ISO-NE Offer Review Trigger Prices 2013 Study

1. ISO-NE Offer Review Trigger Prices 2013 Study Final Results NEPOOL Markets Committee Sam Newell September 10, 2013 PRESENTED TO PRESENTED BY

2. Agenda • Summary of ORTP Recommendations • Revised Onshore Wind ORTP Calculations • Revised Solar ORTP Calculations • Indices for Future Annual Updates • Next Steps

3. Final Recommended ORTP Values Summary of ORTPs (2018$) • Notes: • Overnight costs, fixed O&M, Gross CONE and revenue offsets are calculated based on installed capacities; Net CONE and ORTP values are calculated based on qualified capacities. • DR categories evaluated at the asset level. Actual resources would be aggregations of at least 100 kW. • Some values, esp. Onshore Wind, may appear high compared to current costs. These values are in 2018$ and include all cost components (e.g. Onshore Wind is $2,676/kW in 2013$ of which $349/kW is due to interconnection.) • FOM includes site leasing costs. • Revenue Offsets values have been updated from draft results based on current electricity, gas and REC futures. • Solar revenues are based on MA Class I REC price and not SREC price since SRECs are not available region-wide. • Net CONE based on Qualified Capacity not applicable if Net CONE Installed is negative and Qualified Capacity is less than Installed Capacity. • The auction starting price for FCA9 will be determined prior to the auction.

4. Summary of Feedback on Wind ORTP • Stakeholders made the following comments: • “Depreciation Schedule should be 5 Year MACRS” • “Qualified Capacity is too low” • “Interconnection costs are too high” • “Capacity Factor is too low due to historically low wind resources and advances in wind turbine technology” • “REC price is too low”

5. Wind ORTP Calculation • Qualified Capacity increased based on Seasonal Claimed Capacity values and market rules for intermittent resources • Overnight capital costs reduced due to lower interconnection cost per mile along existing ROW, based on recent Maine 115 kV projects • Capacity factor increased due to efficiency of current turbine models being installed • Depreciation Schedule changed to 5 Year MACRS reflecting current IRS depreciation rules • Wind ORTP will be set at zero as the Net CONE is negative Differences between Draft and Final explained further on next slide

6. Wind ORTP Draft and Final Comparison DRAFT Net CONE = 1.88 $/kW-mo. FINAL Net CONE = -3.64 $/kW-mo. $33.75 $32.04 $30.16 $30.11 $3.59 higher, due to capacity factor $1.93 lower, 75% due to interconnection and 25% due to Dep. Schedule Gross CONE excl. PTC Non-Capacity Revenue incl. PTC Gross CONE excl. PTC Non-Capacity Revenue incl. PTC

7. Solar Technical Specifications • Capacity of 6 MW was chosen based on largest capacity that has been built in MA SREC program and through consultation with a regional solar developer (whose projects in development are 2 – 10 MW) • Capacity factor of 14% was determined from NREL Solar Advisor Model (SAM) data for New England • Qualified capacity of 15% was calculated from values in ISO-NE Seasonal Claimed Capacity database for 8 operating facilities (Summer = 44%, Winter = 0%) • Interconnection voltage of 13 kV is based on recent projects

8. Solar Capital Costs • 2013 Overnight Capital Cost of $3,139/kW was developed based on 6 projects beginning operation in 2012 – 2015 with an average capacity of 12 MW and is comparable to publicly available values • MA SREC average installed costs for 2012 – 2013 installations >5 MW is $2,940/kW • LBNL Tracking the Sun VI 20th Percentile of installed cost for 1-5 MW Fixed-Tilt Commercial and Utility-Scale Systems is $3,095/kW (in 2013$) • We assume overnight capital costs decline by 6% per year in real terms through 2018 • LBNL Tracking the Sun VI: Installed Costs have fallen historically by 6 – 7% per year in real terms • NREL/Black and Veatch Study: Installed Costs projected to decline by 3% per year in real terms • We assume no sales tax due to MA exemption from sales tax for the purchase of solar equipment

9. Solar Capital Cost Components • Capacity = 6 MW (DC)

10. Solar Revenue Offsets • Projected E&AS margins were estimated using hourly NREL SAM data for New England (with a capacity factor of 14%) and hourly Mass Hub prices for 2010 – 2012 • 2010–2012 Average E&AS Margin was $4.97 / kW-mo • 2018/2019 Projected E&AS Margin is $6.23 / kW-mo • Assumed contract REC price is the same as for Onshore Wind • Assumed 2018/2019 contract REC price is $49/MWh, based on 2016 forwards (updated value based on current futures) • Although the MA SREC price (currently $249/MWh) is significantly higher, we are unable to use SRECs in the ORTP calculation since they are not available region-wide

11. Solar ORTP Calculation (2018$) • The starting price for FCA9 will be determined prior to the auction

12. Changes to Annual Updates • Gas Turbines will be indexed to publicly available Bureau of Labor Statistics (BLS) Producer Price Index (PPI) • Construction and Other Labor will be indexed using non-composite indices from BLS Quarterly Census of Employment and Wages (QCEW) • Fuel inventories will be indexed based on GDP Deflator • E&AS revenue will be updated based on futures values for Henry Hub, Algonquin City Gates and Mass Hub On-Peak

13. Next Steps • End of September ORTP report submitted to ISO-NE