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California Carbon and the NorthwestCalifornia Carbon and the NorthwestPortland, Oregon

Bill Peters5 S t b 20135 September 2013

• Price assessment

Argus coverage

• VWA of all trades (ICE, OTC, CME)• Carbon-adjusted spark spreads• Air Daily, US Electricity• Argus California Carbon Summit Oct. 28-

30 in San Francisco

• Ideally results in the cheapest reductions of CO2

Why price carbon?

y p◦ Provides a long-term price signal for investment◦ Rewards efficiency

• Has worked in the past with the Acid Rain Program, lead and Tier I, II gasoline programs

• Government sets a cap on CO2 and other greenhouse

What is cap and trade?

p ggases

• Then creates allowances (rights to emit a tonne of CO2)◦ Can be given away for free or auctioned offCan be given away for free or auctioned off

• Trade in allowances creates the carbon price and profit motive for reducing emissions

• California’s cap-and-trade program is meant to be

In Context

p p gresponsible for ~20% of its CO2 reductions

• The RPS, Low-Carbon Fuel Standard and over a dozen other programs doing the rest

• But the carbon price is the backstop and last line of defense for the 1990 levels of GHG emissions by 2020 target

The Cap

• Caps power sector and 394.5

382.4 370.4 358.3 346.3 334.2

400 industrials in 2013-2014

• Then caps transport fuels d t l i 2015

162.8 159.7200

and natural gas in 2015

• Allowances are both given away and auctioned by the

away and auctioned by the state

• California now working on 02013 2014 2015 2016 2017 2018 2019 2020

• California now working on post-2020 caps for its program, finding other states to join up

• Point of regulation: first electricity deliverers

Electric Sector

• Electric imports are included◦ Plant-specific, Asset-Controlling Supplier or WECC default◦ System-tagged power may be added as a default

• Allowances90 f ll ll d f f b d hi i l i i◦ ~90pc of allowances allocated for free, based on historical emissions- 2013s allocated October 2012 for distribution utilities- 2014-2020s allocated on Nov 1 of each calendar year 2013-2019

◦ IOUs must sell allowances at state-run auctionsIOUs must sell allowances at state run auctions- Spending rules developed by CPUC- Auction are held every quarter, fifth one is in November

How carbon changes power running costs

$100 00

$120.00

$60.00

$80.00

$100.00

$20.00

$40.00

Source: Argus pricing, 2010-2012

g p g,Acid Rain Data for Heat rates

Fossil units in OR, WA, ID, MT

$60 00

$70.00

$40.00

$50.00

$60.00

$10.00

$20.00

$30.00 $/M

Fuel cost

g p g,Acid Rain Data for Heat, CO2 rates

And adding in a $15/t carbon price

$60 00

$70.00

$40.00

$50.00

$60.00

$10.00

$20.00

$30.00 $/M

Carbon Cost at $15Fuel cost

And with a $25/t carbon price

$60 00

$70.00

$40.00

$50.00

$60.00

$10.00

$20.00

$30.00 $/M

Carbon Cost at $25Fuel cost

Over to LennyOver to Lenny

California power mix140,000

100,000

120,000

40 000

60,000

80,000

20,000

40,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Hydroelectric Nuclear In-state Coal OilGas Geothermal Biomass WindSolar Other Direct Coal Imports Unspecified Power

S C lif i C i i

Source: California Energy Commission

Electricity imports

• Powerex (BC Hydro): ( y )0.0293mt/MWh

• BPA: 0.0249mt/MWh

WECC wide default: • WECC-wide default: 0.428mt/MWh

Source: California Energy Commission, 2007-2010 average generation/imports

generation/imports

Imports into California120,000

80 000

100,000

60,000

80,000

20,000

40,000Southwest

Northwest

20,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Carbon price integrated well

Carbon Adjusted SP-15 marginal heat rate Carbon Adjusted NP-15 marginal heat rate

Gas-implied SP-15 marginal heat rate Gas-implied NP-15 marginal heat rate

December 2013, Vintage 2013 CCAs200,000

$25.00

160,000$22.00

80,000

120,000

$16.00

$19.00

40,000$13.00

0$10.00Aug-11 Trade

Jan-12 Trade #175

May-12 Trade #350

Jul-12 Trade #525

Sep-12 Trade #700

Nov-12 Trade #875

Dec-12 Trade #1050

Jan-13 Trade #1225

Feb-13 Trade #1400

Mar-13 Trade #1575

Mar-13 Trade #1750

Apr-13 Trade #1925

May-13 Trade #2100

May-13 Trade #2275

Jul-13 Trade #2450

Volume Price

California CO2 costs for power$18

02-Jan-2013 02-Feb-2013 02-Mar-2013 02-Apr-2013 02-May-2013 02-Jun-2013 02-Jul-2013 02-Aug-2013

CO2 cost US western grid electric exports to CaliforniaCO2 cost spark adjusted SP15 CO2 cost Powerex electric exports to California CO2 cost Bonneville Power Administration electric exports to California

• Carbon price adds $4.50-6/MWh on unspecified WECC

Electricity Imports

p $ pimports to CA

• Or $0.35-45/MWh for specified BPA or BC Hydro power

Premium for BPA specified should be around $5 • Premium for BPA-specified should be around $5 ideally, but congestion costs and policy/verification risk pull premium down

• Was around $2-3/MWh, but no recent data

Imports into CAISO are about the same12,000,000

8,000,000

10,000,000

4,000,000

6,000,000

2,000,000

4,000,000

RENEWABLES NUCLEAR THERMAL IMPORTS HYDROSource: CAISO

Source: CAISO

North to South seem about same

PDCI COI

N_to_S_capacity Actual

N_to_S_capacity ActualSource: BPA

Source: BPA

Bill PetersReporterEmail: Bill Peters@argusmedia comEmail: Bill.Peters@argusmedia.comPhone: 202.349.2889

Copyright notice Copyright © 2012 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus.

Trademark notice ARGUS ARGUS MEDIA h ARGUS l FMB ARGUS bli i i l d ARGUS i d d k f A M di L d Vi i di / d k f i f i ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit www.argusmedia.com/trademarks for more information.

Disclaimer All data and other information presented (the “Data”) are provided on an “as is” basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party’s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.

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