1 Energy Costs for Water Suppliers: Energy Costs for Water Suppliers: Prospects and Options Prospects and Options AMWA Annual Meeting October 20, 2008 Bill Kemp Vice President, Business Strategy & Planning Services BUILDING A WORLD OF DIFFERENCE ® -2- Oct-2008 AMWA – Energy Costs Agenda Energy Costs in Water O&M Carbon Legislation Implications Outlook for Power and Gas Prices Energy Cost Management Strategies
12
Embed
Energy Costs for Water Suppliers: Prospects and Options · 2 AMWA – Energy Costs -3- Oct-2008 Energy Costs: Major Cost for Water Suppliers Second only to labor in operating costs
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
Energy Costs for Water Suppliers:Energy Costs for Water Suppliers:Prospects and OptionsProspects and Options
AMWA Annual MeetingOctober 20, 2008
Bill KempVice President, Business
Strategy & Planning Services
BUILDING A WORLD OF DIFFERENCE®
-2- Oct-2008AMWA – Energy Costs
Agenda
Energy Costs in Water O&M
Carbon Legislation Implications
Outlook for Power and Gas Prices
Energy Cost Management Strategies
2
-3- Oct-2008AMWA – Energy Costs
Energy Costs: Major Cost for Water Suppliers
Second only to labor in operating costs
Typically accounts for 10-15% of operating costs Pumps Treatment processes Vehicle fleet, facilities
Rising faster than other operating costs
Complexity of electric rates complicates management Usage characteristics / tariff classification Multiple rate components (fuel clauses, trackers, etc.)
● Energy cost volatility and budget variances● Impingement on short term operating budgets
-4- Oct-2008AMWA – Energy Costs
Top Overall Electric Utility Concerns - Trends
● Environmental issues now at top of mind● Reliability, aging workforce, and aging infrastructure close behind
● Carbon issues even more dominant● Water supply fading in importance as droughts ease
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Percentage of IOU Respondents
Coal production
Site remediation
Water effluent
Particulates
Coal transportation
Nuclear fuel disposal/storage
Water Supply
Mercury
SO2
NOx
Carbon emissions legislation
Environmental Issues of Most Concern for Electric IOUs
1 Least Concern 2 3 4 5 Most Concern
Average
Rating
4.22
3.32
3.28
3.15
3.05
2.89
2.87
2.85
2.82
2.66
2.63
BUILDING A WORLD OF DIFFERENCE®
-6- Oct-2008AMWA – Energy Costs
Agenda
Energy Costs in Water O&M
Carbon Legislation Implications
Outlook for Power and Gas Prices
Energy Cost Management Strategies
4
-7- Oct-2008AMWA – Energy Costs
GHG Caps Will Drive Marginal Abatement Costs
● Cap trajectories vary widely● B-L-W calls for a ~30% total reduction from 2006 levels by 2030● Rapid near-term GHG reduction could balloon carbon price● Recession could defer effects of legislation
2008 Level
-8- Oct-2008AMWA – Energy Costs
Regional GHG Initiatives
Western RegionalWestern RegionalClimate ActionClimate ActionInitiativeInitiative ––economy-widereductions 15%below 2005 levelsby 2020
(1) Does not include transportation and sequestration costs of $6-10/ton CO2. Highly site-specific.(2) Does not include 33% capital cost premium for base IGCC plant over PC.
● Huge increase in fuel costs for PC. 30% parasitic load means ~3:2 ratio ofgross to net output.
● Incremental cost for CCS lower for IGCC, but base plant more costly● Capital cost of CCCT roughly doubles.● Marginal cost of CO2 abatement (PC retrofit) in $70-80/ton range by ~2030
Higher costs, lowernet output.
Energy used incapturing carbon.
More processesand equipment.
Notes
22% (2)
20%
22% (2)
IGCC
53%47%Levelized Cost($ per busbar MWh) (1)
15%50%Net Energy Efficiency(mmbtu per busbar MWh)
98%44%Capital Cost
GasCCCT
Super-critical
PulverizedCoal
Change From AddingCCS To New Base Plantof Stated Type
[$1/ton CO2 = ~$1/MWH for coal]
Carbon Capture: Costly Control Option
-12- Oct-2008AMWA – Energy Costs
Electric Rate and Economic Impacts Rate increases from CO2 abatement dependent on generation
mix and market structure. Will vary by company and region.
States/regions with more carbon-intensive baselines mayironically have lower costs of abatement. More allowances,cheaper reductions.
Percentage market price increases bigger in coal-dominantregions, but gas increasingly on margin (price setter).
Increases in total electric rates due to CO2 abatement likely to beat least 40-60%. Spread over number of years.
Long-term demand response to higher prices could besubstantial; tailing off of load growth.
Gentle near-term cap trajectory needed to avoid economicdislocations from blow up in carbon price.
Lower 48 natural gas productionexpected to peak in 2020 at 61.5bcf/d due to additional Alaska
supplies coming to market.
Market-clearing supplies rising in cost
9
-17- Oct-2008AMWA – Energy Costs
B&V Forecast for Natural Gas Prices
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
Jan-
10
Jan-
12
Jan-
14
Jan-
16
Jan-
18
Jan-
20
Jan-
22
Jan-
24
$/MMBtu
Historical
B&V Forecast without CO2
B&V Forecast with CO2
Source: Platts GASdat, B&V analysis
(At Henry Hub)
● Shale plays drive U.S. gas prices through 2015● North American gas still below world price levels
-18- Oct-2008AMWA – Energy Costs
Projected Electricity Price with CO2
$-
$50
$100
$150
$200
$250
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Jan-
15
Jan-
16
Jan-
17
Jan-
18
Jan-
19
Jan-
20
Jan-
21
Jan-
22
Jan-
23
Jan-
24
Subperio
d E
nerg
y M
ark
et P
rice (
$/M
Wh)
Off Peak Eastern Canada Off Peak Florida Off Peak IESO (Ontario) Off Peak ISO New England
Off Peak Midwest ISO Off Peak MRO Off Peak New York ISO Off Peak PJM Interconnect
Off Peak Southeast Off Peak Southwest Power Pool Off Peak Historical On Peak Eastern Canada
On Peak Florida On Peak IESO (Ontario) On Peak ISO New England On Peak Midwest ISO
On Peak MRO On Peak New York ISO On Peak PJM Interconnect On Peak Southeast
On Peak Southwest Power Pool On Peak Historical
Forecasted Average Wholesale Electricity Price(Eastern Interconnect, Including CO2 Compliance Costs)
Source: Enerfax,B&V Analysis
● Power prices without carbon cost rising slightly below inflation● ~2-3 times inflation rate with carbon cost; regulatory effects● Higher and more volatile in gas-dominated power markets
~5-7% CAGR 2009-2024
Start of carbon constraints
10
BUILDING A WORLD OF DIFFERENCE®
-19- Oct-2008AMWA – Energy Costs
Agenda
Energy Costs in Water O&M
Carbon Legislation Implications
Outlook for Power and Gas Prices
Energy Cost Management Strategies
-20- Oct-2008AMWA – Energy Costs
Energy Cost Management Options
Reduce EnergyConsumption
Produce Energy
Lowest hanging fruit
$● Energy efficiency:
process, equipment● Energy re-capture:
waste heat, low-headhydro
● Load shifting: movingmore demand off-peak
Revise SupplyArrangements● Tariff schedule negotiation: missed opportunities?● Energy retailers:
cost vs. risk balance
$$Optimize
costs/risks
11
-21- Oct-2008AMWA – Energy Costs
Energy Cost Management Options
Reduce EnergyConsumption
Economics improving, but still utility-specific
Revise SupplyArrangements
● Leverage back-up generators; source of capacity value● Self-generation must be competitive with utility power purchases
(with environmental adjustments)● Fossil-fuel generation (gas, coal) not cost-effective on small scale● Economics of renewables highly location-specific. Early year costs
typically higher. More attractive in higher cost regions.● Tax breaks and incentive programs can sometimes bridge the gaps● More options for combined water/wastewater systems
Optimizecosts/risks
Produce Energy
$$$
BUILDING A WORLD OF DIFFERENCE®
-22- Oct-2008AMWA – Energy Costs
Agenda
Energy Costs in Water O&M
Carbon Legislation Implications
Outlook for Power and Gas Prices
Energy Cost Management Strategies
Black & Veatch Background
12
-23- Oct-2008AMWA – Energy Costs
Phase 1
• Climate changescenarios
• Conditional usageforecasts
• Carbon footprint• Environmental risk
assessment• Technology
assessment
AssessmentPhase 2
• DSM/EE resourcesand programs
• Electric/gas/emissions marketanalysis
• Integrated resourceplanning
• Strategic analyses(SWOT, 5 Forces)
• Climate changeopportunities
Analysis ofAlternatives
Phase 3
• Corporate +environmentalstrategic plans
• Climate changestrategy
• Implementation plan• Performance
management
StrategicSynthesis
Climate Change PathfinderTM
Phased approach to planning for climatechange
Robust over range of plausible GHGscenarios
Internal, then external evaluation
Up-side opportunities as well ascompliance
Implementation focus
Draws on threerelated streamsof planning services(strategic, resource,environmental)
Enterprise Management SolutionsThe Management Consulting Division of Black & Veatch Delivering broad range of strategy, process, and technology solutions through proven methodologies
and practices Leverages Black & Veatch’s 90 years of experience and 9,000 utility industry professionals, including
the collective talents acquired from three prominent consultancies