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INDIANA POWER OF WIND COALITION. Regulatory Flexibility Committee. Strategies for Procuring New Generation September 18, 2013 . INDIANA POWER OF WIND COALITION. The Challenge. There is no “free market” for procurement of energy and resources.
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INDIANA POWER OF WIND COALITION Regulatory Flexibility Committee Strategies for Procuring New Generation September 18, 2013
INDIANA POWER OF WIND COALITION The Challenge • There is no “free market” for procurement of energy and resources. • Utilities in regulated states are vertically integrated monopolies with a franchise agreement that entitles them to serve customers within the franchise area. • Currently, utilities develop integrated resource plans (IRP) which identify supply needs for customers. • Generally, utilities fulfill energy/capacity shortfall through request for proposals (RFP) and the utility typically chooses themselves.
INDIANA POWER OF WIND COALITION Other Challenges • Self build options don’t always take into account all transmission and interconnection costs. • Risk of construction delay and cost overruns are often not accounted for in self build options. • Utilities have the ability to recover additional costs from ratepayers. • Independent power producers (IPP) provide an all-in, binding cost when responding to request for proposals. • This includes all costs – including transmission and interconnection costs. • If the project is completed over budget, the risk is borne by the IPP as opposed to the ratepayer.
INDIANA POWER OF WIND COALITION Example of Utility Share of Supply Resources • Approx. 95% of all electricity comes from generation owned by the IOUs SOURCE: 2011 Utilities IRPs
INDIANA POWER OF WIND COALITION Comparison of Self-Build to Third Party Supply • Utilities receive no rate of return on power purchase agreement (PPA) and as a result forfeit potential returns for shareholders. • Lower cost to ratepayer for power purchase agreement, however this may not be the successful proposal. Current structure leads to inefficient outcomes 1 Lazard Levelized Cost of Energy Analysis Version 6.0, June 2012. Assumes Gas Combined Cycle at 40% capacity factor for 20 years at $61/MWh. 2 Lazard Levelized Cost of Energy Analysis Version 6.0, June 2012. Assumes Wind at 40% capacity factor for 20 years at $48/MWh.
INDIANA POWER OF WIND COALITION Example of Competitive Procurement Proposal • Allowing an earned rate of return still provides a lower cost to ratepayer. Ratepayer Savings: $98,392,320 Current structure leads to inefficient outcomes
INDIANA POWER OF WIND COALITION Benefits • Ensure ratepayer is served at lowest, efficient cost. Allow utility sector to balance the utility shareholder interests with the ratepayer’s desire for low cost energy. • Reduce ratepayer exposure to cost overrun risk. • Does not change the regulatory process that currently exists in each state. • Cooperative working relationships between utilities and independent power producers. • Alternative for utilities if capital constrained due to generation fleet retirement/retrofit costs, transmission expansion costs, and other system improvement costs. Leverage third parties to provide capital needed to maintain supply adequacy. • Provide appropriate human resources to support utilities in building new resources. Some utilities no longer have in-house capability for design, project management, and commissioning of new generation resources. The projected utility attrition rate is also a potential concern.
INDIANA POWER OF WIND COALITION Questions/Follow Up Speakers: Jason Minalga Manager, Regulatory Affairs Invenergy 312-582-1500 jminalga@invenergyllc.com Consultants: Tony Samuel President Samuel Solutions 317-403-2339 tsamuel@samuelsolutionsgroup.com