplementationcosts,savings,andcost‐benefitresults.
TEPrecognizesthatenergyefficiencycanbeacost‐effectivewaytoreduceourrelianceonfossilfuels.TEPoffersavarietyofenergysavingoptionsforcustomers,fromsimpleconsultationtoincentivesthatencouragebothhomeownersandbusinessestoinvestinefficientheatingandcoolingandotherenergyefficiencyupgrades.
TEP,withinputfromotherpartiessuchasNavigantConsulting,Inc.(“Navigant”)andtheSouthwestEnergyEfficiencyProject(“SWEEP”),hasdesignedacomprehensiveportfolioofprogramstodeliverelectricenergyanddemandsavingstomeettheannualDSMenergysavingsgoalsoutlinedintheStandard.Theseprogramsincludeincentives,direct‐installandbuy‐downapproachesforenergyefficientproductsandservices;educationalandmarketingapproachestoraiseawarenessandmodifybehaviors;andpartnershipswithtradealliestoapplyasmuchleverageaspossibletoaugmentthereturnofrate‐payerdollarsinvested.
ThroughTEP’sDSMprogramsTEPcontinuestomakegreatstridestowardmeetingtheaggressivegoalsintheStandard.TheStandardcallsoninvestor‐ownedelectricutilitiesinArizonatoincreasethekilowatt‐hoursavingsrealizedthroughcustomerratepayer‐fundedenergyefficiencyprogramseachyearuntilthecumulativereductioninenergyachievedthroughtheseprogramsreaches22percentby2020.
CurrentImplementationPlan,Goals,andObjectives
TEP’shigh‐levelenergyefficiency‐relatedgoalsandobjectivesareasfollows:
Implementcost‐effectiveenergyefficiencyprograms.
Designandimplementadiversegroupofprogramsthatprovideopportunitiesforparticipationforallcustomers.
Whenfeasible,maximizeopportunitiesforprogramcoordinationwithotherefficiencyprograms(e.g.,SouthwestGasCorporation,ArizonaPublicServiceCorporation)toyieldmaximumbenefits.
Maximizeprogramenergysavingsataminimumcostbystrivingtoachievecomprehensivecost‐effectivesavingsopportunities.
ProvideTEPcustomersandcontractorswithwebaccesstodetailedinformationonallefficiencyprograms(residentialandcommercial)forelectricitysavingsopportunitiesatwww.tep.com.
Expandtheenergyefficiencyinfrastructureinthestatebyincreasingthenumberofavailablequalifiedcontractorsthroughtrainingandcertificationinspecificfields.
Usetrainedandqualifiedtradealliessuchaselectricians,HVACcontractors,builders,architectsandengineerstotransformthemarketforefficienttechnologies.
Educatecustomerstomodifybehaviormodificationsthatenablethemtouseenergymoreefficiently.
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ProgramPortfolioOverviewAsillustratedinTable7,TEP’sportfolioofprogramscanbedividedintoresidential,behavioral,C&I,support,andutilityimprovementsectors,withadministrativefunctionsprovidingsupportacrossallprogramareas.WiththeCommission’sapprovalofTEP’s2016EEPlan,TEPhasaddednewprogramsandmeasureswithinexistingprogramsincludingenergystarappliances,smartthermostats,homeenergyreports,schools(pilotprogram),HVAC,andlightingmeasures.
Table7‐TEPPortfolioofPrograms
Residential Sector
Appliance Recycling
Energy Star Appliances
Existing Homes
Home Energy Reports
Low Income Weatherization
Multi‐Family Homes
New Construction
Shade Trees
Behavioral Sector Community Education
K‐12 Energy Education
Commercial & Industrial
Sector
C&I Comprehensive
Small Business Direct Install/Schools
Commercial New Construction
Bid for Efficiency
Retro‐Commissioning
Combined Heat & Power
Support Sector Consumer Education and Outreach
Energy Codes and Standards Enhancement
Utility Improvement Sector
Conservation Voltage Reduction
Generation Improvement and Facilities Upgrade
C&I Direct Load Control
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Transmission
Overview
TransmissionresourcesareakeyelementinTEP’sresourceportfolio.AdequatetransmissioncapacitymustexisttomeetTEP’sexistingandfutureloadobligations.TEP’sresourceplanningandtransmissionplanninggroupscoordinatetheirplanningeffortstoensureconsistencyindevelopmentofitslong‐termplanningstrategy.Onastatewidebasis,TEPparticipatesintheACC’sBiennialTransmissionAssessment(“BTA”)whichproducesawrittendecisionbytheACCregardingtheadequacyoftheexistingandplannedtransmissionfacilitiesinArizonatomeetthepresentandfutureenergyneedsofArizonainareliablemanner.
TEPactivelyparticipatesintheregionaltransmissionplanningandcostallocationprocessofWestConnectasanenrolledmemberoftheTransmissionOwnerswithLoadServiceObligations(“TOLSO”)sectorincompliancewithFERCOrderNo.1000(“FERCOrder1000”).ThisfinalrulereformsFERC’selectrictransmissionplanningandcostallocationrequirementsforpublicutilitytransmissionproviders.WestConnectiscomposedofutilitycompaniesprovidingtransmissionofelectricityinthewesternUnitedStatesworkingcollaborativelytoassessstakeholderandmarketneedsanddevelopcost‐effectiveenhancementstothewesternwholesaleelectricitymarket.
Figure6‐FERCOrder1000TransmissionPlanningRegions
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SinceFERCOrder1000,WestConnectwentthroughitsfirstone‐yearregionalplanningandcostallocationprocessuponcompletionandapprovalofthe2015RegionalTransmissionPlaninDecember2015.Noprojectsubmittals,andthereforenocostallocationwasrequiredsincenoregionaltransmissionneedswereidentifiedinthisabbreviated2015cycle.
PreparationforthefirstWestConnectbiennialregionaltransmissionplanningandcostallocationprocesscoveringtheperiodJanuary1,2016throughDecember31,2017beganinthelastquarterof2015.Preparationincludedinitiationofthe2016‐17RegionalStudyPlanprocessandscenariostobeevaluatedforinclusioninthestudyplanweresubmittedpriortoDecember31,2015.WestConnectconductsanassessmentoftransmissionplanningmodelsincorporatingthesescenariostoidentifytheneedfornewtransmission.Thekeydeliverableisaregionaltransmissionplanthatselectsregionaltransmissionprojectstomeetidentifiedreliability,economic,publicpolicy,orcombinationthereof,transmissionneeds.
ToassistwithArizona’sCPPstateplanningefforts,TEPparticipatedwithAPS,SRP,SouthwestTransmissionCooperativeandUNSElectriconascenariobasedonmodelingofaCPPcomplianceplan,andpreparedandsubmittedajointArizonaUtilityGroup(“AUG”)studyrequesttoWestConnecttobeincludedinthe2016‐17RegionalPlanningProcess.WorkingthroughtheregionalplanningprocessisthemostefficientmethodofachievingacredibleoutcomebecauseitisaccomplishedincoordinationwiththeotherthreewesternPlanningRegions(CaliforniaIndependentSystemOperator(“CAISO”),ColumbiaGridandNorthernTierTransmissionGroup)andthereforeincoordinationwithotherstates.AkeyobjectiveistohaveaccesstotheWestConnectpowerflowbasecasetoperformamorecrediblereliabilityanalysisontheArizonatransmissionsystemassessingtheimpactoftheCPPandmeetingBTAplanningrequirements.
PinalCentraltoTortolita500kVTransmissionUpgrade
InNovember2015,TEPenergizedits500kVtransmissionexpansionprojectbetweenPinalCentralSubstationandTortolitaSubstation.ThePinalCentraltoTortolitalinewillhelpmeetTucson’sfutureenergydemandsbyaddingasecondextrahighvoltage(“EHV”)transmissionconnectionbetweenTucsonandthePaloVerdewholesalepowermarket.ThislinetiesintheexistingSaltRiverProjectSoutheastValleytransmissionproject(TEPisaparticipant)fromPinalCentralintoTortolita.ThisnewtransmissioninterconnectionwillfurtherimproveTEP’saccesstoawiderangeofrenewableandwholesalemarketresourceslocatedinthePaloVerdeareawhileimprovingTEP’ssystemreliability.
Map1‐PinalCentral‐Tortolita500kVProject
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EMERGING TECHNOLOGIES
Small Modular Nuclear Reactors
Smallmodularnuclearreactors(“SMR”),approximatelyone‐thirdthesizeofcurrentnuclearplants,are
compactinsize(300MWorless)andareexpectedtooffermanybenefitsindesign,scale,andconstruction
(relativetothecurrentfleetofnuclearplants)aswellaseconomicbenefits.Asthenameimplies,being
modularallowsforfactoryconstructionandfreighttransportationtoadesignatedsite.Thesizeofthefacility
canbescaledbythenumberofmodulesinstalled.Capitalcostsandconstructiontimesarereducedbecausethe
modulesareself‐containedandreadytobe“dropped‐in”toplace.
AWorldNuclearAssociation2015reportonSMRstandardizationoflicensingandharmonizationofregulatory
requirements,saidthattheenormouspotentialofSMRsrestsonanumberoffactors:
Becauseoftheirsmallsizeandmodularity,SMRscouldalmost becompletelybuiltinacontrolledfactorysettingandinstalledmodulebymodule,improvingthelevelofconstructionqualityandefficiency.
Theirsmallsizeandpassivesafetyfeaturesmakethemfavorabletocountrieswithsmallergridsandlessexperiencewithnuclearpower.
Size,constructionefficiencyandpassivesafetysystems(requiringlessredundancy)canleadtoeasierfinancingcomparedtothatforlargerplants.
Moreover,achieving‘economiesofseriesproduction’foraspecificSMRdesignwillreducecostsfurther.
TheWorldNuclearAssociationliststhefeaturesofanSMR,including:
Smallpower,compactarchitectureandusuallyemploymentofpassiveconcepts(atleastfornuclearsteamsupplysystemandassociatedsafetysystems).Therefore,thereislessrelianceonactivesafetysystemsandadditionalpumps,aswellasACpowerforaccidentmitigation.
Thecompactarchitectureenablesmodularityoffabrication(in‐factory),whichcanalsofacilitateimplementationofhigherqualitystandards.
Lowerpowerleadingtoreductionofthesourcetermaswellassmallerradioactiveinventoryinareactor(smallerreactors).
Potentialforsub‐grade(undergroundorunderwater)locationofthereactorunitprovidingmoreprotectionfromnatural(e.g.seismicortsunamiaccordingtothelocation)orman‐made(e.g.aircraftimpact)hazards.
Themodulardesignandsmallsizelendsitselftohavingmultipleunitsonthesamesite.
EmergingTechnologyChapter4
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Lowerrequirementforaccesstocoolingwater–thereforesuitableforremoteregionsandforspecificapplicationssuchasminingordesalination.
Abilitytoremovereactormoduleorin‐situdecommissioningattheendofthelifetime
TheWorldNuclearAssociationwebsitehasdetailedinformationrelatedtoSMRs.Thewebsiteislocatedat:http://www.world‐nuclear.org/info/nuclear‐fuel‐cycle/power‐reactors/small‐nuclear‐power‐reactors/
NuScalePowerTMisdeveloping50MWemodulesthatcanbescaledupto600MWe(12modules).ThescalabilityofSMRsallowsforsmallutilitieslikeTEPtoconsidertheirviabilitywhilelesseningthefinancialrisk.InDecemberof2013,NuScalewasawardedagrantbytheDepartmentofEnergy(“DOE”)thatwouldcoverhalf(upto$217million)tosupportdevelopmentandreceivecertificationandlicensingfromtheNuclearRegulatoryCommission(“NRC”)onasinglemodule.
Inthefallof2014,NuScalesignedteamingagreementswithkeyutilitiesintheWesternregion,whichincludeEnergyNorthwestinWashingtonStateandtheUtahAssociationofMunicipalPowerSystems(“UAMPS”),representingmunicipalpowersystemsinUtah,Idaho,NewMexico,Arizona,Washington,Oregon,andCalifornia.Thisinitialproject,knownastheUAMPSCarbonFreePowerProject,wouldbesitedineasternIdahoandisbeingdevelopedwithpartnersUAMPS,whichwillbetheplantowner,andEnergyNorthwest,whichwillbetheoperator.Theteamexpectsthatthe12‐moduleSMRwillbeoperationin2024.
NuScaleCross‐sectionofTypicalNuScaleReactorBuilding
50MWeNuScalePowerModule
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Reciprocating Internal Combustion Engines
ReciprocatingInternalCombustionEngines(“RICE”)aresimplycombustionenginesthatareusedin
automobiles,trucks,railroadlocomotives,constructionequipment,marinepropulsion,andbackuppower
applications.Moderncombustionenginesusedforelectricpowergenerationareinternalcombustionengines
inwhichanair‐fuelmixtureiscompressedbyapistonandignitedwithinacylinder.RICEarecharacterizedby
thetypeofcombustion:spark‐ignited,likeinatypicalgaspoweredvehicleorcompression‐ignited,alsoknown
asdieselengines.
Figure7–Wartsila‐50DF
Anemergingandpotentiallybeneficialuseoftheseenginesisinlarge‐scaleelectricutilitygeneration.The
combustionengineisnotanewtechnologybutemergingadvancesinefficiencyandtheneedforfast‐response
generationmakeitaviableoptiontostabilizevariableandintermittentelectricdemandandresources.RICE
hasdemonstratedanumberofbenefits;
FastStartTimes–Theunitsarecapableofbeingon‐lineatfullloadwithin5minutes.Thefastresponseisidealforcyclingoperation.RICEcanbeusedto‘smooth’outintermittentresourceproductionandvariability.
RunTime‐Theunitsoperateoverawiderangeofloadswithoutcompromisingefficiency,andcanbemaintainedshortlyaftershutdown.Aftershutdown,theunitmustbedownfor5minutes,ataminimumtoallowforgaspurging.
ReducedO&M–CyclingtheunithasnoimpactonthewearofRICE.Theunitisimpactedbyhoursofoperationandnotbystartsandcyclingoperationsasisthecasewithcombustionturbines.
FastRamping–Atstart,theunitcanramptofullloadin2minutesonahotstartandin4minutesonawarmstart.Oncetheunitisoperational,itcanrampbetween30%and100%loadin40seconds.Thisrampingiscomparabletotheratethatmanyhydrofacilitiescanrampat.
MinimalAmbientPerformanceDegradation–ComparedtoAeroderivativeandFrametypecombustionturbines,RICEoutputandefficiencyisnotasdrasticallyimpactedbytemperature.ThesitealtitudedoesnotsignificantlyimpactoutputonRICEbelow5,000feet.
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GasPressure–RICEcanrunonlowpressuregas,aslowas85PSI.MostCT’srequireacompressorforpressureat350PSI.
ReducedEquivalentForcedOutageRate(“EFOR”)–EachRICEhasanEFORoflessthan1%.AfacilitywithmultipleRICEwillhaveacombinedEFORthatisexponentiallylessbyafactorofthenumberofunitsatthefacility.
LowWaterConsumption–RICEuseaclosed‐loopcoolingsystemthatrequiresminimumwater.
Modularity–EachRICEunitisbuiltatapproximately2to20MWsandisshippedtothesite.
AnintriguingapplicationforRICEisitspotentialforregulatingthevariabilityandintermittencyof
renewableresources.InthefinalIRP,TEPwillexplorethepossibilityofnaturalgaspoweredRICEinits
proposedscenarios.
Figure8–ReciprocatingInternalCombustionEngineFacility
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DELIVERY TECHNOLOGY
TheFutureoftheDistributionGrid
Changesinthesupply,demand,anddeliveryofelectricityareremodelingelectricdistributionsystemsatmostNorthAmericanutilities.DistributedEnergyResources(“DERs”)areleadingmanyofthesechanges.Bycreatingenergysupplyinnew,small,intermittent,anddistributedlocationsacrossthegrid,DERshaverequirednewlevelsofsystemflexibility.DERshavealsocreatednewopportunitiesforelectricutilitiestoimproveperformance,tolowercosts,andtoimprovecustomersatisfaction.
ToaccommodateDERsandotherinnovations,electricutilitiesneedtodomorethanmaketheirdistributionsystemsbigger.Instead,utilitiesneedtomaketheirdistributionsystemssmarter.Smartdistributionsystemsprovideflexibility,capability,speedandresilience.Toachievenewlevelsofperformance,thesesmartdistributionsystemsincludenewtypesofsoftware,networks,sensors,devices,equipment,andresources.Toachievenewlevelsofeconomicvalue,thesesmartdistributionsystemsoperateaccordingtonewstrategiesandmetrics.WithmoredistributedgenerationresourcesbeingdeployedonTEP’sdistributionsystem,higherdemandsandlowerenergyconsumptionisoccurringtoday.Thisputsdemandsonthetransmissionanddistributionsystemsthatwerenotcontemplatedintheoriginaldesignsandrequirementsofthesystem.Tomeetthesenewdemands,newmethodsandtechnologyneedstobedevelopedandimplemented.TEPisinvestigatingtechnologytoaddmoresensingandmeasurementdevicesandnewmethodsformanagingandoperatingthedistributionsystem.Thisapproachturnsadistributionfeederintoaneffectivemicrogridsystem.
Figure9–SmartGridSystems
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Withincreaseddemandandlowerenergyconsumption,newtechniquesandstrategiesneedtobedevelopedandimplementedtoeffectivelymanagecosts.Byaddingadditionalmeasurementandsensingcapabilitiesthesituationalawarenessofthedistributionsystemwillbeincreased.Thesituationalawarenessallowsforrealtimeoperationsandplanningopportunitiesforefficiencyandproductivitychanges.Toutilizetheexistingdistributionsystemmoreefficiently,TEPisinvestigatingtheuseofDERs,energystorage,energyefficiency,andtargeteddemandresponsecapabilitiesinconjunctionwithoptimizationsoftwaretoreducetheinfrastructureadditionsrequiredduetohighercustomerdemand.Thisstrategyismuchdifferentthanhowthedistributionsystemhasbeenmanagedinthepast.WearenowusingabottomupplanninganddesignprocessthatneedstobeintegratedwiththeIRPprocess.Newtoolsandcapabilitieswillberequiredasaresultofthenewopportunitiesandcapabilitiesenvisioned.
Atthecoreofthesechangesistheneedforacommunicationsnetworkthatallowsforintelligentelectronicdevicestobeinstalledonthedistributionsystem.Thecommunicationsnetworkallowsforthebackhaulofinformationfromtheintelligentelectronicdevicestocentralizedsoftwareandcontrolapplications.Simplycollectinganddisplayingmoresensingandmeasurementinformationwon’tprovidetheneededbenefits.Anintegratedapproachtotheinstallationoffielddevices,softwareapplicationsandhistoricaldatamanagementwillbeneeded.Adistributionmanagementsystem(“DMS”)isthecentralsoftwareapplicationthatprovidesdistributionsupervisorycontrolanddataacquisition(“SCADA”),outagemanagementandgeographicalinformationintoasingleoperationsview.Bycombiningtheinformationfromallthreeofthesesystemsintoasingleviewanelectricaldistributionsystemmodelcanbecreatedforbothrealtimeapplicationsandplanningneeds.Thesingleviewprovidessituationalawarenessofthedistributionsystemthathasnotbeenpossibleinthepast.Italsocreatesaplatformfromwhichadditionalapplicationscanbelaunchedtocontinuetoprovidevalueandnewopportunities.Thehistoricalinformationalsocreatesanewopportunitytodrivevalueanddecisionsbasedonsystemperformanceanddynamicsimulations.
WiththedevelopmentofmultipledistributionmicrogridfeedersandDERsystems,thechallengeofresourcedispatchingwilldevelop.Asolutiontodispatchacrossafleetofresourcesofexistingcentralizedgeneration,purchasedpowerfromthemarketandtheintermittencyofDERsystemstocustomerdemandwillberequired.Thespeedinwhichtheresourcepoolwillneedtochangeandoptimizeforefficiencyandcostwillrequirethesystemtobeautomated.Thedistributionmicrogridfeederconceptisintendedtohelpmanagethedistributionlevelintermittencybutwouldneedtobemonitoredandmanagedbytheautomatedsystemforresourcemanagement.Tomanagesuchalargeanddynamicsystemasoutlinedisasubstantialchallenge.Thistypeofautomatedsystemisnotcurrentlyavailablewithintheutilityindustry.
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Energy Storage
Theelectricindustryhasalwayshadaninterestinthepossibilityofstoringenergy.Utilitieshavealwaysstrivedtomaintainasafe,reliableandcosteffectiveelectricgrid.Newchallenges,suchastheemergenceofrenewablegenerationhasgeneratedagreaterinterestinelectricenergystorage.ThetopicofEnergyStorageSystems(“ESS”)coversmanydifferenttypesoftechnology.Eachtechnologyhasspecificattributesandapplicationthatleadtousingthembasedonindividualsystemrequirementsforanidentifiedneed.Theenergystoragetechnologiesaremadeupofsystemssuchaspumpedhydro,compressedairenergystorage,varioustypesofbatteries,andflywheels.
PumpedHydro‐Power‐Thistechnologyhasbeeninusefornearlyacenturyworldwide.PumpedhydroaccountsformostoftheinstalledstoragecapacityintheUnitedStates.Pumpedhydroplantsuselowercostoff‐peakelectricitytopumpwaterfromalow‐elevationreservoirtoahigherreservoir.Whentheutilityneedstheelectricityorwhenpowerpricesarehigher,theplantreleasesthewatertoflowthroughhydroturbinestogeneratepower.
Typicalpumpedhydrofacilitiescanstoreupto10ormorehoursofwaterforenergystorage.Pumpedhydroplantscanabsorbexcesselectricityproducedduringoff‐peakhours,providefrequencyregulation,andhelpsmooththefluctuatingoutputfromothersources.Pumpedhydrorequiressiteswithsuitabletopographywherereservoirscanbesituatedatdifferentelevationsandwheresufficientwaterisavailable.Pumpedhydroiseconomicalonlyonalarge(250‐2,000MW)scale,andconstructioncantakeseveralyearstocomplete.
Theround‐tripefficiencyofthesesystemsusuallyexceeds70percent.Installationcostsofthesesystemstendtobehighduetositingrequirementsandobtainingenvironmentalandconstructionpermitspresentsadditionalchallenges.Pumpedhydroisaproventechnologywithhighpeakusecoincidence.ForTEP,itisalessviableoptionduetolimitedavailablesitesandwaterresources.
CompressedAirEnergyStorage(“CAES”)–Aleadingalternativeforbulkstorageiscompressedairenergystorage.CAESisahybridgeneration/storagetechnologyinwhichelectricityisusedtoinjectairathighpressureintoundergroundgeologicformations.CAEScanpotentiallyoffershorterconstructiontimes,greatersitingflexibility,lowercapitalcosts,andlowercostperhourofstoragethanpumpedhydro.ACAESplantuseselectricitytocompressairintoareservoirlocatedeitheraboveorbelowground.Thecompressedairiswithdrawn,heatedviacombustion,andrunthroughanexpansionturbinetodriveagenerator.Thedispatchtypicallywilloccurathighpowerpricesbutalsowhentheutilityneedstheelectricity,
CAESplantsareinoperationtoday—a110‐MWplantinAlabamaanda290‐MWunitinGermany.Bothplantscompressairintoundergroundcavernsexcavatedfromsaltformations.TheAlabamafacilitystoresenoughcompressedairtogeneratepowerfor26hoursandhasoperatedreliablysince1991.
CAESplantscanuseseveraltypesofair‐storagereservoirs.Inadditiontosaltcaverns,undergroundstorageoptionsincludedepletednaturalgasfieldsorothertypesofporousrockformations.EPRIstudiesshowthatmorethanhalftheUnitedStateshasgeologypotentiallysuitableforCAESplantconstruction.Compressedaircanalsobestoredinabove‐groundpressurevesselsorpipelines.Thelattercouldbelocatedwithinright‐of‐waysalongtransmissionlines.Respondingrapidlytoloadfluctuations,CAESplantscanperformrampingdutytosmooththeintermittentoutputofrenewablegenerationsourcesaswellasprovidespinningreserveandfrequencyregulationtoimproveoverallgridoperations.
Batteries–Severaldifferenttypesoflarge‐scalerechargeablebatteriescanbeusedforESSincludingleadacid,lithiumion,sodiumsulfur(NaS),andredoxflowbatteries.Batteriescanbelocatedindistributionsystems
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closertoenduserstoprovidepeakmanagementsolutions.Anaggregationoflargenumbersofdispersedbatterysystemsinsmart‐griddesignscouldevenachievenearbulk‐storagescales.
Inaddition,ifplug‐inhybridelectricvehiclesbecomewidespread,theironboardbatteriescouldbeusedforESS,byprovidingsomeofthesupportingor“ancillary”servicesintheelectricitymarketsuchasprovidingcapacity,spinningreserve,orregulationservices,orinsomecases,byprovidingload‐levelingorenergyarbitrageservicesbyrechargingwhendemandislowtoprovideelectricityduringpeakdemand.
Flywheels–Theserotatingdiscscanbeusedforpowerqualityapplicationssincetheycanchargeanddischargequicklyandfrequently.Inaflywheel,energyisstoredbyusingelectricitytoacceleratearotatingdisc.Toretrievestoredenergyfromtheflywheel,theprocessisreversedwiththemotoractingasageneratorpoweredbythebrakingoftherotatingdisc.
Flywheelsystemsaretypicallydesignedtomaximizeeitherpoweroutputorenergystoragecapacity,dependingontheapplication.Low‐speedsteelrotorsystemsareusuallydesignedforhighpoweroutput,whilehigh‐speedcompositerotorsystemscanbedesignedtoprovidehighenergystorage.Amajoradvantageofflywheelsistheirhighcyclelife—morethan100,000fullcharge/dischargecycles.
Scale‐powerversionsofthesystem,a100kWversionusingmodifiedexistingflywheelswhichwasaproofofconceptonapproximatelya1/10thpowerscale,performedsuccessfullyindemonstrationsfortheNewYorkStateEnergyResearchandDevelopmentAuthorityandtheCaliforniaEnergyCommission.
EnergyStorageApplicability
Althoughthelistofenergystoragetechnologiesdiscussedaboveisnotall‐inclusive,itbeginstoillustratethepointthatnoteverytypeofstorageissuitableforeverytypeofapplication.Typicaluseapplicationsforenergystoragetechnologiesmayinclude:
EnergyManagement–Batteriescanbeusedtoprovidedemandreductionbenefitsattheutility,commercialandresidentiallevel.Batteriescanbeidealordesignedtoreplacetraditionalgaspeakingresources.Theycanalsobeusedasshort‐termreplacementduringemergencyconditions.
LoadandResourceIntegration–Energystoragesystemscanbedesignedtosmooththeintermittencycharacteristicsofspecificloadsand/orsolarsystemsduringcloudmigrations.
AncillaryServices–Flywheelsandbatterieshavethepotentialtobalancepowerandmaintainfrequency,voltageandpowerqualityatspecifiedtolerancebands.
GridStabilization–PumpedHydro,CAESandvariousbatteriescanimprovetransmissiongridperformanceaswellasassistwithrenewablegenerationstabilization.
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Becauseofthedifferentusecasepotentialsthetechnologiescanbeimplementedinaportfoliostrategy.Therearefourchallengesrelatedtothewidespreaddeploymentofenergystorage:
CostCompetitiveEnergyStorageTechnologies(includingmanufacturingandgridintegration)
ValidatedReliability&Safety
EquitableRegulatoryEnvironment
IndustryAcceptance
TEPshowstheneedtodevelopaportfoliooffuturestoragetechnologiesthatwillsupportlong‐termgridreliability.Theneedforfuturestoragetechnologiesisfocusedonsupportingtheneedforquickresponsetimeancillaryservices.Theseservicesarelistedbelow:
LoadFollowing/Ramping
Regulation
VoltageSupport
PowerQuality
FrequencyResponse
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TEPEnergyStorageProject
TheprimaryadvantageofanEnergyStorageSystem,inthecontextofalargeutility,isofteninitsabilitytoveryrapidlychangepoweroutputlevels,muchfasterthantheproportionalgovernorresponserateofanyconventionalthermalgenerationsystem.ThisnaturallyleadstotheusagecasesofanESSbeingcenteredonshorttermbalancing‐typeactivities.AnadditionalstrengthisthatoperatingcostsofanESSaregenerallyfixedandindependentofusage.Incontrast,gasturbinesystemshavealimitednumberofstartandstopcyclesandthereforehaveanappreciablecosttoactivate,noraretheynecessarilyonlinewhenneeded.
Inthespringof2015,TEPissuedarequestforproposalsfordesignandconstructionofautility‐scaleenergystoragesystem.TEPsoughtaprojectpartnertobuildandowna10MWstoragefacilityundera10‐yearagreement.TEPwaslookingforacost‐effective,provenenergystoragesystemthatwouldhelpintegraterenewableenergyintoitselectricgrid.
Figure10–LithiumIonBatteryStoragePlant
Theaggressivenatureofthebiddingcompaniesfarexceededexpectations.InitssolicitationTEPreceivedatotalof21bids;20bidsforbatterytechnologyandonebidforflywheeltechnology.Withinthebatterycategory,therewere7differentbatterytypesproposed.Ultimately,TEPwasabletoselecttwowinningbids.Onecompanywillprovidea10MW,LithiumNickel‐Manganese‐Cobaltfacility;andaseparatecompanywillprovidea10MW,LithiumTitanatefacilitytogetherwitha2MWsolarfacility.EachoftheseprojectsrepresentsasignificantopportunityforTEP,whowillbeabletoobtainupto20MWoftotalstoragecapacityforlessthantheoriginalcostestimatetoacquire10MW.Additionally,TEPwillbeabletoassesstheoperationalimpactsoftwoofthepredominantLithiumtechnologiesavailabletoday.
While20MWsrepresentsonlyapproximately1%ofTEP’sloadatanygiventime,itislargeenoughtohavemeasurableimpactonthegrid.Assumingtheperformancefromthesefirsttwoinstallationsisfavorable,TEPwouldthenconsiderESSasanoptionforancillarysupportand/orinsupportofexpandedrenewableapplications.TEPanticipatesthatthestorageprojectswillbeinserviceduringtheearlymonthsof2017.
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ThefollowingisanarrativefromLazard’sfirstversionofitsLevelizedCostofEnergyAnalysis13.Lazard’sfirstversionofitsLevelizedCostofStorageAnalysis(“LCOE1.0”)providesanindependent,in‐depthstudythatcomparesthecostsofenergystoragetechnologiesforparticularapplications.14Thestudy’spurposeistocomparethecost‐effectivenessofeachtechnologyonan“applestoapples”basiswithinapplications,andtocompareeachapplicationtoconventionalalternatives.15KeyfindingsofLCOS1.0include:1)selectenergystoragetechnologiesarecost‐competitivewithcertainconventionalalternativesinanumberofspecializedpowergridusesand2)industryparticipantsexpectcoststodecreasesignificantlyinthenextfiveyears,drivenbyincreasinguseofrenewableenergygeneration,governmentalandregulatoryrequirementsandtheneedsofanagingandchangingpowergrid.
LAZARD’S STORAGE ANALYSIS: KEY FINDINGS
CostCompetitiveStorageTechnologies
Selectenergystoragetechnologiesarecost‐competitivewithcertainconventionalalternativesinanumberofspecializedpowergriduses,butnonearecost‐competitiveyetforthetransformationalscenariosenvisionedbyrenewableenergyadvocates.
Althoughenergystoragetechnologyhascreatedagreatdealofexcitementregardingtransformationalscenariossuchasconsumersandbusinesses“goingoffthegrid”ortheconversionofrenewableenergysourcestobaseloadgeneration,itisnotcurrentlycostcompetitiveinmostapplications.However,someusesofselectenergystoragetechnologiesarecurrentlyattractiverelativetoconventionalalternatives;theseusesrelateprimarilytostrengtheningthepowergrid(e.g.,frequencyregulation,transmissioninvestmentdeferral).
Today,energystorageappearsmosteconomicallyviablecomparedtoconventionalalternativesinusecasesthatrequirerelativelygreaterpowercapacityandflexibilityasopposedtoenergydensityorduration.Theseusecasesincludefrequencyregulationand—toalesserdegree—transmissionanddistributioninvestmentdeferral,demandchargemanagementandmicrogridapplications.Thisfindingillustratestherelativeexpenseofincrementalsystemdurationasopposedtosystempower.Putsimply,“batterylife”ismoredifficultandcostlytoincreasethan“batterysize.”Thisislikelywhythepotentiallytransformationalusecasessuchasfullgriddefectionarenotcurrentlyeconomicallyattractive—theyrequirerelativelygreaterenergydensityandduration,asopposedtopowercapacity
LCOS1.0findsawidevariationinenergystoragecosts,evenwithinusecases.Thisdispersionofcostsreflectstheimmaturityoftheenergystorageindustryinthecontextofpowergridapplications.Thereisrelativelylimitedcompetitionandamixof“experimental”andmorecommerciallymaturetechnologiescompetingattheusecaselevel.Further,seeminglyasaresultofrelativelylimitedcompetitionandlackofindustrytransparency,somevendorsappearwillingtoparticipateinusecasestowhichtheirtechnologyisnotwellsuited
13Lazardisapreeminentfinancialadvisoryandassetmanagementfirm.Moreinformationcanbefoundathttps://www.lazard.com14LazardconductedtheLevelizedCostofStorageanalysiswithsupportfromEnovationPartners,anleadingenergyconsultingfirm.15Energystoragehasavarietyofuseswithverydifferentrequirements,rangingfromlarge‐scale,powergrid‐orientedusestosmall‐scale,consumer‐orienteduses.TheLCOSanalysisidentifies10“usecases,”andassignsdetailedoperationalparameterstoeach.Thismethodologyenablesmeaningfulcomparisonsofstoragetechnologieswithinusecases,aswellasagainsttheappropriateconventionalalternativestostorageineachusecase.
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FutureEnergyStorageCostDecreases
Industryparticipantsexpectcoststodecreasesignificantlyinthenextfiveyears,drivenbyincreasinguseofrenewableenergygeneration,governmentpoliciespromotingenergystorageandpressuringcertainconventionaltechnologies,andtheneedsofanagingandchangingpowergrid.
Industryparticipantsexpectincreaseddemandforenergystoragetoresultinenhancedmanufacturingscaleandability,creatingeconomiesofscalethatdrivecostdeclinesandestablishavirtuouscycleinwhichenergystoragecostdeclinesfacilitatewiderdeploymentofrenewableenergytechnology,creatingmoredemandforstorageandspurringfurtherinnovationinstoragetechnology
CostdeclinesprojectedbyIndustryparticipantsvarywidelybetweenstoragetechnologies—lithiumisexpectedtoexperiencethegreatestfiveyearbatterycapitalcostdecline(~50%),whileflowbatteriesandleadareexpectedtoexperiencefiveyearbatterycapitalcostdeclinesof~40%and~25%,respectively.Leadisexpectedtoexperience5%fiveyearcostdecline,likelyreflectingthefactthatitisnotcurrentlycommerciallydeployed(and,possibly,theoptimismofitsvendors’currentquotes)
Themajorityofnear‐tointermediate‐costdeclinesareexpectedtooccurasaresultofmanufacturingandengineeringimprovementsinbatteries,ratherthaninbalanceofsystemcosts(e.g.,powercontrolsystemsorinstallation).Therefore,usecaseandtechnologycombinationsthatareprimarilybattery‐orientedandinvolverelativelysmallerbalanceofsystemcostsarelikelytoexperiencemorerapidlevelizedcostdeclines.Asaresult,someofthemost“expensive”usecasestodayaremost“levered”torapidlydecreasingbatterycapitalcosts.Ifindustryprojectionsmaterialize,someenergystoragetechnologiesmaybepositionedtodisplaceasignificantportionoffuturegas‐firedgenerationcapacity,inparticularasareplacementforpeakinggasturbinefacilities,enablingfurtherintegrationofrenewablegeneration
Seethefullreportathttps://www.lazard.com/media/2391/lazards‐levelized‐cost‐of‐storage‐analysis‐10.pdf
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OTHER RESOURCE PLANNING TOPICS
Energy Imbalance Market
Energyimbalanceonanelectricalgridoccurswhenthereisadifferencebetweenreal‐timedemand,orloadconsumption,andgenerationthatisprescheduled.Priortotheemergenceofrenewableenergytechnologyonthegrid,balancingoccurredtocorrectoperatinglimitswithin30minutes.Flowsareoftenmanagedmanuallybysystemoperatorsandtypicallybilaterallybetweenpowersuppliers.Theintermittentcharacteristicsofwindandsolarresourceshaveraisedconcernsabouthowsystemoperatorswillmaintainbalancebetweenelectricgenerationanddemandinsmallerthanthirtyminuteincrements.EnergyImbalanceMarkets(“EIMs”)createamuchshorterwindowmarketopportunityforbalancingloadsandresources.AnEIMcanaggregatethevariabilityofresourcesacrossmuchlargerfootprintsthancurrentbalancingauthoritiesandacrossbalancingauthorityareas.Thesubhourlyclearing,insomecasesdownto5minutespotentiallyprovideseconomicadvantagetoparticipantsinthemarket.EIMsproposetomoderate,automateandeffectivelyexpandsystem‐widedispatchwhichcanhelpwiththevariabilityandintermittencyofrenewableresources.EIMsboasttocreatesignificantreliabilityandrenewableintegrationbenefitsbysharingresourcereservesacrossmuchlargerfootprints.
CAISO–EIM
OnNovember1,2014,theCAISOwelcomedPacifiCorpintothewesternEIM.Nevada‐basedNVEnergybeganactiveparticipationintheEIMonDecember1,2015.ThisvoluntarymarketserviceisavailabletoothergridsintheWest.SeveralWesternutilitieshavecommittedtojointheEIM.Meanwhile,workisunderwayforPugetSoundEnergyinWashingtonandArizonaPublicServicetoenterthereal‐timemarketinOctober2016.Inthefallof2015,PortlandGeneralElectricandIdahoPowereachannouncedtheirintentionstopursueEIMparticipation.
ParticipantsintheEIMexpecttorealizeatleastthreebenefits:
Produceeconomicsavingstocustomersthroughlowerproductioncosts
ImprovevisibilityandsituationalawarenessforsystemoperationsintheWesternInterconnection
Improveintegrationofrenewableresources
TEPhascontractedwiththeenergyconsultingfirmE3toperformastudytoevaluatetheeconomicbenefitsofTEPparticipatingintheenergyimbalancemarket.E3willevaluateEIMbenefitstoTEPbasedonasetofstudyscenariosdefinedthroughdiscussionswithTEPtoreflectTEPsysteminformation,includingloads,resources,andpotentialtransmissionconstraintsforaccesstomarketsforreal‐timetransactions.TheprojectanalysisbeganinFebruary2016andisexpectedtobecompletedbytheendofJune,2016.TEPwillthenevaluatetherelevantcostsandbenefitsofjoiningthewesternEIM.
Chapter5
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Natural Gas Storage
Naturalgasisafuelsourcethatproduceslesscarbondioxidethancoalforagivenunitofenergygeneration.Naturalgas‐poweredelectricgenerationcanalsobemoreresponsivetoandsupportiveofthevariabilityandintermittencyofrenewablegeneration.Naturalgasusagehashistoricallyundergoneseasonalflucutationswithhigherconsumptionisduringthewintermonthsduetoresidentialandcommercialheating.Thedisplacementofcoalandtheemergenceofrenewablegenerationwilllikelyshiftgasdemandincreasestothesummermonths.Asutilitiespotentiallybegantoleanmoretowardnaturalgas‐poweredelectricgeneration,anensuingissueorconcernistheabilityofsupplyanddeliverabilitytomeetthisincreaseddemand,thusnaturalgasstorageisbeingconsidered.
Naturalgasispivotalinmaintainingareliableelectricgrid.Naturalgasstorageprovidesareliabilitybackstoptoamultitudeofdisruptionsthatmayimpactthedeliveryofnaturalgas.Storagehelpstolevelthebalanceofproduction,whichisrelativelyconstant,andtheseasonallydrivendemandorconsumption.Gascanbeinjectedintostoragewhiledemandislowandreleasedforconsumptionwhiledemandishighorwhiletherearedisruptionsinsupply.Muchlikewaterstoredbehinddamsallowsfortimelyirrigationofseasonalcrops.Naturalgasistypicallystoredundergroundandprimarilyinthreedifferentformations;depletedoiland/orgasreservoirs,aquifersandsaltcavernformations.
Figure11–NaturalGasStorageTypes
Source:EIAEnergyInformationAdministrationDepletedReservoirs–Thereservoirsresultfromthevoidremaininginalreadyrecoveredgasoroil.Depletedreservoirsaremorewidelyavailableandthemostutilized.Thisformofstorageisthemostcommonfornaturalgasstorage.Theiravailability,ofcourse,isdependentonthelocationofexistingwellsandpipelineinfrastructure.Tomaintainadequatewithdrawalpressure,upto50%ofthegascapacitybecomesunrecoverablecushiongas,thisdependsonhowmuchnativegasremainsinthereservoir.Injectionandwithdrawalratesarealsodependentonthegeologicalcharacteristicsofthesite.
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Aquifers–TheuseofaquifershasbeenmoreprevalentintheMidwesternUnitedStates.Inthecaseofdepletedgasandaquiferstoragereservoirs,theeffectivenessofstorageisprimarilydependentonthegeologicalconditions.Therockformationporosity,permeability,andretentioncapabilityareimportant.Asuitableaquiferisonethatisoverlaidwithimpermeable“cap”layer.Unlikedepletedreservoirs,whereexpensiveinfrastructurewasinstalledduringtheexplorationandextractionofoilandgas,aquifersrequireextensivecapitalinvestment.Sinceaquifersarenaturallyfullofwater,insomeinstancespowerfulinjectionequipmentmustbeused,toallowsufficientinjectionpressuretopushdowntheresidentwaterandreplaceitwithnaturalgas.Aquiferstypicallyoperatewithonewithdrawalperiodperyear;thisisbecauseofslowfilltopushwaterback.
SaltCaverns–ThebestopportunityfornaturalgasstorageinArizonaandintheSouthwestmightbeinsaltcaverns.Saltcavernsallowforhighwithdrawalandinjectionratesofnaturalgas.Thismakessaltcavernsidealtomeetdemandincreasesortooperateasemergencyback‐upsystems.Saltcavernsarecreatedthroughaprocesscalledsolutionmining;wherefreshwaterisblastedintosaltformationsandthemixtureisflushedtothesurfacecreatingachamber.Thechambersarestructurallystrongandextremelyairtight.Whilecushiongasisstillrequiredata20%to30%level,itislessthanrequiredfordepletedreservoirs.
Integration of Renewables
ThevalueandcostofrenewablesolarPVisestimatedtochangewithincreasedpenetration.TodeterminethevalueofsolarPV,it’simperativetounderstanditsrelationshiptoconsumerload.InthecaseofDistributedGeneration,mostrenewablesolarissited‘behindthemeter’oroncustomerfacilities.TherelationshipofaDGsolarinstallationataresidentialsiteisassumedtobedifferentthananinstallationatacommercialsite.Wecanassumethatresidentialpeakloadoccurssoonafterconsumersarrivehomefromwork.Commercialpeaktendstooccurduringtheearlytomid‐afternoonhours.Thisisanimportantdistinctioninthisdiscussionbecausethecostsandvaluevarybetweenthemultiplecustomertypes.However,forthisdiscussion,wewillreferonlytotheimpactonthesysteminitsentiretyandforsolarasawhole;DGandcommunity‐scaleinstallations.
Historically,electricutilitieswithpredominantairconditioningloadsetapeakdemandbetween4:00PMto5:00PMonasummerday.SolarPVcanhelpreducethispeakbutnotatthefullpotentialofitssolaroutput.Fixedarraysolarpeakproductionistypicallyat12:00to1:00PM,whilesingle‐axistrackingsystemscanexpanditspotentialtocoincidemorewiththeretailpeakdemand.TEP’scurrentrenewableportfolio(toincludeDGandwind)isatapproximately6%of2030retailenergyprojection.
Chart9belowdemonstratesthattheexistingpenetrationofsolaralreadyhasanobservablereductiontoretailpeakdemand.Closerexaminationalsorevealsthatthenetpeakisbeginningtoshifttotheright.Thereductiontothepeakin2030fromexistingsolarisapproximately3%.Whileareductiontoretailpeakisobserved,only30%ofthesolarinstalledcapacitycontributestothatreduction.
TEPiscommittedtomeetingthe15%RESby2025.Bymaintainingthatcommitmentthrough2030,thesolarcomponentoftherenewableportfolioreducespeakbyanother2.7%.Thoughthereisanobviousreductioninpeak,thetimethepeakissetisshiftingclosertothelastdiurnalhourofatypicalclear‐skysummerday(7:00to8:00PM).Itissignificantthentonotethatthoughweintroducea30%renewabletargetwithahighpenetrationofsolar,thereductiontothenewshifted(7:00PM)peakattributedtosolarisbeginningtodiminish.Weobservea1.8%reductiontoretailpeakbutasignificantdrop(from30%to18%)topeakcontributionfromtheincrementalsolarcapacityadditions.Asretailloadgrows,solarPV(withoutstoragecapabilities)cannotcontributetothereductionofpeakdemandbeyond7:00PM;regardlessofitspenetration.
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Chart9–ImpactofIncreasedSolarProduction(DuckCurve)
Whileitcanbearguedthatsolarmaycontributetoreducedlosses,toapportionedcapacityreductions(generationandtransmission),andcarbonemissionreductionsamongotherbenefits,wenotefromthechartabovethatotherchallengesarise.Asthesunisrising,electricloadstabilizesandbeginsanascenttowardthepeak.IncreasedpenetrationofsolarcreatesarapidnetdropinloadandTEPmusthavegeneratorsthatarecapableoframpingdownatafastrate.Mostbase‐loadunitssuchascoalandnaturalgas‐steamarechallengedtorespondtothisrampdownandsubsequentrampup.Itisatthispointthatthenetreductioninloadcancreatetheneedforrapidrespondinggeneratorstoregulatetheinitialsteepdeclineinloadfollowedbyanimmediaterise.Fromaresourceplanningcontext,withtheincreasingpenetrationofsolarsystems,wemusttakeintoconsiderationtherightcombinationofresourcestorespondtothevariabilityandintermittencyofrenewablesystems.Aportfoliowithahighpenetrationofsolarandotherrenewablesmaynecessitatetheinstallationofreciprocatinginternalcombustionenginesand/orstorageintheformofbatteriesornaturalgas.
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Natural Gas Reserves
Provenreservesofnaturalgasareestimatedquantitiesthatanalysesofgeologicalandengineeringdatahavedemonstratedtobeeconomicallyrecoverablefromknownreservoirsinthefuture.AccordingtoEIA,majoradvancesinnaturalgasexplorationandtechnologyhasincreasedreservesin2014to388.8trillioncubicfeet(Tcf)from354.0Tcfreservesin2013.
Table12–U.SProvedReservesandReserveChanges(2013to2014) Wet Natural Gas ‐Tcf
U.S. proven reserves at December 31, 2013 354.0
Total discoveries 50.5
Net revisions 1.0
Net Adjustments, Sales, Acquisitions 11.5
Production ‐28.1
Net additions to U.S. proved reserves 34.8
U.S. proven reserves at December 31, 2014 388.8
Percent change in U.S. proved reserves 9.8% Notes: Total natural gas includes natural gas plant liquids. Columns may not add to total because of independent rounding. Source: U.S. Energy Information Administration, Form EIA‐23L, Annual Survey of Domestic Oil and Gas Reserves
Provenreservesareaddedeachyearwithsuccessfulexploratorywellsandasmoreislearnedaboutfieldswherecurrentwellsareproducing.Theapplicationofnewtechnologiescanconvertpreviouslyuneconomicnaturalgasresourcesintoprovenreserves.U.S.provenreservesofnaturalgashaveincreasedeveryyearsince1999.Figure13illustratesthedistributionofthereservesbystateandoffshorearea.
Figure13–EIANaturalGasProvenReservesbyState/Area(2014)
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Utility Ownership in Natural Gas Reserves
AsTEPtransitionsitsgenerationportfolioawayfromcoal‐firedresourcestowardsmorerelianceoncleanermoreefficientnaturalgasresources,theCompanyhasbeenresearchingnewwaystolockinlong‐termfuelpricestabilityfornaturalgas.Onepotentialsolutionbeingexploredbyanumberofgasandelectricutilitiesistheinvestmentandownershipinphysicalnaturalgasreserves.
Overthelastfewyears,anumberofutilitieshavepartneredwiththirdpartynaturalgasproducerstodeveloppartnershipstoacquireanddevelopnaturalgasreserves.ThesepartnershipswereformedasanalternativeapproachtoexistingfinancialhedgingpracticesandwereseenasawayforCompaniestodevelopalong‐termphysicalhedgeforitsexpandinggasgenerationfleet.
Productionofoilandassociatednaturalgashasgrownsubstantiallyoverthelastseveralyearsleadingtoasupplysurplusthathasdepressednaturalgaspricestothelowesttheyhavebeenintwentyyears.Asaresult,thisenvironmentcreatesopportunitiesforutilitiesandotherlargegaspurchaserstoacquirenaturalgasreservesathistoriclows.ThefigurebelowhighlightsanumberofCompanieswhohavesuccessfullydevelopedpartnershipsaroundnaturalgasreserveownership.
Figure14‐OverviewofRecentUtility‐ThirdPartyGasReserveProjects
InthecontextofTEPcoaldiversificationstrategyanditsmovetorelyonmorenaturalgas,theCompanyplanstoexplorehowitmightpursuesimilarpartnershipswithregionalgasandelectricutilitiesinaneffortsecurelong‐termnaturalgaspricestabilityforitscustomers.
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Coal‐FiredPowerPlantsinAZandNM1
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FUTURE RESOURCE OPTIONS AND MARKET ASSUMPTIONS Inconsideringfutureresources,theresourceplanningteamevaluatesamixofrenewableandconventionalgenerationtechnologies.Thismixoftechnologiesincludedbothcommerciallyavailableresourcesandpromisingnewtechnologiesthatarelikelytobecometechnicallyviableinthenearfuture.TheIRPprocesstakesahigh‐levelapproachandfocusesonevaluatingresourcetechnologiesratherthanspecificprojects.Thisapproachallowstheresourceplanningteamtodevelopawide‐rangeofscenariosandcontingenciesthatresultinaresourceacquisitionstrategythatcontemplatesfutureuncertainties.Assumptionsoncostandoperatingcharacteristicsaretypicallygatheredfromseveraldatasources.BelowisalistofresourcesthatTEPreliesontocompilecapitalcostassumptionsforthermalandrenewableresources:
U.S.EnergyInformationAdministration‐https://www.eia.gov/forecasts/aeo/electricity_generation.cfm
WesternElectricityCoordinatingCouncil(asrecommendedbyE3)‐https://www.wecc.biz/Reliability/2014_TEPPC_Generation_CapCost_Report_E3.pdf
Black&Veatch‐http://bv.com/docs/reports‐studies/nrel‐cost‐report.pdf
NationalRenewableEnergyLaboratory‐http://www.nrel.gov/analysis/re_futures/index.html
Lazard‐https://www.lazard.com/media/2390/lazards‐levelized‐cost‐of‐energy‐analysis‐90.pdf;https://www.lazard.com/media/2391/lazards‐levelized‐cost‐of‐storage‐analysis‐10.pdf
TEPreliesonanumberofthird‐partydatasourcesandconsultantstoderiveassumptioninitson‐goingplanningpractices.Inaddition,informationgatheredthroughourcompetitivebiddingprocessorrequestforproposalprocesscanbeusedtoputbothself‐buildresourcesandmarket‐basedpurchasedpoweragreementsonacomparativebasis.
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Generation Resources – Matrix of Applications
Table8providesabriefoverviewofthetypesofgeneratingresourcesthatwillbeincludedandevaluatedintheresourceplanningprocessforthe2017FinalIRP.Foreachtechnologytypeabriefsummaryofpotentialrisksandbenefitsarelisted.Inaddition,attributessuchascosts,sitingrequirements,dispatchability,transmissionrequirementsandenvironmentalpotentialaresummarized.
Table8‐ResourceMatrix
Category Type
Zero or Low
Carbon Potential
State of Technology
Local Area Option
Intermittent Peaking Load
Following Base Load
Energy Efficiency Energy
Efficiency Yes Mature Yes
Demand Response
Direct Load Control
Yes Mature Yes
Renewables
Wind Yes Mature
Solar PV Yes Mature Yes
Solar Thermal Yes Mature Storage (1)
Conventional
Reciprocating Engines
Mature
Combustion Turbines
Mature Yes Combined
Cycle (NGCC) Mature Yes
Small Modular Nuclear (SMR)
Yes Emerging (1) NaturalGashybridizationorthermalstoragecouldallowresourcetobedispatchedtomeetutilitypeakloadrequirements.
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Comparison of Resources
Generationplanningandresourceanalysiscanbeperformedbyusingawidespectrum
oftoolsandmethodologies.Priortorunningdetailed
simulationmodelsforthe2017FinalIRP,theTEPresourceplanningteam
willcom
binethesourceinformationandsettleonthecostparam
etersforthe
varyingtechnologies.Table9andTable10show
nbelowdem
onstrateacom
parisonofcapitalcostestimates,usedbyTEPinthe2012and2014IRPs
versuscostspublishedbyThird‐PartySources,forthermalandrenew
ableresourcesrespectively.Thetablesdem
onstratethevaryingrangeofcosts,
evenwithineachtechnology.Inthe2017FinalIRP,theresourceplanninggroupwillincorporatetheinputfromthird‐partysources,stakeholdersand
otherdatasourcestoderiveareasonablesetofcostinputs(construction,EHV/interconnection,constructiontoincludeITC,fixedO&M,variableO&M,
andfuelcosts).
Table9–CapitalCostforThermalResources
Plant Construction Costs
Units
Small A
eroderivative
Combustion Turbine
Small Frame
Combustion
Turbine
Natural G
as
Reciprocating
Engines
Small M
odular
Reactor (SMR)
Natural G
as
Combined Cycle
(NGCC)
2012 IR
P
2012 $/kW
$1,156
$779
‐ ‐
$1,320
2014 IR
P
2014 $/kW
$1,062
$808
‐ ‐
$1,367
Third Party Source
2014 $/kW
$1,150
$825
$1,300
‐ $1,125
Third Party Source
2016 $/kW
$800 ‐ $1,000
$800 ‐ $1,000
$1,150
‐ $1,000 ‐ $1,300
Prelim
inary IRP Estim
ate 2016 $/kW
$1,250
$800
$1,200
$6,400
$1,300
Table10–CapitalCostforRenew
ableResources
Plant Construction Costs
Units
Solar Th
erm
al
6 Hour Storage
(100 M
W)
Solar
Fixed PV
(20 M
W)
Solar Single Axis Tracking
(20 M
W)
Wind Resources
(50 M
W)
2012 IR
P
2012 $/kW
$5,650
$2,350
$2,549
$2,400
2014 IR
P
2014 $/kW
$7,144
$1,993
$2,290
$2,278
Third Party Source
2014 $/kW
$7,100
$3,325
$3,800
$2,000
Third Party Source
2016 $/kW
$10,000 ‐ $10,300
$1,400 ‐ $1,500
$1,600 ‐ $1,750
$1,250 ‐ $1,700
Prelim
inary IRP Estim
ate 2016 $/kW
$10,000
$1,500
$1,600
$1,450
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LEVELIZED COST COMPARISONS
Thecalculationofthelevelizedcostofelectricity(“LCOE”)providesacommonmeasuretocomparethecostofenergyacrossdifferentdemandandsupply‐sidetechnologies.TheLCOEtakesintoaccounttheinstalledsystempriceandassociatedcostssuchascapital,operationandmaintenance,fuel,transmission,taxincentivesandconvertsthemintoacommoncostmetricofdollarspermegawatthour.ThecalculationfortheLCOEisthenetpresentvalueoftotalcostsoftheprojectdividedbythequantityofenergyproducedoverthesystemlife.
Becauseintermittenttechnologiessuchasrenewablesdonotprovidethesamecontributiontosystemreliabilityastechnologiesthatareoperatorcontrolledanddispatched,theyrequireadditionalsysteminvestmentforsystemregulationandbackupcapacity.Aswithanyprojection,thereisuncertaintyaboutallofthesefactorsandtheirvaluescanvaryregionallyandacrosstimeastechnologiesevolveandfuelpriceschange.Furtherresourceutilizationisdependentonmanyfactors;theportfoliomix,regionalmarketprices,customerdemandandmust‐runrequirementsaresomeconsiderationsoutsideofLCOE.
TheLCOEprojectioncontainsmanyfactorsthatwillvarybetweennowandwhenthefinalIRPisfiledonApril1,2017.Assuch,TEPwillderivethelevelizedcostsatthetimethatthecapitalcostsandotherinputsarepreparedforfinalanalysis.
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REN
EWABLE TEC
HNOLO
GIES – COST DETAILS
Table11includestherenewabletechnologycostsforthe2016Prelim
inaryIntegratedResourcePlan.
Table11‐Renew
ableResourceCostAssumptions
Plant Construction Costs
Units
Solar Th
erm
al
6 Hour Storage
(100 M
W)
Solar
Fixed PV
(20 M
W)
Solar Single Axis
Tracking
(20 M
W)
Wind Resources
(50 M
W)
Project Lead Tim
e
Years
4
2
2
2
Installation Years
First Year Available
2020
2018
2018
2018
Peak Capacity
MW
100
20
100
50
Plant Construction Cost
2016 $/kW
$9,800
$1,450
$1,550
$1,250
EHV/Interconnection Cost
2016 $/kW
200
50
50
200
Total Construction Cost
2016 $/kW
$10,000
$1,500
$1,600
$1,450
Operating Characteristics
Fixed
O&M
2016 $/kW
$80.00
$13.00
$10.00
$40.00
Typical Capacity Factor
Annual %
50%
29%
25%
33%
Expected Annual Output
GWh
438
110
127
145
Net Coinciden
t Peak
NCP%
85%
33%
51%
13%
Water Usage
Gal/M
Wh
800
0
0
0
ITC
Percent
30%
30%
30%
‐
PTC
$/M
Wh
‐ ‐
‐ $23.00
Levelized
Cost of En
ergy
$/M
Wh
$161
$54
$70
$49
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CONVEN
TIONAL TECHNOLO
GIES – COST DETAILS
Table12includestheconventionalresourcecostassum
ptionsforthe2016Prelim
inaryIntegratedResourcePlan.
Table12‐ConventionalResourceCostAssumptions
Plant Construction Costs
Units
Small
Aeroderivative
Combustion
Turbine
Small Frame
Combustion
Turbine
Natural G
as
Reciprocating
Engines
Small
Modular
Reactor
(SMR)
Natural G
as
Combined
Cycle
(NGCC)
Project Lead Tim
e
Years
4
4
2
12
4
Installation Years
First Year Available
2020
2020
2018
2028
2020
Peak Capacity , M
W
MW
45
75
2
300
550
Plant Construction Cost
2016 $/kW
$1,200
$770
$1,070
$6,000
$1,135
EHV/Interconnection Cost
2016 $/kW
50
30
30
400
165
Total Construction Cost
2016 $/kW
$1,250
$800
$1,200
$6,400
$1,300
Operating Characteristics
Fixed O&M
2016 $/kW
$12.50
$13.25
$17.50
$29.30
$16.50
Variable O&M
2016 $/kW
$3.50
$3.75
$12.50
$5.00
$2.00
Gas Transportation
2016 $/kW
$16.80
$16.80
$16.80
‐ $16.80
Annual Heat Rate
Btu/kWh
9,800
10,500
9,000
10,400
7,200
Typical Capacity Factor
Annual %
15%
8%
45%
85%
50%
Expected Annual Output
GWh
59
53
8
2,234
2,409
Fuel Source
Fuel Source
Natural G
as
Natural G
as
Natural G
as
Uranium
Natural G
as
Unit Fuel Cost
$/m
mBtu
$5.67
$5.67
$5.67
$0.90
$5.67
Net Coincident Peak
NCP%
100%
100%
100%
100%
100%
Water Usage
Gal/M
Wh
150
150
50
800
350
Levelized
Cost of En
ergy
$/M
Wh
$247
$306
$135
$145
$103
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ThefollowingisanarrativefromLazard’sninthversionofitsLevelizedCostofEnergyAnalysis.Lazard’sninthversionofitsLevelizedCostofEnergyAnalysis(“LCOE9.0”)analysisprovidesanindependent,in‐depthstudyofalternativeenergycostscomparedtoconventionalgenerationtechnologies.Thecentralfindingsofthestudyare:1)thecostcompetitivenessandcontinuedpricedeclinesofcertainalternativeenergytechnologies;2)thenecessityofinvestingindiversegenerationresourcesforintegratedelectricsystemsfortheforeseeablefuture;and3)theimportanceofrationalandtransparentpoliciesthatsupportamodernandincreasinglycleanenergyeconomy.
Lazard‐https://www.lazard.com/media/2390/lazards‐levelized‐cost‐of‐energy‐analysis‐90.pdf
LAZARD’s LEVELIZED COST OF ENERGY ANALYSIS: KEY FINDINGS
CostCompetivenessofAlternativeEnergyTechnologies
Certainalternativeenergytechnologies(e.g.,windandutility‐scalesolar)continuetobecomemorecost‐competitivewithconventionalgenerationtechnologiesinsomeapplications,despitelargedecreasesinthecostofnaturalgas.Lazard’sanalysisdoesnottakeintoaccountpotentialsocialandenvironmentalexternalities(e.g.,thesocialcostsofdistributedgeneration,environmentalconsequencesofconventionalgeneration,etc.)orreliability‐orintermittency‐relatedconsiderations(e.g.,transmissionsystemorback‐upgenerationcostsassociatedwithcertainalternativeenergytechnologies)
Despiteasharpdropinthepriceofnaturalgas,thecostofallformsofutility‐scalesolarphotovoltaicandutility‐scalewindtechnologiescontinuetoremaincompetitivewithconventionalgenerationtechnologiesasillustratedbytheproliferationofsuccessfulbidsbyrenewableenergyprovidersinopenpowerprocurementprocesses.
Currently,rooftopsolarPVisnotcostcompetitivewithoutsignificantsubsidies,due,inpart,tothesmall‐scalenatureandaddedcomplexityofrooftopinstallation.However,theLCOEofrooftopsolarPVisexpectedtodeclineincomingyears,partiallyasaresultofmoreefficientinstallationtechniques,lowercostsofcapitalandimprovedsupplychains.Importantly,LazardexcludesfromtheiranalysisthevalueassociatedwithcertainusesofrooftopsolarPVbysophisticatedcommercialandindustrialusers(e.g.,demandchargemanagement,etc.),whichappearsincreasinglycompellingtocertainlargeenergycustomers.
Communitybasedsolarprojects,inwhichmembersofasinglecommunity(e.g.,housingsubdivisions,rentalbuildings,industrialparks,etc.)owndividedinterestsinsmall‐scaleground‐mountedsolarPVfacilities,isbecomingmorewidespreadandcompellingincertainareas.Theseprojects,whichallowparticipantstoreceivecreditsagainsttheirelectricbillseitherbystatestatuteornegotiatedagreementsbetweentheprojectsponsorsandlocalutilities,providesolarenergyaccesstoconsumerswithouttheeconomicmeansorpropertyrightstoinstallrooftopsolarPV.However,whilecommunitysolarprojectsbenefitfromincreasedscaleanddecreasedinstallationcomplexityascomparedtorooftopsolarPV,mostcommunityscaleprojectsarerelativelysmallcomparedtoutility‐scalePVprojects,andarethereforemoreexpensivecomparedtoutility‐scalesolarPV.
Thepronouncedcostdecreaseincertainintermittentalternativeenergytechnologies,combinedwiththeneedsofanagingandchangingpowergridintheU.S.,hassignificantlyincreaseddemandforenergystoragetechnologiestofulfillavarietyofelectricsystemneeds(e.g.,frequencyregulation,transmission/substationinvestmentdeferral,demandchargeshaving,etc.).Industryparticipantsexpectthisincreaseddemandto
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drivesignificantcostdeclinesinenergystoragetechnologiesoverthenextfiveyears.Increasedavailabilityoflower‐costenergystoragewilllikelyfacilitategreaterdeploymentofcertainalternativeenergytechnologies.
Energyefficiencyremainsanimportant,cost‐effectiveformofalternativeenergy.However,costsforvariousenergyefficiencyinitiativesvarywidelyandmayfailtoaccountfortheopportunitycostsofforegoneconsumption.
Verylarge‐scaleconventionalandrenewablegenerationprojects(e.g.,IGCC,nuclear,solarthermal,etc.)continuetofaceanumberofchallenges,includingsignificantcostcontingencies,highabsolutecosts,competitionfromrelativelycheapnaturalgasinsomegeographies,operatingdifficultiesandpolicyuncertainty.
TheNeedforDiverseGenerationPortfolios
Despitetheincreasingcost‐competivenessofcertainalternativeenergytechnologies,futureresourceplanningeffortswillrequirediversegenerationfleetstomeetbaseloadgenerationneedsfortheforeseeablefuture.Theoptimalsolutionformanyutilitiesistousealternativeenergytechnologiesasacomplementtoexistingconventionalgenerationtechnologies.Overall,theU.S.willcontinuetobenefitfromabalancedgenerationmix,includingacombinationofalternativeenergyandconventionalgenerationtechnologies.
Whilesomealternativeenergytechnologieshaveachievednotional“gridparity”undercertainconditions(e.g.,best‐in‐classwind/solarresources),suchobservationdoesnottakeintoaccountpotentialsocialandenvironmentalexternalities(e.g.,socialcostsofdistributedgeneration,environmentalconsequencesofconventionalgeneration,etc.),orreliability‐relatedconsiderations.
TheImportanceofRationalandTransparentEnergyPolicies
Therapidlychangingdynamicsofenergycostshaveimportantramificationsfortheindustry,policymakersandthepublic.IntheU.S.,acoordinatedfederalandstateenergypolicy,groundedincostanalysis,couldenablesmarterenergydevelopment,leadingtosustainableenergyindependence,acleanerenvironmentandastrongereconomicbase.
Alternativeenergycostshavedecreaseddramaticallyinthepastsixyears,driveninsignificantpartbyfederalsubsidiesandrelatedfinancingtools,andtheresultingeconomiesofscaleinmanufacturingandinstallation.Manyofthesesubsidieshavealreadyorareexpectedtostepdownorexpireforselectedalternativeenergytechnologies.Akeyquestionforindustryparticipantswillbewhetherthesetechnologiescancontinuetheircostdeclinesandachievewideradoptionwithoutthebenefitofsubsidies
ThepublicnarrativesurroundingalternativeenergytechnologiesremainsfocusedtoalargedegreeonrooftopsolarPV,notwithstandingitssignificantlyhigherLCOErelativetoutility‐scalesolarPVandwind,anditspotentiallyadversesocialeffectsinthecontextofexistingnetmeteringregimes(e.g.,high‐incomehomeownersbenefitingfromsuchregimeswhilestillrelyingonthebroaderpowergrid,andrelatedcosttransferstotherelativelylessaffluent).Thisfocus,combinedwiththeavailabilityofgovernmentincentivesforrooftopsolar,distortsintelligentsystem‐wideintegratedresourceplanningandpolicy.
Seethefullreportathttps://www.lazard.com/media/2390/lazards‐levelized‐cost‐of‐energy‐analysis‐90.pdf
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Renewable Electricity Production Tax Credit (“PTC”)
Thefederalrenewableelectricityproductiontaxcreditisaninflation‐adjustedper‐kilowatt‐hour(kWh)taxcreditforelectricitygeneratedbyqualifiedenergyresourcesandsoldbythetaxpayertoanunrelatedpersonduringthetaxableyear.Thedurationofthecreditis10yearsafterthedatethefacilityisplacedinserviceforallfacilities.
InDecember2015,theConsolidatedAppropriationsAct,2016extendedtheexpirationdatefortheproductiontaxcredittoDecember31,2019,forwindfacilitiescommencingconstruction,withaphase‐downbeginningforwindprojectscommencingconstructionafterDecember31,2016.TheActextendedthetaxcreditforothereligiblerenewableenergytechnologiescommencingconstructionthroughDecember31,2016.TheActappliesretroactivelytoJanuary1,2015.
Thetaxcreditamountisadjustedforinflationbymultiplyingthetaxcreditamountbytheinflationadjustmentfactorforthecalendaryearinwhichthesaleoccurs,roundedtothenearest0.1cents.TheInternalRevenueService(“IRS”)publishestheinflationadjustmentfactornolaterthanApril1eachyearintheFederalRegistrar.For2015,theinflationadjustmentfactorusedbytheIRSis1.5336.
Applyingtheinflation‐adjustmentfactorforthe2014calendaryear,aspublishedintheIRSNotice2015‐20,theproductiontaxcreditamountisasfollows:
$0.023/kWhforwind,closed‐loopbiomass,andgeothermalenergyresources $0.012/kWhforopen‐loopbiomass,landfillgas,municipalsolidwaste,qualifiedhydroelectric,and
marineandhydrokineticenergyresources.
ThetaxcreditisphaseddownforwindfacilitiesandexpiresforothertechnologiescommencingconstructionafterDecember31,2016.Thephase‐downforwindfacilitiesisdescribedasapercentagereductioninthetaxcreditamountdescribedabove:
Table13–ProductionTaxCreditPhaseDown
Construction Year (1) PTC Reduction
2017 PTC amount is reduced by 20%
2018 PTC amount is reduced by 40%
2019 PTC amount is reduced by 60%
(1)Forwindfacilitiescommencingconstructioninyear.
Notethattheexactamountoftheproductiontaxcreditforthetaxyears2017‐2019willdependontheinflation‐adjustmentfactorusedbytheIRSintherespectivetaxyears.Thedurationofthecreditis10yearsafterthedatethefacilityisplacedinservice.
Seehttp://energy.gov/savings/renewable‐electricity‐production‐tax‐credit‐ptcformoredetails.
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Energy Investment Tax Credit (“ITC”)
TheConsolidatedAppropriationsAct,signedinDecember2015,includedseveralamendmentstothefederalBusinessEnergyInvestmentTaxCreditwhichapplytosolartechnologiesandotherPTCeligibletechnologies.Notably,theexpirationdateforthesetechnologieswasextended,withagradualstepdownofthecreditsbetween2019and2022.
TheITChasbeenamendedanumberoftimes,mostrecentlyinDecember2015.Thetablebelowshowsthevalueoftheinvestmenttaxcreditforeachtechnologybyyear.Theexpirationdateforsolartechnologiesandwindisbasedonwhenconstructionbegins.Forallothertechnologies,theexpirationdateisbasedonwhenthesystemisplacedinservice(fullyinstalledandbeingusedforitsintendedpurpose).
Table14–InvestmentTaxCreditsbyYearandTechnology
Technology 2016 2017 2018 2019 2020 2021 2022 Future Years
PV, Solar Water Heating, Solar Space Heating/Cooling,
Solar Process Heat 30% 30% 30% 30% 26% 22% 10% 10%
Hybrid Solar Lighting, Fuel Cells, & Small Wind
30% ‐ ‐ ‐ ‐ ‐ ‐ ‐
Geothermal Heat Pumps, Microtubines,
Combined Heat and Power Systems
10% ‐ ‐ ‐ ‐ ‐ ‐ ‐
Geothermal Electric
10% 10% 10% 10% 10% 10% 10% 10%
Large 30% 24% 18% 12% ‐ ‐ ‐ ‐
Wind
SolarTechnologiesEligiblesolarenergypropertyincludesequipmentthatusessolarenergytogenerateelectricity,toheatorcool(orprovidehotwaterforusein)astructure,ortoprovidesolarprocessheat.Hybridsolarlightingsystems,whichusesolarenergytoilluminatetheinsideofastructureusingfiber‐opticdistributedsunlight,areeligible.Passivesolarsystemsandsolarpool‐heatingsystemsarenoteligible.
FuelCellsThecreditisequalto30%ofexpenditures,withnomaximumcredit.However,thecreditforfuelcellsiscappedat$1,500per0.5kilowatt(kW)ofcapacity.Eligiblepropertyincludesfuelcellswithaminimumcapacityof0.5kWthathaveanelectricity‐onlygenerationefficiencyof30%orhigher.
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SmallWindTurbinesThecreditisequalto30%ofexpenditures,withnomaximumcreditforsmallwindturbinesplacedinserviceafterDecember31,2008.Eligiblesmallwindpropertyincludeswindturbinesupto100kWincapacity.
GeothermalSystemsThecreditisequalto10%ofexpenditures,withnomaximumcreditlimitstated.Eligiblegeothermalenergypropertyincludesgeothermalheatpumpsandequipmentusedtoproduce,distributeoruseenergyderivedfromageothermaldeposit.Forelectricityproducedbygeothermalpower,equipmentqualifiesonlyupto,butnotincluding,theelectrictransmissionstage.
MicroturbinesThecreditisequalto10%ofexpenditures,withnomaximumcreditlimitstated(explicitly).Thecreditformicroturbinesiscappedat$200perkWofcapacity.Eligiblepropertyincludesmicroturbinesupto2MWincapacitythathaveanelectricity‐onlygenerationefficiencyof26%orhigher.
CombinedHeatandPower(“CHP”)Thecreditisequalto10%ofexpenditures,withnomaximumlimitstated.EligibleCHPpropertygenerallyincludessystemsupto50MWincapacitythatexceed60%energyefficiency,subjecttocertainlimitationsandreductionsforlargesystems.TheefficiencyrequirementdoesnotapplytoCHPsystemsthatusebiomassforatleast90%ofthesystem'senergysource,butthecreditmaybereducedforless‐efficientsystems.
Seehttp://energy.gov/savings/business‐energy‐investment‐tax‐credit‐itcformoredetails.
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Impacts of Declining Tax Credits and Technology Installed Costs
Chart10throughChart12shownbelowreflectsthenear‐termcapacitypricedeclinesona$/kWbasisfrom2016‐2022associatedwiththereductionintheinstalledcostsofsolartechnologiesrelativetothelevelizedcostrealizedona$/MWhassumingdifferentlevelsofinvestmenttaxcreditsbyyear.ThesolarITCassumptionsarebasedonthefederalinvestmenttaxcreditassumptionsshownonpage74.
Chart10–SolarPVFixed,ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts
Chart11–SolarSAT,ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts
$70
$67
$64
$62$63
$65
$74
$54
$56
$58
$60
$62
$64
$66
$68
$70
$72
$74
$76
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2016 2017 2018 2019 2020 2021 2022
LCOE, $/M
Wh
Installed Cost, $/kW
Solar PV ‐ Fixed Tilt (20 MW)
$/MWh $/KW
$54 $51 $49 $49 $51 $54
$61
‐$4
$6
$16
$26
$36
$46
$56
$66
$76
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2016 2017 2018 2019 2020 2021 2022
LCOE, $/M
Wh
Installed Cost, $/kW
Solar Single Axis Tracking (20 MW)
$/MWh $/KW
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Chart12–SolarThermal,ImpactsofDecliningTaxCreditsandTechnologyInstalledCosts
Impacts of Declining PTC and Technology Installed Costs
Chart13shownbelowreflectsthenear‐termcapacitypricedeclinesona$/kWbasisfrom2016‐2022associatedwiththereductionintheinstalledcostsofwindresourcesrelativetothelevelizedcostrealizedona$/MWhassumingdifferentlevelsofproductiontaxcreditsbyyear.ThewindPTCassumptionsarebasedonthefederalproductiontaxcreditassumptionsshownon73.
Chart13–Wind,ImpactsofDecliningProductionTaxCreditsandTechnologyPriceInstalledCosts
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2016 2017 2018 2019 2020 2021 2022
LCOE, $/M
Wh
Installed Cost, $/kW
Solar Thermal ‐ 6 Hour Storage (100 MW)
$/MWh $/KW
‐$4
$6
$16
$26
$36
$46
$56
$66
$76
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2016 2017 2018 2019 2020 2021 2022
LCOE, $/M
Wh
Installed Cost, $/kW
Wind (50 MW)
$/MWh $/KW
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MARKET ASSUMPTIONS
PermianNaturalGas
TEP’scurrentforwardpriceforecastforPermiannaturalgasstartsat$2.86/MMBtuin2016,andescalatesto$8.93/MMBtuin2035.Chart14‐PermianBasinNaturalGasPricesshowsthe20yearnaturalgaspriceprojectionsinnominaldollars.
Chart14‐PermianBasinNaturalGasPrices
PaloVerde(7x24)MarketPrices
TEP’scurrentforwardpriceforecastfor7x24PaloVerdewholesalemarketpricesstartsat$28.76/MWhin2016,andescalatesto$87.35/MWhin2035.Chart15showsthe20yearwholesalepowerpriceprojectionsinnominaldollars.
Chart15‐PaloVerde(7x24)MarketPrices
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
$/m
mBtu
‐
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
$/M
Wh
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2016 IRP SCENARIOS
Thefollowingsectionprovidesadescriptionofthedifferentscenariostobeanalyzedinthe2017FinalIRPwhichisdueonApril1,2017.Thereareatotalof7scenariosthatwillbepresentedintheIRP.Thescenariosarelistedandgroupedasfollows;
ScenariosRequestedbyDecisionNo.75068(2014IRP)o EnergyStorageCasePlano SmallNuclearReactorsCasePlano ExpandedEnergyEfficiencyCasePlano ExpandedRenewablesCasePlan
AdditionalProposedScenarioso MarketBasedReferenceCasePlano HighLoadGrowthCasePlano FullCoalRetirementCasePlan
Scenarios Requested in Decision No. 75068 (2014 IRP)
EnergyStorageCase
Inthiscase,TEPwillexplorethepotentialofEnergyStorageSystems(“ESS”)asameansforsolvingrenewablegenerationintermittencyandvariability.Thecasewillbedesignedtofullymeetrenewableandenergyefficiencystandardsandtotheextentthatpeakingcapacityisrequired,ESSwillbeanalyzedasaresourcetocoverpeakdemandrequirements.ThepotentialandapplicabilityofESSisdescribedinthestoragesectioninChapter4.
SmallNuclearReactorsCase
SmallNuclearReactors(“SMRs”)areatechnologythatcanbeutilizedtolowercarbondioxide(“CO2”)emissions,aswellasotherpollutants,whileprovidingreliable,sustainedandefficientpoweroutput.Inthiscase,TEPwillstudytheimpactofSMRsasaresourcetosupplantretiringbaseloadcoalassets.Thiscasewillbedesignedtofullymeetrenewableandenergyefficiencystandards.ThiscasewillalsobecompliantwiththeCleanPowerPlan.
LowLoadGrowthCaseandExpandedEnergyEfficiency
Forpurposesofthisscenario,itisassumedthatTEPrealizesadditionalenergyefficiencyanddistributedgenerationtargets(abovetheEEstandard).Underthisscenario,TEP’sEEprogramsareexpandedbyprogramdesignand/orbytechnologyefficiencyimprovements.Inaddition,anypotentialminingexpansionswillbeexcludedaswell.
Chapter7
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ExpandedRenewablesCase
TEPwillpresentthisscenariotostudytheimpactofexpandedrenewabledevelopment.Underthisscenario,TEPwillincrementallydevelopacommunity‐scalerenewableportfoliothatultimatelyresultsinTEPserving30%ofitsretailloadby2030(withrenewableresources).Inthisscenario,TEPanticipatesthatcomplementaryresourceswillbeneededtomaintainreliabilityandtoachieveresponsivenesstotheintermittentandvariablecharacteristicsofsolarandwindresources.Acombinationofdifferenttechnologies(orindividualtechnologies)willbetestedtocomplementtherenewablesassumptions.
AshigherpercentagesofrenewableresourcesareaddedtoTEP’sresourceportfolio,TEPanticipatestheneedforfutureinvestmentsintransmission,quick‐startgeneration,energystoragedevicesandsmartgridtechnologiesinordertomaintainreliablegridoperations.Forpurposesofreliability,the2016FinalIRPwillstudytheexpansionofbatterystoragetechnology,reciprocatinginternalcombustionenginesandothertechnologytosupportfutureancillaryservicerequirementsforthegrid.
Additional Proposed Scenarios
MarketBasedReferenceCase
Forpurposesofthe2016FinalIRP,TEPwillagaindevelopaMarketBasedReferenceCaseplan.Underthisscenario,itisassumedthatTEPreliesonthewholesalemarketforlimitedamountsoffirmwholesalepurchasedpoweragreementstomeetitsfuturesummerpeakingrequirements.ThisscenarioprovidessomeinsightsintohowTEP’sresourceportfoliomightlookifthereisadequatesupplyofmerchantresourcecapacitywithintheDesertSouthwestregionoverthelong‐term.Forpurposesofthisscenario,itisassumedthatTEPdevelopsaportfoliooflongandshort‐termpurchasedpoweragreementstocoveritssummerpeakingrequirements.ItisassumedthatTEPlimitsitsrelianceonfirmmarketcapacitypurchasesto400MWperyear.Allotherassumptionsincludingtransmission,CPPcompliance,andrenewabletechnologyupgradesarethesameastheReferenceCaseplan.
HighLoadGrowthCase‐LargeIndustrialCustomerExpansions
Forpurposesofthisscenario,itisassumedthatTEP’speakdemandincreasessignificantlyoverthenextfiveyearsduetoanexpansionofaneworexistinglargeindustrialcustomer.Underthisscenario,TEP’speakdemandincreasesby125MWin2018andagainin2020by125MW(foratotalof250MW,a10%increaseinretaildemand).Thischangeintheforecastwouldresultintheadvancementofbothtransmissionandgenerationresourcesinthenearterm.Giventhehighloadfactorsassociatedwiththesetypesofcustomers,thisscenariowouldlikelyshowtheneedforadditionalbaseloadandintermediateresources.
FullCoalRetirementCase
AsorderedbytheACCinthe2012IRP,TEPgeneratedascenariocalled“FullCoalRetirementCase”.Thiscasewasstudiedinthe2014IRPinanticipationofpotentialalternativeoutcomesresultingfromEPARegionalHazemandates.Forthe2016preliminaryIRP,TEPwillmodelasimilarscenariothatreplaces100%orapproximately1,500MWofTEP’sexistingcoalcapacitywithnewresourcesby2031.
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Fuel, Market and Demand Risk Analysis
Forthe2017FinalIRP,TEPplanstodevelopedexplicitmarketriskanalyticsforeachcandidateportfoliothroughtheuseofcomputersimulationanalysisusingAuroraXMP16.Specificallyastochasticbaseddispatchsimulationwillbeusedtodevelopaviewonfuturetrendsrelatedtofuelprices17,wholesalemarketprices,andretaildemand.Theresultsofthismodelingwillthenbeemployedtoquantifytheriskuncertaintyandevaluatethecostperformanceofeachportfolio.Thistypeofanalysisensuresthattheselectedportfolionotonlyhasthelowestexpectedcost,butisalsorobustenoughtoperformwellagainstawiderangeofpossibleloadandmarketconditions.
AspartoftheCompany’s2017resourceplan,TEPplanstoconductriskanalysisaroundthefollowingkeyvariables:
NaturalGasPrices
WholesaleMarketPrices
RetailLoadandDemand
DeliveredCoalPrices
AsummaryoftheinputdistributionsareshownforallthesevariablesonChart16throughChart19below:
16AURORAxmpisastochasticbaseddispatchsimulationmodelusedforresourceplanningproductioncostmodeling.AdditionalinformationaboutAURORAxmpcanbefoundathttp://epis.com/17Bothnaturalgasandcoal.
Chapter8
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NATURAL GAS & WHOLESALE MARKET PRICE SENSITIVITY
PermianNaturalGas
Chart16showsboththeexpectedforwardmarketpricesaswellastheexpectedpricedistributionsfornaturalgassourcedfromthePermianBasin.
Chart16‐PermianBasinNaturalGasPriceDistributions
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
$/m
mBtu
Mean 5th Pct 25th Pct 50th Pct 75th Pct 95th Pct
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PaloVerde(7x24)MarketPrices
Chart17showsboththeexpectedforwardwholesalemarketpricesaswellastheexpectedpricedistributionsforpowersourcedfromthePaloVerdemarket.
Chart17‐PaloVerde(7x24)MarketPriceDistributions
WhenconsideringChart16andChart17fromabove,itisimportanttonotethatthesummarystatisticsareaggregationsratherthanindividualpricepaths.ForinstancetheP95numberforagivenyearrepresentsthepointwhich95%ofsimulatedvaluesfallbelow.Individualpricepathsmimicrealisticbehaviorbybeingsubjecttotheprice“spikes,”meanreversion,anduneventrendobservedinactualmarkets.
‐
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
200.00
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
$/M
Wh
Mean 5th Pct 25th Pct 50th Pct 75th Pct 95th Pct
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LOAD GROWTH SENSITIVITY
Chart18showsboththeexpectedretailpeakdemandaswellastheexpecteddemanddistributionsforTEP’sretailcustomers.
Chart18–TEPPeakRetailDemandDistributions
1,500
1,700
1,900
2,100
2,300
2,500
2,700
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3,100
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Peak Retail Deman
d, M
W
Mean 5th Pct 25th Pct 50th Pct 75th Pct 95th Pct
TucsonElectricPower
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COAL PRICE SENSITIVITY
TEPcurrentlyhasownershipsharesinfourcoal‐firedpowerplantsinArizonaandNewMexico,mostofwhichareunderlong‐termcontractsforcoalsupply.
SanJuan:Theplantisamine‐mouthfacilitythatreceivescoalfromtheSanJuanmine.Ithasrecentlysignedashort‐termcontractthroughJuly2022.
Springerville: The plant has access to local coal from the El Segundomine in NewMexico via raildeliveries.SpringervillecanburnbothWesternsubbituminouscoalaswellascoalsourcedfromPowerRiverBasin.
Navajo:TheplantreceivescoalfromtheKayentaminewhichisadjacenttotheplant.TEPisunderalong‐termcoalsupplyagreementthrough2030.
FourCorners:TheFourCornersPowerplantissourcedfromtheNavajoCoalmine,whichismine‐mouthfacility,operatedbytheNavajoTransitionalEnergyCompany.TheFourCorners’CSArunsthrough2031.
TEPplanstomodelcoalpricesbasedoncontractidiociesandescalatorsthataredrivenbythecoalmarketoutlooktoestablishcoalpriceprojectionsfortheTEPfleet.Chart19reflectstherangeofcoalpricingbasedoncurrentassumptions.
Chart19–TEPCoalPriceDistributions
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
$/m
mBtu
Mean 5th Pct 25th Pct 50th Pct 75th Pct 95th Pct
2016PreliminaryIntegratedResourcePlan
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TucsonElectricPower
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2016 – 2017 Action Plan
InaccordancewithDecisionNo.75269,this2016PreliminaryIRPintroducesanddiscussestheissuesthatTEPmayanalyzeindetailforthe2017FinalIRP.TEPwillcontinuetodevelopafinalIRPinaccordancewiththescheduleoutlinedinDecisionNo.75269.Thescheduleincludesthefollowingmilestones,whichTEPwillmeet.
File2016PreliminaryIntegratedResourcePlan March1,2016
SubmitPreliminaryIntegratedResourcePlanUpdate October1,2016
Pre‐filingWorkshoponFinalIntegratedResourcePlan November2016
File2017FinalIntegratedResourcePlan April3,2017
Thedecisiontodeferthedeadlineforfilingafinal2017IRPwaslargelyduetotheimpactthattheCPPisanticipatedtohaveonfutureresourceplans,andthehighdegreeofuncertainlyaroundhowtheCPPwillbeimplementedinthejurisdictionswheretheregulatedload‐servingentitieshavefacilities.TheEPAhasresponsibilityforpreparinganimplementationplanfortheNavajoNation18(includingNavajoandFourCorners),andEPAintendstofinalizeaFederalPlanbySeptember6,2016.MuchofthedetailregardingCPPimplementationontheNavajoNationwillbeincludedintheFederalPlan19.Asdescribedpreviously,theUSSupremeCourthasissuedastayoftheCPPpendinglitigationintheDCCircuitCourtandincludingpotentialUSSupremeCourtreview.Duringthestay,StatesarenotobligatedtobeginworkonStatePlans,andthedeadlinesforthoseplans,aswellascompliancetimelinesforaffectedunits,willneedtobeadjustediftheruleremainsinplacefollowinglitigation.ArizonaandNewMexicoarecurrentlyevaluatingifandhowtoproceedinlightofthestay.AfinalrulingontheCPPlitigationisnotexpectedpriortoJuneof2017,andmaynotbeissueduntil2018.
The2017FinalIRPwillbeduepriortothecompletionofalloftheStatePlansgoverningCPPimplementation,therefore,TEPanticipatesthatthe2017FinalIRPwillhavetoaccommodatesignificantuncertaintywithregardtoCPPimplementation.Scenariosand/orsensitivitiestoaddressthisuncertaintywillbepresentedintheOctober2016IRPUpdate,totheextenttheyhavebeenidentified.
TEPhasdevelopedashort‐termactionplanbasedontheresourcedecisionsthatmustbeimplementedinparallelwithdevelopmentofthe2017FinalIRP.Underthisactionplan,additionaldetailedstudyworkwillbeconductedtovalidatealltechnicalandfinancialassumptionspriortoanyfinalimplementationdecisions.
18IncommentsfiledonJanuary21,2016,inresponsetoEPA’sproposedFederalPlanandModelTradingRules[80FR64966],UNSEnergyonbehalfofTEPcommentedthatitisnot“necessaryorappropriate”toregulateaffectedplantsontheNavajoNation,andEPAshouldnotdoso.19IncommentsfiledonJanuary21,2016,inresponsetoEPA’sproposedFederalPlanandModelTradingRules[80FR64966],theArizonaUtilitiesGroupcommentedthatpromulgating“model”FederalPlansdoesnotrelieveEPAoftheresponsibilitytoprovideadequatepublicnoticeandcommentoftheagency’sintenttoimposeaFederalPlanonaspecificstateortribe.
Chapter9
2016PreliminaryIntegratedResourcePlan
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TEP’sneartermactionplanincludesthefollowing:
TEPisinvolvedinlitigationwiththetwoCo‐OwnersofSpringervilleUnit1overvariousissuesregardingUnit1.TEPhascontestedallallegationsandvigorouslyadvocateditspositionsinthesematters.TheCo‐OwnershavefailedtopayanyofthecostsandexpensesrelatingtotheirshareofownershipinSpringervilleUnit1sincetheleasesendedinDecember2014.Alloftheseproceedingsareongoing,butarecurrentlystayedincidenttoasettlementagreedtobythepartiesinFebruary2016..Asaresultoftheresolutionoftheselegalmatters,TEPispreparingfortheacquisitionoftheun‐ownedportionofSpringervilleUnit1.TEP’scurrentshareofSpringervilleUnit1isavitalpieceofoursupplyportfolio.
TEPplanstocontinuewithitsutilityscalebuildoutofitscurrentrenewableenergystandardimplementationplans.TEPanticipatesthatanadditional1100MWofnewrenewablecapacitywillbein‐servicebytheendof2030raisingthetotaldistributedgenerationandutilityscalecapacityonTEP’ssystemtoapproximately1500MW.Bytheendof2016,renewableresourceswillmakeupcloseto13%ofTEP’stotalnameplategenerationcapacity.Asaresult,TEPiscurrentlyinvestingitstimeandresourcesintoanumberofresearchanddevelopmentactivitiesthatwilldeterminethefutureneedforstorageandsmartgridtechnologiestosupportthegrid,includingtwo10MWenergystorageprojectsslatedforinserviceby2018.
TEPwillcontinuetoimplementcost‐effectiveEEprogramsbasedontheArizonaEEStandard.TEPwillcloselymonitoritsenergyefficiencyprogramimplementationsandadjustitsnear‐termcapacityplansaccordingly.
Aspartofitsnear‐termportfoliostrategy,TEPwillcontinuetoutilizethewholesalemerchantmarketfortheacquisitionofshort‐termmarketbasedcapacityproducts.Inaddition,TEPwillcontinuetomonitorthewholesalemarketforotherresourcealternativessuchlong‐termpurchasedpoweragreementsandlowcostplantacquisitions.TEPwillalsomonitoritsnaturalgashedgingrequirementsasitreducesitsrelianceoncoalbasedgenerationinfavorofnaturalgasresourcesandmakerecommendationsonpotentialfuelhedgingchangesiftheybecomenecessary.
TEPplanstocommunicateanymajorchangeinitsanticipatedresourceplanwiththeACCaspartofitsongoingplanningactivities.TEPhopesthisdialogwillallowtheCommissionanopportunitytohelpshapeTEP’sfutureresourceportfoliooutcomeswhileprovidingTEPwithgreaterregulatorycertaintywithregardstofutureresourceinvestmentdecisions.