2008 Long-Term Acquisition Plan Intervenor Workshop #1 Review of Inputs to LTAP Analysis
March 5, 2008 The Sutton Place Hotel
AGENDA
Time
8:30 - 9:00
Agenda Item
Coffee available
Presenter
9:00
Agenda Overview
Anne Wilson
9:10 - 9:20
Context
Cam Matheson
9:20 - 9:40
Resource Options Update: Site C
Michael Savidant
9:40 - 10:40
Resource Options Update: Demand-Side Management
John Duffy
10:40 - 10:55
Break
10:55 - 11:45
Electricity & Gas Price Forecast
Dave Ince
11:45 - 12:15
GHG Offset Price Forecast
Patrice Rother
12:15 - 12:45
Lunch
12:45 - 1:15
Risk Framework: An Introduction
Basil Stumborg
1:15 - 1:30
Close
Randy Reimann
2
Context
Cam Matheson
2008 LTAP Context - Summary
2006 IEP/LTAP filed in March 2006 BCUC Decision released May 2007 2008 LTAP expected to be filed in Spring 2008 LTAP 2 Year Planning Cycle 2008 LTAP Considerations
BCUC 2006 IEP/LTAP Decision
• • • • • • • • Agreement to address 2007 Energy Plan in next LTAP Need for new resources accepted (further work on Burrard needed) More work required on assessing risk Cost-effectiveness continues to be critical test Target to acquire 50 per cent of BC Hydro’s incremental resource needs through conservation by 2020 Thermal generation GHG emissions to be fully offset or sequestered 90% clean or renewable generation Province to be electricity self-sufficient by 2016 – Special Direction 10
2007 Energy Plan
New Approach to Assessing Risk
4
2008 LTAP vs. 2006 IEP
2008 LTAP Process
Update
Load Forecast
Update (REVIEW TODAY)
Key Risks and Uncertainties
Inputs • Resource Options • Risks and Uncertainties • Load Resource Gap
Update
No Update
Step 1 Establish Objectives Step 2 - Load Resource Balance Step 4 – Develop & Evaluate Portfolios
Step 5 – Portfolio Trade-Off Analysis
Step 6 – LongTerm Acquisition Plan
Update
Update
(INTRODUCE TODAY: RISK FRAMEWORK)
Attributes
Step 3 – Resource Options Inventory
No Update
Limited Update (REVIEW TODAY)
5
2008 LTAP: Components (Nov 14 handout)
Expenditure Determinations
DSM Plan Mica Unit(s) ** Site C Burrard*
Review Inputs Today * April Workshop ** May Workshop: Review Draft Application
Justification to Expenditure Determinations
Load Resource Gap* New Risk Framework 2007 Electricity and Gas Price Forecasts GHG Price Forecast Resource Options Update Portfolio Analysis* Contingency Resource Plans**
6
Questions?
7
Site C Update
Michael Savidant
Site C – Project Outline
As directed in the BC Energy Plan, BC Hydro has begun consulting about the Site C hydroelectric project as a potential supply option Currently requesting approval for Stage 2 funding of $41 million Current work on the project is to preserve Site C as a potential option No decision has been made on whether to proceed with the project
9
Site C – Project Attributes
Long operating life (more than 100 years) Site C would provide dependable energy and capacity
900 MW of capacity 4600 GWh of average energy
Site C utilizes existing storage in Williston reservoir
Optimizes upstream storage and regulation
Clean and renewable energy
Minimal greenhouse gas impact once operating
10
Site C – Project Cost
Stage 1 report gave interim project cost range of $5.0 billion to $6.6 billion UEC ranges between $46/MWh to $97/MWh
Risk Reserve ($million)
150 $5.0 billion 300 $5.2 billion $47 /MWh $5.3 billion 450 $5.3 billion $48 /MWh $5.5 billion $57 /MWh $5.6 billion 600 $5.5 billion $49 /MWh $5.6 billion $58 /MWh $5.8 billion $68 /MWh $5.9 billion 750 $5.6 billion $50 /MWh $5.8 billion $60 /MWh $6.0 billion $70 /MWh $6.1 billion $81 /MWh $6.3 billion 900 $5.8 billion $51 /MWh $5.9 billion $61 /MWh $6.1 billion $71 /MWh $6.2 billion $83 /MWh $6.4 billion 1050 $5.9 billion $52 /MWh $6.1 billion $62 /MWh $6.3 billion $73 /MWh $6.4 billion $85 /MWh $6.6 billion
Change in Discount and Interest Rates
-2%
A
$46 /MWh $5.2 billion
-1% $54 /MWh $5.3 billion 0% $64 /MWh $5.5 billion +1% $74 /MWh $5.7 billion +2% $85 /MWh
B
$56 /MWh $5.5 billion $65 /MWh $5.6 billion $76 /MWh $5.8 billion $87 /MWh
C
$67 /MWh $5.8 billion $77 /MWh $6.0 billion $89 /MWh
D
$79 /MWh $6.1 billion $91 /MWh
E
F
$95 /MWh
G
$97 /MWh
$93 /MWh
Project Cost (nominal) Unit Cost (Cash) (F2008 $)
11
Site C – Project Schedule
BC Hydro is currently in Stage 2 of the process Government decision required to proceed to each subsequent stage
12
Site C – Stage 2
Project Definition
Engineering work to bring project up to date Environmental and socio-economic studies Update and refine major project features Updated interim cost estimates at conclusion of Stage 2 Develop procurement strategy
Public and First Nations Consultation
Local, regional, provincial communities and stakeholders Started with Pre-Consultation Consultation office in Fort St. John
Stage 2 conclusion
Updated interim cost estimates Updated analysis of benefits, costs, impacts, and risks of the project BC Hydro recommendation to government – Fall 2009
13
Site C – Next Steps
December 2007 - January 2008 March – April 2008 Pre-Consultation
Pre-Consultation Summary Report released Design of Consultation Program Engineering and environmental studies underway Initiate and conduct comprehensive consultation on project Engineering and environmental studies continue Compile findings, consider input, develop reports Engineering and environmental studies continue Updated interim project cost estimates BC Hydro’s recommendation to government
May 2008 to Fall 2008
Winter 2008/9 – Summer 2009
Fall 2009
Current $41 million request covers up to BCH recommendation
14
Questions?
15
Demand-Side Management Update
John Duffy
DSM Decisions Sought
2008 LTAP
Approve proposed BC Hydro costs for:
• implementation of X years of energy-focused DSM initiatives; and • definition of capacity-focused DSM initiatives
Future applications
Approve proposed BC Hydro costs for next time period of DSM implementation
Staged applications provide flexibility to periodically adjust DSM plan and expenditures based on new information
17
Assembling the DSM Scenarios
Supporting Initiatives
Public Awareness and Communication Community Engagement Codes and Standards Support Technology Innovation
Codes and Standards
Lower Higher
Rate Structures
Lower Higher
Programs
Lower Higher
Combined Scenarios
Lower = lower codes and standards, rate structures and programs + program adjustments Higher = higher codes and standards, rate structures and programs + program adjustments
18
Strategic Framework for DSM
Energy conservation can be influenced at 3 levels
individual, market and societal
Majority of DSM plan effort is at individual and market levels
Individual: programs Market: rate structures and codes and standards, with more to come
Beginning to focus on societal level, with more to come
public awareness attitudes community engagement commitment
19
Preliminary Analysis Results
GWh in 2020 MW in 2020 All Ratepayers (TRC) Benefit Cost Ratio Planned 2.4 All Ratepayers (TRC) Cost ($/MWh) Planned 36
Lower
Low (20%) 8,500 Mid (60%) 10,200 High (20%) 12,000 Low Mid High 9,900 12,000 14,300
1,500 1,700 1,900 1,700 2,000 2,300
Higher
Planned
2.4
Planned
36
Lower
Codes and Standards 31% Programs 51%
Higher
Codes and Standards 27% Rate Structures 18% Programs 55%
Rate Structures 18%
20
Codes and Standards
Planned GWh in 2020 Lower Electronics Incandescent lighting Other residential equipment Building code Commercial equipment Dusk to dawn luminaires, streetlights, high intensity discharge lamps and ballasts, commercial building operators, packaged terminal air-conditioners, icecube makers, large air-conditioners, commercial clothes washers Clothes washers, refrigerators, freezers, dishwashers Ceiling fans, furnace blower motors, torchieres, hot tubs, small motors, seasonal lights, portable airconditioners, drinking water coolers Standby power, set-top boxes, external power supplies, battery chargers 1,310 850 360 Higher 1,310 850 420
350 100
380 220
Appliances Large motors Total
200 130 3,290
200 130 3,500
21
Rate Structures
Planned GWh in 2020 Lower Residential inclining block Small general service inclining block Large general service inclining block Transmission stepped rate Total 800 100 560 510 1,970 Higher 1,060 150 650 510 2,370
22
Programs
Planned GWh in 2020 Lower Residential Commercial Industrial Total 1,230 1,490 2,840 5,560 Higher 1,440 1,770 3,960 7,160
23
Residential Programs
Planned GWh in 2020 Lower Behaviour Voltage Optimization Lighting Windows District Energy Refrigerator Buy Back Building Envelope New Home Low Income Appliances & Electronics Self Generation Variable Speed Motors Total 310 240 150 140 110 90 70 40 30 30 10 10 1,230 Higher 230 240 270 140 140 160 130 40 30 30 20 10 1,440
24
Commercial Programs
Planned GWh in 2020 Lower Power Smart Partners Product Incentive High Performance Building Building Optimization Voltage Optimization Behaviour Load Displacement District Energy Total 630 270 240 120 80 70 60 30 1,490 Higher 750 320 310 150 80 60 60 30 1,770
25
Industrial Programs
Planned GWh in 2020 Lower Power Smart Partners – Distribution Mechanical Pulp Modernization Power Smart Partners – Transmission Self Generation Optimization Mechanical Pulp New Processes & Technologies Operational & Procedural Mechanical Pulp Optimization New Plant Design Total 810 470 420 280 250 240 220 140 2,840 Higher 940 710 900 340 250 290 220 320 3,960
26
Supporting Initiatives
Public Awareness and Communication
expanded school program and youth campaigns celebrity Team Power Smart and ambassador program re-emphasis on mass media communication aimed at public attitude and commitment internet strategy to create virtual conservation community and coordinated sources of information
27
Supporting Initiatives
Codes and Standards Support
actively build coalitions to support market transformation provide funding and technical support for standards development conduct research work on codes and standards in other jurisdictions focus future efforts on wider policy options that encourage investment in energy efficiency develop a strategy to align standards during First Nations treaty process
28
Supporting Initiatives
Community Engagement
support local government development of sustainable community plans and community energy planning explore opportunities to employ codes and standards at the local government level embed Power Smart specialists within communities to develop and support grassroots conservation efforts partner with non-government organizations for delivery of conservation initiatives
29
Supporting Initiatives
Technology Innovation
identify world-leading energy efficient technologies that can be brought to BC work with customers to demonstrate the potential of a technology implement a strategy to foster distributed generation among customers develop partnerships with other utilities, research organizations and industry track new business models, technology trends and investment
30
Key Risks
Codes and Standards government approval coverage efficiency level compliance
Rate Structures regulatory approval coverage price cap customer response (elasticity)
Programs regulatory approval participation rate savings per participant
31
Towards Additional Savings
Several DSM plan elements will set the stage for additional savings over the long term
codes and standards rate structures enhanced awareness/education community engagement technology innovation niche DSM programs DSM program components that target the market level
Through these elements, BC Hydro expects to learn about new ways to save electricity that can be incorporated in future DSM plans
32
Questions?
33
Long-Term Electricity & Gas Price Forecast
David Ince
Purpose
Describe key developments in electricity and gas price forecasting methodology:
Scenario-based forecasting approach preserved:
Scenarios must test plausible alternative future outcomes
Improved scenario design:
Adopted California Energy Commission (CEC) gas price and new generation scenarios – developed by Global Energy and reviewed by stakeholders prior to adoption by CEC High Gas case used in the 2006 IEP has been replaced.
Price scenarios are no longer simply averaged when applied to decision making:
Structured approach used in determining weighting of scenarios
Greenhouse gas (GHG) adders applied to electricity price forecast
35
Long-Term Forecast: Applications
The long-term forecast presents the market price forecast for spot electricity and gas under various scenarios. Spot is: day-ahead non-firm – contingent on transmission access Long-term resource acquisitions:
Integrated Electricity Plans (IEP) Energy Call evaluations (example: seasonal and on/off peak price differentials)
36
Market Overview
BC is part of an interconnected electricity market that spans the western states, northern Mexico and Alberta Strong inter-tie connections with the US means that the value of our electricity is influenced by regional events (e.g. California energy crisis) Our region is called the Western Electricity Coordinating Council (WECC)
BC ALBERTA SOUTH MONTANA PNW IDAHO WYOMING COB N NEVADA CNORTH CO WEST CO EAST UTAH CZP-26
ALBERTA CENT-N
LADWP
S NEVADA ARIZONA NEW MEXICO
CSCE PALO VERDE CSDGE IID NBAJA
37
Electricity Price Modeling
ALBERTA CENT-N
WECC Topology: Global MARKETSYM model produces hourly resolution prices generated at each node
BC
ALBERTA SOUTH
MONTANA
PNW
IDAHO
WYOMING
COB
N NEVADA CNORTH CO WEST
CO EAST UTAH
CZP-26
LADWP
S NEVADA ARIZONA NEW MEXICO
CSCE PALO VERDE CSDGE IID NBAJA
38
Market Overview: Spot Market Price drivers
Several market drivers influence the trend of spot market electricity prices:
Reserve margins: the amount of excess generating capacity Technology mix: coal, hydro, natural gas, nuclear Fuel prices: natural gas, coal, fuel oil Spot market prices do not necessarily include generation capital cost recovery. In an adequately supplied market, spot prices should track the variable cost (only) of generating the electricity.
39
Alternative to Previous Gas Price Scenarios
CEC Integrated Energy Policy Report (IEPR):
Final report issued by the CEC in December, 2007. The IEPR was the result of an extensive study, consultation, and regulatory process. CEC introduced gas price and resource strategy scenarios to test alternative electricity supply portfolios. Global Energy was the key consultant used in developing the scenarios. California is largest entity in the WECC Main themes of scenarios:
Natural gas prices Renewables and DSM policies in the WECC
Global Energy sells the model BC Hydro uses to generate its electricity price forecast (formerly the Henwood model).
40
Global Recommended CEC Gas Price Forecasts
Global Energy Decisions recently produced 8 separate gas forecasts for the California Energy Commission IEPR:
1b. Base Scenario
Generally a continuation of current industry trends, but western states and provinces meet their stated renewable portfolio and energy efficiency standards.
Plus P25 Low Stochastic Forecast around the base Plus P75 Stochastic Forecast around the base
2. Sustained Scarcity (High Scenario) 3B. High Energy Efficiency in the West 3C. High Energy Efficiency in Western States/Provinces committed to Greenhouse Gas MOU 5B. Higher Energy Efficiency and Renewables in the West 5B Plus. Same as 5B but with production curtailment response to low gas demand and decreased gas prices (Low Scenario)
Global recommended: to manage the number of scenarios, BC Hydro should select CEC scenarios 1b, 2 and 5B. This covers the full range of the gas price scenarios
41
Global Energy CEC vs. Previous BCH Gas Price Scenarios
12 11
Henry Hub ($2006$ / MMBTU)
10 9 8 7 6 5 4 3 2
CEC Scenarios High and Low Range 2007 Scenarios: BC Hydro High Gas Energy Information Administration Confer Consulting Gas
1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
42
Historical Henry Hub Spot Gas Price
14
$US per thousand cubic feet
Hurricanes Katrina & Rita
12 10 8 6 4 2 0
Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008
Short-Term Energy Outlook, February 2008
43
Mid Gas Price Scenarios
12 11 Henry Hub ($2006$ / MMBTU) 10 9 8 7 6 5 4 3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
BCH 2007 Energy Information Admin. Global Energy Base Case
44
Henry Hub Spot Natural Gas Price: 2008 EIA Forecast
12 $US/MMBtu (2006 Real) 11 10 9 8 7 6 5 4 3
09
07
25
15
21
23
27 20
13
11
17
19
20
20
20
20
20
http://www.eia.doe.gov/oiaf/aeo/index.html 45
20
20
20
20
20
20
29
Global Energy Decisions Base Price Case
Theme: “Current conditions extended into the future”
Key assumptions:
Not dissimilar to Reference forecast of the US Energy Information Administration (EIA) in terms of underlying philosophy and resulting price Is the base gas price forecast from Global Energy Decisions Inc., but is updated with EIA’s higher long-term oil price forecast Assumptions in Global Base Case:
Less LNG into North America due to global price competition Green premium – global push for cleaner fuels – higher gas prices Delayed Alaska North Slope gas from 2016 to 2018 and Mackenzie Delta from 2010 to 2014 GHG offset costs included in electricity price modeling for the first time
46
High Gas Price Scenarios
12 Henry Hub ($2006$ / MMBTU) 11 10 9 8 7
BCH 2007 High Gas Global Energy Scarcity Scenario
6 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
47
Global Energy Decisions High Price Case
Theme: High sustained natural gas and coal prices The High Price case is prefaced on the following key assumptions:
Slow enactment of DSM and renewables policies – higher gas consumption for electricity Indigenous U.S. gas production drops sharply (35% decline relative to Base Case, by 2020) Alaska and Mackenzie gas pipelines delayed beyond 2020 High world oil prices ($75 increasing to $85/bbl Real) Higher LNG development costs
48
Low Gas Price Scenarios
12 11 Henry Hub ($2006$ / MMBTU) 10 9 8 7 6 5 4 3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
BCH 2007 Confer Gas Global Energy Scenario Low
49
CEC Low Price Case
Theme: High energy efficiency and renewables throughout the West and lower gas prices including production curtailment Key assumptions:
Assumes the WECC-wide use of renewable resources plus energy efficiency to attain government-mandated targets Region-wide DSM targets are not dissimilar to BC Hydro’s own targets 25% drop in WECC gas demand by 2020 – largely driven by reductions in gas-fired electricity generation Gas prices show significant decline – this forecast is approximately $5/MMBtu Real Continental gas exploration, drilling and production drops off in response to lower prices – assumed to be a 3-year lagged effect
50
Renewable Portfolio Standards and Purchase Obligations by State
Note: The content of this slide (Cambridge Energy Research Associates RPS map) has been removed to allow for electronic distribution of this presentation.
51
2009 Dependable Capacity (MW)
Resource Additions in the WECC
Dependable Load
Case 1B Initial Base Case (Case 1) - Compliance to Renewable Continuation Portfolio of current Standards trends 155,659 155,659
Case 5B - High Energy Case 2 - High Efficiency and Renewables Gas and Coal (Low Gas) Prices 155,659 155,659
The scenarios that BC Hydro ran not only included specific gas prices for each case, but different assumptions as to renewable energy and energy efficiency targets. To the right is a highlevel supply and demand balance for the WECC region.
Case 1b is the Mid electricity price scenario. Case 2 is the 2020 Dependable Capacity (MW) high case. Case 5b results in the Load 191,372 lowest electricity prices.
Source: Scenario Analysis of California Electric System for the 2007 Integrated Electricity Plan Third Addendum http://www.energy.ca.gov/2007publications/CEC200-2007-010/CEC-200-2007-010-AD3.PDF *Named capacity additions are units that are currently in development or construction, and are deemed to have a high probability of completion. These additions are common to all scenarios. Of the named additions in the Global database, the capacity breakdown is approximately: Gas – 60%, Wind – 15%, Coal: 15%, Hydro – 5%, Other – 5%.
Resources: Demand Demand (EE and PV Solar) Supply-Side Renewables Generic Gas Capacity Generic Coal Capacity Named Capacity Additions* Existing Capacity Total Capacity Reserve Margin
2,812 8,513 4,630 500 10,996 182,070 209,521 34.6%
4,683 9,686 1,880 500 10,996 183,608 211,353 35.8%
4,242 8,513 3,390 500 10,996 182,418 210,059 34.9%
6,365 9,685 1,340 500 10,996 183,609 212,495 36.5%
191,372 191,372 11,447 15,552 28,855 5,800 12,910 176,051 250,615 31.0%
191,372 191,372 19,853 12,347 23,130 6,800 12,910 174,861 249,901 30.6%
191,372 191,372 34,875 28,371 8,715 3,000 12,910 176,051 263,922 37.9%
Dependable Load Resources: Demand (EE and PV Solar) Supply-Side Renewables Generic Gas Capacity Generic Coal Capacity Named Capacity Additions* Existing Capacity Total Capacity Reserve Margin
191,372 2,817 12,102 37,665 6,300 12,910 174,513 246,307 28.7%
52
Electricity Prices – Mid Case
Average Electricity Market Clearing Price (Real 2006 USD/MWh)
March 2007 to Jan 2008 with GHG Offset costs
60
50
40
30
20
10
Jan 2008 Mid Case - Ave March 2007-EIA07 - Ave
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Years
53
Results: Gas Forecast Scenarios - Henry Hub
14
12 Gas Price (Real 2006 $US/MMbtu)
10
8
6
4
Low Gas Mid Gas High Gas
2
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Year
Note: No simple average case. A specific weighting will be applied to each of the scenarios.
54
Electricity Prices – Mid Case
2008 Forecast with GHG Offset Costs
160%
140%
120%
100%
80%
60%
40%
20%
0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
LLH
HLH
Peak
Avg
55
GHG Offset Costs
Year 2010 2015 2020 2025 2027 2030
GHG Cost ($C/tonne) BC Hydro 2005 REAP Submission 15 25 25 32 41
GHG Cost WECC ($C/tonne) Natsource 0 14 20 20 20 39
GHG Cost Canada ($C/tonne) Natsource 15 15 20 20 20 39
Thermal generation plant performance standard:
Alberta: 600 tonnes/GWh Washington, Oregon, California: 360 tonnes/GWh Rest of WECC: 600 tonnes/GWh BC: zero
CCGT: 360 tonnes/GWh, SCGT: 450 tonnes/GWh, Coal: 1000 tonnes/GWh
56
Electricity Prices – Mid Case Effect of GHG cost adder
Average Mid-C Spot Electricity Price (Real 2006 USD/MWh)
60
50
40
30
20
10
The effect of including the Greenhouse Gas offset cost adder to WECC thermal generation is indicated here. The uplift at Mid-Columbia is approximately US$2-4/MWh.
Jan 2008 Mid Case Mid-C w GHG - Ave Jan 2008 Mid Case Mid-C wout GHG - Ave
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Year 57
Results: Mid C Electricity Price Forecast
90 80
Electricity Price (Real 2006 USD/MWh)
70 60 50 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 High Electricity
These are the simulated spot market electricity prices for Mid-Columbia. This is the weighted average of On and Off-peak prices.
Mid Electricity Low Electricity
Year
58
Summary
Key Differences/Updates in Methodology:
Scenario-based forecasting approach preserved:
Scenarios must test plausible alternative future outcomes
Improved scenario design:
Improved high energy price scenario Scenarios developed by Global Energy: a credible third-party forecaster Scenarios have been tested thoroughly in a previous review setting (CEC long-term planning process), and adopted by CEC
Price scenarios are no longer simply averaged GHG adders applied to electricity price forecast
59
Questions?
60
GHG Offset Price Forecast
Patrice Rother
Presentation Outline
Why the GHG price forecast is needed Differences between earlier forecast and today’s Driving forces influencing GHG price Methodology
Scenario analysis Use of economic models
Results and conclusions
62
Why Forecast GHG Price?
Increased public attention to climate change have spurred policy developments in the GHG regulatory framework at the provincial, federal (Canada and US), US state, and international levels. These policies are expected to create and influence the market price for GHGs through mechanisms such as offsets and emissions trading. This presents a risk to BC Hydro, with the potential to influence resource mix on the basis of cost:
Increased costs to operate BGS Increased operating costs for new thermal resources Impacts on emission trading and related decision making Potential offset opportunities / costs and related decision making
63
New forecast compared to 2006
The consulting group Natsource prepared an earlier forecast for BC Hydro, used for the 2006 Integrated Electricity Plan. Natsource was retained to update the forecast to reflect recent developments in the GHG regulatory framework. Key changes:
Increased certainty since the IEP that there are no policy scenarios with a $0/tonne GHG price Probabilities have been assigned to the three scenarios used to bound the forecast prices The range of regulatory developments in the interim period and relevant economic models have been considered to develop scenarios and evaluate price implications.
64
Driving forces influencing GHG price
The forecast considers two key drivers influencing GHG price:
the stringency of regulatory policy (targets); and the flexibility of compliance mechanisms (supply/availability).
The forecast is a starting point to estimate future costs, considering uncertainties and the early state of GHG markets.
65
Driving forces influencing GHG price
The Report evaluates recent policy developments in BC, neighboring states and provincial jurisdictions and Canadian and US federal policy:
Legislated BC target of 33% emission reduction levels by 2020. Establishment of the Western Climate Initiative (WCI), a partnership of 7 US states and 2 provinces including BC, to develop regional strategies to address climate change. A cap and trade program is being designed by the WCI partners. Legislative proposals before the US Congress that require reductions and incorporate emissions trading. US state GHG-related legislative targets and proposals, with emphasis on WCI and Western Electricity Coordinating Council (WECC) states. WECC is responsible for coordinating and promoting electric system reliability within the western region of interconnected power systems. Canada’s Regulatory Framework for Air Emissions.
66
Driving forces influencing GHG price
The review of regulatory developments concluded that the key policy drivers impacting the price of GHGs to BC Hydro include:
The evolving relationship between the GHG policies of BC and the states in the WCI and WECC; The evolving relationship between the GHG policies of Canada and the US at the Federal level; and The approach that BC takes in response to Federal policy.
67
Scenario Overview
Three scenarios were created to describe the range of potential GHG policy outcomes for 2007-2050 and bound the associated forecast GHG prices:
Price Cap: Canada and the US are outside of an international agreement and implement less ambitious policies, including capped prices on GHG emissions per the current Regulatory Framework in Canada and lessstringent legislative proposals in the US. Linked Markets: Canada and the US establish more ambitious targets and link trading programs after 2015. They join an international framework by 2020, with limited constraints on domestic and international offsets. Made in North America-Aggressive Targets: Canada and the US establish more aggressive targets and link trading in 2012, but do not join an international regime. International offsets (outside of North America) are not allowed. No $0 scenario was included. Given public awareness of climate change and current political momentum, the consultants concluded there are no foreseeable policy scenarios with a $0 price.
68
Scenario Overview
Two sensitivity cases were described for the near term 20072020, when BC may decide to pursue emission reduction programs, either on its own or as part of a regional group such as WCI or WECC:
BC only: BC will meet its stated reduction targets with legally binding hard caps, without using offsets or compliance instruments from outside the province. WCI/WECC: BC will meet its stated reduction targets as a participant in a WCI regional trading program starting in 2012. Eligible offsets would be created within the WCI/WECC region.
The BC only case was not considered likely; the current activity of the WCI in developing a cap and trade system was considered more likely to influence GHG price in the near term. In all scenarios and sensitivity cases, regional regulatory programs are forecast to be replaced by national programs by 2020.
69
Use of economic models
Natsource relied on an evaluation of existing economic models that incorporate GHG policy scenarios to derive future GHG prices Both “global” and “US-centric” models were used in the analysis. Global models estimate the economically efficient emission reduction trajectory consistent with achieving a given target.
least-cost models assume reductions take place in transparent markets with no transaction costs allow technology to evolve (most reductions take place in the second half of the century).
US-centric models incorporate hard targets and timetables specific to individual legislative proposals or regulatory frameworks. Global models result in lower estimates than US-centric models. Natsource provides an assessment of the key assumptions and uncertainties in economic models reviewed to explain rationale in their usage and the conclusions derived.
70
Results: Scenarios
71
Comparison of forecast to other utility IRPs
GHG cost adders used by several US utility Integrated Resource Plans were reviewed to evaluate the forecast results.
72
Results: likelihood of scenarios
Linked Markets considered most likely (60%)
Globally, a 550 ppmv CO2 concentration target is under consideration by many countries; US legislation considered most likely uses this target. In Canada, the business community is calling for a national GHG reduction program with harmonization and consistency across provinces.
The “Made in North America” scenario 2nd most likely (25%)
If Canada and the US seek to facilitate the turnover of older emissionsintensive power plants. The importance of coal in the US and Canadian power sectors suggests this may be less likely than the Linked Markets approach with broader offsets and compliance flexibility.
“Price Cap” scenario least likely (15%)
Legislative proposals with less ambitious targets were considered less likely to be acceptable to the public. Although there is interest in evaluating mechanisms to control costs, price caps appear to have less support in the US than previously. International offsets were considered a more likely approach to reduce costs. The current Canadian price cap proposed under the Federal Regulatory Framework is not specified beyond 2017.
The WCI/WECC sensitivity case was considered most likely for estimating GHG price in BC for the near-term 2012 – 2015.
73
Conclusions: Likely price scenarios
74
BC’s Carbon Tax
On February 19, 2008, the BC Government’s 2008 provincial budget included the intention to introduce a revenue-neutral carbon tax (subject to approval by the legislature). The tax will apply to the purchase or use of virtually all fossil fuels within the Province of B.C. The carbon tax has been set at $10 per tonne of associated CO2equivalent emissions, starting July 1, 2008, increasing annually to $30 per tonne of CO2-equivalent on July 1, 2012. Natsource’s conclusions regarding GHG prices assumed the prime driver for emissions reductions in BC’s power generation sector would be legislation and accompanying regulation associated with GHG trading programs. The assumption remains valid because:
The carbon tax price signals are for the purpose of setting the rate of the carbon tax within B.C. In its 12 February 2008 Throne Speech, the Provincial Government clearly signaled its intention to introduce legislation to facilitate B.C.’s participation in the regional cap and trade system being developed for large industrial emitters under the WCI. It is BC Hydro’s understanding that it will be subject to the carbon tax, as well as offset requirements to meet Energy Plan policy actions related to thermal generation.
75
Conclusions
Linked Market most likely scenario to 2050, with WCI/ WECC activity influencing price in the short term. The price forecast compares to those prepared for IRPs for other utilities in the US. Natsource concluded that a $0 scenario is not foreseeable. Carbon tax not expected to impact the GHG offset price forecast.
76
Questions?
77
The Risk Framework: An Introduction
Basil Stumborg
General Introduction
LTAP addresses implementing the 2007 Energy Plan
Actions and choices largely determined by Energy Plan targets, guidelines Key issue is to demonstrate impacts and manage risks Will result in Base Plan plus Contingency Plans to manage risks
Analysis will be to develop:
Short term actions Longer term direction Milestones and offramps for future decisions
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Introduction to the Risk Framework
Uncertain world out there – with lots of moving pieces We need a way to:
Characterize risks Understand the value of keeping options open Assess tradeoffs
Risk Framework - a process to work through key risks / understand impacts
Process and probability trees are representations of risks that exist
At end of the risk process, we will need to assess how this drives our actions
Need to keep separate analysis from decision making
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Explanation of Risk Framework
1. 2. 3. 4. 5.
Key Elements Estimating “Uncertainty” Building a Probability Tree Contingency Plans Portfolio Analysis to Highlight:
Resource Additions
• Timing/size
Milestones Offramps
6.
Key Policy Questions
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1 – Key Elements
Key drivers of uncertainty to be examined:
BGS ILM IPP Attrition Load Growth DSM Gas/Electricity/GHG prices
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2 – Estimating Uncertainty for Each Element
Moving from qualitative discussion to quantitative measures e.g., Gas/Electricity Price Scenarios
Issue # Rank of Likelihood
Most Likely
List of Key Uncertainties •Issue #1 •Issue #2 •Issue #3 •Issue #4
Qualitative Comparison
Twice as likely as #3 Three times as likely as #4 Base of Comparison
Relative Likelihood
60%
Issue #1
Issue #3
Middle
30%
Issue #4
Least Likely
10%
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2 – Estimating Uncertainty for Each Element
Can be put into a probability tree
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2 – Estimating Uncertainty – cont’d
Can move from complex trees to:
Simple representations Full Distributions
Distribution for Comm Rates (Structural, Aggressive)/C20
3.000
Mean=658.3
2.500
Values in 10^ -3
2.000
1.500
1.000
0.500
0.000
0.2
0.55
0.9
1.25
1.6
Values in Thousands
5% 90% 5%
.279
1.099
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2 – Estimating Uncertainty – cont’d
Conclusion
Involves structured but qualitative assessments Uses a range of expected outcomes:
• Reduces emphasis on producing “the correct” number • Makes us think about upside and downside risks to avoid giving the wrong (i.e. too narrow) range
A simple way of comparing the likelihood of uncertain outcomes Actual discussions will look very different from item to item A consistent, bottom up approach to expressing uncertainty
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3 – Building a Probability Tree
Putting these elements together creates a probability tree Each node represents a chance event Probabilities are spelled out End node contains the probability of seeing that combination of chance events Example on next page
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3 – Building a Probability Tree – cont’d
Even if each chance event is represented as Hi/Mid/Low, tree grows quickly Some simplifications will be needed We will need to balance:
Insight Precision
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3 – Building a Probability Tree – cont’d
Conclusions
Probability tree collapses individual sensitivities into one view Each path (start to end node) represents a “scenario” Allows us to be explicit about our probability judgments Provides framework for examining the likelihood of LTAP risks Goal is to separate out probability judgments from value judgments in analysis
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4 – Contingency Plans
Conversation guided by probability tree Some paths are in the range of the “expected” Others are outside of this range Keeping supply = demand in more extreme scenarios forces us to be clear about:
• • • • What contingency we are planning for Its relative likelihood What resources we would use to meet that contingency What the impacts would be in that instance
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5 – Portfolio Analysis
Goal is to model portfolios to meet specific scenarios If some resource additions are common to portfolios across diverse scenarios
Put into LTAP as a needed resource
If there are key differences in resource additions among scenarios
Develop offramps and key milestones for future planning decisions
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6 – Method to Examine Key Issues
Probability tree forms basis for analysis. Approach is a “with/without” comparison. Example – Option Analysis
For all (key?) scenarios, optimize resource additions If many paths along the tree are modeled, this will give a cost distribution
Option A included
Cost (NPV ($))
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6 – Method to Answer Key Questions – cont’d
Example cont’d
Then do the same but a restricted set of options This will generate a different cost curve These curves can then be compared (see below)
Option A Included
Option A Not Included
Cost (NPV ($))
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Conclusion
Goals of the Risk Framework:
Characterizing risks (probabilities and consequences) Separating probability judgments from value judgments Describing contingency plans
• Under what scenarios • Relative likelihoods
Describing tradeoffs clearly Link analysis clearly to:
• Near term decisions • Future decisions (milestones and offramps)
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Questions?
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For More Information
Visit our Energy Planning website: www.bchydro.com/iep
Or email us: energy.planning@bchydro.com
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