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lrmc-srmc-analysis-oct08-for-meug-gpc

VIEWS: 14 PAGES: 25

									Calculating electricity emission
factors for SEIP TAG (Oct 08)

            Mark Dean
              MED




                        DRAFT      1
Overview of methodology
                           GEM model
                           •Determine “least cost” build schedule of new generation plant over the period 2008-2032.
                           •Requires assumptions about capital costs, fuel costs, carbon costs and demand growth.
                           •5 scenarios run with different carbon costs: $0, $20, $40, $60 and $80 (per tonne CO2)


                                                   MW of new plant required each year, by technology


SDDP model (“SRMC” approach)                                                              LRMC supply curves
•Determine “optimal” market dispatch over the period 2008-2032.                           •Use capital costs, fuel costs & carbon costs from GEM to
                                                                                          calculate LRMC for each project.
•5 scenarios run with the carbon cost assumptions from GEM.
                                                                                          •Stack these LRMC’s from lowest to highest to determine
•Use build schedules from GEM to determine new plant added in each year.
                                                                                          the supply curves for each scenario.
•Also use same fuel costs as GEM to determine SRMC of thermal plant.
•Calculates water values across 74 hydro sequences.
                                                                                          Wholesale price forecasts based on LRMC of new entrant plant
Wholesale price forecasts based on SRMC of thermal plant and water values.


 Emission factors based on SRMC approach
                                                                     ?                             Emission factors based on LRMC approach
 •Compare SRMC price forecasts including                                                           •Compare LRMC price forecast including carbon
 carbon against SRMC excluding carbon to               Compare emissions factors from              against LRMC excluding carbon to determine price
 determine price uplift and implied emission           SRMC vs LRMC approaches and                 uplift and implied emission factors
 factors                                               decide on the more appropriate
                                                       method for the first commitment
                                                       period (2010-2012)

                                                                                         DRAFT
   (Tom Halliburton undertook the SDDP modelling, whilst MED undertook the GEM and LRMC modelling.)                                                   2
Assumptions
GEM
We have used the 2008 SOO assumptions where possible, mainly from the "Medium renewables" scenario which was more middle of the road:
• Gas cost increase from $5.50 in 2008 to $11/GJ in 2024, with LNG terminal built in 2020 if required.
• Coal price $4/GJ (lignite $1.80).
• Huntly coal units switch to dry year reserve plant over the period 2013-2020 and new coal plant able to be built only after 2020
The main modifications we have made to the SOO scenario is:
•No thermal moratorium for new gas plant (ie. model is free to build CCGT pre 2019).
• The medium renewables scenario was the only SOO scenario with Tiwai point closing in the future, so I have assumed that Tiwai stays open
•"Fixed" build years only for those projects currently under construction or recently completed (GEO = Kawerau 90MW, Ngawha2 15MW, Rotokawa
132MW, Centenial drive 23MW; WIND = TeRereHau 46MW, West Wind 143MW; HYD = Manap half life refurb 18MW, DeepStream 6MW).


SDDP
The build schedules, fuel costs and carbon costs from each of the GEM runs then feed through to SDDP. Other specific assumptions we need to make
in SDDP:
•Huntly coal will have 400MW of "baseload" generation (ie. at zero SRMC), and the 400MW will reduce over time as the units are phased out and turn
into dry year reserve plants.
•CCGT's will also have baseload generation of 150MW-200MW per unit, depending on the technology.
These baseload tranches are intended to reflect take or pay fuel obligations.




                                                                                           DRAFT                                                 3
LRMC analysis based on GEM runs




                    DRAFT         4
LRMC supply curves based on 2008 SOO assumptions
$MWh              LRMC: $40 CO2 cost vs no CO2 cost
250
240         CCGT
                                                                                              •Uses 2008 SOO CapX
230         Coal
            Lig
                                    Bar chart excludes carbon cost, line                      assumptions (refer to
                                            chart includes cost
220
210
            Wind
            Geo
                                                                                              appendices for details)
200         HydRR                                 Shows net MW
190
            HydPk
            GasPkr                       (ie. reduced by capacity factors)                    •Gas $9/GJ, Coal $4/GJ,
180
170
            DslPkr
            Other                                                                             Lignite $1.90/GJ
            Huntly SRMC @ $40 CO2
160         OtB SRMC @ $40 CO2       SRMC = O&M + fuel + CO2 costs                            •Includes location factors
150         Energy hedge 2010
140                                  (ie. excludes capital cost recovery)                     (ie. all @ Haywards
130
120                                                                                           prices)
110
100                                                                                           •Thermal plant run as
 90
 80                                                                                           baseload (around 90%
 70                                                                                           utilisation for CCGT, 85%
 60
 50                                                                                           for Coal)
 40
 30
 20
 10
       0
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    1000
                         Cumulative MW


Appx 300 MW demand growth by 2012 (@ 1.3% pa), and we have a (net) 230MW of geothermal & wind under construction



                                                                             DRAFT                                   5
LRMC supply charts for all carbon cost scenarios
$MWh           LRMC: $20 CO2 cost vs no CO2 cost                        $MWh           LRMC: $40 CO2 cost vs no CO2 cost
250                                                                     250
240    CCGT                                                             240    CCGT
230    Coal                      Bar chart excludes carbon cost, line   230                              Bar chart excludes carbon cost, line
                                                                               Coal
220    Lig                               chart includes cost            220    Lig                               chart includes cost
       Wind                                                                    Wind
210    Geo                                                              210    Geo
200    HydRR                                                            200    HydRR
190    HydPk                                                            190    HydPk
       GasPkr                                                           180    GasPkr
180    DslPkr                                                                  DslPkr
170    Other                                                            170    Other
160    Huntly SRMC @ $20 CO2                                            160    Huntly SRMC @ $40 CO2
       OtB SRMC @ $20 CO2                                               150    OtB SRMC @ $40 CO2
150    Energy hedge 2010                                                       Energy hedge 2010
140                                                                     140
130                                                                     130
120                                                                     120
110                                                                     110
100                                                                     100
 90                                                                      90
 80                                                                      80
 70                                                                      70
 60                                                                      60
 50                                                                      50
 40                                                                      40
 30                                                                      30
 20                                                                      20
 10                                                                      10




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                      Cumulative MW                                                           Cumulative MW
$MWh           LRMC: $60 CO2 cost vs no CO2 cost                        $MWh           LRMC: $80 CO2 cost vs no CO2 cost
250                                                                     250
240    CCGT                                                             240
                                 Bar chart excludes carbon cost, line          CCGT                      Bar chart excludes carbon cost, line
230    Coal                                                             230    Coal
220    Lig                               chart includes cost            220    Lig                               chart includes cost
210    Wind                                                             210    Wind
       Geo                                                                     Geo
200    HydRR                                                            200    HydRR
190    HydPk                                                            190    HydPk
180    GasPkr                                                           180    GasPkr
       DslPkr                                                                  DslPkr
170    Other                                                            170    Other
160    Huntly SRMC @ $60 CO2                                            160    Huntly SRMC @ $80 CO2
150    OtB SRMC @ $60 CO2                                               150    OtB SRMC @ $80 CO2
       Energy hedge 2010                                                       Energy hedge 2010
140                                                                     140
130                                                                     130
120                                                                     120
110                                                                     110
100                                                                     100
 90                                                                      90
 80                                                                      80
 70                                                                      70
 60                                                                      60
 50                                                                      50
 40                                                                      40
 30                                                                      30
 20                                                                      20
 10                                                                      10
                                                                                    DRAFT                                                       6
     0
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                      Cumulative MW                                                           Cumulative MW
Calculating emissions factors from full supply curve
     •LRMC delta $MWh = (LRMC for relevant carbon cost scenario at cumulative MW point x) – (LRMC with no carbon
     cost at cumulative MW point x)
     •Emissions factor tCO2perMWh = LRMC delta / $CO2perTonne
     •However, to calculate emissions factor for SEIP TAG, we need to consider the timing of these potential new
     plant investments
$MWh           LRMC delta (vs no carbon cost)                                                                              tCO2/MWh               Implied emissions factors
60                                                                                                                        1.0
                      $20 CO2                                                                                                                                                                                       $20 CO2
                      $40 CO2                                                                                                                                                                                       $40 CO2
50                                                                                                                        0.8                                                                                       $60 CO2
                      $60 CO2
                      $80 CO2                                                                                                                                                                                       $80 CO2
40
                                                                                                                          0.6
30
                                                                                                                          0.4
20
                                                                                                                          0.2
10
                                                                                                                          0.0
0
                                                                                                                                0
                                                                                                                                    610
                                                                                                                                          1220
                                                                                                                                                 1830
                                                                                                                                                        2440
                                                                                                                                                               3050
                                                                                                                                                                      3660
                                                                                                                                                                             4270
                                                                                                                                                                                     4880
                                                                                                                                                                                            5490
                                                                                                                                                                                                   6100
                                                                                                                                                                                                          6710
                                                                                                                                                                                                                 7320
                                                                                                                                                                                                                        7930
                                                                                                                                                                                                                               8540
                                                                                                                                                                                                                                      9150
                                                                                                                                                                                                                                             9760
     0
         610
               1220
                      1830
                             2440
                                     3050
                                            3660
                                                   4270
                                                          4880
                                                                 5490
                                                                        6100
                                                                               6710
                                                                                      7320
                                                                                             7930
                                                                                                    8540
                                                                                                            9150
                                                                                                                   9760




                                                                                                                                                                      Cumulative MW
                      Cumulative MW


                                                                                                           Supply curves                                                            In previous slide we see that up to
Discrete                            Reflects more expensive                                                                                       Discrete                          1200MW, the carbon inclusive scenarios
increments for                      renewables moving down the                                             eventually converge                    increments
                                                                                                           with expensive                                                           all have renewables, so the price delta in
geothermal vs                       supply curve and also                                                                                         for peaker                        left chart is very similar for all scenarios up
geothermal                          increased thermal costs                                                renewable vs                           vs peaker
                                                                                                           expensive renewable                                                      to 1200MW, resulting in relatively high/low
                                                                                                                                                 DRAFT                                                                     7
                                                                                                                                                                                    emissions factors (note formula above)
Supply curve from GEM run ordered by build year
 $MWh                  LRMC: $40 CO2 cost vs no CO2 cost
 250
 240                                                                                                           $MW
 230
              CCGT
              Coal                                 Bar chart excludes carbon cost, line                                          LRMC delta (vs no carbon cost)
              Lig                                          chart includes cost
                                                                                                               50
                                                                                                                h
 220
              Wind                                                                                                                                                                     tCO2/MWh      $20 CO2
                                                                                                                                                                                                      Implied        emissions factors
 210          Geo
 200          HydRR                                                                                            40                                                                      1.6           $40 CO2
 190          HydPk                                                                                                                                                                                  $60 CO2
              GasPkr                                                                                                                                                                   1.4           $80 CO2
 180          DslPkr                                                                                           30
 170          Other
                                                                                                                                                                                       1.2                                                                       $20 CO2
 160          Huntly SRMC @ $40 CO2                                                                                                                                                      1                                                                       $40 CO2
              OtB SRMC @ $40 CO2                                                                               20
 150          Energy hedge 2010                                                                                                                                                        0.8                                                                       $60 CO2
 140                                                                                                                                                                                                                                                             $80 CO2
 130                                                                                                                                                                                   0.6
                                                                                                               10
 120                                                                                                                                                                                   0.4
 110                                                                                                                                                                                   0.2
 100                                                                                                            0




                                                                                                                     0
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  90                                                                                                                                                                                     0




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  80                                                                                                           -10                                                                    -0.2
  70                                                                                                                                                                                  -0.4
  60
  50
                                                                                                               -20                  Cumulative MW                                     -0.6
  40                                                                                                                                                                                  -0.8
  30
                                                                                                                                                                                        -1
  20
  10
                                                                                                                                                                                                                    Cumulative MW
    0

        200

                400

                      600

                            800

                                  1000

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                                                1400

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                                                                                                        3000

                                                                                                                 3200

                                                                                                                         3400

                                                                                                                                 3600

                                                                                                                                        3800

                                                                                                                                                4000
                                  Cumulative MW                                                                                                               “Committed” plant (ie. are under construction)

•Subset of full supply curve based on baseload plants selected in latest GEM runs (ie. excludes peakers)
•Also excludes plant that contribute less than 400GWh per annum (appx 50MW thermal or 100MW wind).
        •This is slightly less than a years worth of demand growth at 1.3% pa (520GWh).
        •We want to know what price levels are required to support the larger scale investments
•Same GEM runs as those used to provide build schedules for SRMC analysis
•Uses capacity factors from GEM dispatch output
        •Note that 240MW CCGT is built at Rodney in zero carbon case, however, since the capacity factor is less than 50% it is
        treated as a peaker and so not included in above chart
                                                                                                                                                                            DRAFT                                                                                                   8
•Partially addresses the timing issue but we still need to be able to identify the LRMC level for each year
Annual price forecast based on maximum LRMC
Algorithm for forecasting price in a given year:
•Calculate LRMC for each plant as per previous slide
•Exclude peaking plant (assume peakers affect the shape of price duration curve, not the average level)
•Exclude plant less that contribute less than 400GWh per annum (appx 50MW thermal or 100MW wind).
       •This is slightly less than a years worth of demand growth at 1.3% pa (520GWh).
       We want to know what price levels are required to support the larger scale investments
•Of the plant that “qualify” in a given year, take the plant with the highest LRMC as the plant that sets the price forecast for that year
•If there are no plant built in a given year, or if no plant qualify, then the price for this year will be a linear interpolation between years
where there are prices.
Notice below how lumpiness of investment schedule results in peaks/troughs in price forecast curves …..
                                     $MWh                       Wholesale price forecast based on new entrant LRMC                                                                                                  Wind, expensive
                                                                                (baseload plant only)
                                     130                                                                                                                                                                            geo & some
2010& 2011 Energyhedge                     West wind                                                                 Coal                                                                                           thermal ($40 & $20)
                                     120
prices…. are generators
already factoring in the             110
                                                            Dearer geo
more expensive renewable             100
                                                                                                                                                                                                                    Post 2020 the
projects? (Could look at              90
                                                                                                                                                                                                                    carbon inclusive
setting price forecast                80                                                                                                                                                                            LRMC is mostly in
based on expectations for             70                                                                                                                                                                            a $100 - $110 band
the next 2-3 years?)                                                                                              Cheap lignite & coal plant                                                                        irrespective of the
                                      60
                                                  Cheap geo
                                      50                  LRMC @ $0 CO2                                            LRMC @ $20 CO2                                         LRMC @ $40 CO2
                                                                                                                                                                                                                    size of carbon cost.
                                                          LRMC @ $60 CO2                                           LRMC @ $80 CO2                                         Energy Hedge
                                      40
                                                                                                                                                                                                                                 9
                                           2009
                                                  2010
                                                         2011
                                                                 2012
                                                                        2013
                                                                               2014
                                                                                      2015
                                                                                             2016
                                                                                                    2017
                                                                                                           2018
                                                                                                                  2019
                                                                                                                         2020
                                                                                                                                2021
                                                                                                                                       2022
                                                                                                                                              2023
                                                                                                                                                     2024
                                                                                                                                                            2025
                                                                                                                                                                   2026
                                                                                                                                                                          2027
                                                                                                                                                                                 2028
                                                                                                                                                                                        2029
                                                                                                                                                                                               2030
                                                                                                                                                                                                      2031
                                                                                                                                                                                                             2032
                                                                                                                                       DRAFT
Emissions factors from LRMC price forecast
                     Price deltas (vs no carbon case)
40                                                                                                             Implied emissions factors from price forecast curves
                LRMC @ $20 CO2                                                                   1.6
35
                LRMC @ $40 CO2                                                                                         $20 CO2
30              LRMC @ $60 CO2
                                                                                                 1.4                   $40 CO2
                LRMC @ $80 CO2                                                                                         $60 CO2
                                                                                                                       $80 CO2
                                                                                                                                                                         Coal vs cheap lignite
25
                                                                                                 1.2
20

15                                                                                                 1
                                                                                                                                                                                       Coal vs Coal
10
                                                                                                 0.8
5

0                                                                                                0.6
      2009

             2011

                     2013

                            2015

                                   2017

                                          2019

                                                 2021

                                                        2023

                                                               2025

                                                                      2027

                                                                             2029

-5                                                                                   2031
                                                                                                 0.4

                                                                                                 0.2
        Still Geo vs Geo but also reflects timing of projects
                                                                                                   0
                                                                                    Geo vs Geo

                                                                                                        2009


                                                                                                                2011


                                                                                                                        2013


                                                                                                                               2015


                                                                                                                                      2017


                                                                                                                                             2019


                                                                                                                                                    2021


                                                                                                                                                           2023


                                                                                                                                                                  2025


                                                                                                                                                                         2027

                                                                                                                                                                                2029


                                                                                                                                                                                       2031
                                                                                                 -0.2

     •Similar shape to charts on slide 7
     •However, slide 8 has a geothermal factor of 0.1 for longer … above emissions factor chart reflects timing of projects with some
     more expensive geo projects being brought forward and so being compared to cheaper projects in the zero CO2 cost case.
                    •Example….In the zero carbon case Tauhara2 is built in stages over 2015-2017, whereas in the carbon inclusive cases that
                    is brought forward to 2012-2015. As a result, in 2012 TeMihi LRMC of $70 sets the price in the zero case, whereas in carbon
                    inclusive cases Tauhara2 sets the price with an LRMC of $83-$90 depending on carbon cost
     •Is also worth noting the difference between slides 7 & 8 …. If new coal build was not restricted to 2020 in GEM then slide 8 pattern
     may end up closer to slide 7 (ie. not so much geothermal front-ended in zero case)
                                                                                   DRAFT                                            10
  SRMC analysis based on SDDP runs

(refer to Tom Halliburton’s report for more
                  details)




                           DRAFT              11
North Island SRMC
                                    North Island SRMC ($/MWh)
        130
        120
        110
       100
   $/MWh
        90
          80
                                                                         $0/tCO2          $20/tCO2
          70
                                                                         $40/tCO2         $60/tCO2
          60                                                             $80/tCO2

          50
               2009

                      2011

                             2013

                                      2015

                                             2017

                                                    2019

                                                           2021

                                                                  2023

                                                                         2025

                                                                                   2027

                                                                                          2029

                                                                                                     2031
    •Lumpy investment profile creates peaks & troughs in curves
    •Increasing gas prices between 2011 & 2024 drive up CCGT SRMC
    •Is not a predictor of “level” of spot market prices … generators need to make profit also




                                                                            DRAFT                           12
Implied emissions factors

                                                     Emissions factors: tonnes CO2/MWh
 0.7
                                                                                                                                                             20
                                                                                                                                                             40
 0.6                                                                                                                                                         60
                                                                                                                                                             80

 0.5


 0.4


 0.3


 0.2


 0.1


  0
    10

           11

                  12

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                                                                                               DRAFT                                                           13
Comparisons to previous Concept work
$MWh
                       $MWh price increase                                       Tonnes CO2/MWh             Emissions factor
45                                                                               0.7


40
                                                                                 0.6
35


30                                                                               0.5


25                                                   SDDP 2010
                                                     SDDP 2011
                                                                                 0.4
                                                     SDDP 2012
20
                                                     Concept Scen A 2010
                                                     Concept Scen A 2011
15                                                   Concept Scen A 2012         0.3
                                                     Concept Scen B 2010
                                                                                            SDDP 2010                   SDDP 2011                   SDDP 2012
10                                                   Concept Scen B 2011
                                                     Concept Scen B 2012                    Concept Scen A 2010         Concept Scen A 2011         Concept Scen A 2012
                                                                                 0.2
                                                     Concept Scen C 2010
 5                                                                                          Concept Scen B 2010         Concept Scen B 2011         Concept Scen B 2012
                                                     Concept Scen C 2011
                                                     Concept Scen C 2012                    Concept Scen C 2010         Concept Scen C 2011         Concept Scen C 2012
 0                                                                               0.1
     $0    $10   $20      $30     $40    $50   $60     $70      $80        $90         $0    $10      $20         $30     $40       $50       $60      $70      $80       $90
                           $/tonne CO2                                                                             $/tonne CO2




     •Shows Concept results for “case 2” (Huntly with 400MW base load component) which is consistent with SDDP work
     •Concept supply scenarios for new plant:
           •A: Renewables only
           •B: Coal + renewables
           •C: Gas + renewables

                                                                                               DRAFT                                                                  14
SRMC vs LRMC




          DRAFT   15
Price forecasts
 $MWh                        LRMC vs SRMC                                                  $MWh                        LRMC vs SRMC                                                  $MWh                        LRMC vs SRMC
130                                                                                       130                                                                                       130

120                                                                                       120                                                                                       120

110                                                                                       110                                                                                       110

100                                                                                       100                                                                                       100

 90                                                                                       90                                                                                        90

 80                                                                                       80                                                                                        80

 70                                                LRMC @ $0 CO2                          70                                                                                        70
                                                                                                                                            LRMC @ $20 CO2                                                                           LRMC @ $40 CO2
 60                                                SRMC @ $0 CO2                          60                                                SRMC @ $20 CO2                          60                                               SRMC @ $40 CO2
 50                                                                                       50                                                                                        50
      2009

             2011

                    2013

                           2015

                                  2017

                                         2019

                                                2021

                                                       2023

                                                              2025

                                                                     2027

                                                                            2029

                                                                                   2031




                                                                                                2009

                                                                                                       2011

                                                                                                              2013

                                                                                                                     2015

                                                                                                                            2017

                                                                                                                                   2019

                                                                                                                                          2021

                                                                                                                                                 2023

                                                                                                                                                        2025

                                                                                                                                                               2027

                                                                                                                                                                      2029

                                                                                                                                                                             2031




                                                                                                                                                                                          2009

                                                                                                                                                                                                 2011

                                                                                                                                                                                                        2013

                                                                                                                                                                                                               2015

                                                                                                                                                                                                                      2017

                                                                                                                                                                                                                             2019

                                                                                                                                                                                                                                    2021

                                                                                                                                                                                                                                           2023

                                                                                                                                                                                                                                                  2025

                                                                                                                                                                                                                                                         2027

                                                                                                                                                                                                                                                                2029

                                                                                                                                                                                                                                                                       2031
 $MWh                        LRMC vs SRMC
                                                                                           $MWh                        LRMC vs SRMC
                                                                                          130
130

120
                                                                                          120                                                                                             •Convergence of prices in medium to
110
                                                                                          110                                                                                             longer term except at very high carbon
100
                                                                                          100                                                                                             costs
 90
                                                                                          90
                                                                                                                                                                                          •Since SRMC price level tends to
 80
                                                                                          80
                                                                                                                                                                                          increase in response to carbon cost,
 70
                                                 LRMC @ $60 CO2
                                                                                          70                                                LRMC @ $80 CO2                                while LRMC tends to stay in a similar
 60
                                                 SRMC @ $60 CO2
                                                                                          60                                                SRMC @ $80 CO2                                range when there is a carbon cost, we
 50
                                                                                          50                                                                                              see that typically LRMC>SRMC at $20
                                                                                                2009

                                                                                                       2011

                                                                                                              2013

                                                                                                                     2015

                                                                                                                            2017

                                                                                                                                   2019

                                                                                                                                          2021

                                                                                                                                                 2023

                                                                                                                                                        2025

                                                                                                                                                               2027

                                                                                                                                                                      2029

                                                                                                                                                                             2031
                                                                                                                                                                                          & $40 CO2 cost, while SRMC>LRMC
      2009

             2011

                    2013

                           2015

                                  2017

                                         2019

                                                2021

                                                       2023

                                                              2025

                                                                     2027

                                                                            2029

                                                                                   2031




                                                                                                                                                                                          at $60+
                                                                                                                                                                                          Going gets tough for thermals when
                    With a higher % of renewables, there will be additional
                                                                                                                                                                                          there is a high carbon cost!
                    system costs (providing capacity , transmission, etc)
                    …. these costs are not reflected in LRMC curves                                                                                                                                                                                                    16
                                                                                                                                                                  DRAFT
Price deltas (vs no carbon case)
                   Price deltas (vs no carbon case)                                                           Price deltas (vs no carbon case)
45                                                                                         45
                                                               LRMC @ $20 CO2
40                                                                                         40
                                                               SRMC @ $20 CO2                                  LRMC @ $40 CO2
35                                                                                         35                  SRMC @ $40 CO2                                                         •As CO2 cost increases, SRMC
30                                                                                         30                                                                                         price delta tends to increase,
25                                                                                         25                                                                                         however, LRMC delta tends to
20                                                                                         20                                                                                         stay more constant (LRMC price
15                                                                                         15                                                                                         forecasts post 2020 for all carbon
10                                                                                         10                                                                                         inclusive scenarios sit in a
 5                                                                                          5
                                                                                                                                                                                      relatively constant $100-$110
 0                                                                                          0
                                                                                                                                                                                      range – see slides 9&10)
     2009

            2011

                    2013

                           2015

                                  2017

                                         2019

                                                2021

                                                        2023

                                                               2025

                                                                      2027

                                                                             2029

                                                                                    2031




                                                                                                2009

                                                                                                       2011

                                                                                                               2013

                                                                                                                      2015

                                                                                                                             2017

                                                                                                                                    2019

                                                                                                                                           2021

                                                                                                                                                  2023

                                                                                                                                                          2025

                                                                                                                                                                 2027

                                                                                                                                                                        2029

                                                                                                                                                                               2031
                                                                                           -5                                                                                         •Lumpiness of investment
                   Price deltas (vs no carbon case)                                                           Price deltas (vs no carbon case)                                        schedule leads to peaks/troughs
45                                                                                         45
                                                                                                                                                                                      so averaging over several years
                                                                                                                                                         LRMC @ $80 CO2
40                                                     LRMC @ $60 CO2                      40
                                                                                                                                                         SRMC @ $80 CO2
                                                                                                                                                                                      has some merits
                                                       SRMC @ $60 CO2
35                                                                                         35
                                                                                                                                                                                      •First few years SRMC > LRMC
30                                                                                         30
                                                                                                                                                                                      for most scenarios, but
25                                                                                         25
                                                                                                                                                                                      medium/long term is some
20                                                                                         20
                                                                                                                                                                                      convergence if we “look through”
                                                                                                                                                                                      the peaks/troughs
15                                                                                         15

10                                                                                         10

 5                                                                                          5

 0                                                                                          0
     2009

            2011

                    2013

                           2015

                                  2017

                                         2019

                                                2021

                                                        2023

                                                               2025

                                                                      2027

                                                                             2029

                                                                                    2031




                                                                                                2009

                                                                                                       2011

                                                                                                               2013

                                                                                                                      2015

                                                                                                                             2017

                                                                                                                                    2019

                                                                                                                                           2021

                                                                                                                                                  2023

                                                                                                                                                          2025

                                                                                                                                                                 2027

                                                                                                                                                                        2029

                                                                                                                                                                               2031


                                                                                                                                                    DRAFT                                                        17
Emissions factors
                            Emissions factors                                                                             Emissions factors
  1.40                                                                                            1.40
                LRMC @ $20 CO2                                                                            LRMC @ $40 CO2
  1.20          SRMC @ $20 CO2                                                                    1.20    SRMC @ $40 CO2                                                                  •Reminder that Emissions factor =
  1.00                                                                                            1.00                                                                                    LRMC delta / $CO2perTonne, so we
  0.80                                                                                            0.80                                                                                    can see how trends in previous slide
                                                                                                  0.60
                                                                                                                                                                                          drive the trends here ….LRMC price
  0.60
                                                                                                                                                                                          delta relatively constant so LRMC
  0.40                                                                                            0.40
                                                                                                                                                                                          factors here decrease as CO2 cost
  0.20                                                                                            0.20                                                                                    increases …. however SRMC factor is
  0.00                                                                                            0.00                                                                                    relatively constant across scenarios




                                                                                                           2011

                                                                                                                   2013

                                                                                                                           2015

                                                                                                                                  2017

                                                                                                                                         2019

                                                                                                                                                2021

                                                                                                                                                       2023

                                                                                                                                                              2025

                                                                                                                                                                     2027

                                                                                                                                                                            2029

                                                                                                                                                                                   2031
                                                                                                                                                                                          since the price delta tends to increase
           2011

                    2013

                             2015

                                      2017

                                              2019

                                                      2021

                                                              2023

                                                                      2025

                                                                             2027

                                                                                    2029

                                                                                           2031
                                                                                                  -0.20
                                                                                                                                                                                          in line with the CO2 cost
                           Emissions factors                                                                              Emissions factors
 1.40                                                                                             1.40                                                                                    •Lumpiness of investment schedule
 1.20
         LRMC @ $60 CO2
         SRMC @ $60 CO2                                                                           1.20
                                                                                                            LRMC @ $80 CO2
                                                                                                            SRMC @ $80 CO2
                                                                                                                                                                                          leads to peaks/troughs so averaging
                                                                                                                                                                                          over several years has some merits
 1.00                                                                                             1.00


 0.80                                                                                             0.80                                                                                    •First few years SRMC > LRMC for
                                                                                                  0.60
                                                                                                                                                                                          most scenarios but medium/long term
 0.60
                                                                                                                                                                                          is some convergence if we “look
 0.40                                                                                             0.40
                                                                                                                                                                                          through” the peaks/troughs
                                                                                                  0.20
 0.20

                                                                                                  0.00
 0.00
                                                                                                          2011

                                                                                                                  2013

                                                                                                                          2015

                                                                                                                                  2017

                                                                                                                                         2019

                                                                                                                                                2021

                                                                                                                                                       2023

                                                                                                                                                              2025

                                                                                                                                                                     2027

                                                                                                                                                                            2029

                                                                                                                                                                                   2031
         2011

                  2013

                           2015

                                    2017

                                             2019

                                                     2021

                                                             2023

                                                                     2025

                                                                             2027

                                                                                    2029

                                                                                           2031




                                                                                                                                                              DRAFT                                                      18
 Summary
2010-2012 average $MWh                                            2010-2012 average tCO2/MWh
            $0 CO2 $20 CO2 $40 CO2 $60 CO2 $80 CO2                             $20 CO2 $40 CO2 $60 CO2 $80 CO2
LRMC              $74   $82     $81     $82      $84              LRMC               0.42   0.17    0.15    0.13
SRMC              $56   $67     $78     $87      $95              SRMC               0.54   0.53    0.51    0.48
Variance          $17   $15      $3     -$5     -$11              Variance          -0.12  -0.36   -0.37   -0.35

2013-2017 average $MWh                                            2013-2017 average tCO2/MWh
            $0 CO2 $20 CO2 $40 CO2 $60 CO2 $80 CO2                             $20 CO2 $40 CO2 $60 CO2 $80 CO2
LRMC              $79   $88     $90     $93      $94              LRMC               0.45   0.27    0.22    0.18
SRMC              $71   $77     $88     $99    $108               SRMC               0.31   0.43    0.47    0.47
Variance           $8   $11      $2     -$6     -$14              Variance           0.14  -0.16   -0.24   -0.28


  •487MW of consented renewables (see appendices) but with no construction plans as yet … lead in times
  for completing new projects suggests there is limited scope to develop “substantial additional” renewables
  before 2010-2012
  •Genesis and Contact will want to pass on full cost of carbon and may have a window to do so before
  substantial amounts of new renewables can be built
  •Energyhedge price for 2010/2011 indicates an expectation of higher prices than LRMC of “cheap”
  geothermal
  SRMC modelling approach has some merit for the 2010-2012 period …factor of between 0.48 and 0.54??
  Beyond 2013 LRMC has some merit since there will be time for new renewables to enter the mix and put
  pressure on existing thermal stations …..factor of between 0.18 and 0.45??


                                                                    DRAFT                                      19
Appendices




             DRAFT   20
Consented renewable projects
  Wind
 Name                      Developer      Region      Status           Earliest      Capacity
                                                                       Commissioning (MW)
 Hawkes Bay Wind Farm      Hawkes Bay     Hastings    Consented,       N/A                225
                           Wind Farm                  after appeal
 Titiokura                 Unison         Hastings    Consented,                  2010        48
                                                      after appeal
 Taumatatotara             Ventus         Waikato     Consented, but N/A                      20
                                                      on hold
 Awhitu                    Genesis        Franklin    Consented,        N/A                   18
                                                      after appeal, but
                                                      on hold
 Horseshoe Bend            Pioneer        Central     Consented         N/A                   1.8
                           Generation     Otago
 TOTAL                                                                                       313



  Hydro
 Name                       Developer       Region         Lodged Status                Capacity
                                                                                        (MW)
 Hawea Gates (retrofit)     Contact Energy Otago               2007 Design work in 2008       17
                                                                    and built by 2012
 Lake Rochfort Hydro Project Kawatiri Energy West Coast        2005 Consented                   4
 Wairau                      Trustpower      Marlborough       2004 May be appealed in        72
                                                                    Environment Court
 TOTAL                                                                                        93



  Geothermal
 Name                         Developer      Region            Status           Capacity (MW)
 Tukairangi Road              Geotherm       Taupo             Consented                    60
                              Group
 Poihipi Rd Enhancement       Contact Energy Taupo             Consented                       20
 TOTAL                                                                                         80


                                                                                          DRAFT     21
GEM CapX and O&M assumptions
 Variable O&M ($/MWh):
       •Coal $9
       •CCGT $4.25
       •Geothermal $10
       •Wind $16




  Capital cost range ($/kW)
                  Min       Avg       Max
  Hydro           1,542     3,957     5,849
  Wind            2,000     2,502     2,783
  Geothermal      4,622     5,225     6,384
  CCGT            1,007     1,076     1,230
  Coal            2,125     2,389     2,610
  Lignite         2,460     2,524     2,588
  Peaker            800       800       800

  •Assumes a USD/NZD exchange rate of 60cents




                                                DRAFT   22
Sample GEM build schedules




                             DRAFT   23
GEM build schedule variance: $40 CO2 cost vs no cost
    Build schedule cumulative variance: Med renew - $40 CO2
 1400                                                                                                                                                                                  Coal

                                                                                                                                                                                       Coal, dry year mode
 1200
                                                                                                                                                                                       Lignite
 1000
                                                                                                                                                                                       Combined cycle gas
                                                                                                                                                                                       turbine
 800                                                                                                                                                                                   Cogeneration, other

                                                                                                                                                                                       Geothermal
 600
                                                                                                                                                                                       Hydro, peaking
 400
                                                                                                                                                                                       Hydro, run of river

 200                                                                                                                                                                                   Interruptible load

                                                                                                                                                                                       Open cycle gas
   0                                                                                                                                                                                   turbine - gas
                                                                                                                                                                                       Wind
        2008
               2009
                      2010
                             2011
                                    2012
                                           2013
                                                  2014
                                                         2015
                                                                2016
                                                                       2017
                                                                              2018
                                                                                     2019
                                                                                            2020
                                                                                                   2021
                                                                                                          2022
                                                                                                                 2023
                                                                                                                        2024
                                                                                                                               2025
                                                                                                                                      2026
                                                                                                                                             2027
                                                                                                                                                    2028
                                                                                                                                                           2029
                                                                                                                                                                  2030
                                                                                                                                                                         2031
                                                                                                                                                                                2032
 -200                                                                                                                                                                                  Peaker, diesel-fired
                                                                                                                                                                                       OCGT
 -400
                                                                                                                                                                                       Peaker, fast start gas-
                                                                                                                                                                                       fired peaker
                 A negative number means less                                                                                                                                          Price-responsive load
 -600             built compared to base case                                                                                                                                          curtailment
                                                                                                                                                                                       Other

 -800                                                                                                                                                                                  Total net variance


                                                                                                                                      DRAFT                                                           24
GEM build schedule variance: $80 CO2 cost vs no cost
    Build schedule cumulative variance: Med renew - $80 CO2
1800                                                                                                                                                                                   Coal
1600                                                                                                                                                                                   Coal, dry year mode
1400                                                                                                                                                                                   Lignite
1200                                                                                                                                                                                   Combined cycle gas
                                                                                                                                                                                       turbine
1000                                                                                                                                                                                   Cogeneration, other
 800                                                                                                                                                                                   Geothermal
 600                                                                                                                                                                                   Hydro, peaking
 400                                                                                                                                                                                   Hydro, run of river
 200                                                                                                                                                                                   Interruptible load
   0                                                                                                                                                                                   Open cycle gas
        2008
               2009
                      2010
                             2011
                                    2012
                                           2013
                                                  2014
                                                         2015
                                                                2016
                                                                       2017
                                                                              2018
                                                                                     2019
                                                                                            2020
                                                                                                   2021
                                                                                                          2022
                                                                                                                 2023
                                                                                                                        2024
                                                                                                                               2025
                                                                                                                                      2026
                                                                                                                                             2027
                                                                                                                                                    2028
                                                                                                                                                           2029
                                                                                                                                                                  2030
                                                                                                                                                                         2031
                                                                                                                                                                                2032
                                                                                                                                                                                       turbine - gas
 -200                                                                                                                                                                                  Wind
 -400                                                                                                                                                                                  Peaker, diesel-fired
                                                                                                                                                                                       OCGT
 -600                                                                                                                                                                                  Peaker, fast start gas-
                                                                                                                                                                                       fired peaker
 -800           A negative number means less                                                                                                                                           Price-responsive load
                 built compared to base case                                                                                                                                           curtailment
-1000                                                                                                                                                                                  Other

-1200                                                                                                                                                                                  Total net variance


                                                                                                                                  DRAFT                                                               25

								
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