2019 deloitte renewable energy seminar...−tighter distribution of lmp when load viewed net of wind...

2019 Deloitte Renewable Energy SeminarPowering a bright futureOctober 2-4, 2019

Fundamentals meet function:

An energy market update

Martin Lin, Deloitte Transactions and Business AnalyticsClaudia J. Morrow, Vice President, Origination and Pricing, Vistra Energy

Copyright © 2019 Deloitte Development LLC. All rights reserved. 32019 Deloitte Renewable Energy Seminar

• Continuation of major trends

−Natural gas prices

−Capacity additions and retirements

−Renewable and clean energy targets

• August 2019 in Texas

• Perspectives from the front lines

−Conversation with Claudia J. Morrow

Contents


Continuation of major trends


Prices continue the downward trend, though the pace has slowedNatural gas demand has been growing, and production has been growing even more

The Energy Information Administration (EIA) projects 2019 total dry gas production will exceed 90 billion cubic feet per day (Bcf/d)• Increase from 83 Bcf/d in 2018• Increase from 75 Bcf/d in 2017The natural gas forward price curve has been in general decline for over a decade• Comparing forward curves at the start of

September for the past dozen years− Calendar-2020 forwards in 2019 are:

◦ Almost 75% lower than in 2008◦ Almost 50% lower than in 2013

− Mild front-end backwardation seen in the last few years has essentially disappeared

Source: Total Dry Gas Production from EIA Short-Term Energy Outlook (STEO), August 6, 2019; Henry Hub forward prices from S&P Global Market Intelligence, accessed September 5, 2019; chart compiled by Deloitte

Historical Henry Hub Forward CurvesObserved in Early September


Nuclear and coal capacity have retired while new capacity shifted to primarily gas, wind, and solar

Changes to capacity have also been shifting

Source: : S&P Global Market Intelligence unit capacity data, accessed September 4, 2019; chart compiled by Deloitte

N – NuclearC – CoalG – GasW – WindS – Solar

Fuel Class

CompletedUnder ConstructionAdvanced Development

Project Status


Target levels have increased in several states as wellRenewable Portfolio standards have expanded to Clean Energy Standards

• Besides Hawaii’s 100% renewable portfolio standard (RPS), several other states have adopted by law or are considering 100% clean energy standard (CES) or variations, including:− California (SB100, September 10, 2018)− New Mexico (SB489, March 22, 2019)− Nevada (SB358, April 22, 2019)− Washington (SB5116, May 7, 2019)

• Wind and solar resources have been expected to be the primary sources of qualifying energy, and the expectation remains going forward

• While federal tax credits are scheduled to phase out, RPS and CES are expected to provide continued incentives in some states

Source: Renewable & Clean Energy Standards graphic from DSIRE by N.C. Clean Energy Technology Center, funded by US Department of Energy, https://s3.amazonaws.com/ncsolarcen-prod/wp-content/uploads/2019/07/RPS-CES-June2019.pptx; California SB100, https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB100; New Mexico SB 489, https://www.nmlegis.gov/Legislation/Legislation?Chamber=S&LegType=B&LegNo=489&year=19; Nevada SB358, https://www.leg.state.nv.us/App/NELIS/REL/80th2019/Bill/6651/Overview; Washington SB5116, https://app.leg.wa.gov/billsummary?BillNumber=5116&Year=2019&initiative=

https://s3.amazonaws.com/ncsolarcen-prod/wp-content/uploads/2019/07/RPS-CES-June2019.pptx

https://s3.amazonaws.com/ncsolarcen-prod/wp-content/uploads/2019/07/RPS-CES-June2019.pptx

https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB100

https://www.nmlegis.gov/Legislation/Legislation?Chamber=S&LegType=B&LegNo=489&year=19

https://www.leg.state.nv.us/App/NELIS/REL/80th2019/Bill/6651/Overview

https://app.leg.wa.gov/billsummary?BillNumber=5116&Year=2019&initiative=


August 2019 in TexasPrice spikes and renewable generation


With the largest installed base of wind capacity of any state and relatively low cost natural gas, power prices have trended lower in Texas, leading to retirements

Reserve margins in the Electric Reliability Council of Texas (ERCOT)

• In 2018, of the 8,760 hourly average real-time locational marginal prices (LMPs) for settlement point HB_BUSAVG:

− 65% were at or below $25/MWh− Less than 2% were above $100/MWh

• Cost structures for many generator challenged, and over 4 GW of coal capacity retired in 2018

• Reserve margins (RM) projected for 2019 fell below the 13.75% target level – as low as 5% in the 2019 Seasonal Assessment

Source: Price, load, and reserve margin data from ERCOT: Historical RTM Load Zone and Hub Prices report for 2018; 2018 ERCOT Hourly Load Data report; ERCOT Capacity, Demand, and Reserve (CDR) reports from May of respective years; ERCOT Summer 2019 Final Seasonal Assessment of Resource Adequacy (SARA); chart compiled by Deloitte


Wind generation is can be highly variable and difficult to forecast preciselyLower reserve margins can increase the price sensitivity to generation variation

• Real-time LMPs for HB_BUSAVG against ERCOT system load in August 2019 show the typical upward sloping shape. Prices tend to differ from the general trendline to the upside at higher load levels and to the downside at lower load levels. The scatterplot of the data also show:− Relatively wider ranges of LMP at high and low net load levels− Tighter distribution of LMP when load viewed net of wind generation

Source: Prices from ERCOT Historical RTM Load Zone and Hub Prices report, accessed September 4, 2019; generation, load, and interchange data from EIA Hourly Electric Grid Monitor (Beta), https://www.eia.gov/beta/electricity/gridmonitor, accessed September 4, 2019; chart compiled by Deloitte

https://www.eia.gov/beta/electricity/gridmonitor


• Days with high temperatures and high demands saw price spikes, but temperatures and demand were not the only factors− While hot, daily high temperatures were

not record-setting or extraordinarily high− Some days with demand comparable to

demand on days with spikes experienced pricing that did not exhibit extremeso August 19 had a peak of 73.8 GW,

which was very close to the peaks on August 12 and 13 (74.5 GW and 74.2 GW, respectively) and higher than any of the other days that week, yet HB_BUSAVG LMP did not exceed $150/MWh

− Wind generation during some of the highest priced intervals was relatively low compared to other periods

Prices reached the $9,000/MWh price cap at times on two separate days and exceeded $1,000/MWh on ten days throughout the month

ERCOT wholesale prices experienced price spikes on several days in mid-August 2019

Source: Interval prices from ERCOT Historical RTM Load Zone and Hub Prices report, accessed September 4, 2019; generation, load, and interchange data from EIA Hourly Electric Grid Monitor (Beta), https://www.eia.gov/beta/electricity/gridmonitor, accessed September 4, 2019; chart compiled by Deloitte



Renewable sources such as wind and solar typically have profiles that differ from the underlying system demand, as illustrated by ERCOT

Generation patterns can differ widely by technology

Comparing the daily generation in ERCOT for August 2019 from wind, solar, and gas sources show qualitatively different profiles• Wind is often at its highest during lower demand hours• Solar more closely aligns with demand than wind, but solar often peaks and declines earlier in the day

than demand• Gas is frequently the marginal supply, balancing the system, and following the residual load

Source: Generation data from Energy Information Administration (EIA) Hourly Electric Grid Monitor (Beta), https://www.eia.gov/beta/electricity/gridmonitor, accessed September 4, 2019; charts compiled by Deloitte



Perspectives from the front linesClaudia J. MorrowVice President, Origination and Pricing, Vistra Energy


Ercot updateKey observations from summer 2019

• ERCOT Reserve Margins were tight, and Renewable Resources critical to meeting peak demand

• Real time wholesale prices hit maximum rates ($9,000 / MWh) in twelve intervals (3 hours) during August in weather that was not “extreme”. This adds approximately $3.00 / MWh to the average wholesale price of power in ERCOT this year.

• ERCOT issued appeals for conservation in August, but did not initiate an Energy Emergency Alert (EEA)

• The market responded during peak conditions, with the majority of generation resource capacity self-committed

• Texas can look at California to get some clues as to how our market will change as renewables continue to contribute more energy to our grid


Energy Market TrendsTexas Renewable Power

Sources: American Wind Energy Association Market Report, SEIA

2018 Installed Solar Power Capacity

24,899 MW

2018 Installed Wind Power Capacity

Texas continues to add significant renewable generation capacity each year


Ercot updateGeneration Resource mix trends

Data as of December 2018

[CATEGORY NAME]

[VALUE][CATEGORY NAME]

[VALUE]

Coal, 14.2 GW

Nuclear, 5.0 GW

Solar, 1.7 GW

Storage, .1 GW

Gas, 2 GW

Wind, 13 GW

Solar, 4 GW

Gas, 7 GW

Wind, 26 GW

[CATEGORY NAME]

[VALUE]

Storage 2 GW

Additional Planned Resources

CDR-eligiblePlanned Resources

Existing Resources(Nameplate Capacity)

94.4 GW 72 GW19 GW

New Generation Resources in ERCOT are expected to be primarily Renewables


Ercot updateAnnual energy & peak demand

Data includes 2008 - 2018

• System Demand exceeded 74,000 MW on August 12, 2019

• West Texas Oil & Gas and population growth continue to be a major sources of new load in ERCOT


Texas RenewablesWind and Solar capacity essential to resource adequacy

• Wind/Solar are essential during peak periods to avert shortages

• Renewable Resource capacity will continue to grow

• Battery storage capacity in ERCOT would be significant asset

Renewables create higher price instability

• Scarcity events and associated price spikes more likely

• Wind variability affects Operational Reserve Margin movement

• Wind forecasts create spikes in Day-Ahead Market

Energy Market TrendsErcot’s changing technology & risk profile


Energy Market TrendsAugust 2019 – two peaks – Demand and Pricing

Low Wind Production

Wind generation is critical when Peak Demand gets above 70,000 MW

Oil, Gas and Nuclear

Solar and Wind


Energy Market TrendsAugust 2019 – two peaks – Demand and Pricing

Wind Generation on August 12th was higher, and helped moderate wholesale prices

Low Wind Production


Energy Market TrendsTexas and California comparison

Gas dominates, but California’s mix includes a significant contribution from Solar and Hydro

Thermal Generation

Gas dominates, but Texas has significant Coal and Wind generation resources


Energy Market TrendsTexas and California comparison

California’s mix is much higher in Renewables

Thermal Generation

Texas Renewable Capacity is Growing…


Energy Market TrendsSummary

Texas Renewable Generation

• Essential for meeting peak day demand

• Texas will continue to replace thermal capacity with wind and solar assets

August 2019

• ERCOT’s “Energy Only” Market is working as designed – price spikes are expected

• Peak load management increasing importance

• Defined DR programs (ERS, LR) become more valuable for ERCOT’s Operational Reliability

Customers’ Point of View

• RTSPP pricing exposure was costly in August for many

• The best hedge against high RTSPP pricing is the ability to reduce load on command

• Suppliers and customers will need to manage future RTSPP market exposure

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

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2019 deloitte renewable energy seminar...−tighter distribution of lmp when load viewed net of wind...

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