Renewable Energy in Texas

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Truths and Myths About Renewable Energy | WHAT TO BELIEVE Renewable energy is cheaper than traditional grid power. There is no way renewable energy is a going to save me any money.

SEPARATEING FACT FROM FICTION | AGENDA Today’s Agenda Current renewable energy landscape in Texas Real costs of renewable energy and how it compares to the costs of traditional retail power Offsite solar Rooftop solar Wind energy Pro’s and cons associated with purchasing long-term renewable energy Sourcing additional power that is not provided by a solar or wind asset (i.e. night time power or power when the wind doesn’t blow) Is renewable energy a good fit for my organization

U.S. Solar PV Installations RENEWABLE ENERGY IN THE U.S. | SOLAR ENERGY Significant Changes have been playing out in the U.S. solar market Solar energy, while still a small portion of the generation makeup in the U.S., has grown substantially in the past 5 years Major improvements in efficiency of manufacturing and cost of solar modules and other equipment have dramatically lowered costs States with strong solar or renewable mandates have seen large increases in solar installed (CA, MA, NJ, NC, VA) Other markets with favorable wholesale conditions have seen growth (AZ, TX) The current economics for utlility scale solar are competitive with traditional power sources in some markets The on-peak nature of solar energy and relative predictability of production help in this regard The Federal Investment Tax Credit was extended for several more years, driving further demand U.S. Solar PV Installations

RENEWABLE ENERGY IN THE U.S. | WIND ENERGY The U.S. wind energy market has also seen explosive growth Wind electricity generation in some U.S. markets has seen explosive growth (CA, IA, KS, OK, TX) The CREZ transmission build out in Texas aided this substantially The federal production tax credit was extended though it does decline from 2016 levels each year from 2017-2019 One challenge with the substantial build out of wind (and solar) in some markets is managing the intermittent nature of wind electricity This has spurred the need for new/higher levels of ancillary services to ensure grid reliability The less predictable nature of wind generation and additional moving parts requiring maintencance relative to other renewable technologies are important considerations U.S. Wind Generation Capacity Source: American Wind Energy Association

Renewable Energy Purchasing Objectives RENEWABLE GOALS | PURCHASING OBJECTIVES Setting out goals and objectives of a renewable energy strategy should consider key inputs: Renewable Energy Purchasing Objectives Diversify fuel portfolio Additionality of renewable energy Meet expectations of stakeholders Long-term financial hedge Reduce spend

Renewable Energy Purchasing Strategy RENEWABLE GOALS | PURCHASING STRATEGY Setting objectives is key to developing a renewable energy purchasing strategy that will drive purchase characteristics: Financial transaction or integrated with load purchase Renewable generation technology On-site or off-site project Financing structure (PPA, lease, self fund) Size of project or purchase Renewable Energy Purchasing Strategy

TYPES OF RENEWABLE PROJECTS | ONSITE vs. OFFSITE Location of Renewable Project Behind the Meter Projects (on a customer’s property) Rooftop solar Ground mounted solar Offsite Can be located anywhere in the ERCOT footprint Power is injected into the grid and the consumer continues to buy power at their meter Increases the types of renewable projects available to a customer Attributes of Offsite vs. Behind the Meter Projects Behind the Meter Smaller in scale, and usually more expensive than offsite projects Will offset both Energy purchases from the grid TDSP charges Offsite Projects Lower prices due to scalability of project size Reduces energy purchases from the grid but no reduction in TDSP charges If the project is located in a different zone than where the customer is located, the cost of congestion on the grid will have to be addressed

FINANCING RENEWABLE PURCHASES | OFF & ON SITE Power Purchase Agreements (PPA’s) Finance the product through an agreement to pay a supplier a fixed fee for each kWh produced by the facility over a term (10, 15 & 25 yrs) Typically a good option in territories where the PPA price can be equal or lower to the utility rates for typical production hours or where there are state incentives (CA, TX, VA, NJ) Supplier would typically control the tax incentives (ITC and MACRS) Renewable Energy Credits can be included in the PPA offer or excluded depending on the customer’s preference Capital Purchases (Self Funded) Expenditure up front with limited additional costs (O&M) over time Solar panels are rated for 25 – 30 yrs, though are expected to last longer Can potentially be financed through bond offerings, the PACE program, or other means

IMPLEMENTATION | OFFSITE PROJECT ATTRIBUTES Wind and Solar Remain the Predominate Offsite Renewable Projects The cost of renewable projects have dropped significantly in recent years Offsite solar costs vary by market but in all cases are becoming more competitive with traditional grid power Wind energy is often times below the cost of grid power but its intermittent nature can present challenges

IMPLEMENTATION | BEHIND THE METER ATTRIBUTES Examples of behind the meter projects include: Rooftop solar (250 kW – 2 MW) Ground-mount solar (1,000 kW – 10,000 + kW) 5-7 acres required for a 1,000 kW asset Wind is possible but is less common; varies in size Value Drivers Can be done in regulated or deregulated markets Reduce both grid energy purchases and TDSP Seamlessly integrates with retail load purchase

Determining An All-In Power Price INTERMITTENCY RISK | VARIATION IN ENERGY PRODUCTION Determining An All-In Power Price While the PPA price is important, it does not represent the total cost of power The cost of buying power from the grid when the renewable asset is not producing needs to be considered The cost of grid power will vary based on the type of renewable energy being bought Solar only produces during the day Inland wind tends to produce more in the morning and evening and is more intermittent than solar Understanding the total cost of energy is critical in evaluating a renewable energy purchase

INTERMITTENCY RISK | VARIATION IN ENERGY PRODUCTION Grid power purchase Grid power purchase Grid power purchase Solar power has a highly reliable production pattern Only produces power during the day time hours Wind power is much more intermittent than solar power Most wind in Texas typically produces less during the peak day time hours and more during the “shoulder” hours

INTERMITTENCY RISK | VARIATION IN ENERGY PRODUCTION In addition to daily fluctuations, seasonal differences also exist in generation profiles Customer Load Customer Load

MANAGING INTERMITTENCY RISK | CUSTOMER vs. PROVIDER Intermittency risk has traditionally been managed by the consumer Utilize the renewable energy when it is produced Buy power from the spot market when the renewable asset isn’t producing energy With solar, fixed price offpeak power can be purchased but additional power needed during the day would still be purchased from the spot market However, we are now beginning to see REP’s willing to manage this risk for a customer REP will take the renewable energy from the developer Buy additional power needed to serve the customer Charge a single fixed price for all power As REPs become more willing to provide an all-in price, the attractiveness of solar power will increase

Renewable power is a good hedge against future power prices HEDGE AGAINST FUTURE POWER PRICES | PRICE STABILITY Renewable power is a good hedge against future power prices Summer 2018 on-peak power prices have significantly risen in the last year 2019 & 2020 prices have also increased Traditional grid power can only be bought 5-10 years forward Renewable energy can be purchased for 10 – 25 years forward

BLENDED ENERGY PRICE | ALL-IN ENERGY PRICE The final all in price to a customer is a combination of the renewable energy price and the price of power purchased from the grid This often times results in a price below the stated price for solar power Solar power PPA price Power purchased from the grid Indicative Prices ($/MWh) Retail w/ Solar PPA Retail Only 10 Years All In $38.21 $39.52 20 Years All In $40.63 $45.23

Matt Hobson mhobson@energyedgeconsulting.com 713-446-3818