W holesale Energy Markets in the W est Brad Albert GM Resource - - PDF document

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W holesale Energy Markets in the W est Brad Albert GM Resource - - PDF document

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Power Task Force Agenda Number 3. W holesale Energy Markets in the W est Brad Albert GM Resource Managem ent May 1 8 , 2 0 1 7 A Major Evolution is Underw ay! The power supply portfolio in the west is changing rapidly due to:

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W holesale Energy Markets in the W est

Brad Albert – GM Resource Managem ent May 1 8 , 2 0 1 7

  • The power supply portfolio in the west is changing

rapidly due to:

  • Renewable energy policies
  • Customer desire for green energy

– Large customers seeking “additionality” – Rooftop solar supported by net metering and tariff policies

  • Relatively low natural gas prices

– Driven by horizontal drilling and hydraulic fracturing technologies

  • Just some of the consequences:
  • Low (and even negative) wholesale power prices
  • Merchant natural gas generators struggling to remain viable
  • The need for baseload power sources changes as customer

demand patterns change and relatively inflexible renewable generation is added

A Major Evolution is Underw ay!

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Power Task Force Agenda Number 3.

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The Magnitude is Staggering

California’s Grid‐Scale Renewable Production on April 27, 2017

Over 9,000 MWs of Solar Over 3,000 MWs of Wind

About 13,000 MWs grid‐scale renewables across the middle of the day (This doesn’t include another 5,000+ MWs of rooftop solar)

Solar Resource Grow th

  • California - Renewable Portfolio Standard

50% energy production by 2030

– Rooftop solar is in addition – Utility scale solar currently near 10,000 MWs – Community Choice Aggregation programs – Customer driven to show they are “Green” - Google, Microsoft, Universities, etc.

  • APS

– Utility scale solar - 530 MWs – Rooftop solar is over 600 MWs and growing at 10- 15 MWs per month

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Natural Gas – Market Outlook

  • Long-term, stable outlook
  • Large, high-efficiency natural gas combined cycle

generators produce at approximately 25 $/ MWH

$1.60 $1.90 $2.20 $2.50 $2.80 $3.10 $3.40 $3.70 $4.00 $4.30 $4.60 $ / MMBTU

San Juan Gas Five-Year Outlook

2017 2016 2015 $ 3 .5 5 2017 2018 2019 2020 2021

* Five-year average prices down 28.7% from 2015

$ 2 .8 4 $ 2 .5 3

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APS’ Participation in W holesale Energy Markets

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Largest utility in Arizona

 1.1 million customer accounts  34,646 square miles

Scope of Energy Delivery

 28,000 distribution miles  5,300 transmission miles  410 substations

Resources

 9,000 MW total capacity  Peak demand – 7,100 MW

Arizona Public Service Co.

Phoenix

APS Retail Service Territory

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Five Major Categories of Resources

Nuclear

  • Palo Verde

Coal

  • Four Corners
  • Cholla
  • Navajo

Natural Gas Intermediate Units

  • Redhawk, Gila River, Arlington
  • West Phoenix Units 1‐5
  • Ocotillo Steamers

Natural Gas Peaking Units

  • Sundance
  • Yucca
  • West Phoenix, Saguaro, and Ocotillo GTs

Renewables (utility‐scale)

  • Wind
  • Solar
  • Geothermal/Biomass
  • Reliable source of carbon‐free around‐

the‐clock power

  • Lowest operating cost
  • Affordable source of around‐the‐clock

power

  • Relatively expensive and time consuming

to start/stop Reliable and Flexible to System Demands

  • Large, high efficiency units, with longer

ramps and longer minimum up and down times

  • Reliable and Flexible to System Demands

Small, less efficient units, quick start that

  • Small, less efficient units, quick start that

can be online in 10‐30 minutes

  • Very flexible
  • Clean source of energy with low long‐

term costs

  • Inflexible, must take energy as it is

produced (non‐dispatchable)

1,146 MWs 1,672 MWs 3,151 MWs 1,017 MWs 855 MWs

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2 0 1 6 - W ell Balanced Energy Portfolio

Nuclear Coal Natural Gas Renewables Energy Efficiency

2 6 % 1 1 % 1 0 % 2 1 % 3 2 %

9 1 2 3 5 4

Arizona Arizona New Mexico New Mexico California

7 9 8 11 11 10 10 12 12 13 13 14 14 15/18 15/18 16 16 6 17 17 19 19 20 20 Generating Facility Capacity COD 1) CE Turbo 12 01/27/06 2) Aragonne 90 12/29/06 3) Snowflake 14 06/10/08 4) High Lonesome 100 07/16/09 5) Glendale Energy 2.86 01/13/10 6) Ajo 4.5 09/26/11 7) Prescott 10 11/29/11 8) Bagdad 15 12/30/11 9) Perrin Ranch 99 06/24/12 10) Waste Management 3.2 08/31/12 11) Saddle Mtn 1 Solar 15 12/20/12 12) Solana 250 10/08/13 19) Badger 1 Solar 15 11/08/13 20) Gillespie 1 Solar 15 12/31/13 PPA Operating Plants

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AZ Sun Operating Plants Generating Facility Capacity COD 13) Paloma 17 09/12/11 14) Cotton Center 17 10/24/11 15) Hyder 16 10/31/11 16) Chino Valley 19 11/25/12 17) Foothills 17 03/18/13 17) Foothills 18 12/27/13 18) Hyder II 14 12/17/13 21) Gila Bend 32 10/17/14 22) Luke AFB 10 09/18/15 23) City of Phoenix 10 09/18/15 EPC In Development Generating Facility Capacity COD 24) Red Rock 40 03/01/17 22 22 23 23 21 21 24 24

8 5 5 MW s of Grid-Scale Renew ables

*Does not include 600+ MWs of rooftop solar

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  • Our participation in energy markets is a means to

an end:

  • APS is not a trading company!
  • We participate in energy markets to serve our

customers better:

– Improve cost effectiveness and reliability – Promote price stability

  • We also believe in using all of the tools in the toolbox:

– Participation in the Western EIM – Creation of a “trough hours” trading product

APS’ Philosophy on Energy Markets

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  • 3-year rolling commodity hedge program:
  • Hedge energy price risk
  • Primarily natural gas prices
  • Conducted through OTC swap contracts and physical

commodity

  • Optimization of energy supply:
  • This activity is continuously happening

– Seek to minimize net cost of meeting our customer’s needs

  • Buy/ sell in all electricity markets:

– Real-time (hourly), day-ahead, term

  • Participating in the Western Energy Imbalance Market (EIM)

– EIM is a 5-minute dispatch optimization – APS started participating in October, 2016

Extensive Participation in Energy Markets

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  • Clearly Defined Policies:
  • Commodity hedge policy
  • Energy risk management guidelines
  • Credit risk
  • Independent Oversight of Trading Activities:
  • Risk Management and Back Office organizations

– Report thru a different part of organization

  • Oversight committees with diverse representation

– Energy Risk Oversight Group – Executive Risk Committee

  • Established processes for vetting/ approving non-standard

deals

  • Active credit risk management organization
  • Routine Reporting and Monitoring
  • Risk reporting infrastructure in place

Risk Managem ent I nfrastructure

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W here are W holesale Electricity Markets Going?

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California Load on February 2 3 ,2 0 1 7

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13000 14000 15000 16000 17000 18000 19000 20000 21000 22000 23000 24000 25000 26000 27000 28000 29000 30000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

CAISO Load vs Net Load (i.e., the “duck” curve)

(MWs) Customer Load

(includes impact of rooftop solar)

Net Load

Difference is amount met by grid‐scale renewables

Ramping Capability Needed

A Closer Look at February 2 2 nd & 2 3 rd

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Real‐Time Price at Palo Verde Hub

($/MWH)

Solar Window Solar Window

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9 CAI SO Future Load Shape

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Net Load 9200 MW

  • n April 23, 2017

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‐ This chart shows CAISO Year to date (2017) curtailed renewable MWHs thru April 27th

…. And Substantial Amounts of Renewable Energy Being Curtailed in California

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10 Projected Renew able Curtailm ent in California

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Negative Prices Occurred on Nearly Every Day in March, 2 0 1 7

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$(200.00) $(150.00) $(100.00) $(50.00) $‐ $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 3/1 3/6 3/11 3/16 3/21 3/26 3/31

March 2017 Fifteen Minute LMPs

Statistics 21% of intervals are negative $17.18/MWh Average Price

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Thank You for the Opportunity to Speak to You Today!

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