Competitive Markets & Wind Power
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BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON Governors’ Wind Energy Coalition November, 2011 Competitive Markets & Wind Power Paul J. Hibbard Challenge and Opportunity
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Competitive Markets & Wind Power. Challenge and Opportunity. Paul J. Hibbard. Overview. New England competitive market structure Somewhat representative of entire Northeast Treatment of transmission Reliability v. public policy Current resource mix And potentially significant changes - PowerPoint PPT Presentation
Transcript of Competitive Markets & Wind Power
BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON
Governors’ Wind Energy CoalitionNovember, 2011
Competitive Markets & Wind Power
Paul J. Hibbard
Challenge and Opportunity
Governors’ Wind Energy Coalition, November 2011
Page 2
Overview
New England competitive market structure Somewhat representative of entire Northeast
Treatment of transmission Reliability v. public policy
Current resource mix And potentially significant changes
New development interests Gas vs. renewables
Governors’ Wind Energy Coalition, November 2011
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Markets: Electricity (New England Example)
Energy, capacity, reserves, ancillary services, transmission rightsFinancial signals for development stem from
Long-term capacity market signal (in strong revision) Shorter-term energy, reserve, ancillary market revenues Bilateral contracts indexed to regional markets Transmission right revenues for new transmission development
Demand response and energy efficiency a key player in capacity, energy markets (approaching 10% of market need)
Renewables development boomingRobust competition, major transmission investment
Governors’ Wind Energy Coalition, November 2011
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Transmission Development in the Market ContextReliability
ISO-NE identifies reliability needs, “backstop” transmission solution Market can identify non-transmission solution (local generation, demand
response, merchant transmission etc.) Current efforts to better align the two …
Absent market response, “backstop” transmission pursued Costs socialized
Generation Interconnection Viewed as a development cost (resource-neutral) Level playing field for all generation options competing to meet need at lowest
delivered price of electricity Includes interconnection, any needed system reliability upgrades
(i.e., generator must be able to connect, and to do so without diminishing existing level of system reliability)
Developer pays – RESOURCES COMPETE ON DELIVERED PRICE BASIS
Governors’ Wind Energy Coalition, November 2011
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Combined Market ContextConsistent with current legislative proposals
Policymakers set the standards (RPS with alternative compliance cost “cap”) Let competitive markets produce the lowest-cost compliance path
Financial signals for development flow from capacity, energy, and RPS markets, and emerging environmental requirements
Increasing renewable generation and development Decreasing fossil generation and development?
Compliance path (resources) not predeterminedEncourages innovation, spurs new technologies, resources, compliance
strategiesMinimizes rate impacts on delivered price basis
Governors’ Wind Energy Coalition, November 2011
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8%
42%
13%
22%
10%
5%
Coal
Gas
Nuclear
Oil
Hydro
Other
Source: SNL
New England: New gas dominates, but wind is emerging
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1950 1960 1970 1980 1990 2000 2010
Ope
ratio
nal C
apac
ity (M
W)
Source: SNL
Coal Gas Nuclear Oil Hydro Wind Other
Governors’ Wind Energy Coalition, November 2011
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Environmental Compliance
• New England is at risk of substantial retirements• Primarily aging coal and oil; possibly some gas
5,000
7,000
9,000
11,000
13,000
15,000
17,000
1949 1959 1969 1979 1989 1999 2009
Hea
t Rat
e (B
tu/k
Wh)
Initial Year of Operation
2010 Existing New England Power Plant UnitsSummary of Heat Rate and Fuel Type by Year of Operation
1949 - 2010
Coal Gas Oil
Source: GE Multi Area Production Simulation (MAPS)
• Will diminish surplus
• Many could be in key locations
• What will we be left with??
Governors’ Wind Energy Coalition, November 2011
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Options• Not likely: Coal, oil, nuclear• Demand response: continued strength,
or diminishing returns? • Gas
• Relatively cheap, relatively easy to develop
• Shale resources, sustained (?) low prices
• Wind• No fuel risk• Strong policy support• Strong transmission development
interest
Governors’ Wind Energy Coalition, November 2011
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Comparable Economics (if wind is coupled…)
0
200
400
600
800
1,000
1,200
1,400
1200 MW Wind 400 MW Gas 400 MW Wind/Hydro 1200 MW Gas 1200 MW Wind/Hydro
Ave
rage
Uni
t Gen
erat
ion
(MW
)
Average New Unit Generation by LMP Bucket
0-39 40-59 60-79 80-99 100+
Notes:[1] New unit generation computed as the simple average of unit generation when hourly, New England, load-weighted LMPs are within the specified ranges.[2] Unit generation was reported as zero when units were not dispatched and when units were on maintenance. Therefore, results above are a lower bound of average unit generation.
Governors’ Wind Energy Coalition, November 2011
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But, transmission is an issue for wind (not gas)
Governors’ Wind Energy Coalition, November 2011
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OutlookHuge development interest for wind in the NortheastMarket opportunities will emerge, supported by policyBut natural gas outlook will challenge economicsKey factor: state efforts to provide the right development
conditions Coordinated procurement/long-term contract options Coordinated siting for transmission
Order 1000: will FERC force the issue Sets stage if states want to go there But socialization of transmission jeapordizes region’s commitment to
competitive electricity markets
Governors’ Wind Energy Coalition, November 2011
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Paul J. HibbardVice President
Analysis Group, Inc.111 Huntington Ave., 10th Floor
Boston, MA 02199ph: 617-425-8000fax: 617-425-8001
www.analysisgroup.com
