Ditzel NYISO Storage Case Study 14Dec2011 Final - Public Version

7/31/2019 Ditzel NYISO Storage Case Study 14Dec2011 Final - Public Version

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ACaseStudyofGridEnergyStorageinNYISO

KenDitzelDecember14,2011


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Private and Confidential1

The New York ISO (NYISO) has been the first market to have emerging

electricity storage technologies commissioned at commercial scale andcompeting with conventional generators

Located at AESs Westover coal plant in Johnson

City, NY (using existing infrastructure) A123 Lithium-Ion technology

8 MW in operation as of January 2011

15 minutes of capacity

12 MW planned addition

AES Energy Storage Facility

Beacon Power Facility

Located in Stephentown, NY

Beacons own proprietary flywheel technology

8 MW in operation as of January 2011

Full 20 MW commissioned in June 2011

15 minutes of capacity

2 flywheels of the 200 have failed


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4/12

Private and Confidential

InterconnectionAgreement

signed

8MWsystemon-line

Announces

planned 20MWproject

2010 201120092008

12MWaddition to

becompleted

8MW

systemon-line

12MWaddition

completed

$43 MM LG

approved

Projectbreaksground

PSC

ConstructionApproval

Awarded $2MM from

NYSERDA

DOE

EnvironmentalApproval

Stephentownenvironmentalapproval and

special use permit

2007

Town of UnionConst. Permit

granted

Projectbreaksground

SystemImpactStudy

Approved

CPCN & EWGStatus

Granted

NYISO 20MWInterconnectionRequest Filed

$17.1 MMLG approved

Application forConst. Permit

The AES and Beacon Power NYISO projects developed quickly from

announcement to operation

3

Announcement

Announcement Operating

Operating


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AttractiveRegulation

Market

Strong StateReg. & Leg.

Support

TimelyFederalSupport

Efficient

LocalBacking

Objective

ProjectDevelopers

Highest averageprices in U.Sacross all marketsfrom 2006 -2010:

~$40-60/MW-h

Provision of LGs

Granting of EWG Approvalof tariff modifications

Timely approval ofenvironmental permits

Funding and support by

NYSERDA Exemption of PSC approval Quick approval of CPCN

Quick approval of const.& envir. permits

Efficient process to workthrough local concerns

Focus on leveling nottilting the playing field

Commercialization

Success

The historically attractive frequency regulation market was the primary

driver leading to commercialization success

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Frequency Regulation Prices in U.S. Markets

FrequencyRegulationP

rices($/MW-h)

While NYISO regulation prices had been the highest across the U.S.

Markets since 2006; they recently have converged with other markets

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009 2010 2011

NYISO - RTH

PJM - RTH

ISO-NE - RTH

CA Reg-Down -DAHCA Reg-Up -DAH

NYISO prices have beenhigher due a combination

of natural gas and oilprices and legacy

generators (expensive oiland gas steam units)

sticking around to collectcapacity payments,

participate in ancillaryservices markets, and toreceive real-time energy

payments

5

Source: Energy Velocity, CRA Analysis


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30-dayTrailingDARegulationPrices($/MW

-h) 3

0-dayTrailingHenryHub

Prices($/MMBtu)

Fuel Impacts Market Impacts

Reg. prices havebeen ~70%correlated withgas since 2008

670 MW Empire

Gas CC cameon-line Oct 2010

2011 annual loadis flat at about2006 levels

The convergence in prices mainly has been due to a steep drop in gas

prices; new additions and flat load growth have been factors as well

6

0 .0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Nov-07

Feb-08

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

Natural Gas

NYISO Regulation and Gas Prices

Regulation

Source: Energy Velocity, CRA Analysis


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NYISO Storage Breakeven Economics (Illustrative)

What were once attractive projects during the concept and development

phase are now uneconomic

7

0

20

40

60

80

100

120

500 750 1000 1250 1500 1750

FrequencyRegulationPrices($/MW-h)

Capital Cost ($/kW)

Uneconomic Investment(- NPV)

Economic Rents(+ NPV)

ROI = WACC(0 NPV)

Storage CostRange*

2007 NYISO Avg.Frequency

Regulation Price

2011 NYISO Avg.

FrequencyRegulation Price

* Storage Cost Range is defined by future Li-ion costs at the lower end and current

flywheels costs at the higher end; both are based on 15 minute capacity


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FERC Order 755 is expected to improve the economics for storage

devices by at least a factor of two due to their higher performance

8

Source: Beacon Power

Generator vs. Flywheel AGC Response FERC Order 755

Issued on Oct. 20th; Federal Register on Oct 31st.

Remedies undue discrimination in the procurementof frequency regulation in the organized wholesaleelectric markets

Commission found the following: Current frequency regulation compensation

practices are unjust, unreasonable, and undulydiscriminatory or preferential

Current compensation methods fail toacknowledge the inherently greater amount of

frequency regulation service being provided byfaster-ramping resources

Final Rule requires RTOs and ISOs to compensatefrequency regulation resources in two parts:

A capacity payment that includes the marginalunit's opportunity costs

A payment for performance that reflects the

quantity of frequency regulation service providedby a resource when the resource is accuratelyfollowing the dispatch signal

Expectation is an approximate doublingin thecapacity payment to fast ramping devices


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NYISO Storage Breakeven Economics (Illustrative)

If total compensation to fast-ramping devices doubles from 2011 levels,

some storage technologies would become economic in NYISO

9

0

20

40

60

80

100

120

500 750 1000 1250 1500 1750

FrequencyRegulationPrices($/MW-h

)

Capital Cost ($/kW)

Uneconomic Investment(- NPV)

Economic Rents(+ NPV)

ROI = WACC(0 NPV)

Storage CostRange

2x 2011 NYISOAvg. Reg Price

2011 NYISOAvg. Reg. Price

Source: CRA Analysis


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What lessons can be learned and leveraged going forward?

Give careful consideration to historical and future market conditions

Understand the underlying drivers of historical regulation prices (whats driving themarginal prices?)

Consider a range of future regulation price scenarios using the drivers as levers

Select quickly deployable storage technologies to capture rents while marketconditions are favorable

Think about financial hedging/ optionality to protect the investment Hedge fuel prices in advance of commissioning if they are determine to be a major

driver for frequency regulation prices

Make assets re-deployable (ability to move them using truck, rail, and/or barge) incase the investment turns sour

Consider whether additional value is possible from a future extension of the storageoffering (e.g., in the energy and capacity markets) as technology costs decline

Have a portfolio approach (instead of a single project focus) to average out bad bets

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Ken Ditzel

Charles River Associates

1201 F St. NW Suite 700Washington, DC

(202) 662-7821

[email protected]

Ditzel NYISO Storage Case Study 14Dec2011 Final - Public Version

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