Preliminary Results Preliminary Results with the Regional with the Regional Portfolio ModelPortfolio Model

Michael Schilmoellerfor the

Northwest Power and Conservation CouncilGeneration Resource Advisory Committee

Thursday, March 19, 2009

2

OverviewOverview

Overview Conservation Renewable Portfolio Standards Carbon, carbon, carbon

3

Prior Presentations to Prior Presentations to GRACGRAC

December 18, 2008 Power plant cost uncertainty

January 22, 2009 Power plant cost uncertainty

distributions Natural gas price uncertainty Electricity Price Uncertainty Carbon penalty Uncertainty Economic Retirement Variable Capacity for Existing Units

4

Resources Available forResources Available forSelection by the ModelSelection by the Model

CCCT (415 MW Nominal) available 2011-2012

SCCT (94 MW Nominal) available 2012

IGCC (518 MW Nominal) with carbon capture and sequestration available 2023

Five classes of demand response total approaching 2000MW by the end of the study 1300 MW of this limited to 100 hours per year of operation

Wind generation (100 MW Blocks) available 2011-2012 100 MW by the end of the study in excess of anticipated RPS requirements and

consequently available for REC credit 5500 MW without REC credit Includes transmission, any production tax credit (PTC), and integration, and firming

costs

Conservation discretionary and lost opportunity amount determined by wholesale electricity price and the cost-

effectiveness premium

5

Resources Available forResources Available forSelection by the ModelSelection by the Model

Nuclear Biomass Imported Wind with new

transmission

6

Demand Response Demand Response ProgramsPrograms

7

Early ReturnsEarly Returns Higher costs due to greater likelihood and

higher limit on carbon penalty More conservation

Fifth Plan: 2,500 MWa Preliminary Sixth Plan: 5,000 MWa Cost effectiveness premium over wholesale

electricity price likely to go up Current OR, WA, and MT RPS targets,

disregarding retail rate constraints, call for all of the less expensive wind generation available (1,700 MWa)

Depending on the size and timing of any carbon penalty, there may be a need for gas-fired turbine capacity well in advance of adequacy requirements.

8

Possible StudiesPossible Studies Preliminary analysis of significance

of RPS compliance Preliminary analysis of whether

particular resource technologies are competitive (nuclear, solar) or significant (non-wind renewables) - 3 studies

Effect of carbon mitigation approaches on resource choice (fuel source penalty, renewable portfolio standards, emission trading) - 3+ studies

Determination of whether a CO2 ramp or other penalty development path results in plans distinct from the current CO2 step function penalty. 2+ studies

Effect of demand response ramp rates

Effect of discretionary conservation ramp rates - 2 studies

Any additional studies subsequent to analysis of regional resource adequacy, power cost impacts

Effect of alternative assumptions regarding natural gas price, electricity prices, coal prices, construction costs, and so forth

Effect of carbon mitigation controls (e.g. carbon penalty) on emission levels, with sufficient breadth to examine both power industry-only emission compliance and emission compliance if other sectors (e.g., transportation) shared the burden of meeting target. - ?? studies

9

OverviewOverview

Overview Conservation Renewable Portfolio Standards Carbon, carbon, carbon

10

Supply Curve for Supply Curve for Discretionary ConservationDiscretionary Conservation

0

500

1000

1500

2000

2500

3000

3500

4000

0 10 20 30 40 50 60 70 80 90 100

110

120

130

140

150

160

170

180

190

200

>20

0

Cost - TRC Net Levelized Cost in $ per MWh ($2006)

MW

a

Source: C:\Backups\Plan 6 Studies\Data Development\Conservation\Olivia Conservation 090220.xls

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Supply Curve for Lost Supply Curve for Lost Opportunity ConservationOpportunity Conservation

Achievable Lost Opportunity Conservation Potential - Cumulative by 2029 Base Forecast - All Sector

0

500

1000

1500

2000

2500

3000

<0 10 20 30 40 50 60 70 80 90 100

110

120

130

140

150

160

170

180

190

200

>200

Cost - TRC Net Levelized Cost in $ per MWh ($2006)

MW

a

Source: C:\Backups\Plan 6 Studies\Data Development\Conservation\Olivia Conservation 090220.xls

12

Annual Availability for Lost Annual Availability for Lost Opportunity ConservationOpportunity Conservation

lost opportunity conservation

0

20

40

60

80

100

120

140

160

180

0 20 40 60 80 100

120

140

160

180

200

Cost - TRC Net Levelized Cost in $ per MWh ($2006)

av

ail

ab

le M

Wa

/ye

ar

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Source: C:\Backups\Plan 6 Studies\Data Development\Conservation\Olivia Conservation 090220.xls

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… … And More On the WayAnd More On the Way

900 MWa of lost opportunity conservation not reflected in the prior figures and values

Primarily from replacing existing TVs and computer monitors with higher-efficiency units, assuming today’s technology

14

OverviewOverview

Overview Conservation Renewable Portfolio Standards Carbon, carbon, carbon

15

15

Oregon RPS ObligationsOregon RPS Obligations

2011 2015 2020 2025Eugene Water & Elec. BoardPacifiCorp (Pacific Power)Portland General ElectricCentral Lincoln PUD

< 3% Clatskanie PUD Idaho Power Co.McMinnville Water & Light

> 1.5% Springfield Utility BoardUmatilla Electric CoopAll other utilities, i.e. 31 consumer-owned utilities

RPS ClassShare of

SalesAffected Utilities and

Electricity Service SuppliersStandard as of Year

25%Large Utilities > 3%

Smaller Utilities

but

5% 15% 20%

Smallest Utilities

< 1.5%

No Interim Obligations

5%

10%

AnyESSAny Electricity Service Supplier (ESS)

An aggregate obligation as if each of the customers served by the ESS were served

by that customer’s usual host utility.

Source: Kip Pheil, Oregon Department of Energy, 10/29/08, for the Renewable Energy Working Group

(C:\Backups\Plan 6 Studies\Data Development\Resources\New Resource Candidates\RPS Resources\REWG_29oct08-RPS_update-v2.ppt)

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Renewable Energy Credit Renewable Energy Credit BankingBanking

Washington: 1 year Montana: 2 years Oregon: Indefinitely

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Regional RPS Regional RPS DevelopmentDevelopment

Deciles for RPS requirement

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

2012 2017 2022 2027

Sept of year

MW

a R

PS

req

uir

emen

t

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

C:\Backups\Plan 6 Studies\L807\CO2 and RPS futures\L807 CO2 distribution 05.xls

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RPS ModelingRPS Modeling

Basecase – all obligated utilities in the region meet their RPS targets

RPS resource in the region depends on the load requirement under each future

Net of conservation in the future Accounting for each state’s policy for RPS

banking of RECs Costs for RPS resources currently tied to

wind and do not reflect construction cost uncertainty

No attempt to model cost caps

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Modeling Regional RPS Modeling Regional RPS ActivityActivity

The availability of REC sales for wind generation is determined RPS requirements and banking policy

Wind generation can be constructed in advance of RPS requirement. Surplus would be banked or sold into the REC market

In a study, uncertainty in development of RPS capacity will be explored

Capture some of the rate impact constraint effect

Wind will still be available as required

20

Modeling Regional RPS Modeling Regional RPS ActivityActivity

Also remaining 500 MWa of biomass to include as

option to meet RPS targets and other needs

More non-carbon resources Nuclear Wind imported from Wyoming and Montana

over new power transmission lines Geothermal

21

OverviewOverview

Overview Conservation Renewable Portfolio Standards Carbon, carbon, carbon

22

State of the DistributionState of the DistributionDeciles for Carbon Penalty

0.00

20.00

40.00

60.00

80.00

100.00

120.00

Sep

-09

Sep

-11

Sep

-13

Sep

-15

Sep

-17

Sep

-19

Sep

-21

Sep

-23

Sep

-25

Sep

-27

Period

$/to

n C

O2

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Average

C:\Backups\Plan 6 NEC\Council Presentations\081113 GoToMeeting P4 on Carbon, PTC, REC Uncertainties\Carbon Tax stats for Maury and Jeff.xls

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Carbon Measurement for the Carbon Measurement for the Regions Power SectorRegions Power Sector

Economic end effects for carbon control included

Average and TailVaR90 carbon production for two periods estimated

Aug 2022 - Aug 2025 Aug 2026 - Aug 2029

NPV cost of carbon penalty alone estimated Permits some evaluation of “transfer cost

issues”

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Carbon Measurement for Carbon Measurement for the Regions Power Sector the Regions Power Sector

––Two MeasuresTwo Measures

Ignoring imports and exports Accounting for imports and exports

Firm contract and market transactions Market energy assumed produced by

natural gas-fired CCCT with 9000 average heat rate (about ½ US ton of CO2 per MWh)

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ModelingModeling

Market and firm electricity purchases and sales use an electricity price adjusted upward by any carbon penalty

Adjustment is consistent with the assumption for market power carbon content

Examining carbon content at higher carbon penalty factors

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Effect of Carbon Control Effect of Carbon Control Policy on the Preferred PlanPolicy on the Preferred Plan

Different control policies have different effects on regional cost

for example, a regional cap and trade systems on the power sector would keep most transfers within the region, while a carbon tax may or may not

Much of the apparent difference in cost is related to “transfer cost” issues

What is the cost of modifying the merit order of dispatch alone?

For a quick, cheap, and incomplete perspective….

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Study L807Efficient Frontier without Penalty Costs

207000

212000

217000

222000

227000

232000

128000 130000 132000 134000 136000 138000

Cost (NPV $M 2004)

Ris

k (

Ta

ilV@

R9

0 N

PV

$M

20

04

)

Study L807Efficient Frontier without Penalty Costs

207000

212000

217000

222000

227000

232000

128000 130000 132000 134000 136000 138000

Cost (NPV $M 2004)

Ris

k (

Ta

ilV@

R9

0 N

PV

$M

20

04

)PenaltPenalt

y y CostsCosts

Source: C:\Backups\Plan 6 Studies\L807\Analysis of Optimization Run_L807_looking at lack of variation in costs with DR.xls

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EndEnd

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0.00

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20.00S

ep-0

9

Sep

-10

Sep

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$220

6/M

MB

TU

0.00

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20.00S

ep-0

9

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$220

6/M

MB

TU

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00S

ep-0

9

Sep

-10

Sep

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Sep

-14

Sep

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Sep

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$220

6/M

MB

TU

Futures for Natural Gas Futures for Natural Gas PricesPrices

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00S

ep-0

9

Sep

-10

Sep

-11

Sep

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$220

6/M

MB

TU

Source: wks “NGP futures”, wkb “Illustrations and graphs from L805 after extraction.xls”

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Natural Gas Price DecilesNatural Gas Price Deciles

Source: wks “NGP deciles”, wkb “Illustrations and graphs from L805 after extraction.xls”

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Sep

-09

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Jun-

13

Sep

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-15

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-17

Jun-

18

Sep

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Jun-

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28

$200

6/M

MB

TU

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Mean

input

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Natural Gas Price DecilesNatural Gas Price Deciles

Source: wks “NGP deciles”, wkb “Illustrations and graphs from L805 after extraction.xls”

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00S

ep-0

9

Dec

-10

Mar

-12

Jun-

13

Sep

-14

Dec

-15

Mar

-17

Jun-

18

Sep

-19

Dec

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Mar

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23

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Jun-

28

$200

6/M

MB

TU

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Mean

input

32

Natural Gas Price DecilesNatural Gas Price Deciles

Source: wks “NGP deciles”, wkb “Illustrations and graphs from L805 after extraction.xls”

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

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2028

$200

6/M

MB

TU

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

mean

input

33

Natural Gas Price DecilesNatural Gas Price Deciles

Source: wks “NGP deciles”, wkb “Illustrations and graphs from L805 after extraction.xls”

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.0020

10

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

$200

6/M

MB

TU

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

mean

input

34

Natural Gas Price DecilesNatural Gas Price Deciles

Source: wks “NGP deciles”, wkb “Illustrations and graphs from L805 after extraction.xls”

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

20

10

20

11

20

12

20

13

20

14

20

15

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$2

00

6/M

MB

TU

90%

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40%

30%

20%

10%

0%

mean

input

NWPCC high case

NWPCC medium high case

NWPCC medium low case

NWPCC low case