RWEI 2011 - Wind Energy Economics

Slide 1: 

Sponsor: U.S. Department of Energy National Renewable Energy Laboratory Wind Powering America Program October 26, 2011 Daniel Ancona Princeton Energy Resources International (PERI) 1700 Rockville Pike, No. 550, Rockville, MD 20852 + 1(310)468-8414 DAncona@perihq.com Mid-Atlantic Wind Overcoming the Challenges Economic Issues Presentation for: Southern Appalachian Regional Wind Energy Institute – Washington, DC 1

Project Participants and Roles: 

Project Participants and Roles 2 Princeton Energy Resources International, LLC • Project management Market Definition • Data Collection on DE, MD, DC, NC, VA • Stakeholder Meetings • Business Economic Assessment • Environmental University of Maryland - Baltimore County • Resource Potential • Low Level Jets • Seasonal/Temporal/ Spatial Maryland Department of Natural Resources Cost share work at UMBC Chesapeake Bay Foundation • Perspectives on Environmental Issues • Data on Dead Zones and other Environmental Concerns • Regional Air and Water Shed Implications • Information Dissemination Consultants Bruce Buckheit – Policy and Regulatory Issues Dan LoBue – Transmission Issues

Mid-Atlantic Market - Issues vs. Myths: 

Mid-Atlantic Market - Issues vs. Myths Task 1 Market Definition Distinct differences in 5 States and 4 markets Compare to coal and natural gas as future source Task 2 Fact Finding Goals without tools Toothless RPS Rule making with ZERO local experience, etc. Task 3 Business and Economics Comparison of ridges/coastal; shallow/deep water markets Transmission market and PJM Rules Market options: PJM, utility, green power sales, and others Seasonal/temporal/spatial effects Task 4 Wind Resource Land-based and offshore tall tower data needed Low level jets Task 5 Environmental Implications – wind and conventional energy sources 3 Pre-View

Economic Issues : 

Economic Issues 4 Role in fulfilling Renewable Portfolio Standards or Goals (PRS/RPG) PJM pricing in wind market areas Interconnection points and transmission limitations Cost of offshore applications Incentives and subsidies

Slide 5: 

5 Ridgelines Coastal Plains Shallow Sheltered Waters Deep Water Mid-Atlantic States Wind Plant Market Areas

DELMARVA – Jutland Comparison: 

DELMARVA – Jutland Comparison 6 Delaware Maryland Virginia DELMARVA w/ 300 km line Jutland Peninsula, Denmark - w/300 km line – and 2,400 of wind plants at times producing 100% of load Denmark Germany

Maryland Energy Administration RPS Outlook: 

Maryland Energy Administration RPS Outlook 7 Wind has largest fulfillment potential at least cost Encourage in-State sourcing of Renewable Energy Certificates Imported RECS Source: MEA 10-Year Energy Outlook January 2010

New Maryland Economic Incentives: 

New Maryland Economic Incentives 8 Net Metering allows customer-generator 200% of annual average power demand to be sold back at retail price Eligible customers include: agricultural, not-for-profit orgs & coms, municipal government & affiliates Less than 2 MW generation Effective 5 September 2011 Until State reaches 1,500 MW Alternative Compliance Payments increased: 4.0¢/kWh for non-solar Tier 1 shortfalls (increased from 2.0¢/kWh), effective beginning in 2011 1.5 ¢/kWh for Tier 2 shortfalls 40 ¢/kWh for solar shortfalls in 2009 through 2014, 35¢/kWh in 2015 and 2016, 20¢/kWh in 2017 and 2018 and continuing to decline by 5¢ bi-annually until it reaches 5¢/kWh in 2023 and beyond

Slide 9: 

Source for Map: PJM August 01, 2011 PJM Regional Transmission Organization Node Locations Penn-Jersey-Maryland (PJM) Interconnection nodes chosen for geographic proximity to potential wind markets . Western Hub is PJM's regional central location.  It is the basis for ALL regional nodes.  Each nodal price is a differential measured against the Western Hub PJM Locational Marginal Prices (LMP) were calculated for nodes, as: Ridgeline Market – Cloverdale Coastal Plains Market – Delaware Power and Light, Old Dominion Electric Cooperative (DPL-ODEC) Bay Market – Calvert Cliffs Ocean Market - Fentress 9

PJM Power Prices (Cents/kWh) - Jan 01 2007 – Mar 24, 2011: 

PJM Power Prices (Cents/kWh) - Jan 01 2007 – Mar 24, 2011 10

Slide 11: 

Price data covers Jan 01, 2007 – Mar 24, 2011. Seasons are defined as: Fall: Sept-Nov, Winter Dec-Feb, Spring Mar-May, and Sumer June-Aug. On-Peak vs Off-Peak Hours, are defined by PJM, on a wholesale basis, as: Mon-Fri: 0:00 hour through 7:00 hour as off-peak (12 midnight through 7:59 am); Sat-Sun and holidays are off-peak. Mon-Fri: 8:00 hour through 23:00 hour as on-peak (8:00 am through 11:59 pm); Holidays are: New Year's Day - Jan 1*; Memorial Day - last Mon, May; Independence - July 4*; Labor Day - first Mon, Sept; Thanksgiving - fourth Thurs, Nov; Christmas - Dec 25*. * = if this holiday date is Sunday, then take Monday. Mid-Atlantic Wind Energy Off- pk On-peak Off- pk On-peak Off- pk On-peak Off- pk On-peak Fall Spring Summer Winter Calvert Cliffs 4.42 6.34 4.53 6.33 5.67 8.43 5.60 6.66 Cloverdale 3.28 4.70 3.29 5.05 3.46 6.35 4.29 5.36 DPL-ODEC 4.42 6.38 4.61 6.54 5.44 8.56 5.52 6.96 Fentress 4.21 5.83 4.30 5.85 5.47 8.07 5.34 6.18 Western Hub 3.97 5.60 4.10 5.89 4.73 7.38 4.92 6.06 PJM Power Prices (Cents/kWh) 11

Actual Capacity Factors vs. PJM Capacity Value: 

Actual Capacity Factors vs. PJM Capacity Value 12 PJM bases value solely on traditional peak demand periods (JJA) PJM class average capacity factors are 13% for wind 38% for solar

On and Offshore Projects in Denmark - 1996: 

On and Offshore Projects in Denmark - 1996 Source: Denmark Report to the International Energy Agency 1996 Photo caption “Combining Pleasure with Energy Production” Initial offshore plants in sheltered water < 10 m deep DK said “Plan of action includes eight areas with water less depths of up to 15m,” 13

Cost of Offshore Plants in Denmark: 

Cost of Offshore Plants in Denmark 14 Source: NREL 2010, IEA 2009 Average water depth 12.9 m for first 50 projects Average cost in 2009 2.68 mil €/MW vs. 1.3 on land

Offshore EU Wind Plant Cost vs. Water Depth in Sheltered vs. Open Water : 

Offshore EU Wind Plant Cost vs. Water Depth in Sheltered vs. Open Water 15 Most EU projects built in <15 m water depth Early projects (large and small) were lower cost

Offshore EU Wind Plant Cost vs. Distance from Shore and Date of Construction : 

16 Offshore EU Wind Plant Cost vs. Distance from Shore and Date of Construction Most EU projects built in <10 km from shore Costs vary by a factor of 2x for project size and year

Offshore Wind Turbine Platforms: 

Offshore Wind Turbine Platforms 17 Floating SHALLOW INTERMEDIATE TRANSITION DEEP 3-10 m Depth 11-30 m Depth 31-70 m Depth >100 m Depth Westinghouse Electric and other designs concepts

Offshore Platform Cost : 

Offshore Platform Cost 18 Westinghouse Electric designs in 1979 dollars Shallow water gravity and driven pile platform cost increase 2 to 3X after the first 15 m of water depth Steel pile and gravity platforms for depths 15 to 70 m Floating platforms useful beyond 100 m depth

ECONOMIC POLICY DRIVERS FOR WIND POWER : 

ECONOMIC POLICY DRIVERS FOR WIND POWER Potentially large undeveloped wind potential on DELMARVA – likely underestimated. RPS can be met thru vast indigenous offshore wind resources in DE, MD, NC & VA: 100 GW in state waters + 148 GW in federal waters [compared to 67 GW installed capacity in the 4 states]. Keeps construction, engineering and maintenance jobs and tax revenues in-State. Unlimited economies of scale benefit offshore - where transport limits land-based turbine size and weight. [ Could 5-10 MW turbines located in large near-shore plants have lower COE than ridgeline plants? ] Revenue to the state from lease of state bottomlands – this revenue could be dedicated to restoring the bays. Complement variable wind resource with low cost natural gas fired electric generating units. Avoid wasted energy and cost associated with lengthy transmission to east coast load centers and support upgrade of local grid systems. 19

STATE/FEDERAL POLICIES OVERLOOK COASTAL WIND POWER: 

STATE/FEDERAL POLICIES OVERLOOK COASTAL WIND POWER Executive and legislative efforts to mandate purchase of wind power are focused on offshore ocean applications (DE, MD, NJ, NC & VA). Large allocation of DOE, DOE and State funding. Renewable Portfolio Standards and Goals (RPS/RPG) allow compliance by purchase of RECs from distant states and by the purchase of Tier II RECs. Consider limiting a portion in-State. Multiple REC allotments limited to offshore wind power ( DE & MD). Allowing a 3x multiplier effectively reduces a 20 percent RPS to 7 percent. Specific Renewable Energy Certificates (REC) requirement (“carve outs”) limited to solar power (MD, others). Federal and state sponsored environmental studies focus on offshore applications; New J ersey has completed baseline environmental studies and MD has data base. Adding this cost to projects is major burden and conflict of interest. Federal sponsored wind resource assessments and economic studies have focused on mid-West and on small scale wind plants. 20

Conclusions: 

Conclusions Wind resource potential and economic value of wind power is being recognized and incentives embodied in some States State regulators need to recognize and monetize total economic and environmental costs of mountain-top coal mining and power plants and long-term value of wind Wind could meet the demand growth and replace output of over-lifetime coal unit retirements (with some natural gas turbine backup) Coastal site wind resources need validation with measurements on tall towers Vast offshore wind resources are available – need to accelerate initial projects Shallow sheltered water deployments can help to reduce cost/risk of offshore wind power 21