Desperate Buyers in a Sellers Market Lessons For Vermont in a Carbon Constrained World

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Desperate Buyers in a Sellers Market Lessons For Vermont in a Carbon Constrained World. Michael Dworkin, Professor of Law & Director, Institute for Energy and the Environment Vermont Law School 802 831 1319 mdworkin @vermontlaw.edu 10 February 2009. - PowerPoint PPT Presentation

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  • Desperate Buyers in a Sellers Market Lessons For Vermont in a Carbon Constrained World

    Michael Dworkin, Professor of Law & Director,Institute for Energy and the EnvironmentVermont Law School802 831 1319 mdworkin @vermontlaw.edu

    10 February 2009

  • Here are the 02- 05 prices for wholesale electric power (not including delivery!)

  • Vermonts Energy Future VT DPS (2008) at 14

  • Why Care About World Energy Trends ?* Because the World Prices Affect YouWorld Energy Demand Sets World Natural Gas Price.World Natural Gas Price Sets Wholesale New England Electricity PriceNew England Wholesale Electricity Price Sets one-sixth of Vermont power costs nowThose are the prices Vermont faces already----------------------------------------------------- Climate Change is an environmental tragedy Carbon is global, and lasts a hundred years

  • Future Fossil Power Prices Look HigherWorld economic down trend has slowed, but not eliminated price rises and price expectations.

    Current futures prices are ca. 30% higher than predictions of two years ago --- and almost three times the price of five years back

  • How Much Time Would ANWR Buy?ANWR: 6-7 billion barrels economically recoverable (even at off the chart price) are a 10-month U.S. supply, or about 16 months of imports. If opened this summer, they would be gone by 2010 election. (EIA cut this chart off at $40/barrel in 2003)

  • *Energy policy is our worlds most important environmental issue.

    *Environmental issues are the energy sectors most important challenge.

  • Putting Things in Perspective, or Why Fuel Will Rise:

    6.1 Billion People in the late 1990s world0.6 Billion averaging 10,000 kWh/household (US level ca. 12,000)2.0 Billion averaging 5,000 kWh/household (Latin/Eastern Eur)2.0 Billion averaging 1,000 kWh/household (Asia, Africa)1.5 Billion Without electricity

    Q: What happens if China and India and Indonesia try to buy fuel and resources to provide even half the electricity that we used ten years ago ?

    A: We will see a doubling in bids for electricity fuels & resources.

  • What Does This Mean in Practice?

    * Power costs will be high for a long time

    * Relying on gas and oil will be a costly bid against the developing world

    * Shifting to efficiency, renewables and co-generation will save money over the next decade.

    * Why not just buy some power from coal-fired U.S. utilities? Because relying on coal to be cheap will hit its limits very soon (Mercury control, rail capacity limits,coal price rises, capital costs, and carbon control)

  • US Energy Law Basics1) wholesale electric sales and2) use of transmission lines and 3) use of gas pipelines are regulated by the national government through the FERC (like Chinas SERC)Federal Power Act of 1927 Major Amendments 1978, 1984, 1992, 2005Can set price, usually uses regulated-market as tool.

    Retail electric and natural gas prices are set by State (provincial) governments. Price of petroleum is unregulated (set by market)

    Prices of other energy are largely unregulated

    Environmental effects of energy mining, transport, and generation, are regulated by national (EPA) standards; usually states (provinces) administer those nationally set standards

  • US Energy Use BasicsHalf of energy is used to make electricity for: 1- homes, 2- business, 3- industry

    One third of energy is petroleum and diesel for cars and trucks.

    One sixth of energy is for all other uses.

  • Current Vermont Electric Supply Simplified30% Hydro-Quebec30% Vermont Yankee15% small hydro15% wood10% End-use Efficiency

    Each kWh saved can be sold to New England grid.

  • So, How Is America Dealing with This Prospect?

    Do we have a national energy policy?

    We do .. And it is this -

  • Do-si-do with coal: 2007:154 new plants planned -- 93 GW, $137 billion2008: 95 new plants planned -- 70 GW, $210 billion

  • Vermonts Electric Needs1,100 MW peak demand now Growth2-10 MW/yr from 1984-2004550 MW will need to be replaced in 2012 - 2015 timeframe!!Current SourcesVermont Yankee: about 30% of VT demand and 36% energy Contract Expires 2012 Hydro Quebec: about 30% of demand and 32% energy Most of Contract expires 2012 to 2015Independent Power Producers:about 10% of demand and 5% energy (all renewable) Contracts expire 2008 to 2020New England Market and utility-owned sites: about 30% of VT demand and 27% of VT energy

  • Vermont could be VERY vulnerable to the market

  • A Few Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketNet Metered Small ProjectsMajor In-State RenewablesHydro QuebecConnecticut River Dams Small Distributed GenerationCreative ImportsBlended Balance

  • Can Energy Efficiency Really Help ?Between 1999 and 2005 Vermont doubled its commitment to strong energy efficiency programs. The result?

    Lowering electric costs for Vermont residents and businesses:In 1999, Vermont and NY had highest electric rates of seven north-eastern states; by 2005 we had the lowest such rates. More importantly than rates, the burden went down.Commercial & Industrial electric costs dropped from 1.9% of Gross State Product to less than 1.6%. Residential electric bills dropped from 3.9% of disposable personal income to 3.3%.

  • Data

    Day-AheadAvg

    Part, 3rd partyEfficiencytotal2002plus 1.2 centsReal-Time

    1/1/021.091.892.982.553.7513

    2/1/021.091.892.982.513.7113

    3/1/021.091.892.983.084.2813

    4/1/021.091.892.983.004.2013

    5/1/021.091.892.983.424.6213

    6/1/021.091.892.982.854.0513

    7/1/021.091.892.983.444.6413

    8/1/021.091.892.984.645.8413

    9/1/021.091.892.984.125.3213

    10/1/021.091.892.984.315.5113

    11/1/021.091.892.983.975.1713

    12/1/021.091.892.984.635.8313

    1/1/031.031.622.6667.3813

    2/1/031.031.622.666.958.3313

    3/1/031.031.622.667.118.49136.93

    4/1/031.031.622.664.936.31134.69

    5/1/031.031.622.664.605.98134.49

    6/1/031.031.622.664.876.25134.87

    7/1/031.031.622.665.036.41134.98

    8/1/031.031.622.664.656.03134.43

    9/1/031.031.622.664.275.65134.53

    10/1/031.031.622.664.626.00134.49

    11/1/031.031.622.664.295.67134.25

    12/1/031.031.622.665.246.62135.05

    1/1/041.851.923.778.089.46137.35

    2/1/041.851.923.775.146.5213

    3/1/041.851.923.774.826.2013

    4/1/041.851.923.775.36.6813

    5/1/041.851.923.775.687.06135.06

    6/1/041.851.923.775.296.67135.13

    7/1/041.851.923.775.046.4213

    8/1/041.851.923.774.776.1513

    9/1/041.851.923.774.395.7713

    10/1/041.851.923.775.036.4113

    11/1/041.851.923.775.106.4813

    12/1/041.851.923.775.947.3213

    1/1/052.161.743.906.978.3513

    2/1/052.161.743.905.647.0213

    3/1/052.161.743.906.327.7013

    4/1/052.161.743.906.417.7913

    5/1/052.161.743.905.777.1513

    6/1/052.161.743.906.818.1913

    7/1/052.161.743.907.518.8913

    8/1/052.161.743.908.9610.3413

    9/1/052.161.743.9010.3211.7013

    10/1/052.161.743.9011.2312.61138.71

    11/1/052.161.743.907.859.2313

    12/1/052.161.743.9010.1911.5713

    1/1/062.161.743.907.478.8513

    2002 - EVT2002 - Tot2003 - EVT2003 - Tot

    1098238217327290cost1295790321197449

    581308581308kWh797972797972

    18.892535454529.8074170663dollars16.238543457726.5641513737

    1.892.98cents1.622.66

    1.091.03

    2004 - EVT2004 - Tot2005 - EVT2004 - Tot

    13992835272894511509556427289451

  • Efficiency and ConservationHighly cost-effective; but requires $ upfrontExcellent climate-change effectsKeeps jobs and $ in VTProbably can meet all new demandEspecially if term and scope extended.Probably cant replace all disappearing supply resources.

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • Vermont YankeeVY license extension still unresolvedAssumes new VY contract acceptableWaste storage/disposal issues still unresolvedEffect of NRC safety rulings still unknownPrice expensive if at full market rate with risk of outage-coverage built into price!Less climate change effect, compared to others than fossil generation (which is New England market at margin)Transportation of fuel and waste unresolvedSome jobs and $ in VT; but more jobs and dollars outRevenue-sharing subject to market fluctuations, but most value in high markets.

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • Out-of-State Fossil PlantsPrice likely to be high and volatileVery poor climate-change and health effectsJobs and dollars leave VermontTransmission constraints ? Rail capacity?Announced coal plants, will double capital cost for construction (e.g., VELCO-NWRP); exceed rail capacity; require mercury control, should require gasification and GHG controlold 5 cent price prediction will be closer to 10 cents for capital, Hg, transmission and rail14 cents per kWh if carbon controls kick in

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHydroQuebec Connecticut River Dams Small Distributed GenerationBlended Balance

  • VT Cogen Plants Siting means finding the right spotsRequires fuel delivery capacity Price depends on installation and fuelKeeps some jobs and $ in VTEnvironmental impact must be built inCould have high efficiency, if part of right site e.g., Rock Tenn, Ethan Allen, Fletcher Allen?

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • Spot Market Purchases High price risk (both core price risk and highly volatile; hedge costs expensive)Climate problems since fossil is on New Englands margin 85 % of hours.Exports jobs and $ (most large scale supply out-of-state)Ancillary charges, LICAP, Transmission collection for NE, ISO costs all rising

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • Large VT Renewable: Wind, Biomass, Wood & Solar

    High installation costs, low future fuel costsLow exposure to market and fossil price changesSustainable forestry key for VT, NY, NH, QuebecKeeps jobs and some $ in VT (help stimulate VT renewable businesses)Excellent re climate effects

  • Large VT Renewable: Wind, Biomass, Wood & Solar (2)

    Demonstrated and growing, despite Governors opposition (Old WEC landfill gas, Searsburg wind McNeil wood, New Coventry II, Sheffield, Wood)Limited hydro site options; some retrofit potentialSiting needs care and sensitivity: site-specificSupreme Courts UPC wind decision makes PSB authority clear.

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • HQ System PowerHQs path to expansion is unclear, given internal Quebec issuesPrice likely to be high-marketRelatively low carbon emissionsJobs and dollars leave VermontHQ commitment of $1 billion+ to efficiency may free up kWh for our purchaseHQs wind from Gaspe may not be an option given Canadas Kyoto commitments

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • Connecticut River DamsStable price might be negotiated.Environmentally neutral, assuming someone would operate themDollars leave VermontKnown technology; limited cost riskVT missed chance to purchase; long term contracts might still be an option

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • Small-Scale Distributed Generation / Micro TurbinesCost may be issueProbably wont meet all new demandWill siting issues limit deployment??Air Permit issues need attentionMicro Hydro needs rules changesInterconnect rules relatively good in VTGood to excellent climate impactsGood for jobs and $ in VT

  • Major Options: Some Pros and ConsEfficiency and Conservation VT YankeeShift to Fossil PlantsNew Cogen in VTSpot MarketMajor In-State RenewablesHQ Connecticut River Dams Small Distributed GenerationBlended Balance

  • Facing the FuturePower: Energy Efficiency first and foremost, then renewables to minimize fuel-price risksPast increases of 2-3% for efficiency helped avoid the 40-60% increases that much of New England is now seeing.

    Cogeneration and Net Metering: Here, many utilities work against their customers: Some, work with them

    Meters:Installing automated meter reading opens the door to improved rates, bills, and user-decisions.

    Service Quality:Now Vermont utilities are challenged to trim the lines, to answer the phones, to meet the regulatory standards, . .then do better.

    Financing: Transparent Books, Controlling Exposure to Power Costs in Wholesale markets (hedging, EE, renewables).