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Power Advisory LLC 2016. All Rights Reserved.Power Advisory LLC 2016. All Rights Reserved.
www.poweradvisoryllc.com
Opportunities Offered by Northeast Electricity Markets for Canadian Wind Projects
October 2016
Prepared for CanWEA
Power Advisory LLC 2016. All Rights Reserved.
www.poweradvisoryllc.com
Content & Contact
• Executive Summary
• Introduction
• Market Basics: ISO-NE
• New England Renewable Energy Requirements
• Market Basics: NYISO
• New York Renewable Energy Requirements
• Economics of Wind in Atlantic Canada
• Ensuring Opportunities for Wind
2
Prepared for CanWEA
October 2016
John Dalton
978-369-2465
212 Thoreau Street
Concord, MA 01742
Power Advisory LLC 2016. All Rights Reserved. 3
• Power Advisory LLC (Power Advisory) is an electricity sector focused management consulting firm. We
specialize in electricity market analysis and strategy, power procurement, policy development, regulatory and
litigation support, market design, and project development and feasibility assessment, focusing on North
American electricity markets.
• Our clients include state, provincial and federal governments, public utility regulators, consumer advocates,
electricity generators (both renewable and conventional), investors, electricity transmission companies, and
electricity distribution companies.
• With offices in Toronto, Metropolitan Boston, and Calgary, a major area of focus is Canadian-US electricity
trade.
• Sample projects include:
• Advised the Massachusetts Clean Electricity Partnership, which included HQ Energy Services (U.S.) Inc., on the benefits of
proposed legislation to import 18.9 TWh per year of clean electricity into New England.
• Advised the Atlantic Canada Opportunities Agency on the opportunities offered by the U.S. Northeast for the export of
clean and renewable energy from Atlantic Canada.
• Advising Natural Resources Canada on its Regional Electricity Cooperation and Strategic Infrastructure Initiative, which is
focused on identifying the most promising regional electricity infrastructure projects with the potential to achieve significant
greenhouse gas reductions.
• Completed for Natural Resources Canada a comprehensive analysis of existing Renewable Portfolio Standard (RPS)
programs in the US and a broader continental RPS, which would encompass Canada and the US. The study modeled the
potential for increased renewable energy trade between the Atlantic and New England based on an assessment of which
renewable resources (Canadian hydro, Canadian wind or New England wind) would be able to most cost effectively satisfy
forecast RPS demand. After forecasting the relative cost of these resources, the study quantified the level of increases in
trade, the savings that would be generated and evaluated the proportion of US RPS demand that would be satisfied by
Canadian renewable energy exports.
Introducing Power Advisory
Power Advisory LLC 2016. All Rights Reserved.
Executive Summary
4
Power Advisory LLC 2016. All Rights Reserved. 5
• All six New England states have renewable portfolio standards (RPS). Renewable Energy Credits
(RECs) are used to ensure compliance with RPS. Class I RECs are among the most valuable and
wind generation from Quebec and the Maritimes is an eligible Class I resource in each New England
state.
• Of the New England states, only Vermont counts large-scale hydro as a Class I resource.*
• Many New England states require that Class I resources be located in adjacent control areas. This precludes
wind generation from Ontario participating.
• There are special requirements for resources that aren’t located in New England.
• The increase in Class I resource demand in New England from 2015 to 2025 is about 8.8 TWh,
representing about 2,500 MW of wind.
• Rhode Island extended the period over which its Class I RPS requirements increase to 2035 in the most
recent legislative session. The Massachusetts Legislature considered doubling the rate of increase in its Class
I RPS, but failed to do so. Some observers expect such action in the next legislative session.
• Satisfying this Class I demand is becoming increasingly difficult given the distance between
favorable locations for wind projects and Southern New England load centers and increasing
transmission congestion where wind projects are being developed.
• The New England states are pursuing alternatives to support the funding of required transmission projects to
deliver this renewable energy to Southern New England load centers. This will increase the cost of these
projects and help offset a disadvantage to Canadian clean energy resources.
Executive Summary
New England has significant requirements for additional clean energy
Power Advisory LLC 2016. All Rights Reserved. 6
• In addition, Massachusetts enacted legislation calling for 9.45 TWh per year of clean energy generation. Under this
legislation clean energy generation includes large scale hydro as well as Class I renewable resources.
• This 9.45 TWh of clean energy isn’t necessarily in addition to the 8.8 TWh of Class I resources given that any Class I resources
used to satisfy the clean energy mandate would also address Massachusetts Class I requirements.
• The greater value offered by the RECs produced by Class I renewable resources would be recognized, allowing for a higher price
for wind generation from Eastern Canada relative to large scale hydro.
• The legislation also specifies that preference will be given to proposals that combine new Class I renewable
portfolio eligible resources and firm hydroelectric generation. This suggests that adding wind generation to
hydroelectric generation will yield additional value beyond the value of the Class I RECs.
• Wind generation would offer additional value relative to hydro given the state’s requirements for an additional 4.4
TWh of Class I generation. The incremental value of Class I RECs amounts to about US$35 to US$50/MWh.
• Current Class I REC prices in New England range from $32 to $38/MWh, but are expected to increase with the loss of the
Production Tax Credit, which will increase the effective cost of wind generation, the predominant form of new Class I generation
in New England.
• In addition, the New England states as part of The Conference of New England Governors and Eastern Canadian
Premiers have agreed to cut CO2 emissions to as much as 45% below 1990 levels by 2030. This will require
additional volumes of clean energy, with the actual volume depending on electricity demand growth and the future
composition of electricity resources.
Executive Summary
Massachusetts recently increased its requirements for clean energy
Power Advisory LLC 2016. All Rights Reserved.
• New York’s State Energy Plan established a goal that 50% of the state’s electricity be
generated by renewable energy sources by 2030 (“50 by 30” goal)
• With renewables providing about 26% of the state’s existing electricity requirements,
this would require an increase in renewable energy of over 30 TWh by 2030.
• To achieve this aggressive target the state is pursuing a range of programs including:
• Creating a requirement for regular Renewable Energy Certificate (REC) procurements.
These are forecast to represent an incremental demand for RECs of over 7 TWh per year by
2021, the last year for which the Public Service Commission has established a target. With
increases beyond this in future years.
• The Public Service Commission is currently only proposing to procure RECs, developers will
have to bear the risks of the market price for energy or hedge this risk with a third-party.
7
Executive Summary
New York also has ambitious renewable energy goals
Power Advisory LLC 2016. All Rights Reserved.
• As shown the six New England states are forecast to have
a need for an additional 8.8 TWh per year of renewable
energy from 2015 to 2025.
• This is largely in addition to the 9.45 TWh per year of clean
energy that Massachusetts electric distribution companies
are mandated to procure under recent legislation.
• Class I resources that are used to satisfy the 9.45 TWh of
clean energy would also assist Massachusetts in realizing its
4.4 TWh Class I resource target. Therefore, the 9.45 TWh
and 8.8 TWh are not necessarily additive.
• New York has an incremental demand for Tier 1
resources of about 7.5 TWh per year by 2021 and 30
TWh per year by 2030.
• Tier 1 resources are required to have achieved commercial
operation after January 1, 2015.
8
Executive Summary
Both New England and New York have significant need for additional renewable resources
2017 to 2021 By 2030
New York 7.5 TWh 30 TWh
Incr. Tier 1 Demand
2015 to 2025 Incr.
State Class I Demand (TWh)
Connecticut 2.1
Maine 0.2
Massachusetts 4.4
New Hampshire 0.9
Rhode Island 1.0
Vermont 0.2
Total 8.8
Power Advisory LLC 2016. All Rights Reserved.
• As discussed, increasing requirements for clean energy in both New England and New
York are creating opportunities for wind projects in Quebec, Atlantic Canada and
Ontario.
• Wind projects in Quebec have ready access to either New England or New York given
Hydro-Quebec TransEnergie interconnections with both.
• Given transmission interconnections and tariffs, New England represents the primary
opportunity for wind projects in Atlantic Canada.
• Hydro-Quebec transmission tariff at $Cdn8/MWh is costly for Atlantic Canada projects wheeling
to New York.
• New York is an opportunity for wind projects in Ontario given the interties between
these two markets. New England REC requirements typically require that projects be in
adjacent control area, precluding Ontario wind from participating in the New England
REC market. Access to New England from Ontario is also adversely affected by the
relatively high cost of transmission access through Quebec and the difficulties of
wheeling through New York to access New England.
9
Executive Summary
The attractiveness of opportunities for US Northeast electricity markets vary by province
Power Advisory LLC 2016. All Rights Reserved.
Introduction
10
Power Advisory LLC 2016. All Rights Reserved.
• Power Advisory engaged by CanWEA to review opportunities offered by the US Northeast for Canadian wind projects
• We proposed to undertake a review of three primary issues• Review specific market opportunities in New England and
New York for Eastern Canadian wind projects
• Evaluate business case for wind project development in Eastern Canada for export into US Northeast
• Assess requirements for Eastern Canadian wind projects to participate in US Northeast electricity markets
• Identify approaches that could be used to allow Canadian wind projects to participate as consortium members with Canadian hydro suppliers and transmission project developers
11
Introduction
Overview of Scope of Project
Power Advisory LLC 2016. All Rights Reserved.
Market Basics: ISO-NEFactors Contributing to the Need for Additional Clean Energy
12
Power Advisory LLC 2016. All Rights Reserved.
• New England energy demand is forecasted to decline by 0.2%
annually, from 128,014 GWh in 2016 to 125,213 GWh in 2025.
• Peak demand is forecasted to grow 0.2% annually under normal
weather conditions
• Energy efficiency and distributed generation will flatten demand
and slow peak demand growth
• Without it, energy and peak demand growth rates would be 1.0% and
1.1% respectively
• The New England states have ambitious, well funded and highly rated
energy efficiency programs
• The penetration of rooftop solar is also reducing customer
requirements
13
Market Basics: ISO-NE
Demand forecast
Power Advisory LLC 2016. All Rights Reserved. 14
• Natural gas-fired generation
provided almost 50% of the
region’s total generation in
2015
• Nuclear generation provides
about 30% of total
generation and represents
the largest single source of
clean energy. However, it is
under increasing pressure
• Renewables (including
hydro) represent about 15%
• Oil and coal-fired generation
have declined significantly
and total about 6%
Market Basics: ISO-NE
New England’s electricity market is highly reliant on natural gas
Natural Gas, 49%
Nuclear, 30%
Coal, 4%
Oil, 2%
Hydro & Other Renewables, 15%Pumped Storage, 1%
2015 ISO-NE Resource Mix
Power Advisory LLC 2016. All Rights Reserved. 15
• Natural gas increased from 15% in 2000 to almost 50% in 2015
• 80% of capacity built since 1997 and more than 60% of new proposed generation (about
8,200 MW) relies on natural gas
• Natural-gas-fired generators set real-time electricity prices 75% of the time in 2015
• The modest increase in renewables is attributable to a decline in energy output of biomass
units from 2000 to 2014-15, which has been offset by increased production from wind,
solar and hydro resources
Market Basics: ISO-NE
Electricity market driven by natural gas
31%
22%18%
15%
7% 8%
34%
1%5%
44%
8% 9%
30%
2% 4%
49%
7% 9%
Nuclear Oil Coal Natural Gas Hydro Renewables
Percent of Total Electric Energy Production by Fuel Type
2000 2014 2015
Power Advisory LLC 2016. All Rights Reserved. 16
• Natural gas pipelines serving New England
are constrained throughout much of the
winter given increasing demands and
reduced supplies from Atlantic Canada.
• With limited pipeline capacity on cold winter
days gas-fired generators compete with local
gas distribution companies for natural gas
supplies. This can lead to very high prices.
• A major contributor to the inadequate
pipeline capacity is the unwillingness of
natural gas-fired generators to contract for
firm pipeline supplies.
• Recent reductions in oil prices have
moderated the impact of natural gas prices
on electricity prices in New England. Two
factors have contributed to this: (1) dual-
fuel units with oil burning capability are now
cost competitive when burning oil; and (2)
lower oil prices have also reduced prices in
the World LNG market, which has increased
LNG deliveries to New England and lowered
LNG prices.
Natural gas prices and wholesale electricity prices
are closely linked
Market Basics: ISO-NE
Natural gas contributes to electricity price volatility
Source: ISO-NE
Power Advisory LLC 2016. All Rights Reserved. 17
• During most of the winter, existing pipelines
in the New England region are running at or
near maximum capacity
• As natural gas demand approaches pipeline
capacity natural gas prices increase. As
natural gas prices increase oil-fired
resources are used to meet demand
• Over 30% of ISO-NE’s gas-fired capacity is
dual-fuel
• These conventional resources are older and
more expensive to run
• At lower natural gas prices, natural gas-fired
generation is typically cheaper than coal-
fired generation. New England’s coal-fired
units have higher coal costs given
transportation costs and environmental
requirements for low sulphur content.
• Switching to conventional fossil fuel
resources is problematic due to increasingly
stringent GHG emission requirements A comparison of the differences in fuel mix during an average day
and a cold winter day
Market Basics: ISO-NE
Natural gas infrastructure inadequacy affects the fuel mix
Source: ISO-NE
Power Advisory LLC 2016. All Rights Reserved. 18
• The figure to the right shows the
resulting increases in Algonquin basis
differential (the premium paid by
customers in New England) as pipeline
utilization increases.
• Proposals to expand pipeline capacity
to New England are receiving
increasing opposition.
• The Massachusetts State Supreme
Court voided a Mass Department of
Public Utilities decision that allowed
electric utilities to contract for
additional natural gas pipeline
capacity to lower electricity prices.
• Spectra Pipelines, Eversource and
National Grid had proposed the
Access Northeast pipeline expansion
project to provide an additional 9.25
MMcf/day of capacity.
Market Basics: ISO-NE
Natural gas pipeline constraints affect natural gas prices
Source: ICF
Algonquin Citygate Basis to Henry Hub
($/MMBtu) versus Pipeline Utilization Rates
Prices increase at higher pipeline utilization levels
Power Advisory LLC 2016. All Rights Reserved. 19
• Current low natural gas prices are
driving down wholesale electricity
prices, displacing higher cost non-
natural gas-fired resources
• Older less efficient plants are often
unable to recover the costs of
maintaining their plants and in some
instances can’t afford the costs of
environmental compliance
technologies necessary to meet new
environmental requirements
• More than 4,200 MW has or will be
retiring soon
• Another 6,000 MW is at risk
• ISO-NE estimates that about 30% of
the region’s generating capacity is at
risk of retiring by 2020
Most of the retiring capacity will be replaced by new natural gas
capacity, however, these non-gas resources are necessary
during the winter when gas resources are limited
Market Basics: ISO-NE
Non-gas capacity retirements are increasing, exacerbating natural gas constraints
Source: ISO-NE
Power Advisory LLC 2016. All Rights Reserved.
• The Vermont Yankee nuclear plant (620 MW) closed in 2014 and Pilgrim nuclear plant
(680 MW) is scheduled to close in 2019. These two units provided about 10 TWh of
carbon-free electricity and about 8% of New England’s total electricity requirements.
• The Massachusetts legislative requirement to procure 9.45 TWh per year of clean energy can be
viewed as a response to these closures.
• New England’s GHG emissions increased in 2015 for the first time in 5 years as a result of
the closure of Vermont Yankee. The loss of both nuclear units makes it more difficult for
the region to satisfy its Regional Greenhouse Gas Initiative (RGGI) emission reduction
targets.
• RGGI is a cooperative effort to cap and reduce CO2 emissions from the electricity sector.
Participating states use a cap and trade framework under which all large fossil-fueled
generators in the participating states have to hold allowances equal to their CO2
emissions over a three-year period. Allowances can be obtained through quarterly
auctions or offsetting CO2 emissions outside the electricity sector. The RGGI CO2 cap
declines 2.5 percent each year from 2015 to 2020.
20
Market Basics: ISO-NE
Low wholesale electricity prices contributing to nuclear unit closures
Power Advisory LLC 2016. All Rights Reserved. 21
Market Basics: ISO-NE
New England Energy Import Capability
New York - New England
[8 AC ties]: 1,400MW
Quebec-New England
(Highgate):
217 MW
Quebec-New England
(Phase II):
1,400 MW*
Cross-Sound Cable :
330 MW
Maritime - New England:
1,000 MW
*Capacity import capability
Source: Adapted from ISO-NE “Overview and Regional Update” 2015 Slide 6
Power Advisory LLC 2016. All Rights Reserved. 22
New England will continue to attract imports given the
availability of low variable cost energy in Eastern
Canada, primarily from Hydro-Quebec.
Market Basics: ISO-NE
Imports into New England
Source: ISO-NE
-5539
-10142
-12648
-18961-20696 -20997
-25000
-20000
-15000
-10000
-5000
0
5000
2010 2011 2012 2013 2014 2015
Net Flow over the External Ties (GWh)
Total New Brunswick Hydro-Quebec New York
Power Advisory LLC 2016. All Rights Reserved.
New England Renewable Requirements
23
Power Advisory LLC 2016. All Rights Reserved. 24
• Renewable Portfolio Standards (RPS) are
state-determined regulatory mandates that
require a minimum percentage of retail
customer electricity requirements to be
served using renewable energy
• RPS use Renewable Energy Credits (RECs) for
compliance
• Each REC is equivalent to 1MWh generated
from a renewable resource
• The highest value RECs (other than those for
solar PV) are Class I RECs
• The demand for Class I RECs is forecast to
grow by almost 9 TWH by 2025
• Satisfying this demand is becoming
increasingly difficult given the distance
between favorable locations for wind
projects (i.e., Maine) and Southern New
England load centers and increasing
transmission congestion where wind projects
are being developed.
• Permitting wind projects has always been
difficult in New England.
Of the New England states, only Vermont counts large-
scale hydroelectricity in its Class I RPS*
Renewable Energy Requirements
New England State RPS
-
5,000
10,000
15,000
20,000
25,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
State Class I REC Requirements (in GWh)
CT ME MA NH RI VT
* Connecticut allows large-scale hydro projects to satisfy its
Class I RPS targets if a shortage of Class I RECs is deemed
to exist.
Power Advisory LLC 2016. All Rights Reserved. 25
Renewable Energy Requirements
Class I Renewables vary by state
State Wind Solar Fuel CellsGeoth-
ermal
Landfill
Gas
Anaerobic
Digestion
Ocean
Thermal,
Wave,
Tidal
Small
Hydro
Large
HydroBiomass
Connecticut✓ ✓ ✓ ✓ ✓ ✓ ✓
Certain run-
of-the-riverX
Low
emission
Maine ✓ ✓ ✓ ✓ ✓ X ✓
< 100 MW,
fish passageX ✓
Massachusetts
(Built after
12/31/97) ✓ ✓Using
renewables✓ ✓ X ✓
New, <30
MW, meet
environmen
tal
regulations
XLow
emission
New
Hampshire
(Built after
1/1/06)
✓
If not
used
for
Class II
X
✓
Post
12/31/
12
✓X
✓
New
incremental
production
of existing
XLimited
Rhode Island
✓ ✓Using
renewables✓ X X ✓ <30 MW X Limited
Vermont✓ ✓ ✓ ✓ ✓ ✓ ✓ Certified ✓ ✓
Wind generation is a Class I resource in every New England state. However, there are specific requirements for
importing Class I RECs from other regions. (See p. 62);
Power Advisory LLC 2016. All Rights Reserved. 26
• Currently over 800 MW of wind capacity
and 4,200 MW of proposed wind
capacity
• Approximately 13,000 MW total
proposed generation in the ISO-NE
Generation Interconnection Queue
• Wind resources are far from demand
centers, therefore increased wind
generation will require significant
transmission upgrades
• ISO-NE market structure has required
that wind project developers pay for
most required transmission upgrades.
Difficult to get wind project developers
to band together to support such
upgrades
• Tri-State Clean Energy RFP provided a
mechanism to allow for the
consideration of necessary transmission
developments
Of the approximate 4,200 MW of proposed wind capacity in the
ISO-NE interconnection queue, about 3,600 MW is located in
Maine. However, Maine’s transmission system is increasingly
congested, and will require upgrades to accommodate this
additional wind generation.
Renewable Energy Requirements
Wind generation represents majority of new renewables in ISO-NE
64%
30%
6%
New England Proposed Generation
Natural Gas Wind Other
Power Advisory LLC 2016. All Rights Reserved. 27
• The Class I RPS
eligibility criteria are
shown in the table to
the right.
• Many states limit the
size of hydro projects
to no more than 30
MW.
• Hydro projects would
realize a higher
capacity value and
corresponding capacity
payments and those
with storage capability
can target output to
higher priced periods.
Renewable Energy Requirements
Large hydro doesn’t qualify as a Class I resource for most New England States
Power Advisory LLC 2016. All Rights Reserved.
• Passed MA Legislature July 31, 2016
• Calls for the procurement of 1.6 GW of offshore wind by 2027 and 9.45 TWh/year of clean energy
generation by 2022
• Clean energy generation includes:
• Firm service hydroelectric generation
• New Class I RPS eligible resources firmed up with firm service hydroelectric generation
• New Class I RPS eligible resources
• Competitive solicitation process to be used to select proposals. Allows multiple solicitations, but Power
Advisory expects state to issue one solicitation for clean energy generation to enhance competitive pressure
• The following criteria to be used when procuring clean energy:
• Enhance electricity reliability
• Help reduce winter electricity price spikes and guarantee energy delivery in the winter months
• Be cost effective to ratepayers, including economic & environmental benefits
• Mitigate transmission costs; any overruns are not borne by ratepayers
• Demonstrate project viability in a commercially reasonable timeframe
• Allow resources to be paired with energy storage systems
• Mitigate environmental impacts and promote economic development in Massachusetts, if possible
• The legislation also indicates that preference will be given to proposals that combine new Class I renewable
portfolio eligible resources and firm hydroelectric generation. This suggests that adding wind generation to
hydroelectric generation will yield additional value beyond the value of the Class I RECs.
28
Renewable Energy Requirements
Massachusetts Energy Bill
Power Advisory LLC 2016. All Rights Reserved.
Market Basics: NYISONYISO is responsible for administering the organized electricity
markets that operate in New York State
29
Power Advisory LLC 2016. All Rights Reserved. 30
• Electricity demand is forecasted to decline by 0.16% annually over the next decade due to energy efficiency and distributed energy resources
• Peak demand is forecasted to grow 0.21% annually
Market Basics: NYISO
Demand Forecast
Source: NYISO Power Trends 2016
Electric Energy Usage Trends in New York State: 2000-2026
Power Advisory LLC 2016. All Rights Reserved. 31
• Natural gas (including
dual fuel) make up
44% of the state’s
energy production
and 69% of the
downstate region’s
energy production
• Natural gas-fired
projects represent
about 65% of all
proposed generating
capacity in New York
Market Basics: NYISO
New York’s electricity market is also highly reliant on natural gas
Natural
Gas/ Oil,
37%
Nuclear,
31%
Coal, 1%
Oil, 1%
Hydro &
Other
Renewables,
24%
Natural Gas,
7%
2015 NYISO Resource Mix
Power Advisory LLC 2016. All Rights Reserved.
• Due to recent low natural gas prices, wholesales electricity prices hit a 15-year low in
2015
• About 2,300 MW of New York’s generation capacity is planning to retire or suspend operation
between 2016 and 2018. This includes 1,435 MW of nuclear capacity, which is located Upstate
• New York has developed a Clean Energy Standard to promote the development of additional clean
energy and to support the state’s nuclear generating units
• The electricity market’s ability to respond to these changes is hampered by transmission
constraints
• Increasingly stringent environmental quality goals, such as the Clean Energy Standard
and stayed federal Clean Power Plan, represent new challenges to existing generation
• NYISO estimates that 75 – 80% of the system’s generating capacity will be affected by new and
proposed environmental regulations including the Clean Power Plan and a diverse set of
environmental regulations such as control technology requirements for nitrogen oxides (NOx),
mercury from coal plant emissions, interstate transportation of air emissions
• The impacts of these requirements will vary and are likely to result in additional capital expenditures for
affected units and higher operating costs. These requirements aren’t likely to result in a significant
increase in renewables beyond that already called for.
32
Market Basics: NYISO
New York electricity market in flux given low wholesale electricity prices and resulting retirements
Power Advisory LLC 2016. All Rights Reserved.
• About 58% of the State’s electricity is used downstate (New York City, Long Island, Lower
Hudson Valley) while only 40% of the generating capacity is located downstate
• The disconnect between where generation and demand are located causes many existing transmission
facilities to be heavily loaded
• 80% of NYISO’s 11,124 miles of transmission lines went into service before 1980, meaning
about 4,700 miles will require replacement or upgrades within the next 30 years
• Increasing transmission capability across the state can also help enable clean energy
• All of New York’s existing and proposed wind projects and its major hydro resources are located far
from demand centers in the northern and western regions of the state
• The interties that Canadian resources access are also far from the high demand regions
• Transmission congestion in Western New York is contributed to by increasing imports from Ontario
• Several merchant transmission projects have been proposed to address transmission
constraints and develop additional clean energy downstate
• The Champlain Hudson Power Express is the most developed and has the vast majority of its required
permits. It has stalled given low natural gas prices which have depressed the price differentials that drive
such projects.
• Champlain Hudson Power Express is a high voltage direct current transmission that would deliver 1,000 MW into
New York metropolitan area from Quebec.
33
Market Basics: NYISO
Transmission is a challenge as well as an opportunity
Power Advisory LLC 2016. All Rights Reserved. 34
• All 6 of New York’s operating nuclear plants are facing financial– and some, regulatory– struggles
• The potential retirement of the two nuclear plants at Indian Point Energy Center are a particular reliability concern, as their
loss would require 500 MW of new capacity to be built in the demand-heavy region of Southeast New York
• Having passed their license expiration dates, the plants are currently operating under “timely renewal”, though due to numerous
safety and environmental concerns, license non-renewal is possible.
Market Basics: NYISO
Nuclear decommissioning in New York’s future
Plant Name Location Nameplate
Capacity
(MW)
Operating
License
Expiration
Notes
Indian Point, Unit 2 Buchanan NY 1,032 9/28/2013 Operating under “timely renewal”
until NRC makes final ruling on
license renewal application
Indian Point, Unit 3 Buchanan NY 1,051 12/12/2015 Same as Indian Point Unit 2
James A. FitzPatrick Scriba NY 838 10/17/2034 Was set to cease operation
January 2017, but sale to Exelon
appears to be moving forward.
However, sale depends on CES
being adopted and final terms
Nine Mile Point, Unit 1 Scriba NY 621 8/22/2029 Exelon Corp. has discussed
financial struggles, mentioning
need for support, though it has
not discussed early
decommissioning formally
Nine Mile Point, Unit 2 Scriba NY 1,140 10/31/2046 Same as Nine Mile Point Unit 1
R.E. Ginna Ontario NY 610 9/18/2029 Operating under reliability
support services agreement with
NY PSC, in effect until April 2017
Source: Information Digest 2015 – 2016, US Nuclear Regulatory Commission, Appendix A
New York State Nuclear Generation Plants
Power Advisory LLC 2016. All Rights Reserved.
New York State Renewable RequirementsThe Clean Energy Standard
35
Power Advisory LLC 2016. All Rights Reserved.
• Following the expiration of New York’s Renewable Portfolio Standard in 2015, the
Department of Public Service (DPS) was directed to develop a standard that
mandates the State Energy Plan (SEP) goal that 50% of the state’s electricity is
generated by renewable energy sources by 2030 (“50 by 30” goal)
• This is a strategy to reach the broader goal of reducing statewide greenhouse gas
emissions by 40% by 2030
• The Clean Energy Standard was adopted on August 1, 2016 with the following goals:
• Encourage consumer-initiated clean energy purchases or investments through program
and market structures
• Obligate load serving entities (LSEs) to financially support new renewable generation
resources to serve their retail customers
• Create a requirement for regular REC procurement solicitations
• Obligate distribution utilities on behalf of all retail customers to continue to financially
support the maintenance of certain existing at-risk small hydro, wind and biomass
generation facilities
• Obligate LSEs to financially support the preservation of existing zero-emissions at-risk
nuclear facilities to serve their retail customers
36
Clean Energy Standard
New York mandates ambitious renewable energy goals through the Clean Energy Standard (CES)
Power Advisory LLC 2016. All Rights Reserved.
• To fulfill this goal, it is estimated that New York will need to
increase energy from renewable resources by 33,700 GWh from
current levels
• NYISO equates this to about 25,000 MW of solar PV, 15,000 MW of wind,
or 4,000 MW of hydropower
• The Department of Public Service (DPS) Staff CES Cost Study,
released in May, found material internal transmission constraints
in Ontario and thus concluded that much of the supply from
northern and western Ontario, especially if located within or
blocked from getting through the Toronto area, was inaccessible
to New York without additional transmission capacity.
Furthermore, currently, all interties carrying energy from Quebec
to New York are fully utilized in most hours.
37
Clean Energy Standard
CES will require significant changes
Power Advisory LLC 2016. All Rights Reserved.
• The CES builds on the regulatory and retail market changes
that are already being pursued under the state’s Reforming
the Energy Vision (REV) initiative
• Through REV, New York has formed various initiatives that
work to reduce the soft costs and other market barriers facing
renewable energy, support energy efficiency in buildings, help
finance distributed energy, integrate advanced storage and
load control technologies into the electricity system and more.
• Whereas REV will continue to support distributed resources
and their integration into the grid, the CES will provide the
broader scale and certainty necessary to ensure that markets
are created that have the scale and scope necessary to
attract investment and reduces costs
38
Clean Energy Standard
The CES builds on existing initiatives
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• As a fully restructured state, New York has historically met
its clean energy goals through a system which treated the
compliance obligation as a delivery function of the
distribution utility with RECs centrally-procured for utilities
by NYSERDA under long-term contracts, intended to
provide greater certainty to generators and lower REC costs
for customers.
• The CES retains the benefit of New York’s unique central
procurement system but shifts the compliance obligation
from the distribution utility to the retail commodity supplier
LSE.
39
Clean Energy Standard
CES mechanisms
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Renewable Energy Standard
• Tier 1: New Renewable Resources
• Requires all LSEs to procure new renewable resources (with RECs as evidence) at
increasing rates (see Table A on following page)
• Specific goals are established for 2017 to 2021, with subsequent goals established in triennial reviews
• Table B on following page shows the projected statewide output from new
renewable resources due to these requirements
• LSEs can meet their obligations by purchasing RECs from NYSERDA, purchasing
qualified RECs from other sources or by making Alternative Compliance
Payments to NYSERDA
• Resources must have come into operation after Jan 1, 2015 in order to be eligible
• This order requires NYSERDA to conduct regularly scheduled solicitations for
long-term procurement of RECs to achieve the following minimum result (see
Table D on following page)
• Expected procurements of new large-scale renewable generation is approximately 1,869.4 GWh per
year, which is twice the level of RPS procurements during 2011 to 2015
• ZECs are discussed in a subsequent slide
40
Clean Energy Standard: Renewable Energy Standard
The CES is divided into a Renewable Energy Standard and a Zero-Emissions Credit (ZEC) requirement
Power Advisory LLC 2016. All Rights Reserved.
Renewable
Resource (MWhs)
% Renewable
Resources
Baseline 41,296,000 25.71%
2017 42,270,000 26.32%
2018 43,037,270 26.81%
2019 44,420,100 27.69%
2020 46,598,371 29.08%
2021 48,826,642 30.54%
41
Clean Energy Standard: Renewable Energy Standard
CES RES: Tier 1 tables
Year% of LSE
total load
2017 0.6%
2018 1.1%
2019 2.0%
2020 3.4%
2021 4.8%
Table A. Required Procurement
YearDistribution
Utilities & ESCOsLIPA NYPA
Direct
Customers
Statewide
Total
2017 705,595 120,244 139,225 8,936 974,000
2018 1,261,429 214,967 248,900 15,975 1,741,270
2019 2,263,192 385,682 446,563 28,662 3,124,100
2020 3,841,197 654,599 757,928 48,647 5,302,371
2021 5,455,424 929,688 1,076,440 69,090 7,530,642
Table B. Expected Statewide Yield (MWhs)
Table C. Expected Renewable Resources
YearAnticipated Procurement
Target (MWh)
Minimum Procurement
Target (MWh)
2017 1,966,449 1,769,804
2018 2,022,004 1,819,804
2019 2,077,560 1,869,804
2020 2,133,116 1,919,804
2021 2,188,671 1,969,804
Table D. Long-term Procurement of RECs
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• Staff had argued for the procurement of a
bundled (RECs and energy) product
• Commission determined that larger procurement
volumes and elimination of budget cap will attract
more developers, than past NYSERDA processes
• Ensuring success of REC-only procurement
• Effectiveness of REC-only procurement will be
evaluated in the triennial review
• Net effect is that renewable project developers must
manage energy price risks
42
Clean Energy Standard: Renewable Energy Standard
Fixed-price RECs will be procured consistent with past practice
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Renewable Energy Standard
• Tier 2: Maintenance
• Does not include the support payments for existing
renewable generation as recommended in the Staff White
Paper
• Noted that REC support payments in White Paper were either
premature, unnecessary, or already provided for under the current
maintenance program
• Consists of a maintenance program virtually identical to the
one that existed under the existing RPS
• Offshore Wind
• NYSERDA to identify appropriate mechanisms to achieve
goal of developing offshore wind
43
Clean Energy Standard: Renewable Energy Standard
CES RES: Tier 2
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• NYSERDA will offer qualifying nuclear facilities multi-year contracts for the
purchase of Zero-Emission Credits (ZECs)
• For contracts awarded prior to April 1, 2017, contract period will run until March 31,
2029
• ZEC: $17.48/ MWh for the first two year tranche (Tranche 1)
• Price adjusted every two years for Tranches 2 – 6, based on social cost of carbon and changes in Zone A
energy and capacity prices
• Each LSE serving end-use customers will be required, beginning April 1, 2017,
to purchase a number of ZECs relative to the portion of the electric energy
load served by the LSE
• Costs will be recovered from ratepayers through commodity charges
• The Order formally supports New York State’s upstate nuclear plants
• These upstate plants realize lower locational marginal prices than downstate nuclear
plants (e.g., Indian Point).
44
Clean Energy Standard: Zero-Emission Credits
CES Tier 3: Existing nuclear facilities
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• The NYS RPS program did not have geographic limitations until 2013 when the
PSC approved NYSERDA’s request that out-of-state resources could no longer be
considered for the main tier of the state RPS due to energy security issues and the
displacement of economic benefits.
• In the NY Department of Public Service (DPS) Staff White Paper on the CES, Staff
recommended that a geographic eligibility provision be added to the CES to
expand supply options to include out-of-state resources, which would enhance
competition and supply stability and reduce costs.
• Recommended that out-of-state generation be eligible if located in an adjacent control
area to the NYISO control area, and if generation is accompanied by documentation of
a contract path between the generator and the in-state purchaser, including
transmission rights
• Also requires delivery of the underlying energy for consumption in New York between
the generator and either the New York Spot Market administered by the NYISO or an
LSE in New York
• DPS staff noted that because the CES would apply to all LSEs, restricting LSEs to in-
state resources would conflict with the Commerce Clause of the Constitution.
45
Clean Energy Standard: Eligibility
CES: resource eligibility proposed rules
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• CES eligibility rules for Tier 1 mirror those currently used in the Main Tier of the RPS with the exception that 30 MW limit on low-impact run-of-river hydro facilities is eliminated • Large hydro is eligible, but only if it determined to be a
low-impact run-of-river facility and this requires that there be no new storage impoundments, which excludes most large hydro projects• Recall that Tier 1 resources also have a vintage requirement
that mandates new resources
• Eligible resources: biogas, biomass, liquid biofuels, fuel cells, hydro, solar, tidal/ocean, and wind
• However, no new storage impoundment will be permitted for any eligible hydro facility
46
Clean Energy Standard: Eligibility
CES: adopted resource eligibility
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DPS Staff’s proposed geographic eligibility was adopted, allowing
facilities located out-of-state in adjacent control areas to participate
in NY CES Tier 1 solicitations.
For imported electricity to be eligible, it must be demonstrated that
it was:
• Scheduled into a market administered by NYISO for end-use in NY
• Delivered through a wholesale meter under the control of a utility, public
authority or municipal electric company such that it can be measured and
such that consumption within NY can be tracked and verified
• Delivered through a facility dedicated generation meter approved by the DPS
or its designee, to a customer in NY whose electricity was obtained through
the NYISO system
• All costs associated with measurement, tracking and verification must be borne by
the facility owner47
Clean Energy Standard: Eligibility
Out-of-state resource participation adopted in the CES
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• May sell and transmit energy as it is generated into the spot market
of the control area of its location without simultaneous transmission
into the NY Control Area, as long as an equal quantity of energy is
transmitted out of the affected spot market into the NY Control Area
for end-use during the same hour as the renewable generation is
produced.
• Contractual deliveries for out-of-state resources much be recognized
in each hour as the lesser of actual hourly metered energy production
by the renewable generator, or actual hourly energy delivered to the
electric energy purchaser in the NY Control Area for end-use.
• If the control area of origin has an attributes accounting and tracking
system or an environmental disclosure program, it is required that
such programs recognize hourly matched transactions without
double counting the attributes in any jurisdiction.
48
Clean Energy Standard: Eligibility
Specifications for out-of-state intermittent renewable generators that participate in CES Tier 1 solicitations
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• Given existing transmission tariffs, most renewable generation from Atlantic
Canada is unlikely to be cost-effective in New York or alternatively New York
would be viewed as a less attractive market
• Commission indicated that evaluation framework to be based on price and
economic development unless this shown to be ineffective
• This could disadvantage Canadian wind projects given their economic development
benefits will be lower than those for New York projects
• Commission indicated that the following additional factors will be considered:
• Viability of the project;
• Time frame for bid acceptance to operation;
• Diversity of resources of the overall portfolio;
• Diversity of owners [not further defined];
• Alignment with REV goals specified in procurement solicitations;
• Project developer experience; and
• Non-cost economic benefits.
49
Clean Energy Standard: Renewable Energy Standard
Eligibility requirements preclude renewable generation from Atlantic Canada
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Economics of Wind in Quebec and Atlantic CanadaAbility of Wind from Quebec and Atlantic Canada to compete in US
Northeast
50
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• Used US Energy Information Administration’s Assumptions to the
Annual Energy Outlook as the source for wind project capital and fixed
O&M costs
• Adjusted these to reflect expected cost differences in the US Northeast and Eastern
Canada
• These included regional cost differences (e.g., higher construction costs in New England
given project siting on ridge tops) and foreign exchange (Fx) effects
• Analysis assumed that significant portion of Canadian projects wouldn’t be affected by Fx,
with manufacturing infrastructure located in Canada
• Provincial cost differences were viewed as relatively minor and beyond the scope of
this analysis
• Analysis also accounted for differences in expected capacity factors in
these two regions
• Eastern Canada was viewed as offering higher capacity factors than the US Northeast
• Here as well differences in provincial wind regimes weren’t considered
• These assumptions are shown on a subsequent page
51
Economics
Similar underlying assumptions used for US and Canadian wind costs
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• US wind projects have benefited from the US Production Tax Credit (PTC)
• A 2.3 cent/kWh tax credit that was paid for all output over the first 10 years of a project’s life.
• The PTC is scheduled to be phased out by 2020.
• However, by expending 5% of a projects costs in a year a developer is able to claim that it began construction in
that year. This “continuity safe harbor” provision allows a developer to extend the benefits of the PTC for up to
four years assuming that the developer is able to demonstrate that it has made continuous progress towards
completion.
• This raises a question as to whether developers will share this benefit with buyers by reflecting it in its offered
pricing or whether they will elect to retain the benefit in terms of a higher return. We expect that market
dynamics will determine the answer to this question and where there are believed to be fewer competitors that
have this benefit the seller will seek to retain this benefit for itself.
• If this occurs Canadian wind will be on a much more level playing field.
• The PTC is scheduled to drop to 80% by 2017, 60% by 2018 and 40% by 2019.
• Projects are required to initiate construction by the end of the year to lock in the respective PTC rate. The
threshold for initiating construction is relatively low and includes incurring 5% of eligible project costs by the
deadline.
• Proponents then have four years to complete construction.
52
Economics
Historically, US wind projects had a competitive advantage from the PTC
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• Costs shown are central case estimates
• +/- 15% reflects the high/low estimates
• Northeast US project busbar cost estimates assume expiration of the PTC
• The generation produced by Canadian projects must be delivered to the US
for it to compete
• The costs associated with delivering this energy must be considered
When Canadian wind project costs converted to
US$ - $60.9/MWh
Economics
The busbar costs of Canadian wind projects are projected to be lower than US projects
Source Data
2013 US$/kW
NE US Projects
2020 US$/kW
CAN Projects
2020 CAD$/kW
Capital Costs
($/kW)$1,980 $2,359 $2,504
Fixed O&M Costs
($/kW-year)$39.53 $45.41 $47.68
Capacity Factor (%) 38% 40%
Busbar Cost
($/MWh)$83.9 $76.1
Power Advisory LLC 2016. All Rights Reserved. 54
• The transmission charges that would
be incurred in each Province are
shown to the right
• In addition, losses are assigned
according to the loss factors shown
• In Ontario, losses vary by location
• Provinces that aren’t directly
interconnected to the US Northeast
need to pay multiple transmission
charges, one for each province they
wheel through this is shown in terms
of the Cumulative Transmission
Charges
• Even with these additional
transmission charges, wind generation
from Quebec and Atlantic Canada
appears to be competitive with wind
generation from the US Northeast
Economics
Canadian wind generation must incur transmission costs for Northeast
Cumulative Transmission Charges*
Provincial Transmission Charges
These transmission costs reduce the
competitive advantage offered by Canadian
wind generation
$/MWh Losses
New Brunswick $5.18 3.3%
PEI $5.19 2.8%
Nova Scotia $8.55 2.0%
Quebec $8.20 5.4%
Ontario $1.85 Vary
$/MWh Losses
PEI $10.36 6.0%
Nova Scotia $13.73 5.2%
* Cumulative Transmission Charges reflect
the addition of PEI and Nova Scotia
charges, respectively with New Brunswick
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• As discussed above, in New England wind generation is clustered in Maine and this
is leading to increasing levels of transmission congestion.
• Transmission congestion reduces the value of this wind generation from Maine as it has a
reduced locational value (Locational Marginal Price)
• Therefore, increasingly new wind projects require transmission investment to
deliver the energy to Southern New England load centres
• The Tri-State Clean Energy RFP issued by Massachusetts, Connecticut and Rhode
Island recognized this and allowed new transmission investments to be bundled
with generation as well as to be considered separately.
• A number of transmission projects were submitted in response to the Tri-State RFP.
Power Advisory expects that one or more of these transmission projects to be
successful.
• These different projects are forecast to have significantly different costs and to
deliver different types of energy.
• With the economic assessment considering the underlying value of energy delivered,
higher cost projects may be more cost-effective.
55
Economics
Northeast wind projects experiencing increasing transmission costs
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• $/MWh costs are Power Advisory estimate of the capital costs for the project amortized over the generation that would be utilizing the
transmission facility.
• Higher cost projects that deliver lower cost or higher value energy may be successful in the Tri-State RFP.
• In general, transmission projects that would be delivering wind generation offer the higher value of Class I RECs.
• Whereas, a project such as Northern Pass is likely to offer access to energy that would receive the ISO-NE market price. Specifically,
Northern Pass participated in the Tri-State RFP as a delivery commitment project where the proponent was just seeking cost recovery for
transmissions based on the total amount of clean energy delivered. There would be no commitment to purchase a fixed quantity of
energy.
• Recall that Class I REC requirements for New England are forecast to increase by about 8 TWh from 2016 to 2025.
Economics
The estimated costs of different transmission projects vary significantly
ProjectLength
(miles)
Transfer
CapabilityTWh Generation $/MWh
Clean Energy Connect 25 600 2.1 Wind & Hydro $3
Maine Clean Power Connection 66 550 1.9 Wind $5
Maine Renewable Energy Interconnect 150 1200 4.1 Wind $11
NextEra Maine 114 561 1.8 Wind, Solar & Battery $12
Northern Pass 192 1090 8.8 Hydro $19
Vermont Greenline 60 400 3.2 Wind & Hydro $20
Power Advisory LLC 2016. All Rights Reserved. 57
• Pricing for Class I RECs is shown in the figure to
the right.
• Economic theory suggests that the value of Class I
RECs will be determined by the incremental cost of
the marginal renewable resource. If a wind project
in New England costs $90/MWh ($84/MWh busbar
cost plus $6/MWh for transmission) and the value
of energy in New England is $44/MWh in 2020,
then the value of a Class I REC would be about
$46/MWh before consideration of any discounts
for a long-term contract.
• Current Class I REC prices range from about $32 to
$38/MWh. We expect that the loss of the PTC will
result in increases in Class I REC prices in New
England.
• Current forward contracts for 2020 for the ISO-NE
Mass Hub are about $44/MWh and $53/MWh for
2025.
• This analysis assumes no capacity value taken for
wind given ISO-NE pay-for-performance program.
• States have Alternative Compliance Payments,
which represent the ceiling price for a Class I REC.
These alternative compliance payments generally
escalate with inflation and for Massachusetts are
about $64/MWh.
Economics
The value of Class I RECs varies depending on market conditions
New England Class I REC Prices
Source: US Department of Energy
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• Renewable Portfolio Standards (RPS) are product of legislation and state
regulations. Therefore, there’s considerable change-in-law risks associated
with these RPS.
• For example, Connecticut has changed the definition of qualifying Class I resources
several times and this has affected the price of Class I RECs in Connecticut.
• The net result is that there’s limited trading of Class RECs several years
before the compliance year. This has required that sellers have long-term
contracts to secure reasonable value for Class I RECs.
• The market value of RECs several years before the compliance year is typically at a
considerable discount to nearer term market prices reflecting these change-in-law
risks.
• Requirements for such long-term contracting are generally established
legislatively and these requirements are considerably less than the total
Class I resource requirements of these states.
• Tri-State RFP could consume much of the legislative mandates for long-term
contracts, other than required by the recent Massachusetts legislation.
58
Economics
There is little long-term forward market liquidity for Class I RECs
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• For example, Massachusetts has mandated the purchase of 9.45
TWh per year of clean energy and large Canadian hydroelectric
projects would qualify for such purchases.
• Absent this purchase requirement, the value of Canadian hydroelectric power
would be the value of the energy plus its capacity value.
• Using current ISO-NE futures prices this would represent about US$54/MWh
in 2020 and about US$65/MWh in 2025.
• In 2020 baseload energy at the Mass Hub has a value of about $43.8/MWh (based on current
futures prices) and capacity about $10.5/MWh (assuming once again a baseload output profile).
• Large Canadian hydroelectric projects don’t qualify for Class I
RECs. However, as non-carbon emitting resources they can assist
states achieve any potential Clean Power Plan emission reduction
obligations.
59
Economics
The value of Canadian hydroelectric projects varies by state
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• The incremental value of Class I renewable resources (or the value
of Class I RECs) versus differences in the output profile of the two
resources and the greater capacity value of hydroelectric output.
• There could also be an integration costs associated with wind (excluding
transmission costs which would be incurred by both resource types).
• For the purposes of this assessment we are assuming that hydroelectric
output is delivered around-the-clock.
• Differences in the value of the wind output relative to hydro vary
by market. For the purposes of this comparison, we believe it is
reasonable to assume that the discount associated with wind
output value relative to hydroelectric power is close to the
capacity value of wind resources.
• Therefore, one can assume that any discount in the energy value
of wind from a higher proportion of output in off-peak periods is
offset by wind’s capacity value.
• This is an approximation, but is reasonable in most electricity markets.
60
Economics
Incremental value of wind generation relative to Canadian hydroelectric projects needs to consider
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• This suggests that the difference in value for wind versus baseload
hydro is largely reflected by the value of the Class I RECs
associated with the wind resource. The value of Class I RECs vary
depending on market conditions. When there is a shortage or
Class I RECs they tend to trade just below the Alternative
Compliance Payment (ACP) which in Massachusetts, Rhode Island
and New Hampshire is about $67/MWh.
• In a market where sufficient renewable energy can be built to
meet RPS requirements, economic theory suggests that the
pricing for RECs should be about $36 to $46/MWh, with the low-
end of the range assuming a discount of about $10/MWh to
secure a long-term REC contract or using the low end of the range
for wind project costs.
61
Economics
Incremental value of wind generation relative to Canadian hydroelectric projects needs to consider
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• Class I renewables in adjacent control areas are eligible if the energy is
delivered into ISO-NE with associated transmission rights and NEPOOL
GIS verification. Energy must be delivered simultaneously as the RECs.
• In addition, the following documentation is required:
(1) a unit-specific bilateral contract or equivalent legally enforceable obligation for
delivery of energy to the New England control area;
(2) associated transmission rights for the delivery of energy from the generation
unit through the control area to the New England control area;
(3) showing that the associated energy was settled in the ISO-NE wholesale market;
(4) showing that the generator produced during each hour of the month the
amount of MWh claimed as verified by the ISO-NE GIS administrator; and
(5) confirming NERC tags from the originating control area to the New England
control area.
62
Economics
New England RPS requirements can be met by generation from adjacent control areas
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Ensuring Opportunities for Canadian Wind in Export Projects
63
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• As discussed, increasing requirements for clean energy in both New
England and New York are creating opportunities for wind projects in
Atlantic Canada, Quebec and Ontario.
• Given transmission interconnections and tariffs, New England represents
the primary opportunity for wind projects in Atlantic Canada.
• Hydro-Quebec transmission tariff at Cdn$8/MWh costly for Atlantic Canada
projects wheeling to New York
• Wind projects in Quebec have ready access to either New England or New
York given Hydro-Quebec TransEnergie interconnections with both.
• New York is a better opportunity for wind projects in Ontario for two
reasons: (1) it is directly interconnected with Ontario; and (2) access to
New England requires that power be wheeled through New York or
Quebec and the cost of transmission access through Quebec is relatively
high and it is difficult to wheel through New York to access New England.
64
Ensuring Opportunities for Wind
Northeast electricity markets represent attractive opportunity for Canadian wind
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• The recently enacted Massachusetts Energy Bill calls for a competitive procurement, with the long-term
contracts that result subject to approval of the Massachusetts Department of Public Utilities.
• The recent Tri-State Clean Energy RFP (Tri-State RFP) is one model for such a competitive procurement.
This RFP was issued jointly by the electric distribution companies (EDCs) and/or state energy agencies
in Massachusetts, Connecticut, and Rhode Island.
• This RFP was similar in form to past RFPs that have been issued jointly by the Massachusetts Department of
Energy Resources and the various Massachusetts EDCs.
• The Tri-State RFP called for proposals for: (1) clean energy and/or RECs; (2) clean energy and/or RECs via a PPA with a transmission project; and (3) clean energy via transmission project with a clean energy delivery commitment.
• Clean energy was defined as: (1) Class I renewable energy facility as defined by the three procuring states, or (2)
energy produced by a Class I renewable energy facility except that the facility is located in a non-contiguous
control area, or (iii) energy produced by a hydro resource, with the requirements for these hydro resources
varying by state.
• The clean energy delivery commitment model was an innovation, which provided cost recovery for a transmission
project based on the volume of clean energy that would be delivered. This effectively unbundled transmission
from clean energy and put the risk of the volumes of clean energy delivered on the transmission asset owner who
presumably could secure commitments to use its facilities from clean energy developers.
65
Ensuring Opportunities for Wind
The form of opportunities in New England are likely to be based on competitive procurements
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• This quantitative and qualitative evaluation process is reviewed to provide
insights regarding future RFPs and assist in identifying issues that
prospective hydro and transmission developers will be interested in when
assessing wind project developers as prospective partners.
• A 100 point scale was used to evaluate proposals, with 75 points for the
quantitative evaluation and 25 points for the qualitative evaluation.
• The quantitative evaluation is to be based on: (1) indirect economic benefits; and (2) direct contract benefits.
• Indirect economic benefits are assessed in terms of reduction in locational marginal prices and production cost savings using a market simulation model.
• Direct contract benefits are based on the purchase price of clean energy and/or RECs including any transmission costs relative to the projected market prices at the delivery point.
• The metric used for ranking bids is the benefit to cost ratios of projects, based on the combination of direct and indirect benefits divided by the payments required by the project.
66
Ensuring Opportunities for Wind
Tri-State RFP using quantitative and qualitative evaluation to select proposal
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• Project Viability:
• Project team financing experience
• Project Financial Viability
• Need for and likelihood of subsidies
• Completeness & credibility of critical path schedule
• Credibility of any fuel resource plans or energy resource plans
• Reliability of proposed technology
• Commercial access to proposed technology
• Experience and capability of the Bidder and Project team
• Project Feasibility
• Status of permits and credibility of plan to obtain approvals
• Demonstrated progress in the interconnection process
• Identification of required permits and approvals
• Extent to which site or route control has been achieved, including acquisition of necessary easements or rights-of-way
• Community relations plan and status
• Conformance with FERC’s applicable regulatory requirements
• Project development status and operational viability
• Ability to meet scheduled construction start date and commercial operation date
• Progress in interconnection process
• Extent to which the price offered is firm
67
Ensuring Opportunities for Wind
Qualitative evaluation considerations in Tri-State RFP include:
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• In particular, it stipulates that the Massachusetts Department of
Energy Resources “shall give preference to proposals that
combine new Class I renewable portfolio eligible resources and
firm hydroelectric generation and demonstrate a benefit to low-
income ratepayers in the commonwealth without adding cost to
the Project”
• This clearly suggests that adding Class I resources to clean energy
from hydroelectric projects can enhance the attractiveness of
proposals.
• Furthermore, the quantitative economic evaluation framework used in
the Tri-State RFP would consider the incremental value of Class I RECs
in the direct contract benefits assessment.
• This is additional value offered by wind projects that isn’t available to large
hydro.
68
Ensuring Opportunities for Wind
Massachusetts Energy Bill has some unique provisions
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• Wind project developers must determine how to establish partnerships
with hydro and transmission developers. As discussed, we believe that
there’s a strong business case for including wind generation in their
project given the incremental value of Class I RECs.
• The strategy for managing these relationships and engaging hydro
developers is likely to vary by province. We expect that CanWEA and its
members have better understanding of how to secure partnerships with
these hydro developers than Power Advisory. However, one possible
strategy is to demonstrate to the Provincial governments the broader
benefits offered to the province from including wind generation.
• These broader benefits include:
(1) enhanced competitiveness of the proposal by including wind generation as a
Class I renewable resource.
(2) Diffusion of benefits (including construction, operations and lease payments)
across the province by including areas with attractive wind regimes.
69
Ensuring Opportunities for Wind
Major challenge is that hydro and transmission developers in strong position
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• We expect that there will be a strong desire to ensure that any partnership is under the
most favourable terms to the hydro developer. In particular, we expect that hydro
developers will be interested in partnering with wind project developers that offer low
prices and are reasonably mature.
• Such projects are likely to increase the relative attractiveness of the proposal in which the wind
project developers will be participating.
• Using a competitive procurement framework to select developers that was patterned
after the anticipated form of the Massachusetts RFP is one strategy that could be used
to select wind project developers.
• One challenge to such a process is timing, in particular the limited time available to assemble
teams.
• The hydro developers would need to act quickly to identify partners given the timing of the
Massachusetts RFP as well as to sort through the various commercial issues with the wind
project developers.
• Nonetheless, Power Advisory believes that timing need not be a barrier to using such a process.
70
Ensuring Opportunities for Wind
Major challenge is that hydro and transmission developers in strong position
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• We believe that the most obvious relationships are with the
hydro developers given that would be a need for close
coordination between the two parties to ensure that the
transmission facilities are efficiently utilized.
• The obvious candidates for such partnerships are Hydro-
Quebec Production; Nalcor; NB Power; and Brookfield
Renewable Energy.
• One strategy to attempt to ensure equitable treatment
would be to secure support from the provincial
governments for fair and equitable access to such
opportunities.
71
Ensuring Opportunities for Wind
Hydro developers are the critical partners for wind project developers