2014 LTSA Scenario and Data Assumptions February 14, 2014

ERCOT PUBLIC2/14/2014 1

2014 LTSA Scenario and Data Assumptions

February 14, 2014


Outline

Background

Scenario description – “Current Trends”

Capital cost projections

Fuel price projections

Emission price projections

Additional information


Background ERCOT initiated 2014 LTSA with facilitated stakeholder workshops

to develop key drivers and scenarios for long-term transmission planning

• Jan 13 workshop with expert presentations on key industry and economic topics

• Jan 23 workshop with TSP presentations, identification of key drivers and initial scenarios

• Jan 24 workshop to develop detailed descriptions for 6 (of 10) of the identified initial scenarios

• Feb 14 workshop to develop the remaining initial scenarios, possibly consolidate some of them, and discuss input data options

The remainder of these slides presents input data options for the “Current Trends” scenario as a starting point for further stakeholder input and discussion

• See also Jan 23 handout


Economic Growth•Migration to TX along I-35 corridor•Growth in south Texas•Industrial growth in Houston, I-35, Midland/Odessa, Valley•~1.5% load growth – high growth in near term then tapering off in long-term •LNG growth based on permits existing – needs review•[What should we assume for future oil production rates?]

Weather / Water•[No drought situation, but water supply continues to be a concern to existing and new generators. •No specific increase in electricity consumption due to drought conditions.]

Transmission Regulation /Policy•Policy set to reduce constraints•Increased DC-tie capacity with neighboring region [has not yet been resolved]•Higher reliability [standards are set by NERC] to avoid load shedding

End-Use•Increased need for ancillary services•Increase penetration of demand response [need to specify how or why to be consistent with no reserve margin]•Increasing distributed generation [Need to specify how much is added and why]

Generation Resource Adequacy•No reserve margin set for ERCOT•Maintain energy-only market•Economic retirements continues based on economics

Environmental Regulation•MATS and 316B are implemented [by 2016]•CSAPR Hybrid [need more specificity to translate to costs for existing facilities]•Greenhouse gas regulation set with flexibility•No other major changes in environmental regulations

Story:Same old, same old[The recent population and economic growth in Texas continues in the near future, fueled largely by the continued growth of the oil and gas sector and the relative robust Texas economy compared to the rest of the U.S. World oil prices high enough to keep increasing oil production in the short-term, keeping domestic natural gas prices relatively low. With low gas prices, several LNG export terminals are built between 2014 and 2024. Modest wind growth continues based on economics without production tax credits. Capital costs for solar continues to decline at a slower rate than recent history. No required reserve margin is set for ERCOT and the environmental regulations continues to be moderate, with no explicit federal carbon tax or required national cap and trade, but greenhouse gas emissions become regulated beyond 2016.]

Implications for ERCOT:•[Continued modest economic and therefore load growth in Texas.]•[Growth in oil production and population across the state leads to new transmission needs•[Continued] increased renewables leading to reliability (inertia) issues•[No major generation retirements triggered by stringent environmental regulations.]

Scenario: Current Trends

Alternative Generation•Solar: 1000 MW / year •Wind capacity addition limit: 3,000 MW/yr•Capacity factor wind – rely on historical data from ERCOT•Capital cost wind ~$2,000/kW•Capital cost solar ~4.4% reduction/year•Overall renewable growth driven by economic entry•No production tax credit beyond 2013•No change to existing investment tax policy

Gas/Oil Prices•EIA reference case or best available gas and oil price forecasts


Capital Cost Projections


Technology Price Projections - 2012$

• Overnight capital cost estimates – EIA and Lazard


• Source: 2013 Brattle ERCOT Study for Clean Energy Council

Solar Capital Cost Projections


Renewable Technology Price Projections

• Average of cost estimates from 2013 DOE Study; Lazard LCOE Analysis; Ventyx 2013 Fall National Database; EIA AEO 2013; Bloomberg New Energy Finance, PV Market Outlook.

• GDP growth rate from EIA AEO 2014 Early Release - 2.4%

• This information is still being researched and will be updated as additional data becomes available


Conventional Technology Price Projections

• Average of cost estimates from 2013 DOE Study, Lazard LCOE Analysis, Ventyx 2013 Fall National Database, EIA AEO 2013

• GDP growth rate from EIA AEO 2014 Early Release - 2.4%


Fuel Price Projections


Natural Gas Price Projections


Coal Price Projections

Source: Annual Energy Outlook 2014 Early Release


Oil Price Projections

Source: Annual Energy Outlook 2014 Early Release


Emission Price Projections


CO2 Price Projections


SO2 Price Projections


NOX Price Projections


Mercury Price Projections

• With EPA Mercury and Air Toxics Standards (MATS), 90% mercury emission from power plants will be mandatorily removed from 2015.

• No mercury emission allowance trade?


Additional Information


Wind Installations by Year

• Average installations per year for all years is 801 MWs.

• Average installations per year for the years 2006 thru 2009 is 1,766 MWs

Year MWs2000 116 2001 700 2002 161 2003 196 2004 212 2005 469 2006 1,021 2007 1,910 2008 3,220 2009 911 2010 484 2011 204 2012 803 2013 806 Total 11,213


• Two DOE commissioned reports released in 2012 addressed LNG exports.

• Key conclusions:– Increased LNG Exports benefit the US

Economy– Global Markets for LNG may limit natural gas

demand growth and domestic price increases.– In no cases modeled did the U.S. wellhead

price increase by more than $1.09/Mcf due to market-determined levels of exports.

LNG Exports Overview


Appendix


Henry Hub forecast by Wood Mackenzie

Source: Wood Mackenzie, “North America Natural Gas Outlook – ERCOT Planning Workshop”, Jan. 2014.


Fraunhofer CO2 Projections

Source: C. Kost, J. N. Mayer, J. Thomsen, N. Hartmann, C. Senkpiel, S. Philipps, S. Nold, S. Lude, N. Saad, T. Schlegl, “Levelized Cost of Electricity Renewable Energy Technologies”, Nov. 2013, Fraunhofer Institute for Solar Energy Systems ISE


Source: EPA, Office of Air and Radiation, “Estimating Future Air Emissions Allowance Values”, Nov. 2006


Source: Black & Veatch, “City of Ames Energy Resource Options Study”, Mar. 2013

Black & Veatch March 2013


Ventyx Fall 2013 - NOX

Source: Ventyx, “National Database Release Notes”, Fall 2013.


Ventyx Fall 2013 – SOX


Synapse CO2 Prices

Source: P. Luckow, E.A. Stanton, B. Biewald, J. Fisher, F. Ackerman, E. Hausman, “2013 Carbon Dioxide Price Forecast”, Synaps Energy Economics, Nov. 2013.


Ventyx Fall 2013 – CO2



• Capital cost estimates from 2013 EIA Capital Cost Projections Update, April 2013



• Capital cost estimates from August 2013 Lazard’s Levelized Cost of Energy Analysis


Capital Cost Assumptions• Average conventional capital cost assumptions• GDP growth rate from EIA AEO 2014 Early Release - 2.4%

Year CC CT Coal Coal W/CCS Nuclear IGCC2013 987 803 3,416 5,168 6,110 3,937 2014 1,011 822 3,493 5,292 6,257 4,032 2015 1,035 842 3,571 5,419 6,407 4,128 2016 1,060 862 3,641 5,550 6,561 4,227 2017 1,085 883 3,722 5,683 6,718 4,329 2018 1,111 904 3,806 5,819 6,879 4,433 2019 1,138 926 3,891 5,959 7,044 4,539 2020 1,165 948 3,978 6,102 7,213 4,648 2021 1,193 970 4,067 6,248 7,387 4,760 2022 1,222 994 4,159 6,398 7,564 4,874 2023 1,251 1,018 4,241 6,552 7,745 4,991 2024 1,281 1,042 4,336 6,709 7,931 5,111 2025 1,312 1,067 4,433 6,870 8,122 5,233 2026 1,344 1,093 4,533 7,035 8,317 5,359 2027 1,376 1,119 4,634 7,204 8,516 5,487 2028 1,409 1,146 4,739 7,377 8,720 5,619 2029 1,443 1,173 4,845 7,554 8,930 5,754 2030 1,477 1,201 4,954 7,735 9,144 5,892


Capital Cost Assumptions – Cont.• Average renewable capital cost assumptions• GDP growth rate from EIA AEO 2014 Early Release - 2.4%

Year Wind OnShore Solar PV Biomass Geothermal2013 1,850 2,500 3,724 4,719 2014 1,884 2,250 3,813 4,824 2015 1,919 2,000 3,905 4,932 2016 1,925 1,935 3,998 5,052 2017 1,961 1,870 4,094 5,165 2018 1,997 1,805 4,193 5,280 2019 2,033 1,740 4,293 5,398 2020 2,071 1,675 4,396 5,519 2021 2,109 1,650 4,502 5,642 2022 2,148 1,625 4,610 5,768 2023 2,157 1,600 4,720 5,909 2024 2,196 1,575 4,834 6,041 2025 2,237 1,550 4,950 6,176 2026 2,278 1,540 5,068 6,314 2027 2,320 1,530 5,190 6,456 2028 2,362 1,520 5,315 6,600 2029 2,406 1,510 5,442 6,748 2030 2,450 1,500 5,573 6,899


• 2013 Brattle ERCOT Study for Clean Energy Council assumed in the Reference Case that wind costs fall to 1,800 2012$/kW in 2015 and then remain constant in real terms through 2030. In the Low Cost Renewable case, they decline to 1,500 2012$/kW by 2030.

• The NREL 2012 Wind Technologies Market Report shows a range of $1,500 – 2,400/kW for recent capital costs for the Interior region (including Texas)

Wind Cost Trends

Source: NREL. 2012 Wind Technologies Market Report. August 2013.


• Recent performance improvements in wind turbines could increase capacity factors by 10% in the near term

• Projections for levelized cost of energy (LCOE) provide insight into both capital cost and performance trends

Wind Capacity Factor Trends

Source: NREL. IEA Wind Task 26: The Past And Future Cost Of Wind Energy,Work Package 2. May 2012.

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2014 LTSA Scenario and Data Assumptions February 14, 2014