DRUMI BHATT Role of Gas Generation : New Energy Economy...2020 2030 2040 2050 40 1,096 1,204 1,349 47 EnergyStorage Peaker Solar Wind CombinedCycle Steam Nuclear Hydro Peaking: 264

© 2019 Mitsubishi Hitachi Power Systems Americas, Inc. All Rights Reserved.

Proprietary and Confidential Information. This document or information cannot be

reproduced, transmitted, or disclosed without prior written consent of Mitsubishi

Hitachi Power Systems Americas, Inc.

1

Role of Gas Generation : New Energy EconomyDRUMI BHATT

Director, Market Analysis & Strategy

Mitsubishi Hitachi Power Systems, Americas

© 2019 Mitsubishi Hitachi Power Systems Americas, Inc. All Rights Reserved. 2

Agenda :

The New Energy Space: Gas + Renew and Storage are spearheading the Decarbonization Era1

The Path towards Decarbonization: Costs, Reliability and Environment2

Few Important Considerations : Renew-heavy Grid Implications3

In Summary: Gas + Renew + Storage : Smooth transition towards a reliable Decarbonized world4


Towards a Cleaner Future……….

ABUNDANT, RELIABLE DOMESTIC ENERGY

& REDUCED EMISSIONS

RENEWABLES+ STORAGE

NATURAL GAS

COST


The Path towards DecarbonizationGas + Renew & Storage are Spearheading the Change1


The New Energy Landscape: Market Evolutions and Technology revolutions have disrupted legacy business models

Power markets of the pastA top-down flow from supply to demand

Tomorrow’s decarbonized and decentralized power marketBi-directional energy networks with new technologies and actors at every node reshaping power market planning and operations

Intermittent Generation-OEMS

EnergyStorage

Advanced meteringInfrastructure

DistributedGeneration

Demand-sideManagement

ConnectedDevices

ElectricVehicles

DispatchableGeneration (OEMS)

Transmission Distribution End Customers


U.S. Wind and Solar push towards 20% penetration, while Gas gains continues at Coal’s expense

Natural Gas Growth matches Coal’s decline, while Renewables have Captured Demand Growth

The World is Electrifying and Electricity is De-Carbonizing70% increase in natural gas-fired

power generation since 2005, with gas now responsible for 1/3rd of total US electricity generation

50% to 30%

29%

A corresponding decline in the share of coal-based generation from today

Alongside growth in renewables and advances in efficiency, coal-to-gas switching has contributed to the drop in US power

sector emissions intensity since 2005


54%: Switch from coal to gas40%: Renewables build-out3%: More efficient gas fleet

97%: Gas+ Renewables Displacing Coal

US POWER SECTOR EMISSIONS

943lb CO2 / MWh

AS OF 2018 Q4

-29% since 2005

Coal-to-gas/renew switching has been responsible for nearly one-third of total US emissions savings since 2005

The World is Electrifying and Electricity is Decarbonizing

34% of Gen Mix

28% of Gen Mix

Natural Gas Renewables

Coal

18% of Gen Mix


Capacity Factors Trends: Gas replacing Coal as New Baseload; while Renewables Support demand growth

Coal plant utilization has declined in recent years; the average annual capacity factor of coal plants in the U.S. dropped from 73% in 2008 to 54% in 2018

Nuclear plants have high utilization rates, consistently running at above 90% average capacity factor.

Hydropower capacity factors are lower, but have also remained relatively constant over the past decade.

Wind capacity factors have increased from 32% in 2008 to 37% in 2018, largely due to improvements in wind turbine technology.

Utility-scale solar projects since 2014 have remained steady at around 26%.

Source: U.S. Energy Information Administration. Electric Power Monthly, Tables 6.7A and 6.7B. March 2019

Natural gas combined-cycle capacity factors rose from 40% to 58%.


Towards a Cleaner Future: Coal and Nuclear Replaced By Natural Gas and Renewables

308

281 304 359

119132 132

13965

130

174154 161

178

220

27

1,10335

248 240 236

97 87 83 79

102 102 102 102

2020 2030 2040 2050

40

1,096

1,204

1,349

47

Energy Storage WindPeaker CombinedCycleSolar Steam Nuclear Hydro

Peaking:

264

PV Solar grows due to cost and resource advantage vs. wind

U.S. Installed Capacity, GW

CCGT grows due to cost advantage and flexibility advantage vs. coal and nuclear

Peaking GT and storage both grow. Split depends on storage cost-out and regulation

Source: EIA data : 2018

GT vs. Storage

Intermittent:PV Solar vs. Wind

Base Load:CCGT vs. Coal &

Nuclear


The Path towards Decarbonization: Costs, Reliability and Environment2


Challenges to achieve full Decarbonization of the Power Sector

Scale & Tech Gaps

Reliability, Extreme Events & Peak Demand Flexibility

LCOE and Grid-ValueTransmission & Grid Investments

Land Limitations


Proprietary and Confidential Information. This document or information cannot be reproduced, transmitted, or disclosed without prior written consent of

Mitsubishi Hitachi Power Systems Americas, Inc.

12

LCOE and Grid Value


• However GTCC has also improved due to 70% reduced in NG prices, 30% in $/Kw installed cost and and 7% improvement in efficiency.

13Source: LBNL “Tracking the Sun VIII”; US Department of Energy “2015 Wind Technologies Market Report”; Lazard; BNEF; MHPS Market Analysis

PRODUCTION TAX CREDIT = $23/MWh

Gas, Wind & Solar LCOE Continue to Decline

INVESTMENT TAX CREDIT = 30%

• Over the last eight years, wind and solar PV have become cost-competitive with conventional generation technologies, on an unsubsidized basis, in light of material declines in the pricing of system components.

SHALE BOOM + ADVANCED GAS TURBINE INNOVATIONS

$98

$50 $54 $48$36

$45 $49$33 $32 $34 $34

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

210

225

240

255

270

285

300

$0

$50

$100

$150

$200

$250

$300

$350

$400

Cu

mu

lative

GT

CC

Ca

pa

city (

GW

)

GTCC LCOE Annual GTCC Additions

$359

$248

$157

$125

$98

$79$64

$55 $50 $46

0

10

20

30

40

50

60

70

80

$0

$50

$100

$150

$200

$250

$300

$350

$400

Cum

ula

tive P

V C

ap

acity (

GW

)

LC

OE

($

/MW

h)

Solar (PV) LCOE Annual PV Installations

$135$124

$71 $72 $70$59 $55

$47$40

0

20

40

60

80

100

120

$0

$50

$100

$150

$200

$250

$300

$350

$400

Cum

ula

tive W

ind

Cap

acity (

GW

)

Wind LCOE Annual Wind Installations

© 2019 Mitsubishi Hitachi Power Systems Americas, Inc. All Rights Reserved. 14Source: BNEF; * MHPS Americas Calculated

2741 46 38

195

64

34 4057 64

99

170

251

87

59 65 69 76

344

161

47

114

174196

141

180

320

0

50

100

150

200

250

300

350

400

450

500

LC

OE

($

/MW

h)

Bulk Generation Flexible Generation

Dispatchable Generation Peaking Generation

LCOE – Misleading Metric: Dispatchable Vs. Non-Dispatchable

• The use of LCOE formula to compare dispatchable and non-dispatchable generation technologies is misleading.

• Array of real, if hidden, costs needed to operate a reliable 24/7 -365 energy infrastructure—or, in particular, a grid that used only wind/solar.

• Comparing two different technologies using LCOE alone evaluates only cost to build and operate a plant and not the value of the plant’s output to the grid.

• LCOE is an effective evaluation metric when used to compare similar technologies with comparable MWh generation

MHPS Americas Assumptions for GTCC and SC:10% discount rate, 30 year evaluation, $3/MMBtu+esc. For "Low" values, $4/MMBtu+esc. For "High" values, 1,000 hours/yr for SC, 7,500 hours/yr for GTCC


The Value-Adjusted Levelized Cost of Electricity (VALCOE) is a new metric developed by IEA measuring the competitiveness for power generation technologiesreflecting the differing value propositions of technologies taking into account both cost and value between variable renewables and dispatch able thermal

technologies

15Source: IEA, WEO2018

The Need for a New Metric? : Valuing Energy, Flexibility & Reliability

Considers Contributions of Generation Technologies to the Energy supply, System Adequacy, and the Flexibility that ensures reliability of supply




16

Limitations set by PHYSICS

Scale and Technology Gaps

© 2019 Mitsubishi Hitachi Power Systems Americas, Inc. All Rights Reserved. 17Source: New Energy Economy: Manhattan Institute

It would require 1,000 years of production to make enough batteries for two days’ worth of U.S. electricity demand.

The annual output of Tesla’s Gigafactory, the world’s largest battery factory, could store three minutes’ worth of annual U.S. electricity demand.

Meanwhile, 50–100 pounds of materials are mined, moved, and processed for every pound of battery produced.

Era of 10-fold gains is over.

The physics boundary for silicon photovoltaic (PV) cells, the Shockley-Queisser Limit, is a maximum conversion of 33% of photons into electrons; the best commercial PV technology today exceeds 26%.

The physics boundary for a wind turbine, the Betz Limit, is a maximum capture of 60% of kinetic energy in moving air; commercial turbines today exceed 40%.

Scale, Physics and Other Limitations

A 90 fold effort !

To completely replace hydrocarbons over the next 20 years, global renewable energy production would have to increase by at least 90-fold

A transition to 100% non-hydrocarbon electricity by 2050 would require a U.S. grid construction program 14-fold bigger than the grid build-out rate that has taken place over the past half-century.

600% More ~ $1M investment

Spending $1 million on utility-scale wind turbines, or solar panels will each, over 30 years of operation, produce about 50 million kilowatt-hours (kWh)—while an equivalent $1 million spent on a shale rig produces enough natural gas over 30 years to generate over 300 million kWh.

That constitutes about 600% more electricity for the same capital spent on primary energy-producing hardware.

SCALE: CAPITAL: PHYSICS: BATTERIES:

Solar: Shockley-Queisser Limit

Wind: Betz Limit

Global Transition

30 yrs operations

↑ 600%

Production Lasts

Material Produces60%

40%

34%

26%

© 2019 Mitsubishi Hitachi Power Systems Americas, Inc. All Rights Reserved. 18Source: Armond-Cohen (Clean Air Task Force) Testimony: Building Americas Clean Future

Storage Limitations: Capturing Maximum surplus becomes Cost prohibitive

California surplus and deficit patterns under a 100% renewable energy scenario

The sheer amount of storage that must be built to capture maximum surplus, and then utilized infrequently, becomes cost prohibitive, even at very low storage costs

Accumulated surplus during the year equals 35.9 Million MWh, or roughly 14% of the California’s annual electric usage. To contain that much energy at peak storage time :

Storage cost California’s GDP

A peak storage system equivalent in instantaneous capacity larger than the generating capacity of the entire US electric grid.

A very LARGE capital expense: Assuming $80/kwh (80% lower than where it is today) - the total cost of such a battery storage system would be $2.9 trillion, or more than California’s annual GDP of $2.7 trillion.

Very large per unit costs for stored energy: Large capacity divided by little use, resulting in very largeper unit costs for stored energy.


Storage to the Rescue: Have current solutions reached commercial viability yet ?

Astonishing quantities of Li-Ion batteries will be needed to keep country-level grids energized—and the level of mining required for the underlying raw materials would be EPIC.

Even the entire world’s current battery storage capacity, around 8 gigawatt-hours, wouldn’t be enough to power New York City for ONE hour.

As per a WMN study, only 43% of the peaks across PJM, ERCOT and CAISO can be captured by a 4 hour battery (small sample size)

Until multi-week/month duration storage technologies are WIDELY available, ZERO reliance on Gas will require building far more than 100% renewable energy and accepting that there will be many hours of curtailment in order to ensure demand that can be met for the entire year :365-24X7 with 100% reliability


Energy Storage Solutions: Li-Ion, Flow and Renew H2 (fueled Turbines)

Commercial &

Industrial

500 kW – 3 MW

Renewables +

Batteries

> 5 MW

Utility Scale

Energy Storage

> 10 MW

MicrogridsFuel Cell + Solar Storage + …

> 500 kW

H2 Turbines +

Batteries/ H2

> 20 MW

Lithium Ion

20

Flow Renewable

Hydrogen

100% Hydrogen Fuel Turbines

Zero CO2 Emissions




21

Transmission and Grid Investments


Nationally, the largest single-year jump in project completions occurred in 2018 as new T&D infrastructure, valued at $52.3bn, was added – up 13.7% or $6.4bn from 2017.

22Source: Wires Group

The length of transmission needed to reach somewhere “always” sunny/windy also entails substantial reliability and security challenges. (And long-distance transport of energy by wire is twice as expensive as by pipeline)

Transmission Investments: Its always Windy or Sunny Somewhere….

Transmission infrastructure already frequently hits limitations at today’s level of wind penetration across Renew heavy states

The transmission investment required to accommodate new renewable resources could reach $90 billion by 2030, according to the report released by Wires Group, a trade association advocating for transmission investment. By 2050, the investment could grow to more than $600 billion.

The highest wind speed corridors and areas of highest solar insolation are distant to load centers (excluding potential offshore wind). Most renewable development today is still targeted in those remote locations.




23

Reliability, Extreme Events and Peak Demand Dynamics


Steepening Intra-Day Ramps AND Seasonal Variability of VRE: Need for Firm Capacity

The fundamental dynamic driving the need for firm energy is seasonal variability.

It is commonplace to say that “the wind doesn’t always blow and the sun doesn’t always shine.” But this statement does not capture the real challenge of a wind- and sun-dominated electric system.

Wind and sun do not just vary on daily cycles; they vary substantially over weekly and monthly periods. There are multiple weeks of average surplus above demand during the summer months but substantial deficits September through February.

The consequence of this seasonal variation is that, even when California procures enough wind and solar output to meet total electricity demand on an annual average basis, roughly 27% of hours of the year cannot be served by wind and sun.

Source: Armond-Cohen (Clean Air Task Force) Testimony: Building Americas Clean Future


Extreme Weather Events & Reliability : Long Duration Storage

50% wind & 50% solar grid (WMN Study)

Replaying the 2019 polar vortex conditions with 100% renewables:

Any mix of wind and solar to serve load would require long-duration storage or optimization of multiple “stages” of shorter duration

Assuming no transmission constraints and unfettered access to a wider pool of resources, the market would require firm generation for durations ranging from 18 and 40 hours to backstop renewable intermittency

With long stretches of storage ‘charge’ and ‘discharge’, multi-day forecasting of intermittent output would be critical

Distributed or demand-side technologies may help reduce peak load requirements and the need for utility-scale energy storage




26

Land Limitations


A 100% Renew Ambition: Land Limitations

124,608 MW capacity : ~16,023 sq.miles ofturbines (3 watts per sq.meter- DOE)A land area roughly 4 times the size of L.A.County with nothing but massive windmills

To expand renewables to approach the amount of energy needed to run our entire economy likely to face land public pressure (forests of wind turbines and sprawling solar projects)

Source: Stanford civil and environmental engineering Professor Mark Jacobson

SB100 goal by 2045(California)

=124,608 MWs

(On-shore windpower capacity)

32,869 MWs(Off-shore wind

capacity)

236,243 MWs (Solar energy

capacity)

9,02,128ACRES

(onshore only)

+ + =

Assuming 33,000 MW of concentrated solarplants (and rest as Residential Solar)

Roughly 87 facilities as large as the 377MWIvanpah solar complex (5.4Sq miles each)

Solar:

OnShoreWind:


3 Few Important Considerations :

Renew heavy Grid Implications


Global Perspective: Highest Retails Rates correlate with Highest Renewable Penetration

Average U.S. residential electric costs have risen some 20% over the past 15 years. In the US, cost savings from the shale-gas revolution have significantly insulated consumers,

so far, from even higher rate increases


Hidden System Cost Considerations for Higher Renewable Penetration

Balancing the Grid:

The increased use of wind/solar imposes a variety of hidden, physics-based costs. For example, when large quantities of power are rapidly, repeatedly, and unpredictably cycled up and down, the challenge and costs associated with “balancing” a grid (i.e., keeping it from failing) are greatly increased. OECD analysts estimate that at least some of those “invisible” costs imposed on the grid add 20%–50% to the cost of grid kilowatt-hours.

Increased Cycling:

Furthermore, flipping the role of the grid’s existing power plants from primary to backup for wind solar leads to other real but unallocated costs that emerge from physical realities. Increased cycling of conventional power plants increases wear-and-tear and maintenance costs. It also reduces the utilization of those expensive assets, which means that capital costs are spread out over fewer kWh produced— thereby arithmetically increasing the cost of each of those kilowatt-hours.

Blackouts:

Australia: Happened twice after the wind died down unexpectedly (with some customers out for days in some areas) in the state of South Australia, which derives over 40% of its electricity from wind. After a total system outage in South Australia in 2018, Tesla, with much media fanfare, installed the world’s single largest lithium battery “farm” on that grid. For context, to keep South Australia lit for one half-day of no wind would require 80 such “world’s biggest” Tesla battery farms, and that’s on a grid that serves just 2.5 million people.

Supply Chain Footprint:

A World mining gigatons more materials all powered by “Fossil Power”All forms of energy production entail various unregulated externalities inherent in extracting, moving, and processing minerals and materials

Source : New Energy Economy, MHI


4 In Summary


Gas + Renew + Storage : A Balanced Mix for a Reliable Decarbonized grid

Gas reliably replaces retiring baseload coal plants supporting renewable integration with flexibility and successful reducing emissions

Wind and solar push towards

20% penetration, helping

Decarbonization goals

Solar + Storage gaining preference in few regions: Limited by costs, and regions with good solar insolation and land availability

*105 GW of Baseload Coal-Nuclear retirements in the next decade

COST


33

Towards a Cleaner Future……….

REDUCED EMISSIONS ANDABUNDANT, DOMESTIC ENERGY

RENEWABLES+ STORAGE

NATURAL GAS

DRUMI BHATT Role of Gas Generation : New Energy Economy...2020 2030 2040 2050 40 1,096 1,204 1,349 47 EnergyStorage Peaker Solar Wind CombinedCycle Steam Nuclear Hydro Peaking: 264

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