2017 Mid-Year Energy Forum

Closing Session

EBA Mid-Year Energy Forum – Washington DC

Francis O’Sullivan

October 17th, 2017

The Changing Energy Landscape – Challenges, and Opportunities in a Rapidly Evolving System

Large-scale generation The grid The prosumer paradigm

- Rapid growth in the deployment of renewables

- Changing operating needs as the generation mix evolves

- New dynamics in wholesale market conditions

- The need to optimize asset utilization in order to remain competitive

- Manage the integration of renewables and optimized asset utilization

- Optimize performance and reduction of losses

- Improved service reliability and added resiliency

- Optimized integration of DER assets

- Expanding consumer interest in DER assets

- Energy usage analytics and value capture from demand management

- Supporting electrification of transport

The energy sector is experiencing a period of unprecedented change that is bringing with it both challenge and much opportunity

Source: F. O’Sullivan, MIT Analysis

The rise of renewables… Wind and solar at energy’s big table

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2010 2011 2012 2013 2014 2015 2016

AsiaAmericasEMEA

Trends in overall global clean energy investments from 2010-2016 $ Billions

$3.3

$2.8

$1.4

$1.1

$0.8

$0.7

Wind

Solar

Nuclear

Hydro

Gas

Coal

The role of renewables is increasing rapidly and these technologies will dominate investment in new generation capacity over the next 25 years

Projected global investment in new generation capacity 2017-2040$ Trillions

Source: Bloomberg New Energy Finance Source: Bloomberg NEF

Source: MIT Analysis, National Renewable Energy Laboratory, Lawrence Berkeley National Laboratory, Solar Energy Industry Association, European Photovoltaic Industry Association

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2008 2009 2010 2011 2012 2013 2014 2015 2016

Utility

Commercial

Residential

Annual PV capacity additions by system typeMWDC

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25000

30000

2016

Other

Maryland

Texas

New York

Utah

Nevada

Massachusetts

North Carolina

Arizona

California

Cumulative PV capacity by state (2016)MWAC

In the US, more than 60% of all PV capacity is in the form of utility-scale units

Technologies like solar PV are particularly important because of the deployment flexibility that they enable

U.S. Utility-scale solar PPA prices evolution since 2006 $/MWh

The competitiveness of wind and solar PV has been buttressed by remarkable reductions in costs over the past half decade

Source: Bloomberg NEF, US DOE SMI Reporting

Learning rate: 21.6% Learning rate: 13.3%

May 2017Spot price: $0.35/Wp

2014-2016 U.S. PPAs*

Solar PV module$/Wp

Wind LCOE$/MWh

Over the years, we have underestimated the potential for future wind and solar PV cost reductions… they will become even cheaper

Source: Trancik, J.; Brown, P.R. et al. 2015

Weighted average80th percentile20th percentile

Solar irradiance W/m2

Inverter Loading Ratio (ILR)

Spec

ific

Pow

er W

/m2

LCOE $2010/MWh

Rotor diam

eter m

Beyond reducing equipment and development costs, changes to system design are also playing a big role in enhancing competitiveness

Solar systems are using much higher inverter loadings to produce more predictable generation profile

Modern wind turbines have lower specific power ratings and this helps boost capacity factors significantly

Source: P. Brown, MIT Analysis, NREL MIDC; NSRDB; LBNL 2016

Illustration of gas production growth from the main U.S. shale plays since 2005Bcf of gas per day

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bakken

Eagle Ford

Marcellus

Woodford

Haynesville

Fayetteville

Barnett

Today, new shale plays supports 60% of US gas production

The Marcellus Shale alone now produces more 6.5 Tcf per yrof gas.

More than Canada, Iran or Qatar

Source: F. O’Sullivan, United States Energy Information Administration, HPDI Production Database

Dramatic technology-driven impacts on the energy system are not just confined to renewables resources… Just consider on the shale boom

Source: F. O’Sullivan, United States Energy Information Administration

Henry Hub Natural Gas Price$/MMBtu

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Henry Hub Gas

WTI Oil

WTI Oil Price$/Bbl

Gas-focused Development

Oil-focused Development

Unconventional resources have added much greater flexibility to U.S. productionand have recast our role in international energy markets

Comparison of coal and gas-fired power generation levels in the U.S. since January 2008TWhrs

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Coal-Fired Gas-Fired

Low gas prices have has a big impact on the relative dispatch of coal and gas in the power sector

Abundant low-cost natural gas from the shale resource has redefined that fuel’s role in the power system

Source: F. O’Sullivan, United States Energy Information Administration

Utility-scale electric capacity additions and retirements in U.S. GW

Net GenerationTWh

1240.091380.29

805.33

652.96

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Coal NaturalGas

Nuclear Other

2014 2015 2016

The changing capacity mix across the U.S. reveals the ongoing rebalancing of the system away from coal and towards gas and renewables

Source: U.S. EIA, Electric Power Monthly, April 2017

Source: Lazard

On an LCOE basis only combined cycle gas can compete with wind and utility-scale solar in the U.S. market… and that is assuming cheap gas

Unsubsidized U.S. energy technology LCOEs including fuel sensitivity$/MWh In the U.S. the only

gas combined cycle is the only option that can compete with wind and solar PV

Cannibalizing competitiveness… The challenges of building a new power system

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Total LoadNet LoadPV - Right AxisOther Renewables - Right Axis

CA system loadGW

PV & other non-hydro renewablesGW

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CA NV HI VT AZ US

Solar as % of total generationPercent (Jan 2017 to May 2017)

Now that the economics of renewables are becoming more compelling, the harder issues of large-scale integration must be addressed

Source: F. O’Sullivan, CAISO data from 7/17/2016, MIT Analysis, National Renewable Energy Laboratory, US Department of Energy

Noon spot price

Average price

Increased ramping rate required

Declining capacity value

Reduction in minimum load

Solar-induced merit order effect

Larger-scale renewables deployment, particularly solar PV, can very significantly suppress electricity prices, even at moderate energy fractions

Source: F. O’Sullivan

Source: US Energy Information Administration

This solar-induced price suppression dynamic is now unfolding in California’s power market

During May 2017, 8% of the hours in CAISO’s real-time

market had negative prices

Merchant value of CA solar versus associated PPA prices and levelized cost$/MWh

Source: Bloomberg New Energy Finance

The marginal value of solar generation in California has fallen to less than $20/MWh as penetration has risen

Hou

rly E

lect

ricity

Who

lesa

le P

rice

Rel

ativ

e to

Sea

sona

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rage

At marginal penetration the realized price for solar generation is high

As penetration rises the peak price is suppressed

The California example is far from unique… These dynamics have already played out in Germany and have had a major impact on their power sector

Source: MIT Future of Solar Study, Hirth, L. Energy Economics 2013

Retooling the system… Technology and market reforms options for delivering a more future-proof power system

Daily variability of wind and solar resource in Texas relative to load in 2014

Tomorrow’s power system is going to be much more exposed to, and reliant upon intermittent resources

Source: MIT Analysis, NSRDB, ERCOT, P. Brown

Transmission capacity Flexible dispatchablegeneration

Energy storage Active demand management

Increased system flexibility is the key enabler of an efficient, reliable and resilient future power system

Locational BenefitsDistributed Opportunity Cost

Tota

l cos

t diff

eren

ce re

lativ

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hig

h vo

ltage

($)

Unit scale (e.g. MW)

Net present value of locational

benefits ($)

LV MV HV

Positive benefit-cost gap

Locational benefits > distributed opportunity cost in certain deployment

Locational Non-locational

- Network capacity

- Constraint mitigation

- Loss reduction

- Voltage control

- Power quality

- Reliability and resiliency

- Energy

- Firm capacity

- Operating reserves

- Price suppression

- Price hedging

- Land use

- Employment

- Emissions mitigation

- Energy security

Locational & non-locational services offered by DER

New digitally-enabled technologies mean grid architectures can be much more decentralized

Source: MIT Analysis, MIT Utility of the Future Study Group

Service Value $/kWh-year900

ISO/RTO

Utility

Customer

Stacking storage services enhances the return on investment

Possibility of 2-3X increase in asset value

Market and regulatory barriers are extensive

Battery storage is one such technology that can deliver grid services to an increasingly decentralized system

Source: Estimates include those from RMI, NYSERDA, NREL, Brattle Group, Kirby, EPRI, Sandia, and Sakti et al.

Front-of-meter: ISOs, Utilities

Behind-the-meter: C&I, Residential

FOM & BTM: IPPs, Aggregators…

The effective monetization of storage’s value is often hindered by complex market and regulatory barriers

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-Spi

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nerg

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Non-Spinning Reserve 5 0 1 0 0 1 1 0 3 0

Ramping 3 0 0 0 0 3 1 0 0

Electric Energy Time Shift 29 0 0 21 3 0 6 4Transmission Congestion Relief 3 0 0 0 2 1 0

Distribution upgrade due to solar 2 1 0 0 1 0

Electric Bill Management 51 2 0 5 6

Frequency Regulation 14 1 1 0

Transportable Transmission/Distribution Upgrade Deferral

3 0 0

Electric Bill Management with Renewables 27 1

Demand Response 7

California

Advanced energy storage systems: Batteries and Flywheels

Systems providing T&D services have minimal overlap with BTM applications

Preliminary assessment of storage use cases in CA

In California, batteries either deliver FOM ancillary services, or BTM demand management

Source: DOE Energy Storage Database, select services shown

2016 CAISO daily frequency regulation requirementsMW

2016 CAISO daily frequency regulation costsMW

The ancillary services market is limited in scale and exposed to market structure redesign risks

Source: CAISO

4 hr2015

Day-ahead

Assessment of energy arbitrage value across U.S. ISOs

Although widely discussed, the energy arbitrage market has very challenging economics… today’s battery system are 10X too expensive

Source: MIT Analysis, P. Brown

Cost savings arising from EIM integration$ Millions

The Energy Imbalance Market – A first step towards greater market integration in the Western U.S.

- CAISO’s development of the EIM is aiding the optimization of the real-time dispatch and reducing costs appreciably

- Estimated $120M in real-time dispatch savings since November ’14

- Aiding California in meeting its renewable energy targets by reducing renewables curtailment

- Reduced Q4 ‘16 CA renewables curtailment by 24GWhs

- Acting as a stepping stone to much greater western integration in a manner designed to best integrate high levels of variable resources

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Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16CAISO PacifiCorp NV Energy

Transition to a more flexible power system is not just a technology story… the potential role of thoughtful market reform is very significant

Source: MIT Analysis, CAISO, F. O’Sullivan, P. Brown

Converging worlds… The electrification of mobility

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The global EV fleet has now reached 3.25M, and projections of future growth are becoming increasingly bullish

Source: Axios

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The current trajectory for battery costs points to EV cost of ownership approaching gasoline within the next five years

Source: Schmidt et al, Nature 17110

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Daily vehicle adoption potential vs. battery capacityPercentage of all personal LDV trips in U.S.

Gasoline displacement potential vs. battery capacityPercentage of personal LDV gasoline usage in U.S.

‘13 Model Year Nissan Leaf

Today’s EV technology, like that in the Nissan Leaf, can effectively meet most light duty mobility needs

Source: Needell et al, Nature 16112

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1.6%+

1.2-1.6%

0.8-1.2%

0.4-0.8%

0-0.4%

System dynamics model of AVF adoption

Spatial variation in adoption levels of hybrid and EV vehiclesPercent of new vehicle sales

EV cost competitive is necessary but not sufficient… Consumer behavior will play a major role in shaping how the technology diffuses into the market

Source: D. Keith, MIT analysis

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Some conclusions