Generation and Transmission Resource Cost Update 2019 Prepared for - - PowerPoint PPT Presentation

Prepared for WECC

May 15, 2019

Generation and Transmission Resource Cost Update 2019

 Background, approach, and sources  Transmission resource capital cost update

• B&V cost framework and recent inflation metrics

– Benchmarking vs. estimated Tx project costs

 Generation resource capital cost update

• In-depth review of resources with rapidly declining costs:

– Comparison of costs across public sources for solar PV, wind, Li-ion battery storage – Benchmarking vs. recent public PPA prices and RFP bids

• Recommended cost updates for all other resources and comparison vs. prior cost

reports for WECC

 Next steps

• Updates to FO&M and financing cost assumptions
• Levelized cost modeling with state-by-state adjustments (WECC Cost Calculator)

Contents

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Background

 In 2009, E3 provided WECC with recommendations for capital costs of new electric generation technologies to use in its 10-year study cycles

• Prior to this effort, the relative costs of WECC’s study cases could only be

compared on a variable-cost basis

• This effort allowed WECC to quantify relative scenario costs on a basis reflecting

their actual prospective costs to ratepayers by combining variable and fixed costs

 E3 has updated these capital cost assumptions several times to capture major changes in technology costs (e.g. solar PV) and ensure continued accuracy  Most recent update: 2016/2017

Total Cost Fuel and Variable Costs

= +

Fixed Cost

(E3 Capital Cost Tool)

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Approach

 In preparation for its upcoming 20-year study plan, WECC has asked E3 to provide guidance on resource cost to use in that study  These capital costs will serve as an input to the 20-year study’s LTPT, allowing for the development of robust scenarios through cost minimization

• Capital costs will serve as inputs to pro forma model (“Capital Cost Calculator”) that applies

standard lifetime, financing, and O&M assumptions to calculate levelized costs of each resource

 This efforts builds on similar work performed in late 2016–early 2017 INPUTS MODELS STUDY RESULTS 20-Year Study

Twenty-Year Capital Expansion Plan

Generation Portfolio Transmission Topology Gen Capital Costs Tx Capital Costs

Long-Term Planning Tools

(Capital Expansion Optimization)

SCDT NXT Other Constraints

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 Resource costs are typically quoted in either upfront capital costs ($/kW) or levelized costs ($/MWh) that are indicative of likely PPA prices for renewables  Levelized costs include several other cost factors and assumptions beyond the project’s upfront capital cost

• Financing costs: cost of capital, financing lifetime, tax rates and incentives
• Operating costs: fixed and variable O&M of plant operations (“opex”), including fuel
• Performance assumptions: amount of energy generation over which fixed costs are spread, i.e.

average capacity factor, is a major driver of LCOE

 In this research phase, E3 has focused on capital costs, which are more comparable across data sources and suitable for benchmarking

Capital costs versus levelized costs

Capital costs Operating costs Financing costs Pro forma financial model for project cash flows Levelized costs Performance

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 Resource costs vary significantly from project to project due to a variety of local and project- specific factors

• Local climate: wind speed, solar irradiance, temperature
• Local terrain: greenfield vs. brownfield, flat vs. hilly,

forested vs. desert

• Local development costs: labor, permitting, taxes,

interconnection

• Project-specific: offtaker risk and financing costs,

developer economies of scale, etc.

 These factors explain the wide range of reported costs that E3 has observed  In this initial capital cost report, E3 has identified a reference cost for each technology associated with an average project in WECC

• The next phase of work will identify how local cost

factors can be generalized a state-by-state basis

Defining a capital cost reference point

Average Wind Speed Forest Cover High-Voltage Transmission

Sources of resource cost data

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 NREL

• Annual Technology Baseline 2018
• US Solar PV System Cost. Benchmark:

Q1 2018

• 2017 Cost of Wind Energy Review
• 2018 US Utility-Scale PV Plus-Energy

Storage System Costs Benchmark

 LBNL

• Tracking the Sun 2018
• 2017 Wind Technologies Market Report

 Lazard

• Levelized Cost of Energy Analysis v12.0
• Levelized Cost of Storage Analysis v4.0

 IRENA

• Renewable Power Generation Costs in

2017

• Electricity Storage Costs in 2017

 APS – 2017 IRP  Avista – 2017 IRP  Idaho Power Company – 2017 IRP  Pacificorp – 2017 IRP Update  Puget Sound Energy – 2017 IRP

E3 forms its capital cost estimates by reviewing a wide range of public sources including national lab studies, industry analyst reports, and IRPs from utilities within WECC, including:

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 After reviewing public sources of resource cost data, E3 benchmarks reported capital costs versus recent project prices to ensure its assumptions reflect the latest market trends

• Public sources often rely on historical data 1-3 years old and may be outdated by

the time they are published

• Market prices reflect actual transactable costs for new or future projects

 PPA benchmarking was performed for resources with greatest cost uncertainty due to rapid cost declines: solar, wind, and battery storage  Because PPA prices are quoted as levelized costs, E3 has calculated the implied capital costs from different PPA prices using standard opex and financing assumptions  For solar and wind, benchmarking is straightforward, as capital costs are the primary driver of total levelized costs (O&M costs are minimal)

• Capital and financing is approximately 70% of wind cost and 90% of solar cost

 Storage costs are more comparable on a levelized fixed-cost basis for several reasons, thus are benchmarked to PPAs by that metric

Cost benchmarking vs. recent PPAs

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 For consistency, all cost data points are reported in real 2018$ and indexed to year of commercial operation date as best possible

• National lab and industry analyst reports are mix of retrospective and prospective
• IRPs and PPAs quote cost for near-term procurement, COD 1-2 years in future

 Past E3 cost studies have used learning curve methodology to estimate future cost declines for renewable technologies

• Learning curve approach is suitable for macro analysis of technology costs driven

by single component (e.g. PV modules), but difficult to apply to soft costs and

• ther factors (global supply chain and policy incentives)

 E3 proposes using NREL ATB’s low, mid, and constant forecast scenarios as sensitivities in place of single cost forecast in this study

Cost vintaging and forecast methodology

IRPs 2018 2040 2020 2016 NREL PPAs

Market price Historical price Forecast price

Transmission Resource Cost Update

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 Build off existing B&V TEPPC cost calculator while benchmarking vs. external sources

• 2014 Transmission Capacity Cost Calculator spreadsheet and report
• Maintain same cost factors for terrain, technology types
• Check inputs/outputs vs. RETI and other public Tx planning sources

 Update 2014 costs to revised 2018 figures using following inputs:

• Inflation multipliers on commodity prices of raw materials and industrial

construction costs: Bureau of Labor Statistics (BLS)

• CPI inflation for generic project admin costs: BLS
• Right of way costs per acre: Bureau of Land Management (BLM) Linear Right of

Way Schedule

 Check cost assumptions vs. other public studies, planning reports, and new or proposed transmission projects

Transmission cost update approach

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 The BLM publishes zonal schedules of ROW rent and corresponding annual adjustments

• Released once every 10 years
• Latest update was released in 2016
• Zonal designations across the U.S.

are made on a county level basis based on census data and can change with each release

 B&V Transmission Cost Calculator has been updated with the 2018 rent schedule

BLM Right-of-Way (ROW) cost updates

BLM Zone Land Costs BLM Zone Number 2015 Per Acre Rent ($/acre-year) 2018 Per Acre Rent ($/acre-year) % Change 1 9 8

• 3%

2 17 16

• 6%

3 34 32

• 8%

4 52 48

• 8%

5 69 66

• 4%

6 103 95

• 8%

7 172 133

• 23%

8 345 85

• 75%

9 690 457

• 34%

10 1,035 1,402 36% 11 1,724 2,805 63% 12 3,449 7,011 103% 13 14,023 14 21,034 15 28,045

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 Black & Veatch estimated generic inflators for Tx and substation costs of 1.5% from 2012 to 2013 and 2.0% from 2013 to 2014  E3 used inflation data for the primary components of Tx capital costs (materials, labor, and general overhead) to update calculator for 2018

• Refined update for full 2012 to 2018 period, including re-estimate of 2012 to 2014

 Approach increases transmission resource costs by 10.5% in nominal terms since 2012, equivalent to 1.7% annual inflation

• Real cost increase of 1.3% above US-CPI inflation from 2012 to 2018

Inflation updates to B&V Tx costs

Tx Cost Component Weighting 2012-2018 inflation 2012-2018 CAGR Sources Materials 50% 5.6% 0.9% BLS Metals PPI, FRED Aluminum and Steel Labor 35% 16.3% 2.6% BLS PPI Construction-Industrial General 15% 13.3% 2.1% BLS CPI-West Total 100% 10.5% 1.7%

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Inflation indices underlying forecasts show relatively consistent trend

Price Indices Used for Inflation Benchmarks

Metals prices have been volatile, declining in 2015-2016 before increasing again in 2017-2018

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Annual inflation of B&V Tx costs from 2012 to 2018

2012 2013 2014 2015 2016 2017 2018 Cost per mile

$927,000 $914,126 $929,502 $904,570 $888,709 $948,316 $1,024,611

Source B&V 2012 study E3 E3 E3 E3 E3 E3

Calculated Capital Cost per Mile for 230 kV Single Circuit Line (Nominal $)

 Commodity cost indices for aluminum and steel drive recent uptick in Tx costs since 2016 after slight decline from 2014 to 2016  All-in capital costs for Tx are estimated to have increased 10.5% in nominal terms since 2012 study, or 1.3% in real terms

2012 2013 2014 2015 2016 2017 2018 Cost per mile

$1,011,538 $983,538 $1,007,301 $958,996 $924,612 $967,282 $1,024,611

Source B&V 2012 study E3 E3 E3 E3 E3 E3

Calculated Capital Cost per Mile for 230 kV Single Circuit Line (Real 2018 $)

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 Benchmarking source: EEI’s “2016 Transmission Projects: At a Glance”

• Approximate project costs and high-level summaries of major transmission projects

completed in 2015 or expected to be completed within next 4 years

 E3 updated cost calculator benchmarked to within 5%-10% of EEI’s 2016 reported costs for three sample transmission projects modeled

Benchmarking vs. actual Tx projects

Project name Description Approx. cost (EEI) E3 updated B&V estimate Path 42 15 miles of 230 kV reconductor, including substation upgrades and incorporation of a 230 kV, 48 MVAR capacitor bank, spanning from Devers to Mirage Substation. Completed in 2015 31 MM$ 28 MM$ Sun Valley- Trilby Wash – Palm Valley 30 miles of new, double circuit capable, 230 kV lines through the western Phoenix Metropolitan

• area. A new 230;69 kV substation wit hone

transformer is included. Went into service in 2016. 75 MM$ 72 MM$ Palo Verde–Delaney– SunValley–Morgan– Pinnacle Peak 110 miles of new 500 kV lines connecting northeast Phoenix to southwest Phoenix in 4

• segments. Went into service in 2016.

312 MM$ 330 MM$

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Tx benchmarking assumptions

Input assumptions to E3 updated B&V Tx cost calculator

Select Transmission Projects Path 42 Sun Valley - Trilby Wash - Palm Valley Palo Verde - Delaney - Sun Valley - Morgan - Pinnacle Peak Voltage Class 230 kV Double Circuit 230 kV Double Circuit 500 kV Single Circuit Conductor Type ACSR ACSR ACSR Structure Lattice Lattice Lattice Length Category > 10 miles > 10 miles > 10 miles New or Re-conductor? Re-conductor New New Average Terrain Multiplier 1 1 1 Desert/Barren Land 12 25 80 Rolling Hills (2-8% Slope) 3 5 30 6 95 7 30 15 8 9 15 Voltage 230 kV Substation 230 kV Substation 500 kV Substation New or Existing Site? Existing New Existing Circuit Breaker Type Breaker and a Half Breaker and a Half Breaker and a Half # of Line/XFMR Positions 3 3 3 HVDC Converter No No No Transformer Type 115/230 kV XFMR 138/230 kV XFMR 230/500 kV XFMR MVA Rating Per Transformer 200 200 200 # of Transformers 1 1 3 SVC MVAR Rating Shunt Reactor MVAR Rating Series Capacitor MVAR Rating 48 AFUDC/Overhead Cost 17.5% 17.5% 17.5% BLM Zone Terrain Type Substation Project Inputs

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 Despite volatile commodity costs, all-in Tx capital costs have not changed significantly in real terms since 2012, increasing just 1.3%  E3 has updated the 2012 B&V Tx cost calculator with the latest inflation factors and it appears to benchmark well to the reported or estimated costs of a small sampling of recent Tx projects  E3 has also corrected a small formula error in the original B&V Tx cost calculator and will provide an updated version to WECC

Tx cost update summary

Generation Resource Cost Update

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 E3 first surveyed recent reports on costs of new resources

• National lab studies, utility IRPs, industry analyst reports
• All technologies assessed in prior cost studies were included in this review

 Next, E3 and WECC selected core technologies for closer study

• Resources that were studied in the past and are no longer economically

competitive were filtered out (e.g. single-axis tracking solar is now more economic than fixed-tilt solar and is employed on all new grid-scale projects in WECC, thus fixed-tilt was removed from study)

 E3 performed additional research and cost benchmarking for core technologies with rapidly evolving cost profiles

• Benchmarking of public capital cost estimates versus implied capital costs from

PPA prices in recent WECC-area RFPs

• Examination of research reports with future cost forecasts

Approach, resources considered, and changes from prior studies

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 Solar PV

• Grid-scale – tracking, ground-mounted PV

 Wind

• Onshore and offshore (fixed-base and floating)
• Further variations in interconnection, capital cost

associated with wind quality, etc. to be handled in more detail in next phase

 Energy Storage

• Lithium-ion battery storage

– Utility-scale, with and without paired solar – Costs broken out by capacity (kW) and energy (kWh)

• Flow battery storage
• Pumped hydro storage
• Compressed air energy storage (CAES)

 Distributed energy resources (DERs)

• Residential solar – fixed tilt, rooftop PV
• Commercial solar – fixed tilt, rooftop PV
• Lithium-ion battery storage – BTM

– Costs broken out by capacity (kW) and energy (kWh)

Specific resources studied

 Gas

• CT: Aero/Frame
• CCGT: Wet/Dry, Conventional/Advanced, with and

without CCS

• Reciprocating Engine

 Other renewables

• Geothermal: Binary/Flash, Standard/Enhanced
• Small Hydro
• Biomass/Biogas
• Solar Thermal

 Other thermal

• Combined Heat and Power (CHP)
• Coal: PC without CCS and IGCC with CCS
• Nuclear: Large
• Nuclear: Small modular

Solar

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Capital cost 2012 E3 2014 E3 2016 E3 2018 E3*

<20 MW >20 MW <20 MW >20 MW <20 MW >20 MW <20 MW >20 MW

Tracking solar ($/kW-dc) $3,700 $3,250 $3,200 $2,800 $1,700 $1,500 $1,100 Tracking solar ($/kW-ac) $4,400 $3,800 $4,200 $3,600 $2,200 $1,900 $1,450

Utility-scale tracking solar

Recommended Capital Cost, Real 2018$ Capital Cost Estimate by Source

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Utility-scale solar PV cost benchmarking PPAs and levelization assumptions

PPA Summary Project Name Build Year PPA Price (2020 $/MWh) Location CF (%) Xcel RFP: CO Median RFP bids 2020 29.50 CO 28 AZ Solar 1 2020 24.99 Salome, AZ 32 NV PUC: Eagle Shadow Solar 2021 23.29 Clark County, NV 35 NV PUC: Copper Mountain 5 2021 21.13 Boulder City, NV 33 NV PUC: Techren V 2020 29.98 Boulder City, NV 32 PNM: Route 66 PPA 2021 29.39 Albuquerque, NM 33

 Many recent solar PV projects with public PPA prices available  E3 estimated implied capital costs with FO&M and financing costs based on 2018 NREL ATB

• FO&M of ~$11/kW-yr from NREL ATB
• WACC of 7.2% based on NREL ATB methodology + E3 cost of capital update

 E3 assumed project capacity factors and PPA escalation terms based on publicly available data or E3 best estimates if not disclosed in PPA

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Utility-scale solar PV cost benchmarking results show wide range, accurate midpoint

PPA implied capital cost, 2020 COD NREL ATB 2020 forecast Low Median High Low Mid High Capital cost (2018 $/kW-dc) $778 $935 $1,265 $886 $1,003 $1,198 Capital cost (2018 $/kW-ac) $1,047 $1,262 $1,708 $1,171 $1,325 $1,582

 Implied capital costs from benchmark PPAs show a wide spread, likely due to sensitivity to financing, O&M, and capacity factor assumptions  Average PPA benchmarked price of $935/kW-dc is between NREL “Low” and “Mid” case forecasts of $886 to $1,003/kW-dc in 2020  E3 recommended cost of $1,100/kW-dc in 2018 is close to NREL Mid case and suggests further cost decline of ~15% by 2020 is already priced into new PPAs being signed today

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 Three capital cost trajectories are projected

• Low, Mid, and Constant (no cost reductions beyond 2021)
• Based on the NREL 2018 Annual Technology Baseline

 E3 recommended cost for 2018 and PPA benchmarking for 2020 suggest that NREL Mid cost case is accurate baseline forecast

• Low-cost trajectory may provide a useful sensitivity

Solar PV capital cost forecasts

Utility-Scale Solar PV Capital Cost Forecast

PPA benchmarking implied 2020 costs E3 2018 recommended cost

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Solar PV, preliminary LCOEs

Capacity Factor LCOE (2018 $/MWh) 27% CF 31.05 30% CF 27.94 33% CF 25.40

Solar PV Levelized Cost Forecast Scenarios

2018 Levelized Cost Estimates – Mid Scenario

 LCOE for solar PV depends on both capital cost and a number

• f other factors
• Financing cost
• O&M costs
• ITC
• Operating lifetime
• Capacity factor

 E3 assumes that several cost factors will evolve in the future

• ITC step-up
• Declining capital costs
• Declining O&M costs

Wind

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Capital cost 2012 WECC 2014 E3 2016 E3 2019 E3* Onshore wind ($/kW) $2,300 $2,250 $2,100 $1,650

Onshore wind

Recommended Capital Cost, Real 2018$ Capital Cost Estimate by Source

 Significant variance in wind costs by source likely reflects regional differences in wind quality and installation and interconnection costs

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Onshore wind cost benchmarking

PPA Summary Project Name Build Year PPA Price (2020 $/MWh) Location CF (%) Xcel RFP: CO Median RFP bids 2020 18.10 CO 45 PNM: La Joya 2020 27.92 Estancia, NM 47

 Very few recent PPA prices available for wind projects in WECC  E3 estimated implied capital costs using two sets of assumptions with high and low FO&M and financing costs based on NREL scenarios

• FO&M of ~$11/kW-yr from NREL ATB
• WACC of 7.2% based on NREL ATB methodology + E3 cost of capital update

 E3 assumed project capacity factors and PPA escalation terms based

• n publicly available data or E3 best estimates if not disclosed in PPA

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Onshore wind cost benchmarking results show same wide range, accurate midpoint

 Implied capital costs from benchmark PPAs show a wide spread, due primarily to sensitivity to financing cost assumptions  Average PPA benchmarked price of $1,550/kW is aligned reasonably well with NREL “Mid” case forecast of $1,622/kW in 2020  E3 recommended cost of $1,650/kW in 2018 is close to NREL Mid case and suggests further cost decline of ~4% by 2020 is already priced into new PPAs being signed today PPA implied capital cost, 2020 COD NREL ATB 2020 forecast (TRG5) Lower Avg Upper Low Mid High Capital cost (2018 $/kW) $1,156 $1,474 $1,792 $1,493 $1,596 $1,705

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 Three capital cost trajectories are projected

• Low, Mid, and Constant (no cost change beyond 2017)
• Based on the NREL 2018 Annual Technology Baseline

Onshore Wind capital cost forecasts

NREL 2018 ATB: Onshore Wind Capital Cost Forecast

E3 2018 recommended cost PPA benchmarking implied 2020 costs

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Capacity Factor LCOE (2018 $/MWh) 35% CF $33.93 40% CF $29.50 45% CF $21.98

Onshore Wind, preliminary LCOEs

Onshore Wind Levelized Cost Forecast Scenarios Preliminary

2018 Levelized Cost Estimates- Mid Scenario

 LCOE for onshore wind depends on both capital cost and a number of other factors

• Financing cost
• O&M costs
• PTC
• Operating lifetime
• Capacity factor

 E3 assumes that several cost factors will evolve in the future

• PTC step-up and expiration
• Declining capital costs
• Declining O&M costs

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Capital cost 2012 WECC 2014 E3 2016 E3 2018 E3* Offshore wind – fixed base ($/kW) $7,000 $6,700 $4,800 $3,500 Offshore wind – floating ($/kW) $6,500

Offshore wind

Recommended Capital Cost, Real 2018$ Capital Cost Estimate by Source  Floating base offshore wind added to represent potential future west coast projects. Fixed base offshore wind is not viable in most of WECC given seafloor depth off WA/OR/CA

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 Three capital cost trajectories are projected

• Low, Mid, and Constant (no cost change beyond 2017)
• Based on the NREL 2018 Annual Technology Baseline

Offshore Wind capital cost forecasts

Floating Base Offshore Wind – TRG 10 Capital Cost Forecast

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Floating Offshore Wind, preliminary LCOEs

Onshore Wind Levelized Cost Forecast Scenarios

 LCOE for onshore wind depends on both capital cost and a number of other factors

• Financing cost
• O&M costs
• ITC
• Operating lifetime
• Capacity factor

 E3 assumes that several cost factors will evolve in the future

• ITC step-up and expiration
• Declining capital costs
• Declining O&M costs

Lack of large-scale floating offshore wind projects to date adds significant uncertainty to cost forecasts

Energy Storage

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 Battery costs vary significantly by system specifications  For modeling purposes, costs are commonly broken into two categories

• Costs that scale with power (“capacity”),

quoted in $/kW

• Costs that scale with energy (“duration”),

quoted in $/kWh

 Battery modules are the largest and best understood component of system cost and the one that scales most linearly with duration

• Each kWh of duration adds around $300

today, but is declining rapidly

 Fixed capacity cost including inverter and interconnection varies significantly by report

• For storage paired with solar, these costs

may be minimal

Lithium-ion battery cost breakdown by power capacity and duration

Utility-scale 4-hr Battery Cost by Component Utility-scale Battery Cost by Duration

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Capital cost 2012 WECC 2014 E3 2016 E3 2018 E3* Li-ion battery capacity ($/kW)

• Paired with solar

$75

• Standalone

$200 Li-ion battery energy ($/kWh) $325 Li-ion battery, 4-hr ($/kW)

• Paired with solar

n/a $5,059 $3,200 $1,375

• Standalone

n/a $5,059 $3,200 $1,500

Lithium-ion battery storage

Recommended Capital Cost Capital Cost Estimate by Source

Recent RFP bids for solar+storage

 To benchmark against recent storage PPA prices, E3 examined solar+storage prices in three recent RFPs  TEP - 2017

• Under $45/MWh for 100 MW / 30 MW / 4-hr NextEra solar+storage project in May 2017

 Xcel - 2017

• No explicit guidance on how solar+storage contracts should be structured. Appears they bid as bundled PPAs for

generation and capacity, presumably with utility dispatch

• Standalone storage: $11,300/MW-mo median (4- to 10-hr durations)
• Hybrid bids with storage add $2.90/MWh (wind median) or $6.50/MWh (solar median)
• Preferred portfolio, approved by CPUC, included 275 MW of storage

– All three storage projects selected are solar hybrid plants

 NV Energy - 2018

• Explicit instruction for hybrid projects: at least 100 MW RE, 25 MW storage, 4-hr duration
• Hybrids bid two separate contracts: one for solar generation ($/MWh) and one for capacity ($/MW-mo)
• Storage contracts at $6,110-$7,755/MW-mo
• Solar capacity, battery capacity as % of solar, and battery duration were all near minimum in winning bids

– NextEra: Dodge Flats 200 MW/50 MW/4-hr – NextEra: Fish Springs 100 MW/25 MW/4-hr – Cypress Creek: 101 MW/25 MW/4-hr Crescent Valley project (Battle Mountain Solar)

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 NextEra claims storage adds a premium of $15/MWh for solar projects completed in 2017-2018

• Approximate capacity price of $160-$175/kW-yr for storage assuming typical sizing and solar capacity factor
• Typically 4-hr storage at 25% of solar capacity (e.g. 100 MW solar plant, 25 MW / 100 MWh storage)

 In recent RFPs, this premium has fallen to $6-$7/MWh for projects with COD in 2021-22

• Capacity price of $73 to $94/kW-yr for hybrid projects with unbundled storage prices (NV Energy)

 NextEra projects storage premium will fall to $5/MWh by mid-2020s, or under $60/kW-yr with typical sizing ratio 41

Levelized cost of storage when paired with solar – E3 vs NextEra Gross CONE in 2018 $/kW-yr

Current hybrid storage bids reflect aggressive price decline assumptions, capture of the ITC, and other cost savings from pairing with solar such as reduced interconnection costs Result? Discount of 25% to 40% versus standalone storage levelized costs

Recent NV Energy RFP winners

Declining capital costs and capture of ITC drive low storage bid prices when paired with solar

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 Hybrid solar-plus-storage projects have been contracted under a variety of arrangements regarding the role of scheduling coordinator

• Different contract arrangements may favor use for shifting solar vs. providing

ancillary services such as frequency regulation or spinning reserves

 To qualify for the ITC, storage must be charged from solar for the first five years of operation  Finally, DC vs. AC coupled storage may offer different amounts of flexibility in dispatch depending on the given project’s interconnection capacity  E3 recommends modeling hybrid storage as a dispatchable resource independent from solar, but restricted to charging from co-located solar during the first five years of project life if possible

Modeling solar plus storage dispatch

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Capital cost 2012 WECC 2014 E3 2016 E3 2018 E3* Flow battery, 4-hr ($/kW) n/a $5,350 $3,200 $2,000

Flow battery storage

Recommended Capital Cost Capital Cost Estimate by Source

 Flow battery estimated costs have declined nearly as rapidly as Li-ion, but limited commercial experience adds significant uncertainty. No major utility-scale PPAs have been signed for flow batteries in the US to date

Distributed Energy Resources

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 In addition to grid-scale resources, E3 has provided cost estimates for distributed energy resources typically located behind the meter (BTM)  DERs are a less commoditized type of resource due to site-specific cost factors that vary greatly from project to project

• For example, rooftop solar costs will vary from building to building depending

upon roof size and accessibility, mounting options, etc.

• This variability makes DER costs difficult to generalize

 Given their smaller scale and higher soft costs associated with customer acquisition, installation, overhead, etc. DERs are typically more expensive than utility-scale resources of the same technology

• However, DERs also present different value streams, such as retail bill savings

and potential for T&D deferral

DER overview

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Capital cost 2012 WECC 2014 E3 2016 E3 2018 E3 Residential solar ($/kW-dc) $6,150 $5,100 $3,100 $2,700 Residential solar ($/kW-ac) $7,250 $6,200 $3,700 $3,250

BTM residential solar (rooftop)

Recommended Capital Cost, Real 2018$ Capital Cost Estimate by Source

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Capital cost 2012 WECC 2014 E3 2016 E3 2018 E3* Commercial solar ($/kW-dc) $5,200 $4,300 $2,750 $1,850 Commercial solar ($/kW-ac) $6,100 $5,100 $3,300 $2,200

BTM commercial solar (rooftop)

Recommended Capital Cost, Real 2018$ Capital Cost Estimate by Source

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BTM Li-ion battery storage

Capital cost 2012 WECC 2014 E3 2016 E3 2018 E3* Li-ion battery capacity ($/kW)

• $300

Li-ion battery energy ($/kWh)

• $670

Li-ion battery, 2-hr ($/kW)

• $1,650

 Two-hour duration is most typical for BTM storage today, which is primarily used for demand charge clipping  As with solar, BTM storage is significantly more expensive than utility- scale storage due to smaller scale, higher soft costs, etc.

• Likewise, BTM storage is generally assumed to be non-dispatchable for system

modeling purposes, though some DR programs (e.g. CA DRAM) have contracted with BTM storage

 E3 did not find any precedents for BTM storage paired with solar qualifying for the ITC, thus BTM storage is modeled as a single use case

Gas

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Gas- and oil-fired generation

Capital cost ($/kW) 2012 WECC 2014 E3 2016 E3 2018 E3* Gas CT—Aero $1,300 $1,300 $1,250 $1,300 Gas CT—Frame $900 $900 $850 $800 Gas CCGT—Conventional (Wet) $1,300 $1,200 $1,200 $1,200 Gas CCGT—Conventional (Dry) $1,400 $1,300 $1,250 $1,250 Gas CCGT—Advanced (Wet) $1,400 $1,300 $1,300 $1,250 Gas CCGT—Advanced (Dry) $1,500 $1,400 $1,350 $1,300 Gas CCGT—Advanced w/ CCS n/a n/a n/a +$1,200 Reciprocating Engine n/a $1,400 $1,350 $1,350 Recommended Capital Cost

 Cost reports reviewed by E3 show minimal changes since prior study  Gas CCGT with CCS was added as a category that is represented by a cost premium over Advanced CCGT plant costs without CCS

• CCGTs with CCS will be subject to different operational assumptions, such as

increased heat rates (lower efficiency), decreased flexibility (no daily cycling), and variable costs that incorporate the value of tax credits for CCS

Other thermal and renewables

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Other renewables

Capital cost ($/kW) 2012 WECC 2014 E3 2016 E3 2018 E3* Geothermal—Binary $6,400 $6,300 $5,300 $6,100 Geothermal—Binary, enhanced n/a $10,700 $10,600 $13,600 Geothermal—Flash $6,400 $6,300 $5,300 $5,100 Geothermal—Flash, enhanced n/a $10,700 $10,600 $9,000 Hydro—small $4,100 $4,800 $4,200 $4,200 Biomass $4,900 $4,600 $4,550 $4,400 Biogas - Landfill $3,200 $3,000 $2,950 Biogas – Other $6,400 $6,000 $5,900 Solar thermal $5,700-$8,200 $5,500-$8,000 $6,300-$6,900 $5,600-$8,300 Recommended Capital Cost

 Cost reports reviewed by E3 show relatively minor changes since prior study  Biomass and biogas technologies were combined into single category

• These technologies were often labeled interchangeably or as generic “biopower”
• Limited cost data that clearly differentiated between technologies suggests high degree of

project-specific cost considerations, rather than technological differences

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 CHP was combined into single technology due to limited cost data that differentiated between small and large systems  Coal IGCC with CCS and small modular nuclear costs are based on public reports and IRPs, but minimal commercial data exists for these technologies

• Estimated cost for coal IGCC with CCS declined significantly over past two years
• Small modular nuclear was added as a category, but no projects have been licensed or built to date

 Large scale nuclear costs were increased to $10,000/kW to reflect the latest cost estimates for Vogtle, which may total $27B ($12,000/kW)

Other thermal technologies

Capital cost ($/kW) 2012 WECC 2014 E3 2016 E3 2018 E3* CHP – Small $4,300 $4,100 $4,000 $2,200 CHP – Large $1,850 $1,800 $1,750 Coal – PC no CCS $4,200 $3,950 $3,900 $3,900 Coal – IGCC with CCS $9,300 $8,800 $8,700 $6,700 Nuclear—Large $8,700 $8,200 $8,450 $10,000-$12,000 Nuclear—Small modular n/a n/a n/a $6,200 Recommended Capital Cost

Next steps

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 Complete WECC-wide pro forma financial model (“Cost Calculator”)  Research regarding regional cost factors will be incorporated in WECC Cost Calculator

• Technology-driven factors such as wind turbine costs that vary by wind speed
• Macroeconomic factors that vary by region and impact Capital and O&M costs,

such as local labor costs and taxes

• Interconnection cost differences that vary by location and proximity to existing Tx

 Completion of updated WECC Cost Calculator which will produce levelized costs for all state, technology, and resource combinations for 2019 through 2040

Next steps

Thank You

Thank You

Arne Olson, Sr. Partner, arne@ethree.com Nick Schlag, Director, nick@ethree.com Sandy Hull, Sr. Consultant, sandy@ethree.com Vivian Li, Consultant, vivian@ethree.com Femi Sawyerr, Consultant, femi@ethree.com