Commercially Ready Renewable Energy Standard

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Commercially Ready Renewable Energy Standard
New Mexico Wind Energy Center photo from PNM

• David Berry
• Presentation to the Arizona Corporation
  Commission
• June 25, 2004

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Utilities operate in a risky world
Future environmental regulation
High gas prices
Risk
Cost
Inadequate transmission capacity
Prolonged drought
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CRRES DEPS manage these risks

• Renewable energy provides a hedge against high
  natural gas prices
• Renewable energy provides a hedge against the
  costs of complying with future carbon dioxide,
  sulfur dioxide, and nitrogen oxide regulations
• Wind, biomass, solar, and geothermal resources
  can serve as a hedge against reduced hydropower
  resources during periods of prolonged drought
• Distributed generation, including photovoltaics,
  reduces the need to build additional transmission
  capacity to load centers

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Commercially deployed technologies in the
Southwest
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Commercially deployed technologies in the
Southwest by state
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The Commercially Ready Renewable Energy Standard
(CRRES)

• Pertains to renewable energy resources above and
  beyond the DEPS (existing EPS)
• Costs up to 0.05 per kWh above displaced
  conventional generation cost
• Standard gradually increases from 0 of retail
  sales in 2005 to 8 by 2010 and thereafter
• No extra credit multipliers
• Eligible resources new geothermal, wind,
  biomass (excluding municipal solid waste and tire
  burning), low impact hydro, and solar energy
  resources
• Location of resources in Arizona or other
  states but energy delivered to AZ

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CRRES continued

• Commission is to form a working group to
  recommend a standard for years after 2010 based
  on experience
• Flexibility Commission can modify CRRES annual
  production goals if renewable resource projects
  cannot be permitted or financed, if transmission
  cannot be obtained in a timely manner, etc.
• Cost recovery through power supply adjustor or
  portfolio standard adjustor established in rate
  cases
• Account for the value of environmental benefits
  of renewable energy
• e.g., at prices of tradable environmental credits
  attributable to renewable energy, or
• credit revenues from sale of environmental
  credits to CRRES account

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Renewable energy in art
Wind energy
Geothermal energy
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Gross costs of large generic renewable energy
projects
Costs will be project specific
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Renewable resource capacity value

• Solar and wind resources are intermittent.
• Intermittent renewable resources are credited
  with capacity value less than 100 of nameplate
  capacity.
• Utilities back up specific resources with their
  entire systems. Capacity credits are determined
  from an analysis of system reliability as
  intermittent resources are added to the system.
• APS found that for up to 100 MW of PV generation,
  tracking PV systems contribute about 80 capacity
  value to the system and fixed PV systems
  contribute about 60. Wind capacity credits
  have been found to be between about 13 and 30
  of nameplate capacity.
• Paul Smith, Value of Solar Thermal and
  Photovoltaic Power Plants to Arizona Public
  Service Company, ASME International Solar Energy
  Conference, 1994.

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Effect of natural gas prices

• In contrast to gas prices, renewable energy
  prices are often fixed or stable -- not volatile
  or increasing over time
• The CRRES is a useful hedge against high gas
  prices
• A hedge limits utility and consumer exposure to
  high gas prices

Trend 3 real growth rate
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Net cost of proposed CRRES

• Net cost gross cost of renewable energy
  contracts avoided conventional energy and
  capacity costs (gas coal units) market value
  of environmental credits derived from renewable
  energy
• CRRES 2 of retail sales (over and above DEPS)
  in 2006, 3 in 2007, 4 in 2008, 6 in 2009, 8
  in 2010
• Natural gas price trend value in 2004 4.92 per
  MMBtu in 2004 (see previous graph actual cost
  is above the trend at 6.11 per MMBtu per June
  2004 Short Term Energy Outlook)
• Assumed illustrative mix of renewable energy MWH
  geothermal 12, wind 86.9, pv 0.1,
  biomass 1.
• More details in the appendix and spreadsheet

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Illustrative mix of renewable energy resources

• Resource mix depends on utility and developer
  circumstances
• Wind constitutes major resource
• low cost
• abundant in west, including AZ and NM
• Geothermal -- existing resources in southern CA
  and possible resources in AZ
• Biomass resources AZ has landfill gas and
  forest biomass
• Solar resources -- AZ has abundant solar resources

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Net cost of the CRRES is negative
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The CRRES reduces air emissions

• Emission reductions by 2010
• SO2 10 of AZ power plant emissions in 2002
• NOx 10 of AZ power plant emissions in 2002
• CO2 8 of AZ power plant emissions in 2002

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Conclusion -- The CRRES

• Is feasible
• Is cost effective
• Hedges against high natural gas prices
• Improves air quality and reduces exposure to
  costs of future air quality and climate change
  regulation
• Advances new generation technologies
• Is in the public interest

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Appendix other major assumptions

• Growth rate of retail kWh sales 3.9 per year
• 5 TD losses
• Gas units are marginal units 35 of time, coal
  units are marginal units 65 of time
• Marginal coal unit fuel price is 1.51 per MMBtu
  in 2004 escalating at a real rate of 0.77 per
  year
• Marginal gas unit fuel price is 4.92 per MMBtu
  in 2004 escalating at a real rate of 3.0 per
  year (this is the trend line price, not actual
  price)
• Heat rates of marginal units coal 10,684
  Btu/kWh, gas 10,000 Btu/kWh
• Environmental credit prices SO2 170 per ton,
  NOx 2000 per ton, CO2 3.64 per metric ton

Detailed assumptions available on separate
spreadsheet
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More renewable energy in art
Biomass
Hydropower