Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
-
Upload
eugene-franco -
Category
Documents
-
view
219 -
download
0
Transcript of Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 1/12
© 2010 EMERGING ENERGY RESEARCH, LLC.All rights reserved. Reproduction of this publication inany form without prior written permission is strictlyforbidden. The information contained herein is fromsources considered reliable but its accuracy andcompleteness are not warranted, nor are the opinionsand analyses which are based upon i t.
Photo Source
North America WindEnergy Advisory
Market Brief
Utility Ownership
and Procurement Strategies in theUS Wind Sector
ID# NAW 925-100802
2 August 2010
Tim Stephure
+1 617 551 8586
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 2/12
Page 2North America Wind Energy Advisory – NAW 925-100802
Utility Ownership and Procurement Strategies in the US Wind Sector
Summary
Utilities are taking an increasingly proactive approach to developing and owning wind assets to diversify theirpower mix
• Approximately 14% of 2009 US wind additions were utility-owned, a slight decrease in percentage terms from 16% in 2008
• In contrast to 2008, when MidAmerican dominated the utility wind ownership market with 73% of utility additions, a diversegroup of 15 utilities contributed to 2009 additions, with continued diversity expected over the near term
• Partnerships with developers and independent power producers (IPPs) have given utilities the experience and confidenceto own, and in some cases develop, wind assets independently
• Falling turbine prices combined with a buyer’s market for some services, including engineering, procurement, and
construction (EPC), has dramatically reduced development risk for some utilities who have chosen to develop their ownwind projects
Power purchase agreement (PPA) market weakness asserts influence on both utility and IPP positioning• Weak PPA demand by utilities nationally is driving wind development to more challenging markets, including California and
New England, where renewable portfolio standard (RPS) supply is significantly below mandated levels
• A slowdown in power demand is delaying PPA contracts as utilities re-evaluate long-term generation requirements andmove more cautiously on renewables procurement
• Slow economic recovery is also driving strong resistance to rate increases, which is further inhibiting wind procurement
Utility willingness to adopt the IPP business model is leading to disputes that have thus far ruled in favor of
utilities
• Western utilities capitalize on strong wind demand in California by inking short-term PPAs, as renewable generation is notneeded over the near term to meet RPS compliance in their home markets
• IPPs focused on turnkey projects including enXco and RES Americas have had to forge new partnerships as their key utilitypartners including MidAmerican and Puget Sound Energy have moved to develop and own wind independently
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 3/12
Page 3North America Wind Energy Advisory – NAW 925-100802
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
M W
YE 2009 YE 2008
Utility wind owner
Utility Ownership and Procurement Strategies in the US Wind Sector
Cumulative Wind Ownership Ranking by Owner Type
MidAmerican maintains considerablelead despite slower 2009
• Following a breakout year where
MidAmerican installed over 1 GW ofcapacity, wind installations in 2009were just over 20% of 2008 levels
• MidAmerican subsidiary Pacificorp ledall utilities in 2009 wind additions withover 220 MW of capacity
Increased competition among utility
entrants characterizes 2009
• In contrast to 2008, whenMidAmerican claimed over 73% of all
utility-owned wind, 2009 saw greaterdiversity, with no single entity havingmore than 17% of the annual build
Without a viable merchant option,
IPP’s operations are more greatlyaffected by utility ownership
aspirations
• Top IPP owners of wind powerincluding NextEra, Iberdrola, andInvenergy have had to shift build
strategies in response to utility windownership activity in 2009
Analysis
Note: ‘Utility wind owner’ refers only to capacity owned directly by the utility and does not include capacity owned under IPP subsidiariesSource: IHS Emerging Energy Research
Cumulative Wind Ownership: 2009 vs. 2008
41%
39%
14%
6%
International IPP
Domestic IPP
Domestic Utility
Domestic Developer
9,789MW
While IPPs remain the predominate business model for wind asset ownership, a select group of utilities
have made significant gains in 2009
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 4/12
Page 4North America Wind Energy Advisory – NAW 925-100802
Utility Ownership and Procurement Strategies in the US Wind Sector
Utility Wind Ownership Ranking by Owner Type: Year-end 2009
Investor-owned utilities (IOUs) maintain status as primary target for PPAs and lead utility wind
ownership, while a number of rural co-ops are buying utility-scale wind projects
MidAmerican is positioned to
challenge Xcel Energy’s leadingposition through in-house wind
development and ownership• MidAmerican has regulatory approval
to bring 1,001 MW of additional windcapacity online in Iowa by 2012
• Xcel is moving to a more balancedapproach, with over 500 MW of PPAsinked in 2010, as well as plans to ownan additional 351 MW by the end of2011
Rural electric co-ops make impact,
adding large, utility-scale projects• After several years of focusing
primarily on community-scaleprojects, rural electric co-ops arescaling to enhance the economicbenefits of wind power for theircommunities. Several projectsexceeding 100 MW in size wereenergized in 2009, including BasinElectric’s 115.5 Prairie Winds project
and Turlock Irrigation District’s 128.5
MW Windy Point facility; its first forayinto wind ownership
Utility Wind Ownership Ranking by Owner Type: Year-end 2009
Source: IHS Emerging Energy Research
Analysis
0
500
1,000
1,500
2,000
2,500
3,000
3,500
C u m u l a t i v e
I n s t a l l e d / C o n t r a c t e d C a p a c i t y ( M W )
Procured Wind
Owned Wind
Investor Owned Utility
Municipal Utility
Rural Electric Co-op
0 200 400 600 800 1,000 1,200 1,400
Top 10 2009 Utility Wind Ownership Additions (MW)
PacifiCorp (MidAmerican) Alliant EnergyPortland General Electric Turlock Irrigation District
Basin Electric Power Coop Los Angeles Department of Water & PowerOklahoma Gas & Electric Westar EnergyWisconsin Public Service Otter Tail Power Company
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 5/12Page 5North America Wind Energy Advisory – NAW 925-100802
Utility ownership’s appeal expanding
regionally
• Although represent in 19 US states,
utility ownership has traditionally beenmost prevalent in the Pacific Northwestand the Midwest. However, statesincluding Oklahoma, Indiana, andWyoming were major rate-based hubsin 2009
Merchant offtake increased in 2009
despite electricity price declines ofover 50% in most of the country
• Bolstered by gas prices averaging
US$8.86/MMBtu in 2008, merchantwind made up nearly one-third of allwind additions in 2008. In 2009,approximately 40% of wind capacitysold power into the merchant marketdespite a more than 50% decline inaverage gas prices
• Texas, the most substantial merchantwind power market in the US, willexperience considerable declines inwind additions over the near term, with
NextEra, a historically Texas-heavydeveloper, having no plans for near-term Texas wind build
Cumulative US Wind Installations by Offtake Type
Utility Ownership and Procurement Strategies in the US Wind Sector
Regional Off-Take Trends
Utility ownership has contributed to a significant drop in PPA demand, which has forced a large group of
generators to sell wind power at unsustainably low prices on the merchant market
Source: IHS Emerging Energy Research
Analysis
Pacific Northwest
California
Desert Southwest
Rocky Mountains
Texas
Midwest
South
Mid-Atlantic
New England
Great Plains
PPA
Utility Owned
Merchant
New York
2,440
29717
2,490
5844
683
4,189
129
5,119
1,816
545
245
5,5092,219
1,600
27
2
63
1,024
1,213
61
1,753
1,539
537
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 6/12
Page 6North America Wind Energy Advisory – NAW 925-100802
MidAmerican’s integrated positioningeyed by ownership-focused competitors
• Puget Sound Energy’s move to purchase
its development partner RES America’sstake in the Lower Snake River projectsignals greater comfort in thedevelopment risks associated with windproject development
• Xcel’s move to purchase turnkey projectsfrom its IPP partner enXco in March 2010marks a clear shift from its PPA-focusedstrategy. Xcel has allocated overUS$900 million to purchase 351 MW ofwind capacity through 2011
PG&E leverages its unsatisfied RPSdemand to move toward wind ownership
• PG&E leads the US for projected RPSdemand, making it a key target for IPPsin a tight off-take market. Iberdrola’s
decision to sell its 246 MW Manzanaproject turnkey to PG&E, an out ofcharacter strategy for Iberdrola, reflectsthe utility’s ability to assert its influence inthe market
Analysis
Utility Ownership and Procurement Strategies in the US Wind Sector
Utility Positioning in the US Wind Market
Utilities already established in the ownership segment are increasingly looking toward development to drive down costs, while more risk-averse utilities are sticking with PPA procurement
Source: IHS Emerging Energy Research
Renewable
TransmissionOfftakeOwnershipFinance
Turnkey Ownership
Develop-to-Own Projects with Renewable Transmission
Development
1
3
Utility Example Business Model Comments
1 MidAmerican Develop-to-own
MidAmerican has quickly developed capability across the value chain and
has become a leading player in the industry, and one of very few companies
with experience in each segment
2Xcel,Puget Sound
Energy, Ottertail Power
Partner with established
renewables developer /
IPP to own
Partnering with established renewable IPPs such as enXco, NextEra, andRenewable Energy Systems (RES) has helped mitigate development risks
and has given Puget Sound Energy confidence to move toward developing
projects independently
3 Xcel , PG&E, LADWP Turnkey plant purchase
Utilities able to tap lower costs of capital can take advantage of the benefits
of wind ownership, including lower costs and stronger balance sheet
positioning, without assuming development risk
4AEP, NV Energy, PG&E,
SCE, SDG&ELong-term PPA
The traditional utility role in the wind industry. Regulated utilities facing rate
pressures have slowed their procurement of PPAs after a dramatic drop in
power demand made predicting future renewables needs for RPS
compliance difficult
5National Grid, PECO,
PPL, Northeast utilities
REC purchasing from
utility-scale projects
Limited by transmission or local resources, tapping REC purchase as lowest-
cost option for near-term compliance, mainly focused on short-term needs
6 SDG&E, Xcel, SCE,LADWP Renewable transmissionand storage investment Transmission development and energy storage investments to facilitaterenewables up-take to bolster compliance objectives
REC Purchasing
Partner with Established Renewables Developer / IPP2
Long-Term PPA4
5
U t i l i t y A s s e t O w n
e r s h i p
P r o c u r e m e n t
RE Transmission6
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 7/12
Page 7North America Wind Energy Advisory – NAW 925-100802
RFP activity shifting toward load on East
and West coasts
• Difficult wind development conditions have
limited existing RPS-eligible build, whilelarger electricity loads have created ampleunfilled RPS demand in California and NewEngland
Utilities without near-term demandcontinue to issue RFPs for 2015 andbeyond to tap lower wind component
prices
• RFPs by Puget Sound Energy and El PasoElectric Co. are for generation online by
2015 and 2016, reflecting a lack of near-term wind demand
Utilities in Midwest states that have near-
term RPS demand covered are reluctant toattempt to push through additional rate-based wind
• AEP has been forced to reduce its near-term wind procurement expectations dueprimarily to resistance to rate-based wind.On 3 June 2010, the Virginia PUC rejecteda 201 MW PPA that AEP had signed with
Invenergy for the output from the BeechRidge and Grand Ridge projects
• Citing both lack of need and excess cost,Kentucky regulators rejected AEPsubsidiary Kentucky Power’s PPA withNextEra for its 217 MW Lee-DeKalb projectat the proposed price of US$43/MWh
Utility Ownership and Procurement Strategies in the US Wind Sector
RFP Activity Shifts to Load Centers
Source: IHS Emerging Energy Research
2010 Wind RFP Activity Analysis
On 15 February 2010, WEEnergies issued an RFP for up
to 150,000 MWh o f annual
renewable energy including
RECs for up to five-year terms
PSERFP for 1 GW of
generation, including
renewables, due to
be in servic e by 2016
APS is seeking competitive proposals
for 15 MW to 100 MW of wind capacity
located in Arizona though either PPA or
turnkey ownership
MPUC RFP for long-term
con ventional and renewables
with the T&D utilities. Total
capacity not disclosed
• NYPA is seeki ng 25 MW of renewable RECs on behalf of
the Port Authori ty of New York and New Jersey
• NYPA is also seeking bids for up to 500 MW of offshore
wind in the Great Lakes region
PNM is seeking to purchase RECs
equivalent to a minimum of 50,000
MWhs and a maximum of 450,000
MWhs
El Paso Electric Co. is s eeking seekingup to 300 MW of eligi ble supply-side,
including all -in renewable energy, and/or
demand -side resources by 2015
• PPLRFP for up to 850,000 MWh of RECs from
Tier 1 renewables, including wind
• PPLRFP for up 850,000 MWh o f RECs from Tier
1 renewables, in cluding wind
NV Energy RFP for
renewables capacity over 1
MW or the sale of turnkey
facilities of o ver 1 MW
Avista postponed its 24
September 2009 RFP,
including development
of its Reardan wind
proj ect, until 2014 –
2015
•
KCP&L RFP to con struct 100.5 MW Spearville II wind farm, as well as purchase the 32turbines, land rights , and project assets currently under ownership by KCP&L for the
project
• KCP&L is also accepting bids for up to 200 MW of wind capacity via both PPAs or the
sale of turnkey facilities in commercial operation by 1 October 2011
On 8 Apri l 2010,
Nebraska Public PowerDistrict launched an RFP
for wind projects between
50 MW and 300 MW insize
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 8/12
Page 8North America Wind Energy Advisory – NAW 925-100802
0
100
200
300
400
500
600
700
800
900
1,000
Tennessee Colorado Vermont Nevada California Nebraska NorthDakota
Wisconsin Hawaii
M W
Utility Ownership and Procurement Strategies in the US Wind Sector
Regional PPA Trends in 2010
Niche markets and states withsignificant development barriers leadto 2010 PPA activity
• Markets with more limited potential toscale, such as Vermont, Nevada, andHawaii, have rewarded developers withPPA rates far above merchant levels inthe Midwest and Texas
• Slow RFP activity through the firstquarter of 2010 points to a slowrecovery for PPA demand
2010 is a key year for US offshore
contracts• National Grid’s two-part PPA for the
output of Cape Wind’s 462 MWoffshore wind facility is one of only twoactive offshore PPAs in the US
• The proposed agreement is awaitingfinal approval from the MassachusettsDepartment of Public Utilities
Niche opportunities near load centers and states without large wind portfolios have comprised the majority of inked contracts in 2010
Note: Graph represents publically-announced PPAs signed in 2010 and may not be comprehensiveSource: IHS Emerging Energy Research
AnalysisAnnounced PPAs Finalized in 2010
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 9/12
Page 9North America Wind Energy Advisory – NAW 925-100802
Utility Ownership and Procurement Strategies in the US Wind Sector
2010 PPA Focus Shifts To Niche Markets
Only three of the top 25 utility procurers of wind at year-end 2009 have signed PPAs in 2010
Tennessee Valley Electric Authority leads thecharge in signing PPAs, with over one-thirdof all capacity contracted in 2010
• The government-owned utility has signed over900 MW in 2010 from Midwest-based projectsfrom a variety of developers, includingHorizon, Iberdrola, Invenergy, and CPVRenewable Energy to meet an internally drivenrenewables target
Xcel continues to procure wind via PPA as itgains experience in wind ownership
• Although Xcel has allocated over US$900million to near-term wind ownership, thecompany continues to look to PPAs to
supplement its wind requirements, signing 500MW in 2010
Recent surge in Nebraska PPAs unlikely tomaintain momentum
• Without an RPS mandate and an excess ofbaseload capacity over the near term,Nebraska PPAs from NPPD and OPPD willlikely continue to be sporadic and more aboutsupporting domestic sources than energyneeds. However, recent RFP bids under
US$40/MWh could make wind a valuablecommodity hedge, especially with recentchanges to facilitate power export
Analysis
Note: Includes only publically-announced, finalized PPAsSource: IHS Emerging Energy Research
0
100
200
300
400
500
600
700
800
900
January February March April May
M W
TVA Omaha Public Power District Nebraska Public Power DistrictNV Energy Xcel WE EnergiesBasin Electric Central Vermont Public Service Green Mountain PowerSDG&E HECO
42%
23%
7%
6%
5%
4%
4%
4%2%
2%1%
2,220
MW
U ili O hi d P S i i h US Wi d S
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 10/12
Page 10North America Wind Energy Advisory – NAW 925-100802
Utility Ownership and Procurement Strategies in the US Wind Sector
Utilities Front Load Wind Build to Tap California Opportunity
Northwest utilities tap higherCalifornia energy prices until local
RPS compliance takes effect in 2011 –
2012 in Washington and Oregon
• As evidence of utility strategiesconverging with IPPs, five Wyoming,Washington, and Oregon utilities havesigned PPAs with California utilitiesfacing compliance in 2010. The short-term agreements range from threemonths to over three years and allowutility wind owners to benefit from thepricing premium in California versustheir home markets
MidAmerican’s renewables portfoliois estimated to meet 2020 level of RPS
requirement
• The utility’s northwest subsidiary,Pacificorp, is selling over 1 GW ofwind capacity via 14 facilities inWashington, Wyoming, and Oregon.Similarly, Puget Sound Energycontinues to aggressively build andprocure new wind even as the utility
exceeds its 2020 RPS needs
Utilities have successfully imitated the IPP business model to generate profits within their wind portfolio that can mitigate the need for rate increases to meet RPS mandates
Source: IHS Emerging Energy Research
Analysis
Utility Project MW
1 Energy Northwest Nine Canyon, WA 32.2 MW
2 PacifiCorp High Plains, WY 99 MW
3 PacifiCorp McFadden Rid ge, WY 28.5 MW
4 PacifiCorp Combine Hills, OR 41 MW
5 PacifiCorp Foote Creek I, WY 41.4 MW
6 PacifiCorp Glenrock I, WY 99 MW
7 PacifiCorp Glenrock III, WY 39 MW
8 PacifiCorp Goodnoe Hills, WA 94 MW
9 PacifiCorp Leaning Junip er, OR 100.5 MW
10 Paci fi Corp Marengo, WA 140.4 MW
11 Paci fi Corp Marengo II, WA 70.2 MW
12 Paci fi Corp Rock River I, WY 50 MW
13 Paci fi Corp Rolling Hills, WY 99 MW
14 Paci fi Corp Seven Mile Hill I, WY 99 MW
15 Pacifi Corp Seven Mile Hill II, WY 19.5 MW
16Portland GeneralElectric Biglow Canyon, OR 274.9 MW
17 Puget Sound Energy Hopkins Ridge, WA 156.6 MW
18 Puget Sound Energy Wild Horse, WA 272.6 MW
19 Puget Sound Energy Klondike III, OR 50 MW
20 Turlock IrrigationDistrict Tuolumne, WA 136.6 MW
RPS
Demand
19 4
32
6
5
7
8
9
1011
12
131514
16
17
18
201
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000MW
Utility Owned Wind Actively Selling into California (MW)
WASHINGTON WYOMING OREGON
Utilit O hi d P t St t i i th US Wi d S t
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 11/12
Page 11North America Wind Energy Advisory – NAW 925-100802
Utility Ownership and Procurement Strategies in the US Wind Sector
Utilities and IPPs Jostle for Position
Utilities and IPPs that have traditionally worked collaboratively are increasingly competing for market
share, with utilities winning recent cost rulings
1
2
3
4
5
Summary
Puget Sound Energy takes 100% ownership of the 1,432 MW LowerSnake River series of projects, demonstrating its confidence in wind
Iberdrola uncharacteristically sold its 246 MW Manzana project underdevelopment in California for US$900 million. It is the first project thecompany has sold turnkey in the US
NextEra, the largest owner of wind in the US, sold s takes in itsAshtabula and Luverne wind farms to utility Ottertail Power
In December 2009, the Iowa Utilities Board ruled in favor ofMidAmerican to allow the utility to build up to 1 GW of wind by 2012rather than purchase wind from IPPs including NextEra
In January 2010, the Wisconsin PUC rejected Invenergy’s request toonly allow utility WE Energies to build its Glacier Hills wind farmcontingent on the utility executing a PPA for its Ledge wind farm
1
2
5
4
3
IPPs turn to markets with less utility
competition
• Although the Midwest remains a keymarket for NextEra, with 20% ofcapacity additions in 2010 –2011,markets including Canada andCalifornia (which only amount to acombined 12% of existing installations)will make up over 50% over the nexttwo years
• Iberdrola’s near-term portfolio hasshifted significantly to the NortheastUS, while Ontario has become astrategic priority for NextEra andInvenergy
IPPs unable to prove cost savingsargument in rate cases
• Invenergy unsuccessfully argued thatits Ledge Wind project would save ratepayers up to US$50 million over a 30-year PPA versus the cost for WEEnergies to develop its own GlacierHills project
Source: IHS Emerging Energy Research
Key Utility/IPP Interaction in the US Wind Market
Analysis
8/6/2019 Wind Utility Ownership and Procurement Strategies in the US Wind Sector 8220101
http://slidepdf.com/reader/full/wind-utility-ownership-and-procurement-strategies-in-the-us-wind-sector-8220101 12/12
Page 12North America Wind Energy Advisory – NAW 925-100802
IHS Emerging Energy Research
IHS Emerging Energy Research provides analyst-directed advisory services on an annualsubscription basis, providing market intelligence, competitive analysis and strategy advice in
response to the specific needs of our clients. These services provide value-added support of clients’
competitive and market strategies, and are intended to be interactive, offering clients direct access toEER experts.
Advisory service clients receive a stream of market and company briefs, ongoing market data andforecast support, telephone inquiry privileges, and regular analyst briefings. While much of thecontent is syndicated, clients also receive ongoing individual support of market assessment and
strategy development needs.
For more information on EER’s advisory services, please contact:
US Office700 Technology SquareCambridge, Massachusetts, US 02139
Whitney Van HorneSales Support ManagerEmail: [email protected]: +1 617 551 8580Fax: +1 617 551 8481
Spain OfficePaseo de Gracia 47, Planta 2Barcelona, Spain 08007
Paola AlcalaSales Support ManagerEmail: [email protected]: +34 932 726 777Fax: +34 93 467 6754
© 2010 EMERGING ENERGY RESEARCH, LLC. All rights reserved. Reproduction of this publication in any form without prior written permission is strictly forbidden. Theinformation contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it.