SPSC Meeting Committee on Regional Electric Power Cooperation Draft - - PowerPoint PPT Presentation

SPSC Meeting

Committee on Regional Electric Power Cooperation Draft

October, 2011 Presenter:

Colin Crowley, Consulting Energy Trader

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Background

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Puget Sound Energy at a glance

• PSE serves over 1 Million electric customers and over 750,000 natural gas

customers.

• PSE is the second largest utility owner & operator of wind in the United

States.

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Mid- Columbia Contracts 14% PSE- Owned Hydro 5% Wind 16% Combined Cycle 18% Simple Cycle 12% Coal 14% Other Long-Term Contracts 21%

PSE Energy Resource Mix (by capacity)

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Leaders in renewable energy development

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• Largest in the Pacific Northwest and

second-largest utility owner of wind energy in United States (430 MW capacity)

• 157 MW Hopkins Ridge – 2005
• 229 MW Wild Horse – 2006
• 44 MW Wild Horse Expansion – 2009
• 500 kW Wild Horse solar demonstration –

2007

• 343 MW Lower Snake River Wind Energy

Project to come online in 2012

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Natural gas supply keeps growing

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Source: Wood Mackenzie

U.S. shale gas production increased 14-fold over the last decade; reserves tripled over the last few years

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Source: EIA, 2011 Annual Energy Outlook

Steady increases in production driven by shale gas

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Production in the West

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Economic uplift from NGLs driving production gains

Producers are shifting resources between plays to exploit the best

• pportunities. In many cases, drillers are focusing on liquids rich

plays such as the Eagle Ford, Woodford, Granite Wash, and sections of the Marcellus.

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Natural gas industry is searching for demand

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Multiple factors are converging to make North American LNG exports a real possibility – Gas to oil price spread (new demand and switching from oil linked contracts) – Expanding shale gas resource base – Contract expirations for major buyers – Strategic financing by national oil companies

LNG exports may provide new demand in 2015

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Economic displacement of coal has been an important supply/demand balancing item over the past few years, but more permanent displacement through CSAPR (Cross State Air Pollution Regulation) is on the way

Coal displacement helping natural gas demand

Coal retirements likely to add 2 BCF of demand, with the largest incremental additions to occur in 2014 &2015 Source: SNL Source: PIRA

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– Transportation could add ~ 1/2 BCF/d of new demand by 2015. Commercial initiatives are making this more probable. – Marine market could provide ¾ BCF/d of new demand. Idea is to replace diesel with cleaner burning natural gas. The regulatory driver is the EPA Emissions Control Area for large ships effective in August of 2012 – Industrial resurgence because of low gas prices could add 2 BCF/d by 2015 – Based on open pipeline capacity, Mexico could add 2 BCF/d of incremental demand over the next few years

Other potential new demand for natural gas

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– According to the EIA, wind contributed 64,393,000 MWhr from January- June 2011 (~ 2.4 BCF/d). Solar contributed 889,000 MWhr – If we assume that wind generation expands by ~ 30% between 2011 and 2015, this would imply that wind generation will reach a gas equivalent of ~ 3.6 BCF/d by 2015 (using 8 HR conversion and actual generation from Jan 11-Jun 11) – The natural gas industry may not be enthusiastic about changing

• perations to accommodate renewables

Renewables lower potential natural gas demand

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Operational challenges come with greater reliance on natural gas

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Natural gas gen expected to provide ancillary services

• PSE’s future resource

portfolio:

• Less hydroelectric

generation

• More gas-fired

generation

• More wind generation

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• Meeting Future Ancillary

Service Requirements:

• As hydro capacity

decreases, more following will be met by combined and simple cycle gas turbines.

• Altered operations will

increase O&M costs

Greater reliance on natural gas for ancillary services is not unique to PSE

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Wind in the Northwest continues to expand

• Wind Development in N.W.
• 45% Increase in operating wind

capacity over the past two years

• Over 11,000 MW either under

construction or in various stages of approval

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3,194 788 3,609 8,908 4,620 2,045 3,105 6,341 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Operating Under Construction Approved In Permitting / Proposed Total Capacity (MW)

Wind Development in the Northwest

2009 2011

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• Wind resources introduce additional uncertainty and variability to the system, and can

impact the reserves need in every hour, not just peak hours.

• Uncertainty – what level of generation will be observed in the future?
• Variability – even with a perfect forecast, wind generation can still fluctuate within

an hour

• Not static – reserves level varies by time of day, season, and wind forecast

Challenges of integrating wind

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Wind generates less than schedule; therefore

• ther system

generation must be increased. Wind generates more than schedule; therefore

• ther system

generation must be reduced.

Over-generation Under- generation

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Gas travels at roughly 30

• mph. Below are the

approximate travel times from supply basin to market

• Opal to Malin ~ 22 hrs
• Alberta to Malin ~ 30 hrs
• Station 2 to Sumas ~ 24 hrs

Linepack and storage can provide gas on demand to local area, but operating conditions can impact availability (e.g. pipeline or storage maintenance, extreme cold)

Linepack & storage may not always be available

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– The lack of redundancy or N-1+ contingency planning for loss of major natural gas assets. – Power Cost and environmental impacts of having to use natural gas generation to integrate VERs. – Transmission reliability impacts of early shut-down of regional coal generating plants. – Much like the concern about high-voltage transmission, a concern that capital investment in new pipeline capacity will not keep pace or be sited in

• ptimal locations.

Long-term planning issues

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– Hourly gas scheduling

• Good idea if you have storage
• In most markets, liquidity is lacking for intraday supply
• Natural gas storage holders may realize more value

– Synching of trading schedules for power and gas – Coordination of pipeline maintenance with power industry – Study reliability impact of less diversification in controllable generation – Flexible solutions for different markets (e.g. different load and storage

characteristics by region may warrant different solutions)

Future Considerations

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Questions

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Appendix

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Shale gas is flattening the forward price curve

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Source: Baker Hughes

Rig counts illustrate shale gas efficiency gains