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Power Advisory LLC 2016. All Rights Reserved.Power Advisory LLC 2016. All Rights Reserved.

www.poweradvisoryllc.com

Opportunities Offered by Northeast Electricity Markets for Canadian Wind Projects

October 2016

Prepared for CanWEA

Power Advisory LLC 2016. All Rights Reserved.

www.poweradvisoryllc.com

Content & Contact

• Executive Summary

• Introduction

• Market Basics: ISO-NE

• New England Renewable Energy Requirements

• Market Basics: NYISO

• New York Renewable Energy Requirements

• Economics of Wind in Atlantic Canada

• Ensuring Opportunities for Wind

2

Prepared for CanWEA

October 2016

John Dalton

[email protected]

978-369-2465

212 Thoreau Street

Concord, MA 01742

Power Advisory LLC 2016. All Rights Reserved. 3

• Power Advisory LLC (Power Advisory) is an electricity sector focused management consulting firm. We

specialize in electricity market analysis and strategy, power procurement, policy development, regulatory and

litigation support, market design, and project development and feasibility assessment, focusing on North

American electricity markets.

• Our clients include state, provincial and federal governments, public utility regulators, consumer advocates,

electricity generators (both renewable and conventional), investors, electricity transmission companies, and

electricity distribution companies.

• With offices in Toronto, Metropolitan Boston, and Calgary, a major area of focus is Canadian-US electricity

trade.

• Sample projects include:

• Advised the Massachusetts Clean Electricity Partnership, which included HQ Energy Services (U.S.) Inc., on the benefits of

proposed legislation to import 18.9 TWh per year of clean electricity into New England.

• Advised the Atlantic Canada Opportunities Agency on the opportunities offered by the U.S. Northeast for the export of

clean and renewable energy from Atlantic Canada.

• Advising Natural Resources Canada on its Regional Electricity Cooperation and Strategic Infrastructure Initiative, which is

focused on identifying the most promising regional electricity infrastructure projects with the potential to achieve significant

greenhouse gas reductions.

• Completed for Natural Resources Canada a comprehensive analysis of existing Renewable Portfolio Standard (RPS)

programs in the US and a broader continental RPS, which would encompass Canada and the US. The study modeled the

potential for increased renewable energy trade between the Atlantic and New England based on an assessment of which

renewable resources (Canadian hydro, Canadian wind or New England wind) would be able to most cost effectively satisfy

forecast RPS demand. After forecasting the relative cost of these resources, the study quantified the level of increases in

trade, the savings that would be generated and evaluated the proportion of US RPS demand that would be satisfied by

Canadian renewable energy exports.

Introducing Power Advisory


Executive Summary

4


• All six New England states have renewable portfolio standards (RPS). Renewable Energy Credits

(RECs) are used to ensure compliance with RPS. Class I RECs are among the most valuable and

wind generation from Quebec and the Maritimes is an eligible Class I resource in each New England

state.

• Of the New England states, only Vermont counts large-scale hydro as a Class I resource.*

• Many New England states require that Class I resources be located in adjacent control areas. This precludes

wind generation from Ontario participating.

• There are special requirements for resources that aren’t located in New England.

• The increase in Class I resource demand in New England from 2015 to 2025 is about 8.8 TWh,

representing about 2,500 MW of wind.

• Rhode Island extended the period over which its Class I RPS requirements increase to 2035 in the most

recent legislative session. The Massachusetts Legislature considered doubling the rate of increase in its Class

I RPS, but failed to do so. Some observers expect such action in the next legislative session.

• Satisfying this Class I demand is becoming increasingly difficult given the distance between

favorable locations for wind projects and Southern New England load centers and increasing

transmission congestion where wind projects are being developed.

• The New England states are pursuing alternatives to support the funding of required transmission projects to

deliver this renewable energy to Southern New England load centers. This will increase the cost of these

projects and help offset a disadvantage to Canadian clean energy resources.

Executive Summary

New England has significant requirements for additional clean energy


• In addition, Massachusetts enacted legislation calling for 9.45 TWh per year of clean energy generation. Under this

legislation clean energy generation includes large scale hydro as well as Class I renewable resources.

• This 9.45 TWh of clean energy isn’t necessarily in addition to the 8.8 TWh of Class I resources given that any Class I resources

used to satisfy the clean energy mandate would also address Massachusetts Class I requirements.

• The greater value offered by the RECs produced by Class I renewable resources would be recognized, allowing for a higher price

for wind generation from Eastern Canada relative to large scale hydro.

• The legislation also specifies that preference will be given to proposals that combine new Class I renewable

portfolio eligible resources and firm hydroelectric generation. This suggests that adding wind generation to

hydroelectric generation will yield additional value beyond the value of the Class I RECs.

• Wind generation would offer additional value relative to hydro given the state’s requirements for an additional 4.4

TWh of Class I generation. The incremental value of Class I RECs amounts to about US$35 to US$50/MWh.

• Current Class I REC prices in New England range from $32 to $38/MWh, but are expected to increase with the loss of the

Production Tax Credit, which will increase the effective cost of wind generation, the predominant form of new Class I generation

in New England.

• In addition, the New England states as part of The Conference of New England Governors and Eastern Canadian

Premiers have agreed to cut CO2 emissions to as much as 45% below 1990 levels by 2030. This will require

additional volumes of clean energy, with the actual volume depending on electricity demand growth and the future

composition of electricity resources.

Executive Summary

Massachusetts recently increased its requirements for clean energy


• New York’s State Energy Plan established a goal that 50% of the state’s electricity be

generated by renewable energy sources by 2030 (“50 by 30” goal)

• With renewables providing about 26% of the state’s existing electricity requirements,

this would require an increase in renewable energy of over 30 TWh by 2030.

• To achieve this aggressive target the state is pursuing a range of programs including:

• Creating a requirement for regular Renewable Energy Certificate (REC) procurements.

These are forecast to represent an incremental demand for RECs of over 7 TWh per year by

2021, the last year for which the Public Service Commission has established a target. With

increases beyond this in future years.

• The Public Service Commission is currently only proposing to procure RECs, developers will

have to bear the risks of the market price for energy or hedge this risk with a third-party.

7

Executive Summary

New York also has ambitious renewable energy goals


• As shown the six New England states are forecast to have

a need for an additional 8.8 TWh per year of renewable

energy from 2015 to 2025.

• This is largely in addition to the 9.45 TWh per year of clean

energy that Massachusetts electric distribution companies

are mandated to procure under recent legislation.

• Class I resources that are used to satisfy the 9.45 TWh of

clean energy would also assist Massachusetts in realizing its

4.4 TWh Class I resource target. Therefore, the 9.45 TWh

and 8.8 TWh are not necessarily additive.

• New York has an incremental demand for Tier 1

resources of about 7.5 TWh per year by 2021 and 30

TWh per year by 2030.

• Tier 1 resources are required to have achieved commercial

operation after January 1, 2015.

8

Executive Summary

Both New England and New York have significant need for additional renewable resources

2017 to 2021 By 2030

New York 7.5 TWh 30 TWh

Incr. Tier 1 Demand

2015 to 2025 Incr.

State Class I Demand (TWh)

Connecticut 2.1

Maine 0.2

Massachusetts 4.4

New Hampshire 0.9

Rhode Island 1.0

Vermont 0.2

Total 8.8


• As discussed, increasing requirements for clean energy in both New England and New

York are creating opportunities for wind projects in Quebec, Atlantic Canada and

Ontario.

• Wind projects in Quebec have ready access to either New England or New York given

Hydro-Quebec TransEnergie interconnections with both.

• Given transmission interconnections and tariffs, New England represents the primary

opportunity for wind projects in Atlantic Canada.

• Hydro-Quebec transmission tariff at $Cdn8/MWh is costly for Atlantic Canada projects wheeling

to New York.

• New York is an opportunity for wind projects in Ontario given the interties between

these two markets. New England REC requirements typically require that projects be in

adjacent control area, precluding Ontario wind from participating in the New England

REC market. Access to New England from Ontario is also adversely affected by the

relatively high cost of transmission access through Quebec and the difficulties of

wheeling through New York to access New England.

9

Executive Summary

The attractiveness of opportunities for US Northeast electricity markets vary by province


Introduction

10


• Power Advisory engaged by CanWEA to review opportunities offered by the US Northeast for Canadian wind projects

• We proposed to undertake a review of three primary issues• Review specific market opportunities in New England and

New York for Eastern Canadian wind projects

• Evaluate business case for wind project development in Eastern Canada for export into US Northeast

• Assess requirements for Eastern Canadian wind projects to participate in US Northeast electricity markets

• Identify approaches that could be used to allow Canadian wind projects to participate as consortium members with Canadian hydro suppliers and transmission project developers

11

Introduction

Overview of Scope of Project


Market Basics: ISO-NEFactors Contributing to the Need for Additional Clean Energy

12


• New England energy demand is forecasted to decline by 0.2%

annually, from 128,014 GWh in 2016 to 125,213 GWh in 2025.

• Peak demand is forecasted to grow 0.2% annually under normal

weather conditions

• Energy efficiency and distributed generation will flatten demand

and slow peak demand growth

• Without it, energy and peak demand growth rates would be 1.0% and

1.1% respectively

• The New England states have ambitious, well funded and highly rated

energy efficiency programs

• The penetration of rooftop solar is also reducing customer

requirements

13

Market Basics: ISO-NE

Demand forecast


• Natural gas-fired generation

provided almost 50% of the

region’s total generation in

2015

• Nuclear generation provides

about 30% of total

generation and represents

the largest single source of

clean energy. However, it is

under increasing pressure

• Renewables (including

hydro) represent about 15%

• Oil and coal-fired generation

have declined significantly

and total about 6%


New England’s electricity market is highly reliant on natural gas

Natural Gas, 49%

Nuclear, 30%

Coal, 4%

Oil, 2%

Hydro & Other Renewables, 15%Pumped Storage, 1%

2015 ISO-NE Resource Mix


• Natural gas increased from 15% in 2000 to almost 50% in 2015

• 80% of capacity built since 1997 and more than 60% of new proposed generation (about

8,200 MW) relies on natural gas

• Natural-gas-fired generators set real-time electricity prices 75% of the time in 2015

• The modest increase in renewables is attributable to a decline in energy output of biomass

units from 2000 to 2014-15, which has been offset by increased production from wind,

solar and hydro resources


Electricity market driven by natural gas

31%

22%18%

15%

7% 8%

34%

1%5%

44%

8% 9%

30%

2% 4%

49%

7% 9%

Nuclear Oil Coal Natural Gas Hydro Renewables

Percent of Total Electric Energy Production by Fuel Type

2000 2014 2015


• Natural gas pipelines serving New England

are constrained throughout much of the

winter given increasing demands and

reduced supplies from Atlantic Canada.

• With limited pipeline capacity on cold winter

days gas-fired generators compete with local

gas distribution companies for natural gas

supplies. This can lead to very high prices.

• A major contributor to the inadequate

pipeline capacity is the unwillingness of

natural gas-fired generators to contract for

firm pipeline supplies.

• Recent reductions in oil prices have

moderated the impact of natural gas prices

on electricity prices in New England. Two

factors have contributed to this: (1) dual-

fuel units with oil burning capability are now

cost competitive when burning oil; and (2)

lower oil prices have also reduced prices in

the World LNG market, which has increased

LNG deliveries to New England and lowered

LNG prices.

Natural gas prices and wholesale electricity prices

are closely linked


Natural gas contributes to electricity price volatility

Source: ISO-NE


• During most of the winter, existing pipelines

in the New England region are running at or

near maximum capacity

• As natural gas demand approaches pipeline

capacity natural gas prices increase. As

natural gas prices increase oil-fired

resources are used to meet demand

• Over 30% of ISO-NE’s gas-fired capacity is

dual-fuel

• These conventional resources are older and

more expensive to run

• At lower natural gas prices, natural gas-fired

generation is typically cheaper than coal-

fired generation. New England’s coal-fired

units have higher coal costs given

transportation costs and environmental

requirements for low sulphur content.

• Switching to conventional fossil fuel

resources is problematic due to increasingly

stringent GHG emission requirements A comparison of the differences in fuel mix during an average day

and a cold winter day


Natural gas infrastructure inadequacy affects the fuel mix

Source: ISO-NE


• The figure to the right shows the

resulting increases in Algonquin basis

differential (the premium paid by

customers in New England) as pipeline

utilization increases.

• Proposals to expand pipeline capacity

to New England are receiving

increasing opposition.

• The Massachusetts State Supreme

Court voided a Mass Department of

Public Utilities decision that allowed

electric utilities to contract for

additional natural gas pipeline

capacity to lower electricity prices.

• Spectra Pipelines, Eversource and

National Grid had proposed the

Access Northeast pipeline expansion

project to provide an additional 9.25

MMcf/day of capacity.


Natural gas pipeline constraints affect natural gas prices

Source: ICF

Algonquin Citygate Basis to Henry Hub

($/MMBtu) versus Pipeline Utilization Rates

Prices increase at higher pipeline utilization levels


• Current low natural gas prices are

driving down wholesale electricity

prices, displacing higher cost non-

natural gas-fired resources

• Older less efficient plants are often

unable to recover the costs of

maintaining their plants and in some

instances can’t afford the costs of

environmental compliance

technologies necessary to meet new

environmental requirements

• More than 4,200 MW has or will be

retiring soon

• Another 6,000 MW is at risk

• ISO-NE estimates that about 30% of

the region’s generating capacity is at

risk of retiring by 2020

Most of the retiring capacity will be replaced by new natural gas

capacity, however, these non-gas resources are necessary

during the winter when gas resources are limited


Non-gas capacity retirements are increasing, exacerbating natural gas constraints

Source: ISO-NE


• The Vermont Yankee nuclear plant (620 MW) closed in 2014 and Pilgrim nuclear plant

(680 MW) is scheduled to close in 2019. These two units provided about 10 TWh of

carbon-free electricity and about 8% of New England’s total electricity requirements.

• The Massachusetts legislative requirement to procure 9.45 TWh per year of clean energy can be

viewed as a response to these closures.

• New England’s GHG emissions increased in 2015 for the first time in 5 years as a result of

the closure of Vermont Yankee. The loss of both nuclear units makes it more difficult for

the region to satisfy its Regional Greenhouse Gas Initiative (RGGI) emission reduction

targets.

• RGGI is a cooperative effort to cap and reduce CO2 emissions from the electricity sector.

Participating states use a cap and trade framework under which all large fossil-fueled

generators in the participating states have to hold allowances equal to their CO2

emissions over a three-year period. Allowances can be obtained through quarterly

auctions or offsetting CO2 emissions outside the electricity sector. The RGGI CO2 cap

declines 2.5 percent each year from 2015 to 2020.

20


Low wholesale electricity prices contributing to nuclear unit closures



New England Energy Import Capability

New York - New England

[8 AC ties]: 1,400MW

Quebec-New England

(Highgate):

217 MW

Quebec-New England

(Phase II):

1,400 MW*

Cross-Sound Cable :

330 MW

Maritime - New England:

1,000 MW

*Capacity import capability

Source: Adapted from ISO-NE “Overview and Regional Update” 2015 Slide 6


New England will continue to attract imports given the

availability of low variable cost energy in Eastern

Canada, primarily from Hydro-Quebec.


Imports into New England

Source: ISO-NE

-5539

-10142

-12648

-18961-20696 -20997

-25000

-20000

-15000

-10000

-5000

0

5000

2010 2011 2012 2013 2014 2015

Net Flow over the External Ties (GWh)

Total New Brunswick Hydro-Quebec New York


New England Renewable Requirements

23


• Renewable Portfolio Standards (RPS) are

state-determined regulatory mandates that

require a minimum percentage of retail

customer electricity requirements to be

served using renewable energy

• RPS use Renewable Energy Credits (RECs) for

compliance

• Each REC is equivalent to 1MWh generated

from a renewable resource

• The highest value RECs (other than those for

solar PV) are Class I RECs

• The demand for Class I RECs is forecast to

grow by almost 9 TWH by 2025

• Satisfying this demand is becoming

increasingly difficult given the distance

between favorable locations for wind

projects (i.e., Maine) and Southern New

England load centers and increasing

transmission congestion where wind projects

are being developed.

• Permitting wind projects has always been

difficult in New England.

Of the New England states, only Vermont counts large-

scale hydroelectricity in its Class I RPS*

Renewable Energy Requirements

New England State RPS

-

5,000

10,000

15,000

20,000

25,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

State Class I REC Requirements (in GWh)

CT ME MA NH RI VT

* Connecticut allows large-scale hydro projects to satisfy its

Class I RPS targets if a shortage of Class I RECs is deemed

to exist.



Class I Renewables vary by state

State Wind Solar Fuel CellsGeoth-

ermal

Landfill

Gas

Anaerobic

Digestion

Ocean

Thermal,

Wave,

Tidal

Small

Hydro

Large

HydroBiomass

Connecticut✓ ✓ ✓ ✓ ✓ ✓ ✓

Certain run-

of-the-riverX

Low

emission

Maine ✓ ✓ ✓ ✓ ✓ X ✓

< 100 MW,

fish passageX ✓

Massachusetts

(Built after

12/31/97) ✓ ✓Using

renewables✓ ✓ X ✓

New, <30

MW, meet

environmen

tal

regulations

XLow

emission

New

Hampshire

(Built after

1/1/06)

✓

If not

used

for

Class II

X

✓

Post

12/31/

12

✓X

✓

New

incremental

production

of existing

XLimited

Rhode Island

✓ ✓Using

renewables✓ X X ✓ <30 MW X Limited

Vermont✓ ✓ ✓ ✓ ✓ ✓ ✓ Certified ✓ ✓

Wind generation is a Class I resource in every New England state. However, there are specific requirements for

importing Class I RECs from other regions. (See p. 62);


• Currently over 800 MW of wind capacity

and 4,200 MW of proposed wind

capacity

• Approximately 13,000 MW total

proposed generation in the ISO-NE

Generation Interconnection Queue

• Wind resources are far from demand

centers, therefore increased wind

generation will require significant

transmission upgrades

• ISO-NE market structure has required

that wind project developers pay for

most required transmission upgrades.

Difficult to get wind project developers

to band together to support such

upgrades

• Tri-State Clean Energy RFP provided a

mechanism to allow for the

consideration of necessary transmission

developments

Of the approximate 4,200 MW of proposed wind capacity in the

ISO-NE interconnection queue, about 3,600 MW is located in

Maine. However, Maine’s transmission system is increasingly

congested, and will require upgrades to accommodate this

additional wind generation.


Wind generation represents majority of new renewables in ISO-NE

64%

30%

6%

New England Proposed Generation

Natural Gas Wind Other


• The Class I RPS

eligibility criteria are

shown in the table to

the right.

• Many states limit the

size of hydro projects

to no more than 30

MW.

• Hydro projects would

realize a higher

capacity value and

corresponding capacity

payments and those

with storage capability

can target output to

higher priced periods.


Large hydro doesn’t qualify as a Class I resource for most New England States


• Passed MA Legislature July 31, 2016

• Calls for the procurement of 1.6 GW of offshore wind by 2027 and 9.45 TWh/year of clean energy

generation by 2022

• Clean energy generation includes:

• Firm service hydroelectric generation

• New Class I RPS eligible resources firmed up with firm service hydroelectric generation

• New Class I RPS eligible resources

• Competitive solicitation process to be used to select proposals. Allows multiple solicitations, but Power

Advisory expects state to issue one solicitation for clean energy generation to enhance competitive pressure

• The following criteria to be used when procuring clean energy:

• Enhance electricity reliability

• Help reduce winter electricity price spikes and guarantee energy delivery in the winter months

• Be cost effective to ratepayers, including economic & environmental benefits

• Mitigate transmission costs; any overruns are not borne by ratepayers

• Demonstrate project viability in a commercially reasonable timeframe

• Allow resources to be paired with energy storage systems

• Mitigate environmental impacts and promote economic development in Massachusetts, if possible

• The legislation also indicates that preference will be given to proposals that combine new Class I renewable

portfolio eligible resources and firm hydroelectric generation. This suggests that adding wind generation to

hydroelectric generation will yield additional value beyond the value of the Class I RECs.

28


Massachusetts Energy Bill


Market Basics: NYISONYISO is responsible for administering the organized electricity

markets that operate in New York State

29


• Electricity demand is forecasted to decline by 0.16% annually over the next decade due to energy efficiency and distributed energy resources

• Peak demand is forecasted to grow 0.21% annually

Market Basics: NYISO

Demand Forecast

Source: NYISO Power Trends 2016

Electric Energy Usage Trends in New York State: 2000-2026


• Natural gas (including

dual fuel) make up

44% of the state’s

energy production

and 69% of the

downstate region’s

energy production

• Natural gas-fired

projects represent

about 65% of all

proposed generating

capacity in New York


New York’s electricity market is also highly reliant on natural gas

Natural

Gas/ Oil,

37%

Nuclear,

31%

Coal, 1%

Oil, 1%

Hydro &

Other

Renewables,

24%

Natural Gas,

7%

2015 NYISO Resource Mix


• Due to recent low natural gas prices, wholesales electricity prices hit a 15-year low in

2015

• About 2,300 MW of New York’s generation capacity is planning to retire or suspend operation

between 2016 and 2018. This includes 1,435 MW of nuclear capacity, which is located Upstate

• New York has developed a Clean Energy Standard to promote the development of additional clean

energy and to support the state’s nuclear generating units

• The electricity market’s ability to respond to these changes is hampered by transmission

constraints

• Increasingly stringent environmental quality goals, such as the Clean Energy Standard

and stayed federal Clean Power Plan, represent new challenges to existing generation

• NYISO estimates that 75 – 80% of the system’s generating capacity will be affected by new and

proposed environmental regulations including the Clean Power Plan and a diverse set of

environmental regulations such as control technology requirements for nitrogen oxides (NOx),

mercury from coal plant emissions, interstate transportation of air emissions

• The impacts of these requirements will vary and are likely to result in additional capital expenditures for

affected units and higher operating costs. These requirements aren’t likely to result in a significant

increase in renewables beyond that already called for.

32


New York electricity market in flux given low wholesale electricity prices and resulting retirements


• About 58% of the State’s electricity is used downstate (New York City, Long Island, Lower

Hudson Valley) while only 40% of the generating capacity is located downstate

• The disconnect between where generation and demand are located causes many existing transmission

facilities to be heavily loaded

• 80% of NYISO’s 11,124 miles of transmission lines went into service before 1980, meaning

about 4,700 miles will require replacement or upgrades within the next 30 years

• Increasing transmission capability across the state can also help enable clean energy

• All of New York’s existing and proposed wind projects and its major hydro resources are located far

from demand centers in the northern and western regions of the state

• The interties that Canadian resources access are also far from the high demand regions

• Transmission congestion in Western New York is contributed to by increasing imports from Ontario

• Several merchant transmission projects have been proposed to address transmission

constraints and develop additional clean energy downstate

• The Champlain Hudson Power Express is the most developed and has the vast majority of its required

permits. It has stalled given low natural gas prices which have depressed the price differentials that drive

such projects.

• Champlain Hudson Power Express is a high voltage direct current transmission that would deliver 1,000 MW into

New York metropolitan area from Quebec.

33


Transmission is a challenge as well as an opportunity


• All 6 of New York’s operating nuclear plants are facing financial– and some, regulatory– struggles

• The potential retirement of the two nuclear plants at Indian Point Energy Center are a particular reliability concern, as their

loss would require 500 MW of new capacity to be built in the demand-heavy region of Southeast New York

• Having passed their license expiration dates, the plants are currently operating under “timely renewal”, though due to numerous

safety and environmental concerns, license non-renewal is possible.


Nuclear decommissioning in New York’s future

Plant Name Location Nameplate

Capacity

(MW)

Operating

License

Expiration

Notes

Indian Point, Unit 2 Buchanan NY 1,032 9/28/2013 Operating under “timely renewal”

until NRC makes final ruling on

license renewal application

Indian Point, Unit 3 Buchanan NY 1,051 12/12/2015 Same as Indian Point Unit 2

James A. FitzPatrick Scriba NY 838 10/17/2034 Was set to cease operation

January 2017, but sale to Exelon

appears to be moving forward.

However, sale depends on CES

being adopted and final terms

Nine Mile Point, Unit 1 Scriba NY 621 8/22/2029 Exelon Corp. has discussed

financial struggles, mentioning

need for support, though it has

not discussed early

decommissioning formally

Nine Mile Point, Unit 2 Scriba NY 1,140 10/31/2046 Same as Nine Mile Point Unit 1

R.E. Ginna Ontario NY 610 9/18/2029 Operating under reliability

support services agreement with

NY PSC, in effect until April 2017

Source: Information Digest 2015 – 2016, US Nuclear Regulatory Commission, Appendix A

New York State Nuclear Generation Plants

http://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1350/


New York State Renewable RequirementsThe Clean Energy Standard

35


• Following the expiration of New York’s Renewable Portfolio Standard in 2015, the

Department of Public Service (DPS) was directed to develop a standard that

mandates the State Energy Plan (SEP) goal that 50% of the state’s electricity is

generated by renewable energy sources by 2030 (“50 by 30” goal)

• This is a strategy to reach the broader goal of reducing statewide greenhouse gas

emissions by 40% by 2030

• The Clean Energy Standard was adopted on August 1, 2016 with the following goals:

• Encourage consumer-initiated clean energy purchases or investments through program

and market structures

• Obligate load serving entities (LSEs) to financially support new renewable generation

resources to serve their retail customers

• Create a requirement for regular REC procurement solicitations

• Obligate distribution utilities on behalf of all retail customers to continue to financially

support the maintenance of certain existing at-risk small hydro, wind and biomass

generation facilities

• Obligate LSEs to financially support the preservation of existing zero-emissions at-risk

nuclear facilities to serve their retail customers

36

Clean Energy Standard

New York mandates ambitious renewable energy goals through the Clean Energy Standard (CES)


• To fulfill this goal, it is estimated that New York will need to

increase energy from renewable resources by 33,700 GWh from

current levels

• NYISO equates this to about 25,000 MW of solar PV, 15,000 MW of wind,

or 4,000 MW of hydropower

• The Department of Public Service (DPS) Staff CES Cost Study,

released in May, found material internal transmission constraints

in Ontario and thus concluded that much of the supply from

northern and western Ontario, especially if located within or

blocked from getting through the Toronto area, was inaccessible

to New York without additional transmission capacity.

Furthermore, currently, all interties carrying energy from Quebec

to New York are fully utilized in most hours.

37


CES will require significant changes


• The CES builds on the regulatory and retail market changes

that are already being pursued under the state’s Reforming

the Energy Vision (REV) initiative

• Through REV, New York has formed various initiatives that

work to reduce the soft costs and other market barriers facing

renewable energy, support energy efficiency in buildings, help

finance distributed energy, integrate advanced storage and

load control technologies into the electricity system and more.

• Whereas REV will continue to support distributed resources

and their integration into the grid, the CES will provide the

broader scale and certainty necessary to ensure that markets

are created that have the scale and scope necessary to

attract investment and reduces costs

38


The CES builds on existing initiatives


• As a fully restructured state, New York has historically met

its clean energy goals through a system which treated the

compliance obligation as a delivery function of the

distribution utility with RECs centrally-procured for utilities

by NYSERDA under long-term contracts, intended to

provide greater certainty to generators and lower REC costs

for customers.

• The CES retains the benefit of New York’s unique central

procurement system but shifts the compliance obligation

from the distribution utility to the retail commodity supplier

LSE.

39


CES mechanisms


Renewable Energy Standard

• Tier 1: New Renewable Resources

• Requires all LSEs to procure new renewable resources (with RECs as evidence) at

increasing rates (see Table A on following page)

• Specific goals are established for 2017 to 2021, with subsequent goals established in triennial reviews

• Table B on following page shows the projected statewide output from new

renewable resources due to these requirements

• LSEs can meet their obligations by purchasing RECs from NYSERDA, purchasing

qualified RECs from other sources or by making Alternative Compliance

Payments to NYSERDA

• Resources must have come into operation after Jan 1, 2015 in order to be eligible

• This order requires NYSERDA to conduct regularly scheduled solicitations for

long-term procurement of RECs to achieve the following minimum result (see

Table D on following page)

• Expected procurements of new large-scale renewable generation is approximately 1,869.4 GWh per

year, which is twice the level of RPS procurements during 2011 to 2015

• ZECs are discussed in a subsequent slide

40

Clean Energy Standard: Renewable Energy Standard

The CES is divided into a Renewable Energy Standard and a Zero-Emissions Credit (ZEC) requirement


Renewable

Resource (MWhs)

% Renewable

Resources

Baseline 41,296,000 25.71%

2017 42,270,000 26.32%

2018 43,037,270 26.81%

2019 44,420,100 27.69%

2020 46,598,371 29.08%

2021 48,826,642 30.54%

41


CES RES: Tier 1 tables

Year% of LSE

total load

2017 0.6%

2018 1.1%

2019 2.0%

2020 3.4%

2021 4.8%

Table A. Required Procurement

YearDistribution

Utilities & ESCOsLIPA NYPA

Direct

Customers

Statewide

Total

2017 705,595 120,244 139,225 8,936 974,000

2018 1,261,429 214,967 248,900 15,975 1,741,270

2019 2,263,192 385,682 446,563 28,662 3,124,100

2020 3,841,197 654,599 757,928 48,647 5,302,371

2021 5,455,424 929,688 1,076,440 69,090 7,530,642

Table B. Expected Statewide Yield (MWhs)

Table C. Expected Renewable Resources

YearAnticipated Procurement

Target (MWh)

Minimum Procurement

Target (MWh)

2017 1,966,449 1,769,804

2018 2,022,004 1,819,804

2019 2,077,560 1,869,804

2020 2,133,116 1,919,804

2021 2,188,671 1,969,804

Table D. Long-term Procurement of RECs


• Staff had argued for the procurement of a

bundled (RECs and energy) product

• Commission determined that larger procurement

volumes and elimination of budget cap will attract

more developers, than past NYSERDA processes

• Ensuring success of REC-only procurement

• Effectiveness of REC-only procurement will be

evaluated in the triennial review

• Net effect is that renewable project developers must

manage energy price risks

42


Fixed-price RECs will be procured consistent with past practice


Renewable Energy Standard

• Tier 2: Maintenance

• Does not include the support payments for existing

renewable generation as recommended in the Staff White

Paper

• Noted that REC support payments in White Paper were either

premature, unnecessary, or already provided for under the current

maintenance program

• Consists of a maintenance program virtually identical to the

one that existed under the existing RPS

• Offshore Wind

• NYSERDA to identify appropriate mechanisms to achieve

goal of developing offshore wind

43


CES RES: Tier 2


• NYSERDA will offer qualifying nuclear facilities multi-year contracts for the

purchase of Zero-Emission Credits (ZECs)

• For contracts awarded prior to April 1, 2017, contract period will run until March 31,

2029

• ZEC: $17.48/ MWh for the first two year tranche (Tranche 1)

• Price adjusted every two years for Tranches 2 – 6, based on social cost of carbon and changes in Zone A

energy and capacity prices

• Each LSE serving end-use customers will be required, beginning April 1, 2017,

to purchase a number of ZECs relative to the portion of the electric energy

load served by the LSE

• Costs will be recovered from ratepayers through commodity charges

• The Order formally supports New York State’s upstate nuclear plants

• These upstate plants realize lower locational marginal prices than downstate nuclear

plants (e.g., Indian Point).

44

Clean Energy Standard: Zero-Emission Credits

CES Tier 3: Existing nuclear facilities


• The NYS RPS program did not have geographic limitations until 2013 when the

PSC approved NYSERDA’s request that out-of-state resources could no longer be

considered for the main tier of the state RPS due to energy security issues and the

displacement of economic benefits.

• In the NY Department of Public Service (DPS) Staff White Paper on the CES, Staff

recommended that a geographic eligibility provision be added to the CES to

expand supply options to include out-of-state resources, which would enhance

competition and supply stability and reduce costs.

• Recommended that out-of-state generation be eligible if located in an adjacent control

area to the NYISO control area, and if generation is accompanied by documentation of

a contract path between the generator and the in-state purchaser, including

transmission rights

• Also requires delivery of the underlying energy for consumption in New York between

the generator and either the New York Spot Market administered by the NYISO or an

LSE in New York

• DPS staff noted that because the CES would apply to all LSEs, restricting LSEs to in-

state resources would conflict with the Commerce Clause of the Constitution.

45

Clean Energy Standard: Eligibility

CES: resource eligibility proposed rules


• CES eligibility rules for Tier 1 mirror those currently used in the Main Tier of the RPS with the exception that 30 MW limit on low-impact run-of-river hydro facilities is eliminated • Large hydro is eligible, but only if it determined to be a

low-impact run-of-river facility and this requires that there be no new storage impoundments, which excludes most large hydro projects• Recall that Tier 1 resources also have a vintage requirement

that mandates new resources

• Eligible resources: biogas, biomass, liquid biofuels, fuel cells, hydro, solar, tidal/ocean, and wind

• However, no new storage impoundment will be permitted for any eligible hydro facility

46


CES: adopted resource eligibility


DPS Staff’s proposed geographic eligibility was adopted, allowing

facilities located out-of-state in adjacent control areas to participate

in NY CES Tier 1 solicitations.

For imported electricity to be eligible, it must be demonstrated that

it was:

• Scheduled into a market administered by NYISO for end-use in NY

• Delivered through a wholesale meter under the control of a utility, public

authority or municipal electric company such that it can be measured and

such that consumption within NY can be tracked and verified

• Delivered through a facility dedicated generation meter approved by the DPS

or its designee, to a customer in NY whose electricity was obtained through

the NYISO system

• All costs associated with measurement, tracking and verification must be borne by

the facility owner47


Out-of-state resource participation adopted in the CES


• May sell and transmit energy as it is generated into the spot market

of the control area of its location without simultaneous transmission

into the NY Control Area, as long as an equal quantity of energy is

transmitted out of the affected spot market into the NY Control Area

for end-use during the same hour as the renewable generation is

produced.

• Contractual deliveries for out-of-state resources much be recognized

in each hour as the lesser of actual hourly metered energy production

by the renewable generator, or actual hourly energy delivered to the

electric energy purchaser in the NY Control Area for end-use.

• If the control area of origin has an attributes accounting and tracking

system or an environmental disclosure program, it is required that

such programs recognize hourly matched transactions without

double counting the attributes in any jurisdiction.

48


Specifications for out-of-state intermittent renewable generators that participate in CES Tier 1 solicitations


• Given existing transmission tariffs, most renewable generation from Atlantic

Canada is unlikely to be cost-effective in New York or alternatively New York

would be viewed as a less attractive market

• Commission indicated that evaluation framework to be based on price and

economic development unless this shown to be ineffective

• This could disadvantage Canadian wind projects given their economic development

benefits will be lower than those for New York projects

• Commission indicated that the following additional factors will be considered:

• Viability of the project;

• Time frame for bid acceptance to operation;

• Diversity of resources of the overall portfolio;

• Diversity of owners [not further defined];

• Alignment with REV goals specified in procurement solicitations;

• Project developer experience; and

• Non-cost economic benefits.

49


Eligibility requirements preclude renewable generation from Atlantic Canada


Economics of Wind in Quebec and Atlantic CanadaAbility of Wind from Quebec and Atlantic Canada to compete in US

Northeast

50


• Used US Energy Information Administration’s Assumptions to the

Annual Energy Outlook as the source for wind project capital and fixed

O&M costs

• Adjusted these to reflect expected cost differences in the US Northeast and Eastern

Canada

• These included regional cost differences (e.g., higher construction costs in New England

given project siting on ridge tops) and foreign exchange (Fx) effects

• Analysis assumed that significant portion of Canadian projects wouldn’t be affected by Fx,

with manufacturing infrastructure located in Canada

• Provincial cost differences were viewed as relatively minor and beyond the scope of

this analysis

• Analysis also accounted for differences in expected capacity factors in

these two regions

• Eastern Canada was viewed as offering higher capacity factors than the US Northeast

• Here as well differences in provincial wind regimes weren’t considered

• These assumptions are shown on a subsequent page

51

Economics

Similar underlying assumptions used for US and Canadian wind costs


• US wind projects have benefited from the US Production Tax Credit (PTC)

• A 2.3 cent/kWh tax credit that was paid for all output over the first 10 years of a project’s life.

• The PTC is scheduled to be phased out by 2020.

• However, by expending 5% of a projects costs in a year a developer is able to claim that it began construction in

that year. This “continuity safe harbor” provision allows a developer to extend the benefits of the PTC for up to

four years assuming that the developer is able to demonstrate that it has made continuous progress towards

completion.

• This raises a question as to whether developers will share this benefit with buyers by reflecting it in its offered

pricing or whether they will elect to retain the benefit in terms of a higher return. We expect that market

dynamics will determine the answer to this question and where there are believed to be fewer competitors that

have this benefit the seller will seek to retain this benefit for itself.

• If this occurs Canadian wind will be on a much more level playing field.

• The PTC is scheduled to drop to 80% by 2017, 60% by 2018 and 40% by 2019.

• Projects are required to initiate construction by the end of the year to lock in the respective PTC rate. The

threshold for initiating construction is relatively low and includes incurring 5% of eligible project costs by the

deadline.

• Proponents then have four years to complete construction.

52

Economics

Historically, US wind projects had a competitive advantage from the PTC


• Costs shown are central case estimates

• +/- 15% reflects the high/low estimates

• Northeast US project busbar cost estimates assume expiration of the PTC

• The generation produced by Canadian projects must be delivered to the US

for it to compete

• The costs associated with delivering this energy must be considered

When Canadian wind project costs converted to

US$ - $60.9/MWh

Economics

The busbar costs of Canadian wind projects are projected to be lower than US projects

Source Data

2013 US$/kW

NE US Projects

2020 US$/kW

CAN Projects

2020 CAD$/kW

Capital Costs

($/kW)$1,980 $2,359 $2,504

Fixed O&M Costs

($/kW-year)$39.53 $45.41 $47.68

Capacity Factor (%) 38% 40%

Busbar Cost

($/MWh)$83.9 $76.1


• The transmission charges that would

be incurred in each Province are

shown to the right

• In addition, losses are assigned

according to the loss factors shown

• In Ontario, losses vary by location

• Provinces that aren’t directly

interconnected to the US Northeast

need to pay multiple transmission

charges, one for each province they

wheel through this is shown in terms

of the Cumulative Transmission

Charges

• Even with these additional

transmission charges, wind generation

from Quebec and Atlantic Canada

appears to be competitive with wind

generation from the US Northeast

Economics

Canadian wind generation must incur transmission costs for Northeast

Cumulative Transmission Charges*

Provincial Transmission Charges

These transmission costs reduce the

competitive advantage offered by Canadian

wind generation

$/MWh Losses

New Brunswick $5.18 3.3%

PEI $5.19 2.8%

Nova Scotia $8.55 2.0%

Quebec $8.20 5.4%

Ontario $1.85 Vary

$/MWh Losses

PEI $10.36 6.0%

Nova Scotia $13.73 5.2%

* Cumulative Transmission Charges reflect

the addition of PEI and Nova Scotia

charges, respectively with New Brunswick


• As discussed above, in New England wind generation is clustered in Maine and this

is leading to increasing levels of transmission congestion.

• Transmission congestion reduces the value of this wind generation from Maine as it has a

reduced locational value (Locational Marginal Price)

• Therefore, increasingly new wind projects require transmission investment to

deliver the energy to Southern New England load centres

• The Tri-State Clean Energy RFP issued by Massachusetts, Connecticut and Rhode

Island recognized this and allowed new transmission investments to be bundled

with generation as well as to be considered separately.

• A number of transmission projects were submitted in response to the Tri-State RFP.

Power Advisory expects that one or more of these transmission projects to be

successful.

• These different projects are forecast to have significantly different costs and to

deliver different types of energy.

• With the economic assessment considering the underlying value of energy delivered,

higher cost projects may be more cost-effective.

55

Economics

Northeast wind projects experiencing increasing transmission costs


• $/MWh costs are Power Advisory estimate of the capital costs for the project amortized over the generation that would be utilizing the

transmission facility.

• Higher cost projects that deliver lower cost or higher value energy may be successful in the Tri-State RFP.

• In general, transmission projects that would be delivering wind generation offer the higher value of Class I RECs.

• Whereas, a project such as Northern Pass is likely to offer access to energy that would receive the ISO-NE market price. Specifically,

Northern Pass participated in the Tri-State RFP as a delivery commitment project where the proponent was just seeking cost recovery for

transmissions based on the total amount of clean energy delivered. There would be no commitment to purchase a fixed quantity of

energy.

• Recall that Class I REC requirements for New England are forecast to increase by about 8 TWh from 2016 to 2025.

Economics

The estimated costs of different transmission projects vary significantly

ProjectLength

(miles)

Transfer

CapabilityTWh Generation $/MWh

Clean Energy Connect 25 600 2.1 Wind & Hydro $3

Maine Clean Power Connection 66 550 1.9 Wind $5

Maine Renewable Energy Interconnect 150 1200 4.1 Wind $11

NextEra Maine 114 561 1.8 Wind, Solar & Battery $12

Northern Pass 192 1090 8.8 Hydro $19

Vermont Greenline 60 400 3.2 Wind & Hydro $20


• Pricing for Class I RECs is shown in the figure to

the right.

• Economic theory suggests that the value of Class I

RECs will be determined by the incremental cost of

the marginal renewable resource. If a wind project

in New England costs $90/MWh ($84/MWh busbar

cost plus $6/MWh for transmission) and the value

of energy in New England is $44/MWh in 2020,

then the value of a Class I REC would be about

$46/MWh before consideration of any discounts

for a long-term contract.

• Current Class I REC prices range from about $32 to

$38/MWh. We expect that the loss of the PTC will

result in increases in Class I REC prices in New

England.

• Current forward contracts for 2020 for the ISO-NE

Mass Hub are about $44/MWh and $53/MWh for

2025.

• This analysis assumes no capacity value taken for

wind given ISO-NE pay-for-performance program.

• States have Alternative Compliance Payments,

which represent the ceiling price for a Class I REC.

These alternative compliance payments generally

escalate with inflation and for Massachusetts are

about $64/MWh.

Economics

The value of Class I RECs varies depending on market conditions

New England Class I REC Prices

Source: US Department of Energy


• Renewable Portfolio Standards (RPS) are product of legislation and state

regulations. Therefore, there’s considerable change-in-law risks associated

with these RPS.

• For example, Connecticut has changed the definition of qualifying Class I resources

several times and this has affected the price of Class I RECs in Connecticut.

• The net result is that there’s limited trading of Class RECs several years

before the compliance year. This has required that sellers have long-term

contracts to secure reasonable value for Class I RECs.

• The market value of RECs several years before the compliance year is typically at a

considerable discount to nearer term market prices reflecting these change-in-law

risks.

• Requirements for such long-term contracting are generally established

legislatively and these requirements are considerably less than the total

Class I resource requirements of these states.

• Tri-State RFP could consume much of the legislative mandates for long-term

contracts, other than required by the recent Massachusetts legislation.

58

Economics

There is little long-term forward market liquidity for Class I RECs


• For example, Massachusetts has mandated the purchase of 9.45

TWh per year of clean energy and large Canadian hydroelectric

projects would qualify for such purchases.

• Absent this purchase requirement, the value of Canadian hydroelectric power

would be the value of the energy plus its capacity value.

• Using current ISO-NE futures prices this would represent about US$54/MWh

in 2020 and about US$65/MWh in 2025.

• In 2020 baseload energy at the Mass Hub has a value of about $43.8/MWh (based on current

futures prices) and capacity about $10.5/MWh (assuming once again a baseload output profile).

• Large Canadian hydroelectric projects don’t qualify for Class I

RECs. However, as non-carbon emitting resources they can assist

states achieve any potential Clean Power Plan emission reduction

obligations.

59

Economics

The value of Canadian hydroelectric projects varies by state


• The incremental value of Class I renewable resources (or the value

of Class I RECs) versus differences in the output profile of the two

resources and the greater capacity value of hydroelectric output.

• There could also be an integration costs associated with wind (excluding

transmission costs which would be incurred by both resource types).

• For the purposes of this assessment we are assuming that hydroelectric

output is delivered around-the-clock.

• Differences in the value of the wind output relative to hydro vary

by market. For the purposes of this comparison, we believe it is

reasonable to assume that the discount associated with wind

output value relative to hydroelectric power is close to the

capacity value of wind resources.

• Therefore, one can assume that any discount in the energy value

of wind from a higher proportion of output in off-peak periods is

offset by wind’s capacity value.

• This is an approximation, but is reasonable in most electricity markets.

60

Economics

Incremental value of wind generation relative to Canadian hydroelectric projects needs to consider


• This suggests that the difference in value for wind versus baseload

hydro is largely reflected by the value of the Class I RECs

associated with the wind resource. The value of Class I RECs vary

depending on market conditions. When there is a shortage or

Class I RECs they tend to trade just below the Alternative

Compliance Payment (ACP) which in Massachusetts, Rhode Island

and New Hampshire is about $67/MWh.

• In a market where sufficient renewable energy can be built to

meet RPS requirements, economic theory suggests that the

pricing for RECs should be about $36 to $46/MWh, with the low-

end of the range assuming a discount of about $10/MWh to

secure a long-term REC contract or using the low end of the range

for wind project costs.

61

Economics

Incremental value of wind generation relative to Canadian hydroelectric projects needs to consider


• Class I renewables in adjacent control areas are eligible if the energy is

delivered into ISO-NE with associated transmission rights and NEPOOL

GIS verification. Energy must be delivered simultaneously as the RECs.

• In addition, the following documentation is required:

(1) a unit-specific bilateral contract or equivalent legally enforceable obligation for

delivery of energy to the New England control area;

(2) associated transmission rights for the delivery of energy from the generation

unit through the control area to the New England control area;

(3) showing that the associated energy was settled in the ISO-NE wholesale market;

(4) showing that the generator produced during each hour of the month the

amount of MWh claimed as verified by the ISO-NE GIS administrator; and

(5) confirming NERC tags from the originating control area to the New England

control area.

62

Economics

New England RPS requirements can be met by generation from adjacent control areas


Ensuring Opportunities for Canadian Wind in Export Projects

63


• As discussed, increasing requirements for clean energy in both New

England and New York are creating opportunities for wind projects in

Atlantic Canada, Quebec and Ontario.

• Given transmission interconnections and tariffs, New England represents

the primary opportunity for wind projects in Atlantic Canada.

• Hydro-Quebec transmission tariff at Cdn$8/MWh costly for Atlantic Canada

projects wheeling to New York

• Wind projects in Quebec have ready access to either New England or New

York given Hydro-Quebec TransEnergie interconnections with both.

• New York is a better opportunity for wind projects in Ontario for two

reasons: (1) it is directly interconnected with Ontario; and (2) access to

New England requires that power be wheeled through New York or

Quebec and the cost of transmission access through Quebec is relatively

high and it is difficult to wheel through New York to access New England.

64

Ensuring Opportunities for Wind

Northeast electricity markets represent attractive opportunity for Canadian wind


• The recently enacted Massachusetts Energy Bill calls for a competitive procurement, with the long-term

contracts that result subject to approval of the Massachusetts Department of Public Utilities.

• The recent Tri-State Clean Energy RFP (Tri-State RFP) is one model for such a competitive procurement.

This RFP was issued jointly by the electric distribution companies (EDCs) and/or state energy agencies

in Massachusetts, Connecticut, and Rhode Island.

• This RFP was similar in form to past RFPs that have been issued jointly by the Massachusetts Department of

Energy Resources and the various Massachusetts EDCs.

• The Tri-State RFP called for proposals for: (1) clean energy and/or RECs; (2) clean energy and/or RECs via a PPA with a transmission project; and (3) clean energy via transmission project with a clean energy delivery commitment.

• Clean energy was defined as: (1) Class I renewable energy facility as defined by the three procuring states, or (2)

energy produced by a Class I renewable energy facility except that the facility is located in a non-contiguous

control area, or (iii) energy produced by a hydro resource, with the requirements for these hydro resources

varying by state.

• The clean energy delivery commitment model was an innovation, which provided cost recovery for a transmission

project based on the volume of clean energy that would be delivered. This effectively unbundled transmission

from clean energy and put the risk of the volumes of clean energy delivered on the transmission asset owner who

presumably could secure commitments to use its facilities from clean energy developers.

65


The form of opportunities in New England are likely to be based on competitive procurements


• This quantitative and qualitative evaluation process is reviewed to provide

insights regarding future RFPs and assist in identifying issues that

prospective hydro and transmission developers will be interested in when

assessing wind project developers as prospective partners.

• A 100 point scale was used to evaluate proposals, with 75 points for the

quantitative evaluation and 25 points for the qualitative evaluation.

• The quantitative evaluation is to be based on: (1) indirect economic benefits; and (2) direct contract benefits.

• Indirect economic benefits are assessed in terms of reduction in locational marginal prices and production cost savings using a market simulation model.

• Direct contract benefits are based on the purchase price of clean energy and/or RECs including any transmission costs relative to the projected market prices at the delivery point.

• The metric used for ranking bids is the benefit to cost ratios of projects, based on the combination of direct and indirect benefits divided by the payments required by the project.

66


Tri-State RFP using quantitative and qualitative evaluation to select proposal


• Project Viability:

• Project team financing experience

• Project Financial Viability

• Need for and likelihood of subsidies

• Completeness & credibility of critical path schedule

• Credibility of any fuel resource plans or energy resource plans

• Reliability of proposed technology

• Commercial access to proposed technology

• Experience and capability of the Bidder and Project team

• Project Feasibility

• Status of permits and credibility of plan to obtain approvals

• Demonstrated progress in the interconnection process

• Identification of required permits and approvals

• Extent to which site or route control has been achieved, including acquisition of necessary easements or rights-of-way

• Community relations plan and status

• Conformance with FERC’s applicable regulatory requirements

• Project development status and operational viability

• Ability to meet scheduled construction start date and commercial operation date

• Progress in interconnection process

• Extent to which the price offered is firm

67


Qualitative evaluation considerations in Tri-State RFP include:


• In particular, it stipulates that the Massachusetts Department of

Energy Resources “shall give preference to proposals that

combine new Class I renewable portfolio eligible resources and

firm hydroelectric generation and demonstrate a benefit to low-

income ratepayers in the commonwealth without adding cost to

the Project”

• This clearly suggests that adding Class I resources to clean energy

from hydroelectric projects can enhance the attractiveness of

proposals.

• Furthermore, the quantitative economic evaluation framework used in

the Tri-State RFP would consider the incremental value of Class I RECs

in the direct contract benefits assessment.

• This is additional value offered by wind projects that isn’t available to large

hydro.

68


Massachusetts Energy Bill has some unique provisions


• Wind project developers must determine how to establish partnerships

with hydro and transmission developers. As discussed, we believe that

there’s a strong business case for including wind generation in their

project given the incremental value of Class I RECs.

• The strategy for managing these relationships and engaging hydro

developers is likely to vary by province. We expect that CanWEA and its

members have better understanding of how to secure partnerships with

these hydro developers than Power Advisory. However, one possible

strategy is to demonstrate to the Provincial governments the broader

benefits offered to the province from including wind generation.

• These broader benefits include:

(1) enhanced competitiveness of the proposal by including wind generation as a

Class I renewable resource.

(2) Diffusion of benefits (including construction, operations and lease payments)

across the province by including areas with attractive wind regimes.

69


Major challenge is that hydro and transmission developers in strong position


• We expect that there will be a strong desire to ensure that any partnership is under the

most favourable terms to the hydro developer. In particular, we expect that hydro

developers will be interested in partnering with wind project developers that offer low

prices and are reasonably mature.

• Such projects are likely to increase the relative attractiveness of the proposal in which the wind

project developers will be participating.

• Using a competitive procurement framework to select developers that was patterned

after the anticipated form of the Massachusetts RFP is one strategy that could be used

to select wind project developers.

• One challenge to such a process is timing, in particular the limited time available to assemble

teams.

• The hydro developers would need to act quickly to identify partners given the timing of the

Massachusetts RFP as well as to sort through the various commercial issues with the wind

project developers.

• Nonetheless, Power Advisory believes that timing need not be a barrier to using such a process.

70


Major challenge is that hydro and transmission developers in strong position


• We believe that the most obvious relationships are with the

hydro developers given that would be a need for close

coordination between the two parties to ensure that the

transmission facilities are efficiently utilized.

• The obvious candidates for such partnerships are Hydro-

Quebec Production; Nalcor; NB Power; and Brookfield

Renewable Energy.

• One strategy to attempt to ensure equitable treatment

would be to secure support from the provincial

governments for fair and equitable access to such

opportunities.

71


Hydro developers are the critical partners for wind project developers


John Dalton

[email protected]

978 369-2465

72

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