GE Energy U.S. Power Industry September 21, 2009 Schenectady, NY Sundar Venkataraman Director, GE Energy EA&SE 1
Agenda U.S. Power Industry Information Demand Generation Transmission Systems Operations Market Participants and their Functions Regulated Regions Deregulated Markets NERC, FERC, PUC Historical Evolution of U.S. Power Industry Federal and State Restructuring Major orders Key issues facing the Electric Power Industry in the U.S. Renewables integration 2
U.S. Power Industry Information U.S. Energy Growth Energy (Billion KWh) 5000 4000 4208 4141 3000 2000 1000 0 1998 2008 Source: EIA ~4 million GWh 3
U.S. Power Industry Information 122,471,071 Number of Customers 1,351,520 Consumption- Gwh 1,299,744 1,011,298 17,172,499 759,604 Residential Commercial Industrial Residential Commercial Industrial 4
U.S. Power Industry Information Energy Mix - 2006 Natural Gas Fired Generation (GWh) 19% 7% 2% Coal Petroleum Natural Gas Other Gases 50% Nuclear Hydroelectric Renewables Pumped Storage Others 20% 2% 800,000 600,000 400,000 200,000 0 1998 2008 1,000,000 Energy Mix - 1995 20% 9% 2% Coal Petroleum Natural Gas Other Gases 52% Nuclear Hydroelectric Source: 2005 data from EIA Renewables Pumped Storage Others 15% 2% 5 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Wind Generation (GWh) 1998 2008
U.S. Power Industry Information Generation Source US DOE National Electric Transmission Congestion Study-2006 6
U.S. Power Industry Information Transmission Source: Energy Velocity 7
U.S. Power Industry Information Transmission 3 interconnects 8
U.S. Power Industry Information 9
Restructuring of the Electric Power Industry 10
Federal Restructuring PURPA The Public Utility Regulatory Policies Act of 1978 National Energy Act of 1978 Reduce the Nation s dependence on foreign oil develop renewable and alternate energy sources PURPA Requires electric utilities to interconnect and buy capacity and energy from Qualifying Facilities (QFs) at the utility s avoided cost of production. Avoided cost if the price that the utility would have otherwise paid to generate the power itself 11
Federal Restructuring More on PURPA PURPA required that Utilities purchase energy from QFs. However, there was No standardized interconnection requirements No standard method to calculate avoided cost No standard contractual terms and conditions No mechanism for sharing transmission upgrade costs QFs could only sell to incumbent Utility 12
Federal Restructuring Energy Policy Act of 1992 One of the most significant pieces of legislation in the history of the power industry that led to restructuring. Created a new category of power producers called Exempt Wholesale Generators (EWGs) Not restricted by size or fuel requirements of PURPA Backed by FERC authority on wheeling However, Utilities not required to purchase energy from EWGs Rates determined competitively not avoided cost 13
Federal Restructuring Beautiful house, but no access! IPPs and Utilities at odds over availability and rates for transmission access 14
Federal Restructuring 1996 - Order 888 FERC order issued in April 1996 addressing transmission access, transmission pricing and stranded costs. Required all transmission owners to provide wholesale transmission services to all under the same terms and conditions used for own generation (OATT) Required utilities to functionally separate generation, transmission, power control and distribution activities Identified Six ancillary services that utilities must provide in adjunct with transmission service Encouraged utilities to create Independent System Operators (ISOs) Wholesale trade increased from 100M KWh in 1996 to 4,500M KWh in 2000 15
Federal Restructuring Markets wanting to move power were often faced with rate pancaking (paying multiple rates to multiple transmission entities) Generator $2 $3 $1.50 Load 16
Federal Restructuring 1999 - Order 2000 Calling for voluntary creation of Regional Transmission Organizations (RTOs) to eliminate grid balkanization Order 2000 also provided clear rules and guidance for utilities to follow in forming an RTO. Potential Benefits Eliminate opportunities for discriminatory transmission practices Improve calculations of Available Transfer Capability Improve management of parallel path flows and reliability Improve transmission pricing methods Improve management of transmission congestion 17
Federal Restructuring The End Result Two-thirds of Americans live in regions served by ISO/RTOs In 2004 ISO/RTOs served 62% of the energy consumed in the U.S. ISO/RTOs control 585,000MW or 67% of U.S. generation 18
State Restructuring The basic idea is to separate the utility functions of generation, transmission, system operation and distribution to promote competition Different states have used different approaches 1. Some states like NY required utilities to divest or sell their generation 2. Some state have allowed the generation to be moved into a subsidiary 3. Some states have allowed a wall between generation and transmission States have also differed in their approach to wholesale markets 1. Some states have transitioned existing powerpools into ISO structures, eg NY, PJM 2. Some states have created state-wide ISOs, eg. CA, TX 3. Some states have restructured without putting in place a wholesale market 19
State Restructuring Characterization States opted for no change Subjected significant portions of their customers to market prices Repealed laws or never pulled triggers for restructuring States in transition States that re-regulated States WA, ND, SD, UT, AZ, MT, WY, CO, NE, KS, MN, IA, MO, LA, WI, KY, TN, AL, MS, NC, SC, GA, FL, VT, HI, AK CA, CT, DE, MA, MD, ME, MI, NH, NJ, NY, RI, TX & DC NV, NM, WV, VA, OR, OK, AR, AZ OH, PA, IL MT Total Source: EIA No. 26 12+DC 8 3 1 50 +DC 20
Restructuring Recap Competitive Market Central Control Integrated Resource Planning PURPA Enacted Clean Air Act Amendment Utility IPP Affiliates Competitive Bidding All-source Bidding Energy Policy Act 1992 Separate Generating Units California Passes AB 1890 to Set Up Power Market Canadian Privatization Initiatives Mexican Deregulation Law California Retail Wheeling Proposal Midwest Price Spikes FERC Order 2000 FERC Order 888 California Power Shortage 1978 1985 1987 1989 1991 1993 1995 1997 1999 NRG and Mirant Bankruptcies Enron Bankruptcy PG&E Bankruptcy Power Trading Scandals 2001 August 14 Blackout 2003 Energy Policy Act 2005 Calpine Bankruptcy Price Shocks 2005 Source: Cambridge Energy Research Associates. 21
Market Participants 22
Market Participants Market Participants in Vertically-Integrated Markets Independent Generation Utility Generation UTILITY Independent Generation Utility Buyer System Operations Utility maintains the monopoly functions of transmission, systems operations, distributions and retail sales Residential Customers Transmission Distribution Commercial Customers Industrial Customers Utility supply purchasing group purchases power competitively from own generators and merchants. Not very competitive because utility generators are in rate base and do not have to recover fixed and capital costs Source: Enerdynamics 23
Market Participants Market Participants in Deregulated Markets 24
Federal Energy Regulatory Commission (FERC) regulates and oversees energy industries in the economic, environmental, and safety interests FERC Does: Regulate transmission & sale of gas in interstate commerce Regulate transmission & wholesale sale of electricity in interstate commerce License hydroelectric projects Ensure reliability of high voltage interstate transmission system Monitor & investigate energy markets & enforces rules Administer reporting requirements FERC Does Not: Regulate retail electricity or gas sales to consumers Approve the physical construction of generation, transmission, or distribution facilities Regulate nuclear power plants Regulate municipal power systems Regulate federal power marketing agencies (like TVA) Regulate rural electric cooperatives 25
NERC develop and enforce reliability standards evaluate users, owners, and operators for preparedness educate, train, and certify industry personnel 26
The Role of the State Public Utility Commissions Power Plant siting & construction approval Transmission siting & construction approval Tariff approval for regulated utilities Environmental regulation enforcement State-specific incentives Regulating retail power sales to consumers 27
Department of Energy (DoE) advance the national, economic, and energy security of the United States Energy Regulation Nuclear Regulatory Commission (NRC) protect the public health and safety, and the environment from the effects of radiation Energy Regulation Environmental Protection Agency (EPA) protect human health and the environment 28
Federal Oversight of Energy Issues Non-Industry Specific Regulations Environ. Protect. Agency Dept. of Labor Dept. of Interior Dept. of Commerce Army Corps or Engineers Energy Specific Programs & Regulations Department of Energy Federal Energy Reg. Comm. Nuclear Reg. Comm. River Operations Generation Power Markets Transmission New Plant Design Emissions System Operations Worker Safety Nuclear Safety 29
Current Issues and Emerging Trends 30
Key Issues Coal is not clean! Wind doesn t blow when and where you need it! Gas and oil prices are volatile! Commodity costs are fluctuating! Nuclear is unsafe! Transmission-NIMBY! Aging infrastructure and workforce! Economic Downturn! 31
Key Issues Integrating Renewables is a challenge! 32
Key Issues Integrating Renewables is a challenge! Source: NREL 33
U.S. Power Industry Information Transmission Source: Energy Velocity 34
Large scale renewable studies by GE These studies were commissioned by the Energy Commissions and ISOs of each region.. Examining the Feasibility of 100+ GW of new wind and other renewable resource additions Considering Operability, Costs, Emissions, Transmission Constraints, Forecasting 35 Each successive study has raised the threshold for acceptable penetration of wind and solar 2004 New York: 3 GW Wind 10% of Peak Load 4% of Energy 2005 Ontario: 15 GW Wind 50% Peak Load ~30% Energy 2006 California: 13 GW Wind 3 GW Solar 5 GW Bio & Geo 26% Peak Load 15% Energy (33% Total) 2007 Texas: 15 GW Wind 25 % Peak Load 17% Energy 2008-9 Western Wind & Solar: (all of Western US) 72 GW Wind 15 GW Solar 50% Peak Load 27% Energy
Major Study Results : Large interconnected power systems can accommodate variable renewable generation (Wind + Solar) penetration levels exceeding 25% of peak loads But not by doing more of the same.. To reach higher levels of wind generation and other renewables: Reinvest in infrastructure Implement balanced market rules Incentivize owners and operators to better utilize technology and assets The debate has changed: No longer: Is it possible? Now: How do we get there? 36
Key Issues Integrating Renewables is a challenge! Cost Investment of $60 billion over next 20 years for 19,000 miles of line to deliver 200-400 GW Current transmission investment $7 billon/yr and growing Financing who pays and how are costs recovered in essence, do ratepayers pay or does the generation project developer? Do you pay up front or as you go? Siting considerations Multi-state jurisdiction approval on major lines Complicated process with state regulatory approval, environmental impact analysis, and perhaps even Federal approval Local opposition Not In My Back Yard Source: UWIG, An Overview of Current Initiatives to Expand Transmission Infrastructure to Accommodate Utility Interconnection and Integration of Wind Power 37
QUESTIONS? Source: BusinessWeek 38
Backup 39
Adv CC Adv GT IGCC Coal Nuclear Wind Fuel Cost $/MMBTU $6.00 $6.00 $2.00 $2.00 $0.60 N/A Heat Rate (HHV) Capital Cost (turnkey) Emissions SOx NOx BTU/ kwh $/kw Lb/ MMBTU 6600 $900 0.0 0.10 9500 $600 0.0 0.03 8500 $2200 0.01 0.02 10000 $2000 0.15 0.10 10000 $2800 CO 2 115 115 210 210 0.0 0.0 Hg Lb/TBTU 0 0 1.0 3.0 0.0 0.0 O&M Cost $/kw-yr $30* $17.5* (CSA/Other) $13 $6 $70** $62** $56 $40 Capacity Factor % ~50% ~10% 80% 80% 95% 35% COE C/kWh 9.10 20.60 8.10 7.85 6.75 10.0*** 0.0 0.0 N/A $2000 0.0 0.0 * CSA estimate; Other includes fixed & variable operating cost estimate ** Estimate of total equipment related O&M *** With 1.8 C/kWh PTC All 40 costs in 2005 $