2014 LTSA Scenario and Data Assumptions February 14, 2014

1. 2014 LTSA Scenario and Data Assumptions February 14, 2014

2. Outline • Background • Scenario description – “Current Trends” • Capital cost projections • Fuel price projections • Emission price projections • Additional information

3. Background • ERCOT initiated 2014 LTSA with facilitated stakeholder workshops to develop key drivers and scenarios for long-term transmission planning • Jan 13 workshop with expert presentations on key industry and economic topics • Jan 23 workshop with TSP presentations, identification of key drivers and initial scenarios • Jan 24 workshop to develop detailed descriptions for 6 (of 10) of the identified initial scenarios • Feb 14 workshop to develop the remaining initial scenarios, possibly consolidate some of them, and discuss input data options • The remainder of these slides presents input data options for the “Current Trends” scenario as a starting point for further stakeholder input and discussion • See also Jan 23 handout

4. Scenario: Current Trends Story: Same old, same old [The recent population and economic growth in Texas continues in the near future, fueled largely by the continued growth of the oil and gas sector and the relative robust Texas economy compared to the rest of the U.S. World oil prices high enough to keep increasing oil production in the short-term, keeping domestic natural gas prices relatively low. With low gas prices, several LNG export terminals are built between 2014 and 2024. Modest wind growth continues based on economics without production tax credits. Capital costs for solar continues to decline at a slower rate than recent history. No required reserve margin is set for ERCOT and the environmental regulations continues to be moderate, with no explicit federal carbon tax or required national cap and trade, but greenhouse gas emissions become regulated beyond 2016.] • Economic Growth • Migration to TX along I-35 corridor • Growth in south Texas • Industrial growth in Houston, I-35, Midland/Odessa, Valley • ~1.5% load growth – high growth in near term then tapering off in long-term • LNG growth based on permits existing – needs review • [What should we assume for future oil production rates?] • Transmission Regulation /Policy • Policy set to reduce constraints • Increased DC-tie capacity with neighboring region [has not yet been resolved] • Higher reliability [standards are set by NERC] to avoid load shedding • Generation Resource Adequacy • No reserve margin set for ERCOT • Maintain energy-only market • Economic retirements continues based on economics • Environmental Regulation • MATS and 316B are implemented [by 2016] • CSAPR Hybrid [need more specificity to translate to costs for existing facilities] • Greenhouse gas regulation set with flexibility • No other major changes in environmental regulations • End-Use • Increased need for ancillary services • Increase penetration of demand response [need to specify how or why to be consistent with no reserve margin] • Increasing distributed generation [Need to specify how much is added and why] • Alternative Generation • Solar: 1000 MW / year • Wind capacity addition limit: 3,000 MW/yr • Capacity factor wind – rely on historical data from ERCOT • Capital cost wind ~$2,000/kW • Capital cost solar ~4.4% reduction/year • Overall renewable growth driven by economic entry • No production tax credit beyond 2013 • No change to existing investment tax policy • Implications for ERCOT: • [Continued modest economic and therefore load growth in Texas.] • [Growth in oil production and population across the state leads to new transmission needs • [Continued] increased renewables leading to reliability (inertia) issues • [No major generation retirements triggered by stringent environmental regulations.] • Weather / Water • [No drought situation, but water supply continues to be a concern to existing and new generators. • No specific increase in electricity consumption due to drought conditions.] • Gas/Oil Prices • EIA reference case or best available gas and oil price forecasts

5. Capital Cost Projections

6. Technology Price Projections - 2012$ • Overnight capital cost estimates – EIA and Lazard

7. Solar Capital Cost Projections • Source: 2013 Brattle ERCOT Study for Clean Energy Council

8. Renewable Technology Price Projections • Average of cost estimates from 2013 DOE Study; Lazard LCOE Analysis; Ventyx 2013 Fall National Database; EIA AEO 2013; Bloomberg New Energy Finance, PV Market Outlook. • GDP growth rate from EIA AEO 2014 Early Release - 2.4% • This information is still being researched and will be updated as additional data becomes available

9. Conventional Technology Price Projections • Average of cost estimates from 2013 DOE Study, Lazard LCOE Analysis, Ventyx 2013 Fall National Database, EIA AEO 2013 • GDP growth rate from EIA AEO 2014 Early Release - 2.4%

10. Fuel Price Projections

11. Natural Gas Price Projections

12. Coal Price Projections Source: Annual Energy Outlook 2014 Early Release

13. Oil Price Projections Source: Annual Energy Outlook 2014 Early Release

14. Emission Price Projections

15. CO2 Price Projections

16. SO2 Price Projections

17. NOX Price Projections

18. Mercury Price Projections • With EPA Mercury and Air Toxics Standards (MATS), 90% mercury emission from power plants will be mandatorily removed from 2015. • No mercury emission allowance trade?

19. Additional Information

20. Wind Installations by Year • Average installations per year for all years is 801 MWs. • Average installations per year for the years 2006 thru 2009 is 1,766 MWs

21. LNG Exports Overview • Two DOE commissioned reports released in 2012 addressed LNG exports. • Key conclusions: • Increased LNG Exports benefit the US Economy • Global Markets for LNG may limit natural gas demand growth and domestic price increases. • In no cases modeled did the U.S. wellhead price increase by more than $1.09/Mcf due to market-determined levels of exports.

22. Appendix

23. Henry Hub forecast by Wood Mackenzie Source: Wood Mackenzie, “North America Natural Gas Outlook – ERCOT Planning Workshop”, Jan. 2014.

24. Fraunhofer CO2 Projections Source: C. Kost, J. N. Mayer, J. Thomsen, N. Hartmann, C. Senkpiel, S. Philipps, S. Nold, S. Lude, N. Saad, T. Schlegl, “Levelized Cost of Electricity Renewable Energy Technologies”, Nov. 2013, Fraunhofer Institute for Solar Energy Systems ISE

25. Source: EPA, Office of Air and Radiation, “Estimating Future Air Emissions Allowance Values”, Nov. 2006

26. Black & Veatch March 2013 Source: Black & Veatch, “City of Ames Energy Resource Options Study”, Mar. 2013

27. Ventyx Fall 2013 - NOX Source: Ventyx, “National Database Release Notes”, Fall 2013.

28. Ventyx Fall 2013 – SOX

29. Synapse CO2 Prices Source: P. Luckow, E.A. Stanton, B. Biewald, J. Fisher, F. Ackerman, E. Hausman, “2013 Carbon Dioxide Price Forecast”, Synaps Energy Economics, Nov. 2013.

30. Ventyx Fall 2013 – CO2

31. Technology Price Projections - 2012$ • Capital cost estimates from 2013 EIA Capital Cost Projections Update, April 2013

32. Technology Price Projections - 2012$ • Capital cost estimates from August 2013 Lazard’s Levelized Cost of Energy Analysis

33. Capital Cost Assumptions • Average conventional capital cost assumptions • GDP growth rate from EIA AEO 2014 Early Release - 2.4%

34. Capital Cost Assumptions – Cont. • Average renewable capital cost assumptions • GDP growth rate from EIA AEO 2014 Early Release - 2.4%

35. Wind Cost Trends • 2013 Brattle ERCOT Study for Clean Energy Council assumed in the Reference Case that wind costs fall to 1,800 2012$/kW in 2015 and then remain constant in real terms through 2030. In the Low Cost Renewable case, they decline to 1,500 2012$/kW by 2030. • The NREL 2012 Wind Technologies Market Report shows a range of $1,500 – 2,400/kW for recent capital costs for the Interior region (including Texas) Source: NREL. 2012 Wind Technologies Market Report. August 2013.

36. Wind Capacity Factor Trends • Recent performance improvements in wind turbines could increase capacity factors by 10% in the near term • Projections for levelized cost of energy (LCOE) provide insight into both capital cost and performance trends Source: NREL. IEA Wind Task 26: The Past And Future Cost Of Wind Energy, Work Package 2. May 2012.