Public Policy Drivers and Other Trends in Renewable Energy

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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,
Inc.
Presented to
January 19, 2007
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Todays Discussion

• Renewable Energy Portfolio Requirements
• Emerging Emissions Considerations
• Increasing Renewable Resources in Utility
  Resource Portfolios
• Utility Ownership of Renewable Projects
• Conclusions

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State Renewable Energy Requirements are Increasing
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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• Map is already out-of-date (Washington state just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

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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)
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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
  mainstream and perhaps not a reliable resource

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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

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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
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Is the Trend 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

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Issues 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

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Opportunities 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

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So . . .
QUESTION Ownership vs. PPA ? What is best
for customers? ANSWER As always, it
depends! Details count.
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A Representative Cost Profile
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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 Conclusions

• 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

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End of Presentation ? ? ?
Thanks!
Mon-Fen Hong La Capra Associates Twenty
Winthrop Square Boston, MA 02110 617-557-9100,
ext. 22 mhong_at_lacapra.com
Contact Information
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