Avoided Costs of Generation

Current Avoided Cost Calculator

Calculates the long-run, all-in cost of a Combined Cycle Gas Turbine (CCGT) running 92% of the year.

• All-in cost is total fuel, O&M, and levelized capital costs of a new generator.

• All-in cost is then shaped into hourly profile from the CA PX day-ahead market price

• Capacity values included in the hourly market price.

Proposed Update

• Calculator updated to use new calculator currently used for Distributed Generation and Demand Response

• Transmission & Distribution avoided costs unchanged but input values updated to reflect more recent utility filings.

• Gas and electricity price inputs updated.• Discount rate changed from after-tax Weighted

Average Cost of Capital to before-tax WACC.

Avoided Costs of Electricity Generation has six component avoided costs

1. Generation capacity

2. Generation energy

3. Ancillary services

4. T&D capacity

5. Environmental (GHG) costs

6. 33% Renewables (RPS) costs

Avoided Costs of Generation Capacity• Prior to 2017, interpolated from the resource adequacy

value of $28.07/kW-yr in 2008 – the actual cost of capacity.

• 2017 and beyond, equal to fixed costs of a new CT less the net revenues that the CT would attain from selling to the real-time energy and ancillary service markets.

• 2017 is the Resource Balance Year – when system demand will equal system capacity.

• Allocated over the top 259 hours of the system load to roughly reflect peak hours.

• Generally results in more avoided capacity costs than current model, so that peakier measures are more cost-effective.

Avoided Cost of Energy

• Prior to resource balance year, the average energy cost is based on latest NYMEX market price forecast available.

• The long-run energy market price is used for resource balance and subsequent years. It begins with the 2010 MRTU day-ahead market price escalated to the natural gas burner tip forecast.

• Annual long-run energy market price is set so that the CCGT’s energy market revenue plus the capacity market payments equal the fixed and variable costs of the CCGT

Avoided Cost of T&D Capacity

• Potential deferral of T&D network upgrades from reduction in local peak loads

• Updated by climate zone for PG&E, from its 2011 GRC Phase II, Jan. 7, 2011.

• Updated at system level for SCE and SDG&E.

Avoided GHG costs

• Estimates of avoided CO2 emissions of energy saved.

• Uses the Synapse Consulting forecast• No longer uses an adder like the current

methodology• Note: took out NOX and PM-10 because

those are now captured in the capital costs of the new plants used to set the long-run cost of energy and capacity.

Avoided RPS costs

• Energy savings result in a decrease in the 33% renewables requirement, which results in additional savings.

• Based on the Renewable Premium, which is the difference between the cost of a typical group of renewables and the cost of conventional (CCGT) generation.