Perspectives on the New England Governors’

Renewable Energy Blueprint

Implications for Policymakers

NRG, with the assistance of Charles River Associates, examined the New England Governors’ Renewable Energy Blueprint and the underlying ISO New England 2030 Power System Study

NRG applauds the Governors for taking this important look at the long-term energy future of the region

NRG strives to be a partner in providing safe, reliable and economical energy in all regions in which we operate

New England Governors’ Renewable Energy Blueprint, September 15, 2009 (“Blueprint”)- http://www.nescoe.com/uploads/September_Bl

ueprint_9.14.09_for_release.pdf

ISO New England, Draft New England 2030 Power System Study, September 8, 2009 (“ISO”)- http://www.iso-ne.com/committees/comm_wkgr

ps/prtcpnts_comm/pac/reports/2009/eco_study_report_draft.pdf

The Blueprint’s Overall Conclusions New England has substantial renewable resources,

especially wind, that can be developed with appropriate transmission expansion

Adding renewable resources with low energy costs reduces system-wide costs, as does repowering/replacing older fossil plants with new, efficient combined cycle resources

Repowering or replacing older units with new, efficient, local generation is the most effective strategy for reducing air emissions and among the most effective for reducing costs

Developing renewable resources in and near New England is more economical than importing additional energy from distant regions

Several Key Quantitative Points Emerge The extensive wind and import scenarios include

substantial investments in transmission whose costs are not explicitly accounted for in this study

Pursuing Midwest renewable and other resources would require New England to bear transmission investment costs between $20 and $47 billion (ISO, p. 59)

Three local options were identified that result in lower energy costs for New England consumers- Renewable resources, especially wind- Repowering/replacement of older resources- High penetration of demand-side resources

Replacement and repowering of older fossil units results in the lowest projected emissions of SO2, NOx and CO2

Fixed cost recovery- With lower energy costs, all generators see lower

revenues, raising concerns about the adequacy of energy-market revenues to recover fixed costs – “other sources of revenue may need to be considered to ensure the economic viability of resources.” (ISO, p. 50)

What the Blueprint Is, and Is Not

The Blueprint is- A forward-looking, “what-if” scenario analysis- A high-level analysis of benefits of particular capacity

mix scenarios- A mixture of strategies which assumes “all-or-nothing”

technology implementation

But it is not- An analysis of what resources will meet consumer needs

in 2030- A cost-benefit analysis of planning options- An analysis of market participant behavior- An analysis which provides an evolutionary strategy

Existing Sites Have Economic Value

Some aspects of the value of existing sites are not quantified in the ISO’s analysis

Existing generation sites are already integrated into the transmission network

Existing plants are on industrial sites, and already largely have community acceptance- Repowering maintains/renews tax base- Repowering is a net improvement in environmental

performance- Existing permits may be transferable to new

development Most repowering candidates are near load centers, where

greenfield development is difficult, even if sites exist Existing sites have skilled workforces which can be

retrained at low cost

Repowering Has Technical Benefits

Repowering can achieve 30% - 40% improvements in unit efficiencies

Repowering units is among the lowest-cost options for development and provides ‘bang for the buck’- Repowering is a mature technology with stable and

predictable costs- The supply-chain issues with gas turbines are minimal

Fewer transmission upgrades are necessary, with lower transmission losses, to support existing sites

Repowering older units will effect substantial reductions in local NOx and SOx emissions, often located near population centers

Dispatchable resources near load centers create a more robust grid that can accommodate intermittent resources

Repowering and replacement can be targeted towards specific sites and can be done incrementally

Implications for Policymakers (1) None of the study’s ‘all or nothing’ scenarios is likely, or

even advisable

Comparatively, off-shore wind and retirement/repowering scenarios show the greatest benefits for consumers. Near-term strategies should include these resource types.

The extensive wind and import scenarios include substantial investments in transmission whose costs are not explicitly accounted for in this study

The study did not attempt to assess economic viability from an investor’s perspective – we don’t know whether any of these investments is viable on a merchant basis

To achieve the benefits suggested by the Blueprint, state policy makers must consider pro-active steps

Implications for Policymakers (2)

States should adopt policy instruments to encourage desirable changes in the resource mix – achieving efficiency and environmental improvements may require public investment support

Competitive markets are unlikely to provide the financial stability to support investments to achieve state and regional environmental and cost objectives

The penetration of lower-cost resources jeopardizes the economic viability of such resources by lowering market energy prices – each wind plant or repowering project reduces the incentive for the next one to enter

Long-term contracts with credit-worthy counterparties for wind development and repowering existing generation sites will advance the regional goals of lower emissions, lower cost, enhanced reliability and regional energy independence

Annual LSE Expense

Economic MetricsLSE Energy Expense ($Million) - Unconstrained (Base Fuel Prices)

6,000

7,0008,000

9,00010,000

11,00012,000

13,00014,000

15,000

Base ca

se (4

,000 MW

wind

)

Alt base

case

(natu

ral gas)

Alt base

case

(4,000

MW

offshore w

ind)

Retire un

its 70+

Retire un

its 60+

Retire un

its 50+

Repower

units 7

0+

Repower

units 6

0+

Repower

units 5

0+

High DR

Low D

R

High PEV

Low PEV

High Elec

tric H

eat

Low El

ectri

c Hea

t

2,000 M

W New Eng

land (N

E) W

ind

2,000 M

W O

ffshore

NE Wind

8,000 M

W NE W

ind

12,000 M

W NE W

ind

Giant Sto

rage

High Stor

age

Medium Storag

e

Low St

orage

Convert

units 7

0+ to bi

omass

New Bruns

wick Im

port

(1,50

0 MW

wind)

Quebec I

mport

(1,500 M

W ec

onomic)

Quebec I

mport

(1,500 M

W hy

dro)

Quebec I

mport

(1,500 M

W w

ind)

New York

Import

(1,500 M

W w

ind)

Midwest co

al (9,

600 M

W) +

NE wind (4

,000 M

W)

Midwest co

al/wind (9

,600 M

W) + NE w

ind (4

,000 M

W)

Midwest w

ind (9,60

0 MW

) + N

E wind (4

,000 M

W)

Midwest co

al (9,

600 M

W) +

offshore

NE wind

(4,000

...

Midwest co

al/wind (9

,600 M

W) + offsh

ore NE w

ind (4...

Midwest w

ind (9,60

0 MW

) + offsh

ore NE w

ind (4,00..

.

Base c

ase +

HQ an

d NB Im

ports (3

,000 MW

)

Alt base

case

: NE o

n/offsh

ore wind (

5,500 M

W)

Alt base

case

(5,500

MW

) + HQ/N

B import

s (3,000

MW

)

NE wind (1

2,000 M

W) +

HQ/N

B imports

(3,00

0 MW

)

Midwest co

al (9,

600 M

W), r

emove

5,500

MW N

E wind...

Midwest co

al/wind (9

,600 M

W), rem

ove 5,

500 M

W N...

Midwest w

ind (9,60

0 MW

), remov

e 5,500 M

W N

E wind..

.

LSE

Ener

gy E

xpen

se ($

Mill

ion)

Source: ISO New England, Preliminary Results for New England Governors’ 2009 Economic Study, August 14, 2009, slide 33

Source: ISO New England, Preliminary Results for New England Governors’ 2009 Economic Study, August 14, 2009, slide 45