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Vermont Public Service Board Docket No. 7780 Review of Pro Forma Models and Assumptions to Derive Standard Offer Prices

Vermont Public Service Board Docket No. 7780 Review of Pro Forma Models and Assumptions to Derive Standard Offer Prices October 17, 2011. John Dalton jdalton@poweradvisoryllc.com Tel: 978 369-2465. Presentation Outline. Scope of Docket 7780 Role of Power Advisory

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Vermont Public Service Board Docket No. 7780 Review of Pro Forma Models and Assumptions to Derive Standard Offer Prices

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  1. Vermont Public Service Board Docket No. 7780Review of Pro Forma Models and Assumptions to Derive Standard Offer Prices October 17, 2011 John Dalton jdalton@poweradvisoryllc.com Tel: 978 369-2465

  2. Presentation Outline • Scope of Docket 7780 • Role of Power Advisory • Review of comments of parties • Rate of Deployment & Project Attrition • Possible Pro Forma Models • Review of assumptions • Review of possible sources Power Advisory LLC 2011 All Rights Reserved 2

  3. Focus of Docket 7780 per 30 V.S.A. Section 8005 (b) (2) (C) • Determine whether Standard Offer prices provide sufficient incentive for the rapid deployment and commissioning of plants by January 15, 2012 • Can be assessed by: • Reviewing level of project development and number of in-service projects; or • Estimating standard offer prices that are required to recover costs and provide a reasonable return • Power Advisory’s primary focus is on the second approach • But consideration is given to the first Power Advisory LLC 2011 All Rights Reserved 3

  4. Role of Power Advisory • Review of standard-offer prices pursuant to Section 8005(b)(2)(C) • Provide assistance in developing a methodology for reviewing and/or setting cost-based prices • Collaborate with the Board and parties to docket(s) in developing methodologies for setting prices • This Workshop is part of the collaboration process • Searching for areas of agreement • Assumptions and data sources that can be used Power Advisory LLC 2011 All Rights Reserved 4

  5. Renewable Energy Vermont offered a number of comments • Debt/Equity Ratios, Debt Terms and Return on Investment: • Number of financing assumptions overly optimistic • Capacity Factor: • Actual capacity factors lower than assumed • Property Taxes: • State currently undertaking a study on property taxes for renewable technologies • State and Federal tax incentives: • Tax credits expiring or funding limiting • Permitting, mitigation and decommissioning: • Costs were missing or underestimated Power Advisory LLC 2011 All Rights Reserved 5

  6. Renewable Energy Vermont comments (Cont’d) • Annual operating costs: • Lease payment appears to be missing • Interconnection costs: • Modeling assumptions need to be reviewed • Implementation Issues: • Definition of nameplate capacity • Facilities sharing common infrastructure • Rules governing applicant review process and the queue • Frequency which pricing is re-evaluated Power Advisory LLC 2011 All Rights Reserved 6

  7. Northern Power Systems comments focused on improvements for distributed wind • Addition of a 20% price multiplier for projects that utilize equipment manufactured in Vermont • 100-200 MW carve out for distributed wind • Increase Standard Offer Price for ≤ 100 kW Wind to $240/MWh • Create Standard Offer Mid-sized tier (101 kW to 500 kW) for Wind • Extend income tax credits from 2012 to 2015 Power Advisory LLC 2011 All Rights Reserved 7

  8. DPS comments focused on improvements • Need to consider whether Standard Offer prices are affecting deployment • Or whether other issues explain pace of deployment • Only adjust prices if they do not provide sufficient incentive for rapid deployment • Recommendations in RPS Report factored in when considering whether appropriate use of resources to reset Standard Offer prices • Standard Offer Price established used in setting avoided cost ceiling for proposed auction? Power Advisory LLC 2011 All Rights Reserved 8

  9. DPS comments focused on improvements (Cont’d) • Spreadsheet originally used to set prices be used if there is a need to modify prices • Testimony should be presented on effect of prices on rapid deployment of technologies Power Advisory LLC 2011 All Rights Reserved 9

  10. Analysis of Project Attrition Rates by Technology Power Advisory LLC 2011 All Rights Reserved 10

  11. Project attrition can be contributed to by many factors • In addition, to prices being too low • Standard Offer program design probably contributed to attrition rates • Proposal security not forfeited if project cancelled within 12 months of contract award • Low entry costs, technology caps and 50 MW program cap motivated developers to participate in program to secure contract • Able to further perform due diligence after contract award • Dramatic reductions in solar costs created speculative opportunity if costs continued to decline • Biomass efficiency target very stringent • Net metering may be more favorable in some instances Power Advisory LLC 2011 All Rights Reserved 11

  12. Even when project attritions rates are high … • …and suggest that Standard Offer prices are too low, they don’t indicate what the appropriate Standard Offer rate should be • Financial pro forma model better able to do this • Project deployment may not offer evidence that existing rates are sufficient • If projects were developed under higher initial rates • Additional perspectives on attrition rates? Power Advisory LLC 2011 All Rights Reserved 12

  13. Other issues and perspectives? • Can the focus be limited to specific technologies? • If so which ones? • Are there sources relied upon previously which can be refreshed? Power Advisory LLC 2011 All Rights Reserved 13

  14. Range of models available • Model developed for and used in Docket 7533 • Specified for full range of technologies • Agreement reached on model structure • Participants able to use • Limited learning required • DPS supported using this model • NREL’s Cost of Renewable Energy Spreadsheet Tool (CREST) • An economic cash flow model designed to assess renewable energy projects Power Advisory LLC 2011 All Rights Reserved 14

  15. CREST model • CREST model manual states: • “the CREST model is not sufficiently detailed to address all of the demands of the investment process, and as such, is not intended for use by developers to support power purchase agreement negotiations or project financing” (p. 2) • CREST model appears less transparent than model used in Docket 7533 • Model only specified for solar, wind and geothermal Power Advisory LLC 2011 All Rights Reserved 15

  16. Parties have a preference regarding a model to use? • Are there other models that should be considered? • Are there advantages and disadvantages of the different models that I have missed? • What is the preferred model? • Are there structural changes that should be made? • Recognizing that assumptions may need to change Power Advisory LLC 2011 All Rights Reserved 16

  17. Form and scope of assumptions based on model structure • Starting point is selecting the preferred model • The model will determine the assumptions for which information is required • The next series of slides review the assumptions used to establish prices in Docket 7533 • Comments are sought on updates to these assumptions • Support for the updates particularly important Power Advisory LLC 2011 All Rights Reserved 17

  18. January 2010 Decision Docket 7533 identified assumptions • Reasonable starting point for discussion Power Advisory LLC 2011 All Rights Reserved 18

  19. January 2010 Decision Docket 7533 assumptions • Many of the financing assumptions depend on how the projects will be financed Power Advisory LLC 2011 All Rights Reserved 19

  20. General consensus regarding depreciation assumptions Docket 7533 • Can these be maintained for the most part? Power Advisory LLC 2011 All Rights Reserved 20

  21. Federal Investment Tax Credit is scheduled to expire • As REV pointed out investment tax credit for wind scheduled to expire Power Advisory LLC 2011 All Rights Reserved 21

  22. Issues to consider • Solar • Output and costs based on dual axis tracker or fixed • Interconnection costs: different requirements in different electric utility service territories Power Advisory LLC 2011 All Rights Reserved 22

  23. Possible sources for Assumptions • From SPEED Facilitator: Standard Offer data on project costs and performance (output) • Project development costs • Confidentiality issues must be addressed • Vermont Agency of Agriculture, Food and Markets discussing having Dr. Bob Parsons (UVM Agricultural Economist) update information on financial data for existing farm methane systems Power Advisory LLC 2011 All Rights Reserved 23

  24. Possible sources for assumptions (cont’d) “Tracking the Sun IV: An Historical Summary of the Installed Cost of Photovoltaics in the United States from 1998 to 2010”, Sept, 2011. Galen Barbose, Naim Dargouth, Ryan Wiser, Joachim Seel, Lawrence Berkeley National Laboratories.http://eetd.lbl.gov/ea/emp/reports/lbnl-5047e.pdf “2010 Wind Technologies Market Report”, Ryan Wiser and Mark Bollinger, Lawrence Berkeley National Laboratories. June 2011. Data on average wind power cost by location, size and vintage. . http://eetd.lbl.gov/ea/emp/reports/lbnl-4820e.pdf Data detail for this report. See data for Figure 29, with average installed cost/kW for projects in 2009-10 by project size class, starting with projects under 5 MW. http://eetd.lbl.gov/ea/emp/re-pubs.html “A Review of Barriers to and Opportunities for the Integration of Renewable Energy in the Southeast”, May 2011, Ben W. McConnell, Stanton W. Hadley, and Yan Xu, Oak Ridge National Laboratory. Discussion and some data on wind and solar PV costs. “Renewable Fuels Module” for National Energy Modeling System, US Energy Information Agency, Department of Energy. July, 2011. Table 13.1 has overnight capital cost assumptions for all forms of renewable energy for years 2015, 2020, 2025, 2035, as used for input to forecast model. http://www.eia.gov/forecasts/aeo/assumptions/pdf/renewable.pdf “Feasibility Study of Economics and Performance of Solar Photovoltaics at the Refuse Hideaway Landfill in Middleton, Wisconsin” August 2011. James Salasovich and Gail Mosey, National Renewable Energy Lab. Table with installed cost assumptions for four PV technologies. http://www.nrel.gov/docs/fy11osti/49846.pdf “Installed Solar PV System Prices” Feb. 2011, Alan C. Goodrich Michael Woodhouse, and Ted James NREL Feb. 2011. Tables with costs and details of cost components for solar PV. Data obtained from manufacturers. http://www.nrel.gov/docs/fy11osti/50955.pdf Cost and Performance Assumptions for Modeling Electricity Generation Technologies Rick Tidball, Joel Bluestein, Nick Rodriguez, and Stu Knoke. NREL. Nov. 2010. Report by ICF Consultants for NREL. Contains capital, fuel and operating costs for wind, solar PV and biomass. http://www.nrel.gov/docs/fy11osti/48595.pdf Power Advisory LLC 2011 All Rights Reserved 24

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