Today’s Energy Landscape: Exploring economic environmental and Exploring economic, environmental and technological trends October 11, 2010 Presentation to the PJM Board Sue Tierney Managing Principal Managing Principal BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON
PJM Board – October 2010 Disclaimer for today’s remarks: I am here speaking for myself and no other party or interest. I am here speaking for myself and no other party or interest. � Analysis Group has clients who are PJM market participants. • I am a member of the board of directors of EnerNOC. • I am representing none of those parties here; no one is paying for my participation today. • Out of an abundance of caution relating to potential appearance of conflicts, I will not directly raise issues relating to demand response activities. Page 2
PJM Board – October 2010 Today’s Energy Landscape – An overview � The big features of the terrain – The big features of the terrain hazy overcast Michael Hajjar - high altitude Page 3 http://infosthetics.com/archives/2010/03/high_altitude_the_stock_market_trends_as_realistic_mountain_ranges.html
PJM Board – October 2010 A dozen points on the landscape – p p with implications for electricity markets The overall setting The overall setting Transmission Washington, the states Other infrastructure Natural gas Prices – part 2 EPA regulations Markets Green technologies Climate issues Prices – part 1 p Big gorillas Big gorillas Page 4
PJM Board – October 2010 #1 – The overall setting Energy is back on the back pages – behind back pages – behind the economy, tea parties, most p , everything else: A temporary reprieve or a change in luck…..? Page 5
PJM Board – October 2010 The economic The economic recovery: ti timing, pace, i implications… http://www.businessweek.com/managing/economic_recovery/blog/archives/economic_recovery.gif Page 6
PJM Board – October 2010 DOE EEREWind Power Budget ( 75 10) DOE EEREWind Power Budget (’75 ‐ ’10) Buckle up – era of continued high g uncertainty Average Natural Gas Spot Price – Henry Hub ($/MMBtu) Era of big investment In generation…. ge e at o Roller coaster: Gas prices, climate Legislation, ARRA Era of uncertainty Regarding electric Industry restructuring Industry restructuring http://depletedcranium.com/the-economics-of-natural-gas-for-those-with-poor-memories/; http://www.ohiomathworks.org/themeparks/coastequation.gif ; http://www1.eere.energy.gov/windandhydro/images/wind_barchart_history_2010.gif ; Page 7 http://www.osti.gov/energycitations/product.biblio.jsp?osti_id=5666526; http://www1.eere.energy.gov/wip/m/sep_history.html
PJM Board – October 2010 #2 – Public Policy…. The States The States leading W Washington: hi t Back to the future? Page 8
PJM Board – October 2010 Prospects for action on energy, climate: Climate? Climate? Transmission? What a What a Renewable portfolio standard? difference 24 Efficient energy Effi i t months standard? makes….. R&D? R&D? Oil and gas legislation? Page 9
PJM Board – October 2010 Issues on states’ agenda: G Green jobs j b Rate cases Smart grid Energy efficiency Concerns abo t Concerns about prices… Page 10 http://www.sustainy.com/wp-content/uploads/2009/01/green-jobs-green-collar-blue-collar.jpg;
PJM Board – October 2010 ¢/KWh Average Retail Electricity Price – All Customers by State - 2009 g y y ¢/KWh 20.00 Relatively low percentage coal-fired generation 18.00 Relatively high percentage coal-fired generation 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Page 11 Data: Energy Information Administration, 826 database
PJM Board – October 2010 Electricity Use Per Person (KWh) by State and US: 2007 y ( ) y (kWh/person) 30000 25000 20000 15000 10000 5000 0 WY KY DC AL WV ND SC LA TN IN AR MS MT NE ID OK IA NC MO VA KS GA TX OH NV DE SD WA MN OR WI FL US PA AZ MD IL NM MI CO UT CT NJ VT AK ME MA NH HI NY RI CA Data: Energy Information Administration, State Energy Data System (most recent annual data available as of 3 ‐ 12 ‐ 10) Page 12 Susan Tierney, Analysis Group, stierney@analysisgroup.com, 4-2010
PJM Board – October 2010 Btu (1000s) per GDP Dollars 25 25 Total Energy Consumed Per Dollar of Real GDP - 2007 20 20 15 15 10 10 5 5 0 0 LA AK ND WV MS MT KY AL OK AR IN SC TX KS NM ID ME IA TN NE OH MO SD GA WI UT MI PA US MN NC VA WA IL OR VT FL CO NV AZ NJ HI MD NH DE RI CA MA CT NY DC Data: Energy Information Administration, State Energy Data System (most recent annual data available as Page 13 Susan Tierney, Analysis Group, stierney@analysisgroup.com, 4-2010
PJM Board – October 2010 #3 – Natural gas: Natural gas: a sure-bet game changer or changer, or something else? Page 14 http://www.consumerenergyreport.com/wp-content/uploads/2010/01/fracking-production1.gif
Page 15 EPA’s upcoming The next big e t b g regulations: event? PJM Board – October 2010 #4 – e
Page 16 PJM Board – October 2010
Page 17 Coal capacity by emission control PJM Board – October 2010
PJM Board – October 2010 Small coal plant (by vintage and controls) (<300 MW) Credit Suisse, “A Thought: CATF is First Step in Changing the Coal Fleet,” July 7, 2010 Page 18
PJM Board – October 2010 Complying with EPA regulations: Two issues: Two issues: Implications for: � Retirements - Markets � Retrofits R t fit - reliability - economic activity Many tools - public health public health � Federal - energy transformation � State � Industry actors Delay in not helpful y p Page 19
PJM Board – October 2010 Providing Relief in Extreme Cases: Providing Relief in Extreme Cases: Statutory, Regulatory, and Market Safeguards Source of Authority / Instrument of Agency Measure – Examples Implementation Implementation Regional Wholesale Electricity Markets Enforcement of Market Rules, Reliability- RMR agreements allow units to operate only to ensure (e.g: PJM, ISO-NE, etc.) Must-Run (RMR) agreements, Forward reliability while minimizing adverse environmental impacts. Capacity Markets, etc. Forward capacity markets provide a mechanism to signal the need for new capacity additions Rapid-response planning initiatives to address any apparent reliability issues. State Public Utility Commissions Regulatory oversight of utilities Adopt ratemaking policies that encourage system reliability and environmental goals including ones that address utilities’ financial disincentives where EE and DR programs lower financial disincenti es here EE and DR programs lo er utility revenues. Supervision to assure prudent response to environmental requirements – looking at various options (retirements, equipment additions, off-system purchases, reserve sharing, etc.) U.S. Department of Energy Section 202(c) of the Federal Power Act Override CAA-derived control requirements in limited emergency circumstances i U.S. Environmental Protection Agency Cap-and-trade based regulations Emissions trading mechanisms enable greater compliance flexibility to manage potential reliability concerns Section 112(i)(3)(B) of the CAA Extend deadlines for utility MACT rule where necessary to maintain electric system reliability Section 112(i)(4) of the CAA Extend deadlines for utility MACT rule where necessary to U.S. President maintain electric system reliability Page 20 MJ Bradley, S Tierney, P Hibbard, C Van Atten, August 2010
PJM Board – October 2010 #5 – Green technologies technologies, clean fuels, smart grids: Will we put our money where our mouth is? our mouth is? Page 21
PJM Board – October 2010 #6 – Prices (part 1) Electricity prices: What’s the “new normal”? normal”? - low commodity costs? - higher delivery costs? higher delivery costs? - net effects? http://1.bp.blogspot.com/_XQdBajgEN60/Sc_l7AvTAqI/AAAAAAAAAx8/aRqdr2v08VA/s400/Elect ricity+Prices+History.jpg Page 22
PJM Board – October 2010 #7 – Transmission…. What about transmission: What, when, where, why, how…? Page 23
PJM Board – October 2010 What we want from transmission…… Goals relating directly to the electric system Goals relating to national interests (e.g., domestic energy resource development, ad anced technolog advanced technology development and deployment) Electricity Electricity is has strategic has strategic Goals relating to other Goals relating to other a service external systems (e.g., attributes local economic development) Page 24
PJM Board – October 2010 #8 – Other Other Infrastructure, old and new? old and new? Page 25 http://rempower.com/blog/wp-content/uploads/2008/12/aging%20infrastructure.jpg
PJM Board – October 2010 #9 – Prices – Part 2 – R t Rate design d i NERC, Long-Term Reliability Assessment, 2009, Figure 7 Page 26
PJM Board – October 2010 #10 – Competitive Competitive markets: What do they What do they look like this d decade? d ? Page 27
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