A Survey of the Generation Landscape

Transmission Summit 2016

ScottMadden recently joined industry leaders as a sponsor and presenter at Infocast’s 19th Annual Transmission Summit. Here, Todd Williams, partner and fossil practice co-leader at ScottMadden, reviewed the generation landscape and the impacts of the Clean Power Plan.

View Accessible Version

images.jpg

EIU Graphic Pull - Fall 2015 - p20.png EIU Graphic Pull - Fall 2015 - p20.png

Link to: mailto:xxx@scottmadden.com business card art.jpg

A Survey of the Generation Landscape

    • Transmission Summit 2016
    • March 2016

Agenda

    • Changing Generation Landscape
      Trend 1 Regulatory Reform
      Trend 2 Reserve Margins
      Trend 3 Generation Mix
      Trend 4 Grid Evolution
      Generation Impacts on Transmission

1


Trend 1 Regulatory Reform

  • The Clean Power Plan (CPP), coupled with several other ongoing regulatory and environmental initiatives, will have a profound impact on U.S. generation
  • Changing Generation Landscape

Trend 1 Regulatory Reform (Contd)

    • Changing Generation Landscape
  • Regulation
  • Sources: EPA, Economic Analysis for the Final Section 316(b) Existing Facilities Rule, May 2014
    The Brattle Group, Coal Plant Retirements and Market Impacts, February 2014
    EPA, Regulatory Impact Analysis (RIA) for the final Transport Rule, June 2011

Trend 1 Regulatory Reform (Contd)

    • Changing Generation Landscape
  • Regulation
  • Sources: ACCCE, Status of Major EPA Regulations Affecting Coal-fired Electricity Generation, January 2015

Trend 1 Regulatory Reform (Contd)

    • CPP Where are we today?
      Published in the Federal Registry October 2015
      Immediately followed by more than 20 states filing a petition for review with the U.S. Court of Appeals of D.C. (West Virginia et al. v. EPA et al.)
      U.S. Supreme Court stayed implementation of the CPP pending judicial review (02/29/2016)
      Prohibits the EPA from engaging in actions to implement or enforce the CPP
      Ongoing litigation, the U.S. Court of Appeals for the District of Columbia Circuit will hear arguments on June 2, 2016
    • Changing Generation Landscape

  • CPP Targets By State
  • The final rule demands more from high emitting states and focuses on greenhouse gas emitters who have done little to control their emissions to this point
  • Sources: EPA; ScottMadden analysis; Vox

    • CPP Performance Rates by Technology
    • Notes: Dotted lines show current technology emissions rates based upon illustrative configurations; *emissions based on net power; **CT without combined heat and power
      Sources: EENews; EPA; DOE Natl Energy Technology Laboratory; ScottMadden analysis
    • Final state goals lie between the fossil steam and combustion turbine (CT) technology targets
      Existing technology (supercritical and natural gas CT) emissions exceed targets
      All but the coal unit building block fall outside the fence line of a power plant and, critics say, outside of the EPA’s Clean Air Act authority to enforce
    • Range of State Final Goals
    • NG combustion turbine: ~1,110**
    • NG combined cycle: ~786*
    • Supercritical coal : ~1,705*

Trend 1 Regulatory Reform (Contd)

    • CPP Impacts on generation
      Acceleration of the ongoing transformation of the resource mix
      Coal plant retirements
      Increased reliance on gas-fired plants
      Impact on nuclear unclear
      Growth of renewables
      Coordination among utilities, ISO/RTOs, NERC, and other commodities
      Understand full impact of changes
      Identify options for ensuring long-term system reliability
    • Changing Generation Landscape
  • The Fossil Fleet

Trend 2 Declining Reserve Margins

    • 21 NERC Assessment Areas eight areas at risk of falling below reference margin levels by 2025
      Uncertainties will require more granular analysis to raise awareness of resource adequacy concerns
    • Changing Generation Landscape
  • Source: NERC, 2015 Long Term Reliability Assessment, released 12/15
  • Reserve margins continue to trend downward despite a decline in electricity demand

Trend 2 Declining Reserve Margins (Contd)

    • Example WECC-NWPP-CA
      Anticipated demand growth in the area is a major contributor to the reserve margin shortfall in this assessment area
      WECC-NWPP-CA will require an additional 2.4 GW of on-peak available resources by 2025 to cover the capacity shortfall and maintain their reference margin level
      Tier 2 and Tier 3 resources could be advanced to cover resource adequacy concerns
    • Changing Generation Landscape
  • Source: NERC, 2015 Long Term Reliability Assessment, Released 12/15
  • WECCNWPPCA Reserve Margins

Trend 3 Changing Generation Mix

  • What does the future look like?
    Coal replaced with natural gas, growth in renewables, and new technologies (storage, distributed generation, etc.)
  • Changing Generation Landscape
  • Source: EIA, Annual Energy Outlook 2015, Reference Case, released 04/15
    Note: The Reference Case does not include impact of the CPP

Coal
Significant coal plant retirements in the near future due to environmental regulation
Between 40 GW and 90 GW in the 2014-40 period (most by 2020)

    • Trend 3 Changing Generation Mix (Contd)
    • Changing Generation Landscape
  • Source: EIA, Preliminary Monthly Electric Generator Inventory (based on Form EIA-860M as a supplement to Form EIA-860)
  • -44 GW
  • -95 GW

Trend 3 Changing Generation Mix(Contd)

  • Natural Gas
    Will continue to replace coal-fired generation for base-load generation
    Low natural gas prices and regulation have fostered the change
    Issues to consider
    Adequacy of gas pipeline infrastructure, planning, and operational strategies to ensure fuel delivery
    Coordination with the electric infrastructure
    Prices are low today but will they stay low in the future?
    Is this a sustainable long-term solution?
  • Changing Generation Landscape
  • Source: EIA, Analysis of the Impacts of the Clean Power Plan, May 2015
  • +125 GW
  • Gas/Oil Generation Capacity

Trend 3 Changing Generation Mix(Contd)

  • Nuclear
    61 commercially operating nuclear plants with 99 reactors in 30 states
    2015 Capacity 100 GW
    Despite announced retirements, capacity is expected to growth by 3.4 GW by 2020
    All three announced retirements are single unit sites
    Other single unit sites at risk due to market conditions (low gas prices)
    Nuclear power plant construction cost estimates tend to be uncertain
    Cost overruns and delays account for up to 200% of initial estimates
  • Changing Generation Landscape
  • Source: EIA, Inventory of Operating Generators as of November 2015
  • Retirements

2017 James A. Fitzpatrick (851.8 MW)
2019 Pilgrim Nuclear Power Station
(677.6 MW)
2019 Oyster Creek Nuclear Generating
Station (609.9 MW)
Other?
Total: 2,139.3 MW

  • Planned Additions

2016 Watts Bar Nuclear Plant (1,150
MW)
2019 Vogtle (1,117 MW)
2019 V C Summer (1,117 MW)
2020 Vogtle (1,117 MW)
2020 V C Summer (1,117 MW)

Total: 5,618 MW


Trend 3 Changing Generation Mix(Contd)

  • Wind
    On December 18, 2015, the U.S. Congress extended the 2.3% Production Tax Credit (PTC) for wind through 2019
    Continued state Renewable Portfolio Standard (RPS) challenges
    Proximity of load to wind may require additional investment in transmission infrastructure
  • Changing Generation Landscape
  • Source: American Wind Energy Association, Fourth Quarter 2015 Market Report
  • Cumulative Capacity (MW)

Trend 3 Changing Generation Mix(Contd)

    • Changing Generation Landscape
  • Solar
    On December 18, 2015, the U.S. Congress extended the 30% Investment Tax Credit (ITC) for solar through 2021
    +25 GW of extra solar capacity (2016-2020) and $40B in incremental investment
    Solar prices will likely continue to decline although at a slower rate
    • Source: GTM Research, US Solar Market Insight Report 3Q 2015

Trend 4 Evolving Grid

    • Major Drivers
      New technologies, evolving resource mix, and market conditions changing energy delivery infrastructure
      Energy efficiency, demand response (DR), and demand side management programs (DSM) encourage conservation
      Deployment and integration of distributed energy resources (DERs) is a game-changer facilitated by:
      Regulatory policy and incentives
      Technology advancements
      Increased acceptance levels
      Technology forcing the need to manage both sides of the supply/demand equation
    • Changing Generation Landscape
  • Source: EIA, Form EIA-861, January 2016

+210%

  • Net Metered Customers

Trend 4 Evolving Grid (Contd)

    • Challenges
      Reliance on central station generation being called into question
      Regulatory models need to be reconsidered
      Accommodate new market entrants
      Address stranded investments
      Market operations are no longer one-way, centralized, and fully transparent
    • Changing Generation Landscape

Transmission Impacts

    • Generation Impacts on Transmission
  • Areas of Consideration
    Infrastructure upgrades or new transmission build to alleviate constraints or connect new supply
    Planning creativity in transmission modeling and planning to address uncertainty
    Operations adjustments to real-time operations to ensure reliability of the bulk electric system
    Commodities expanded collaboration and communication across commodities as dependence on natural gas grows
    Regulation rethinking of the traditional regulatory model to animate markets, accommodate new entrants, and address cost recovery
  • Evolving Utility Business Model
  • Impacts extend beyond transmission, and the traditional utility business model must evolve

Transmission Impacts (Contd)

    • Generation Impacts on Transmission
  • Remain active and a vocal industry advocate to preserve the integrity of a safe, reliable, and efficient transmission grid
  • Industry Response to Changing Generation Mix
  • Avoid the wait and see approach and continue pursuing alternatives given the lead time required to implement transmission solutions
  • Continue collaborating with neighboring utilities, regions, and commodities to understand outcomes and coordinated responses
  • Take a creative approach to planning, considering a range of scenarios and resulting impacts of potential regulatory or policy outcomes
  • Adopt technologies or enhanced operational practices to address system reliability challenges
  • A fundamental change in the electricity generation mix is occurring.
    It will transform grid level reliability, diversity, and flexibility.

Questions?

    • A Survey of the Generation Landscape

View More

Contributing Authors

Welcome to ScottMadden!

Sussex Economic Advisors is now part of ScottMadden. We invite you to learn more about our expanded firm. Please use the Contact Us form to request additional information.