North American heads of state met yesterday in Ottawa to commit to generating half of the continent’s electricity from “clean energy” sources by 2025. These clean energy sources include renewable energy, nuclear generation, fossil fuel plants that use carbon capture and storage, and energy efficiency. Currently, 37% of North American electricity is provided by clean energy sources. In the U.S. which represents about 75% of total North American generation, only about 33% electricity generation is from renewable and nuclear facilities as shown in the figure below. In stark contrast, about 80% of Canada’s electricity is provided by clean energy sources, with hydro representing about ¾ of this.
Particularly troubling for the U.S. are the pending retirements of the following nuclear units: Clinton, Diablo Canyon, Fort Calhoun, Fitzpatrick, Oyster Creek, Pilgrim and Quad Cities. The table below indicates the location, rated capacity and 2015 annual electricity output of these units. In 2015 they generated almost 64 TWh, representing 1.6 percent of total U.S. utility generation. Clearly their loss will have a significant impact on the investment required for the U.S to achieve this 50% clean energy goal. Equally important are the implications of the loss of this non-carbon emitting generation on the cost of achieving the emission reductions required by the Clean Power Plan. With the stay of the Clean Power Plan, a “policy bridge” to support this generation would appear to be appropriate.
U.S. Nuclear Generating Units Scheduled for Retirement
According to the recently released 2016 Annual Energy Outlook about 43% of U.S. electric generation will be produced by such clean energy sources by 2025, with a major contributor to this growth the additional renewable energy spawned by the extension of the production tax credits. This gap suggests that additional policy support will be required to achieve the 50% goal. Additional clean energy from Canada, such as several New England states are considering, could assist the US in achieving its target.
Power Advisory believes that recent developments in the Massachusetts region is providing a favorable environment for the enactment of legislation supporting clean energy.
See our commentary in the reports sections.
On May 11, 2016, the IESO Stakeholder Advisory Committee (SAC) met and an update on the Ontario Planning Outlook 2016 (OPO 2016) was presented. Please find attached a client note summarizing the OPO 2016 update along with Power Advisory’s commentary.
Power Advisory is pleased that the IESO has recognized the risks and uncertainty facing the Ontario electricity sector over the planning horizon that we had previously identified. If you have any questions, please do not hesitate to contact us.
Power Advisory Client Note – OPO 2016 Update – SAC Meeting 2016-05-11
STUDY PREDICTS SHIFT TOWARD WIND, HYDRO POWER WILL SAVE CONSUMERS COSTS
By Matt Murphy STATE HOUSE NEWS SERVICE STATE HOUSE, BOSTON, APRIL 21, 2016
A new study on the impact large-scale hydro and wind power imports could have on the Massachusetts energy market predicts significant savings for consumers, challenging the narrative put forward by critics of Gov. Charlie Baker’s energy bill that hydropower would be a costly alternative to natural gas. The economic analysis, conducted for the Massachusetts Clean Energy Partnership by Power Advisory, concludes that energy customers in the state would see a net benefit of $171 million a year from long-term contracts for hydropower or a combination of hydro and land-based wind from northern New England or Canada. The Clean Electricity Partnership is a coalition of regional wind, hydro and transmission companies working with business and environmental groups to promote clean energy. The report, written by Power Advisory President John Dalton, suggests the savings generated by driving down demand for natural gas would not only cover the costs of building the transmission and facility infrastructure to import the power, but also deliver 10 percent of the carbon emission reductions required by 2050 under state law. “Our analysis shows that displacing natural gas-fired electricity generation with hydropower or a combination of hydro and wind results in substantial annual savings to Massachusetts energy consumers as well as dramatic reductions in greenhouse gas emissions,” Dalton wrote. The study presents a starkly different view of hydropower’s impact on price than that reported by a separate review produced for the New England Power Generators Association that predicted $777 million a year in costs for ratepayers, including the cost of building transmission lines from Canada through New England. The NEPGA believes that the state’s energy needs would be best met by letting the market respond to the forthcoming retirements of an estimated 10,000 megawatts of power from Pilgrim Nuclear Power Station and other retiring power plants. The new study comes a day after Kinder Morgan announced that it would suspend all work and spending on its Northeast Energy Direct natural gas pipeline project from New York to Dracut, Mass. That would have added natural gas capacity in the region. “Frankly, I don’t think there was lots of analysis that underlied that report,” Dalton said of the NEPGA report. The computer modeling used by Power Advisory assumed an expansion of natural gas pipelines in Massachusetts, as well as the addition of already proposed new natural gas power plants, but Dalton said the Kinder Morgan announcement does not significantly alter his predictions. “We didn’t specifically assume it was Kinder Morgan,” Dalton told the News Service. “It could have been the Spectra project as well. But if neither get built the benefits would be all that much more compelling because as you’ll see in this analysis these clean energy imports act as another pipeline, a clean energy pipeline.” Baker has proposed authorizing utilities to solicit bids for long-term power contracts to import between 1,200 and 2,400 megawatts of hydropower to Massachusetts. While Baker believes the clean energy resource will be able to offer a reliable source of energy at a competitive price, he has stressed that if the bids come back to high for consumers they would be rejected. The new analysis concludes that hydro and wind power imports would drive down wholesale energy prices and reduce the use of less-efficient power plants, saving $440 million a year before incorporating the infrastructure costs needed to import the clean power. Lower demand for natural gas would also create $160 million in savings for natural gas customers who use the resource for heat and cooking, the study concluded. The House is expected to release major energy policy legislation as soon as next month that is likely to address the idea of competitive procurement of both hydro and off-shore wind as a clean energy solution to meeting the region’s energy needs as sources such as Pilgrim Nuclear Power Station prepare to come offline. Over a 25-year period, Dalton’s report estimates $603 million in savings a year in Massachusetts from the importation of Canadian hydropower before the cost of transmission lines and facilities are factored. The volume of energy from the new renewable resources would drive down demand for natural gas and reduce the price of gas used to produce electricity on peak demand days. The result would be savings of approximately $219 million a year for Massachusetts customers, he wrote
The Alberta Government has declared policy direction to: 1) establish a price on carbon; 2) phase out coal-fired generation by 2030; and 3) accelerate renewable generation developments. These are the key policies that will impact Alberta’s wholesale energy market within the Alberta Government’s broader Climate Leadership Plan.
Power Advisory Summary and Preliminary Commentary can be found in our Reports Section (click here)
Power Advisory has published a summary of the proposed Ontario cap-and-trade system design and Climate Change Strategy along with associated timelines with emphasis on potential implication’s for Ontario’s electricity sector.
Go to our Reports Section to view the summary
On February 8, 2016, ISO-NE will hold is tenth Forward Capacity Auction (FCA). Power Advisory has just finalized its forecast of FCA #10 prices and released its public review of the Forward Capacity Market (FCM) fundamentals that will drive FCA prices. With significantly higher prices in FCA #8 and 9, the market is responding with proposals for numerous new gas plants, ranging from 100-MW combustion turbines to 900-MW combined cycle plants. Existing generators are working to squeeze a few more MWs out of their equipment, and owners of older plants are choosing to keep them in service rather than retire them. On the other hand, the Pay for Performance program is influencing some suppliers to reduce their participation in the auction, particularly where participation in the FCM has an opportunity cost.
Our public review of FCA #10 is available upon request by contacting John Dalton at email@example.com
Capstone Energy Infrastructure has revealed that it has retained financial advisors to “review alternatives”, which could lead to a sale of the company or its assets. Capstone owns a 480-MW portfolio of existing plants, plus a 620-MW pipeline of planned projects. Its two largest plants are Cardinal Power, a 156-MW gas-fired combined cycle cogeneration plant, and Erie Shores, a 99-MW wind plant. While wind dominates its portfolio, it also has significant hydro, solar, and biomass assets. Its plants are spread across Canada, mostly in Ontario and Nova Scotia but with holdings in Quebec, Saskatchewan, Alberta and B.C.
Power Advisory is well-positioned to help prospective buyers value and perform due diligence on these assets. We are familiar with the Power Purchase Agreements that apply to most of these plants, including their terms, payment calculations and prospects for renewal, and we have done extensive modeling of natural gas plant dispatch and wind and solar curtailment in these markets.
The Ontario Energy Board (Board) has published a multi-year roadmap for updating and improving Ontario’s Time-of-Use electricity pricing system. The Board’s strategy is based in part on a jurisdictional review of dynamic pricing programs employed elsewhere performed by Power Advisory. In particular, Power Advisory reviewed the experience with many forms of time-varying pricing in other jurisdictions, and identified which ones would be most appropriate for Ontario. Our report identified Critical Peak Pricing (CPP) as both effective in reducing electricity system costs, and requiring relatively little consumer effort to achieve a significant cost impact. We also highlighted the importance of enabling technologies, such as smart thermostats, in achieving cost-effective results. Building on Power Advisory’s recommendations, the Board’s roadmap includes two types of pilot studies: one focusing on simple forms of dynamic prices such as CPP, and the other focusing on enabling technologies which will allow more complex pricing.
Board’s roadmap http://www.ontarioenergyboard.ca/oeb/industry/regulatory+proceedings/policy+initiatives+and+consultations/regulated+price+plan#20151116
Power Advisory’s Report
Power Advisory performed a comprehensive review of the province’s electricity sector and best practices across Canada. Based on this review, we identified a wide range of best practices that could be employed, a number of which were focused on assisting the province to capitalize on the significant opportunities offered by its renewable resource potential