Public Policy Drivers and Other Trends in Renewable Energy IPED Managing Your Energy Portfolio in a Greener World Presented by:Mon-Fen Hong La Capra Associates,

Public Policy Public Policy Drivers and Drivers and Other Trends in Other Trends in Renewable Renewable EnergyEnergy

IPEDManaging Your Energy Portfolio in a Greener World

Presented by: Mon-Fen HongLa Capra Associates, Inc.

Presented to:

January 19, 2007

Public Policy Drivers and Other Trends in Renewable Energy

IPED Conference January 2007 2

Renewable Energy Portfolio Requirements

Emerging Emissions Considerations

Increasing Renewable Resources in Utility Resource Portfolios

Utility Ownership of Renewable Projects

ConclusionsConclusions

Today’s Discussion

Public Policy Drivers and Other Trends in Renewable Energy

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State Renewable Energy Requirements are Increasing

Public Policy Drivers and Other Trends in Renewable Energy

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RPS Key Points

Every state RPS is different

Rising energy costs and available local resources motivate RPS

Map is already out-of-date (Washington state just passed RPS by vote)

Many states exempt or limit applicability for municipalities, co-ops and public power agencies

Growing push for federal RPS

Public Policy Drivers and Other Trends in Renewable Energy

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Greater Attention to Emissions: Some Examples

Rating agencies looking at company carbon risk

California: reduce CO2 25% by 2020

RGGI (seven northeast states): reduce CO2 10% by 2019

Increasing expectation of federal action

Seven Participating States of RGGI: (Regional Greenhouse Gas Initiative)

Maine

Delaware

Connecticut

New Hampshire

Vermont

New Jersey

New York

Public Policy Drivers and Other Trends in Renewable Energy

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Until Recently:Until Recently: Utilities Hesitant with Renewable Energy

Before 2005, very few large non-hydro renewable energy projects owned by utilities

Mid-American Energy: 360 MW of wind-power projects in Iowa

50 MW wood plant in Vermont

2 geothermal plants (Utah and CA)

Utilities regarded renewables as outside outside mainstreammainstream and perhaps not a reliable resource

Public Policy Drivers and Other Trends in Renewable Energy

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Now:Now: Renewables Significant Part of Resource Plans

Integrated resource plans find renewables are cost effective option

Lawrence Berkeley National Lab: Western utility plans show 8,000 MW of new renewable energy projects by 2014

See http://eetd.lbl.gov/ea/ems/re-pubs.html

Very high percentage from wind

Public Policy Drivers and Other Trends in Renewable Energy

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Utility Ownership of Wind Projects:Utility Ownership of Wind Projects: A New Trend?

Last 18 months have seen a dramatic shift

Utilities complete or announce start of over 600 MW of wind projects

Puget Sound Energy Oklahoma Gas & Electric Kansas City Power & Light

Capital cost of almost $1 billion

Also note: PSNH* has converted 50 MW coal plant to biomass

* Public Service of New Hampshire

Public Policy Drivers and Other Trends in Renewable Energy

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Is the Trend Accelerating?Accelerating?

Utilities announce acquisition of development rights to over 1,100 MW of wind projects having a capital cost of almost $2 billion

Wisconsin Power & Light Wisconsin Electric Portland General Electric Mid-American

Public Policy Drivers and Other Trends in Renewable Energy

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IssuesIssues for Customers

Potentially big rate base addition

More than 50% of wind project cash-flow value derives from tax benefits

How best to structure transaction for non-taxable utilities?

CREBs financing for smaller projects? Utilities have little experience with

renewables

Public Policy Drivers and Other Trends in Renewable Energy

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OpportunitiesOpportunities for Customers

Utilities’ involvement may be a significant step to development of relatively new but promising resource

Long-term value of no fuel-cost resource

Price suppression

Emission-free or reduced emissions risk

Public Policy Drivers and Other Trends in Renewable Energy

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So . . .

QUESTION:

Ownership vs. PPA What is best for customers?

ANSWER:

As always, it depends! Details count.

Public Policy Drivers and Other Trends in Renewable Energy

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A Representative Cost Profile

Utility vs. Merchant PPA Revenue Requirements Five Year Depreciation, with PTC

$0

$20

$40

$60

$80

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

$/MWh

year

PPA with Merchant Utility Revenue Requirements Municipal Rate Recovery

Public Policy Drivers and Other Trends in Renewable Energy

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Development and Operating Risks of Ownership

Development risk

Construction cost overruns (capital at risk)

Actual wind performance

Cost of capital and other costs can increase over time

Ability to use taxes/AMT issues (if applicable)

Unscheduled maintenance/longevity of equipment

Incentive to run efficiently

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Some ConclusionsConclusions

Growing national trend in RPS and other emissions-related policies

Utilities seeing that addition of wind and other renewables to the resource mix can be beneficial

Whether such additions should be by means of power purchase agreement (PPA) or ownership must be carefully considered

PPA

16Utility Ownership for Renewable Energy Projects

NASUCA Mid-Year Meeting 2006

Thanks!

End of Presentation

End of Presentation

Mon-Fen HongLa Capra AssociatesTwenty Winthrop SquareBoston, MA 02110

617-557-9100, ext. 22

[email protected]

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