Strategies for Procuring New Generation September 18 2013 INDIANA POWER OF WIND COALITION INDIANA POWER OF WIND COALITION The Challenge There is no free market for procurement of energy and resources ID: 380064
Download Presentation The PPT/PDF document "Regulatory Flexibility Committee" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Regulatory Flexibility Committee
Strategies for Procuring New GenerationSeptember 18, 2013
INDIANA POWER OF WIND COALITIONSlide2
INDIANA POWER OF WIND COALITION
The Challenge
There is no “free market” for procurement of energy and resources.
Utilities in regulated states are vertically integrated monopolies with a franchise agreement that entitles them to serve customers within the franchise area.
Currently, utilities develop integrated resource plans (IRP) which identify supply needs for customers.
Generally, utilities fulfill energy/capacity shortfall through request for proposals (RFP) and the utility typically chooses themselves.Slide3
INDIANA POWER OF WIND COALITION
Other Challenges
Self build options don’t always take into account all transmission and interconnection costs.
Risk of construction delay and cost overruns are often not accounted for in self build options.
Utilities have the ability to recover additional costs from ratepayers.
Independent power producers (IPP) provide an all-in, binding cost when responding to request for proposals.
This includes all costs – including transmission and interconnection costs.
If the project is completed over budget, the risk is borne by the IPP as opposed to the ratepayer. Slide4
Example of Utility Share of Supply Resources
INDIANA POWER OF WIND COALITION
Utility
Total Resources (MW)
Owned Resources (MW)
PPA Resources (MW)
% Owned Resources
AEP
5,279
5,012
267
94.9%
Duke
6,8306,72210898.4%IPL3,3533,05330091.1%NIPSCO3,4223,32210097.1%Vectren1,4981,28821086.0%
SOURCE: 2011 Utilities IRPs
Approx. 95% of all electricity comes from generation owned by the IOUs Slide5
INDIANA POWER OF WIND COALITION
Comparison of Self-Build to Third Party Supply
Utilities receive no rate of return on power purchase agreement (PPA) and as a result forfeit potential returns for shareholders.
Lower cost to ratepayer for power purchase agreement, however this may not be the successful proposal.
Utility Self-Build –
100 MW Thermal Plant
1
(excludes operating costs)
$427,488,000
Resource Investment
8%
Rate of Return$ 34,199,040Total ReturnPower Purchase Agreement – 100 MW Plant2$336,384,000 Purchase Agreement Cost0%Rate of Return$0Total ReturnCurrent structure leads to inefficient outcomes1 Lazard Levelized Cost of Energy Analysis Version 6.0, June 2012. Assumes Gas Combined Cycle at 40% capacity factor for 20 years at $61/MWh.2 Lazard Levelized Cost of Energy Analysis Version 6.0, June 2012. Assumes Wind at 40% capacity factor for 20 years at $48/MWh.Slide6
INDIANA POWER OF WIND COALITION
Example of Competitive Procurement Proposal
Allowing an earned rate of return still provides a lower cost to ratepayer
.
Utility Self-Build –
100 MW Thermal Plant
1
(excludes operating costs)
$427,488,000
Resource Investment
8%
Rate of Return
$ 34,199,040Total ReturnPower Purchase Agreement – 100 MW Plant2$336,384,000 Purchase Agreement Cost0%Rate of Return$0Total ReturnCurrent structure leads to inefficient outcomesRatepayer Savings:$98,392,320 Alternative Procurement – Utilized Wind PPA$336,384,000 Resource Investment8%Rate of Return$ 26,910,720Total ReturnSlide7
INDIANA POWER OF WIND COALITION
Benefits
Ensure ratepayer is served at lowest, efficient cost. Allow utility sector to balance the utility shareholder interests with the ratepayer’s desire for low cost energy.
Reduce ratepayer exposure to cost overrun risk.
Does not change the regulatory process that currently exists in each state.
Cooperative working relationships between utilities and independent power producers.
Alternative for utilities if capital constrained due to generation fleet retirement/retrofit costs, transmission expansion costs, and other system improvement costs. Leverage third parties to provide capital needed to maintain supply adequacy.
Provide appropriate human resources to support utilities in building new resources. Some utilities no longer have in-house capability for design, project management, and commissioning of new generation resources. The projected utility attrition rate is also a potential concern.Slide8
Speakers:
Jason MinalgaManager, Regulatory AffairsInvenergy
312-582-1500
jminalga@invenergyllc.com
Consultants:
Tony Samuel
President
Samuel Solutions
317-403-2339
tsamuel@samuelsolutionsgroup.com
INDIANA POWER OF WIND COALITION
Questions/Follow Up