Tucson Electric Power 2017 Integrated Resource Plan

Jeff Yockey, PESouthern Arizona Regional Solar Partnership

May 2017

Integrated Resource Plan (IRP) Overview

Reliability

Affordability

Environmental Performance

Risk

Just a Plan► Additional steps for specific actions ► Already outdated

2

Evolving Portfolio ObjectiveLeast Cost

Preferred Portfolio

Stakeholder Involvement► Preliminary IRP (PIRP)

– March 2016► ACC IRP Workshop

– July 2016► Supplemental PIRP

– October 2016► TEP IRP Workshop

– November 2016► TEPIRP@TEP.com

Timing► 2-year planning cycle

– Just completed cycle was 3 years► 15-year outlook

– 2017 through 2032

IRP Key Planning Drivers

3

2012 – Meet the Peak 2017 – Balance the Grid

TEP’s 2017 Portfolio Diversification StrategyTransitioning to a Balanced Portfolio

Target a Balanced Mix of Coal, Natural Gas and Renewables

► Reduce coal capacity over the next five yearsSan Juan Unit 2 170 MW – December 2017Navajo Generating Station168 MW – December 2019San Juan Unit 1170 MW – June 2022

► Explore natural gas generation expansion– Combined Cycle Natural Gas– Fast ramping resources

► Integrate cost effective renewable energy

► Operational challenges / opportunities– Natural gas storage– Energy storage technologies

69%

11%

9%7%

4%

2017 Portfolio Energy Mix

38%

26%5%

26%

5%

2032 Portfolio Energy Mix

Coal

Natural Gas

Market Purchases

Utility Scale Renewables

Distributed Generation

Coal Plant Retirements

5

Jointly-Owned Plant “Off-ramps”• Coal Contracts• Land Leases• Participation Agreements

► TEP Ownership of Springerville

► Units 1 & 2 (793 MW)

Newest coal units in TEP fleet

Access to competitive coal via rail

Full operational control of Units 1 & 2

• Unit 1 - 387 MW

• Unit 2 - 406 MW

Implement future cycling strategy to facilitate the integration of renewables

Springerville Generating StationLong-Term Base Load Arizona Resource

Renewable Energy Expansion

Utility-ScaleFixed Solar PV

Utility-ScaleTracking Solar PV

Utility-ScaleWind

RooftopSolar PV

Capacity Factor 23% 31% 27% 23%

PeakCoincidence 34% 63% 23% 34%

2017 Capacity MWAC

36 158 80 168

2032 Capacity MWAC 202 493 414 283

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30% of Retail Load by 2030

Renewable Energy Diversification

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour Ending

Average Capacity Factor at Four Renewable Energy Resource Locations

Red Horse Solar / Single-Axis Tracker DG / Fixed-Tilt Red Horse Wind NextEra Wind

Renewable Integration Challenges“TEP Duck Curve”

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2030 Winter Day – High Solar Penetration

Renewable Integration ChallengesIntermittency

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Renewable Integration Challenges10-Minute Ramping Capacity Analysis

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Existing Ramping Capacity versus Projected Requirements

Ramping Capacity Under Reference Case Plan versus Projected Requirements

Renewable Integration Opportunities

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Renewable Integration Opportunities

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Resource Solutions and Response Times

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$15$503

$257

$157$130

$77$65

$53$105

$51$44

Customer Energy EfficiencyCustomer Demand Response

Battery Storage

Combustion TurbineRICE

Natural Gas Combined Cycle - Load FollowingNatural Gas Combined Cycle - Baseload

Utility-Scale WindResidential Solar PV

Utility-Scale Solar PV - Fixed-Tilt PanelUtility-Scale Solar PV - Single-Axis Tracking

Levelized Cost of Energy ($/MWh)

15

Renewable Energy ResourcesIntermittent Service

Fossil Fuel ResourcesBaseload, Balancing, Peaking Service

Non-Energy ResourcesConditional Service

Energy Efficiency After 2020

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► Reduction in future load growth based on 2014 Technical Report by Electric Power Research Institute (EPRI)

2017 IRP Energy Efficiency Forecast

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-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2016 2018 2020 2022 2024 2026 2028 2030 2032

GWh

Cumulative Sales Reductions

Base Case without Credits

Base Case Including Credits

22%

15%

17%

0%

5%

10%

15%

20%

25%

2016 2018 2020 2022 2024 2026 2028 2030 2032

Percent of Retail Sales

EE Standard Including Credits

EE Base Case (No Credits)

New Energy Storage ResourcesProvide Ancillary Grid Services for Renewable Integration

► Battery technologies can provide various solutions

– Frequency support

– Voltage support

– Energy delivery

► TEP installed 20 MW of storage in 2017

– Primary use is for frequency response and voltage support related to the integration of intermittent renewable resources

► Future battery projects to target 4 hour charge/discharge durations

► Current residential and utility applications aren’t aligned

– Utility-scale projects more cost effective and provide system wide benefits

NextEra Energy ResourcesThe 10 MW energy storage project

installed at the Demoss Petrie Substation near Grant Road and

Interstate 10

Ancillary Service Target: Frequency Regulation – 10 MW in 15 minutes (2.5MWh)

Natural Gas Reciprocating Engines (RICE)► Historically found in marine and industrial applications. Today, under new power generation

applications, there is real potential to help solve renewable integration issues► Fast start and fast ramp times (Starts in 2 minutes and at full load in 5 minutes) ► Small modular footprint (smart grid paradigm) and reliability spread across multiple units ► Low gas pressure requirement and low water consumption► RICE would provide additional value in EIM or RTO markets

New Flexible Generation ResourcesFast Ramping Resources for Renewable Integration

Merchant NGCC Opportunities at Palo Verde

Merchant Resource OpportunitiesNatural Gas Combined Cycle (NGCC) Resources

► Natural gas combined cycle capacity available at Harquahala, Gila River and Mesquite

► One unit could be purchased jointly by TEP and UNS Electric to meet future load serving requirements

► Backstop for NGS and SJGS retirements

► Low cost, fast ramping resources

► Option to lock in Natural Gas long-term

Harquahala Generating Station

Gila River Power Station

Mesquite Generating Station

Arizona Gas Storage (AGS)Kinder Morgan Natural Gas Storage Project

Regional Transmission Projects

► Nogales DC Intertie

– Interconnection between Arizona and Mexico

– Reliability – 3rd import path

– Access to Palo Verde market

► Sunzia / Southline / Western Spirit Clean Line

– Move New Mexico Wind to the Palo Verde Hub

– Various stages in the permitting/approval process

– All projects come through our system

• Reliability – particularly Southline

• Access to high capacity factor wind

• Transmission revenue

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Regional Transmission Organizations

CAISO Energy Imbalance Market► Sub-hourly balancing► Share resource reserves

– Lower production costs

► E3 evaluation of economic benefits for TEP– Majority of benefit during

extreme pricing events– $2.5M annual benefits

► TEP currently evaluating costs

SW Utility “Working Group”► Evaluate forming/joining a regional

market► Significant potential value exists

► Mountain West Transmission Group– Regional Rate Market– RFP with CAISO / MISO / SPP– Contracting SPP to run market

► Benefits of partnership– Governance– Diversity

• Geographic / Load (Peak) / Resources

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IRP Production Cost Modeling

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Plant Parameters

FuelPrice

PowerPrice

Energy Efficiency

Load Profile

Distributed Generation

Generation

Fuel Expense

Purchase Power

Unit Stats

Emissions

Water

Non-Fuel Expense• Capital• Fixed O&M• Taxes

Revenue Requirement

Reserve Margin

Carbon Compliance

Hourly Dispatch

Alternative Scenarios

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High Economy

Capacity ExpansionLoad Growth

Technology AdvancementImproved Efficiency

High Technology

Capital CostsFuel Prices

Power Prices

Capital CostsFuel Prices

Power Prices

Base Case

PACE GlobalAlternative Market Price Sensitivity

Reference Case Plan Modeling Results

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NPV Revenue Requirement Portfolio Risk Dashboard

TEP Future Resources2017 Portfolio Reference Case

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