Dale Osborn ISU Tour MISO July 18,2011

Oversee the flow of power over the high voltage wholesale transmission system in all or part of 13 states Provide independent wholesale transmission system access Manage power congestion Reliability coordination Regional transmission planning Operate day-ahead and real-time energy markets Independent market monitor Set reserve margin requirements MISO Services

MISO Wind MISO has about a 800,000 MW potential for wind generation development- Eastern Interconnection Load is 960,000 MW –Supply greater than demand by a factor of 40 –What can be done? MISO has 9,400 MW of Wind Generation Connected –Almost all wind has a purchaser- Preferred Provider Agreement as part of a Renewable Portfolio Standard or goal –Prices in MISO too low for a merchant plant –Gas prices are too low to sell surplus energy except over existing transmission –Transmission to PJM( east) and others is limited 4

Like on highways, when the wires are too small there is congestion which raise prices

Whose Wind Generation Is Chosen? Wind Generation cost about the same-$1,800,000/MW Wind energy depends on location –40% Capacity factor-orange-$80/MWH no tax credits –30% Capacity factor-yellow-$100/MWH no tax credits –The difference could be use to build transmission to deliver wind competitively for an RFP –200 miles is roughly the competitive distance with 345 kV transmission- 500 MW to load line –1200 miles is the maximum possible today with 800 kV HVDC with 19,000 MW required to load a three line system that would not affect the underlying system. –MISO can take about a 1500 MW contingency for resource loss, single HVDC lines limited to 1500 MW to be confirmed with a study 6

7 Wind Generation RFP Competitive Zone 30-40%Capacity Factor Change 345 kV Chicago 500 MW 345 kV Minneapolis 500 MW 800 kV HVDC NYC 19,000 MW Set circle center on wind location to determine the Marketing Zone

Factors Affecting Wind Energy Marketing Wind energy is a social choice not an economical choice in most parts of the U.S.- RPS or goals determine the amount of wind being installed The price of natural gas determines the competitive level –Present price $4/MBTU- Prices level across U.S. –Price two years ago $8-14/MBTU-Prices high in the east –Price difference between regions pay for transmission Economic Development and Jobs keep wind supplies local –Present values of $856,000 per MW of wind generation for Economic Development cannot be offset by the better performance of with the transmission cost Pancaked transmission costs exclude areas from competition- ND, SD, RTO borders except MISO-PJM – 8

New Transmission Creates Jobs U of Minnesota Duluth Bureau of Business and Economic Research studied the economic impact of 700 miles of transmission Lines in MN, ND, SD, WI CAPX2020 from 2010 to 2015 at cost of $2B: –$3.4 Billion in sales generated from construction related activity –$1.6 Billion in construction related wages –$149 million in local, state and federal tax revenue –$1.93 returned to economy for each dollar spent on project –Nearly 8,000 jobs in peak construction year (2013) including construction and indirect jobs Full study at

For what levels of wind generation are there MISO plans? The Renewable Portfolio Standard for the year 2025 is 23,000 MW The Generation Interconnection Queue is 50,000 MW The Regional Generation Outlet Study(RGOS) established –Renewable Energy Zones to locate 23,000 MW of wind gen Midwest Governors Association State Regulators Stake Holders –A overall transmission plan to deliver 23,000 MW of wind energy –Economic information about the plan in the 2010 MTEP 10

DRAFT #9 "Master" 11 All Energy Zones

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Lowest cost options

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Interface AC Flows without an Overlay Interface Flows with an Overlay including HVDC Loop Flow Patterns

Without Overlay With AC Overlay With HVDC Overlay P R I C E Distance Gen Revenue Difference Load Savings

HVDC Is Easier To Regulate Than AC Users are identifiable Terminals look like generators( supply-injection) and loads( receipt-withdrawal) Existing AC system processes can be used to allocate AC costs DC costs linked to the schedule and who scheduled

HVDC Easier to Operate than AC for Long Distance Power Transfers HVDC can be loaded to its limit –Cannot be overloaded due to contingency- easier to operate- always know what is available for power transfer –AC power delivery may be decreased due to contingencies in intervening systems- power transfer capabilities can change hourly –HVDC only dependent on AC near terminals

HVDC Can Do Things That AC Cannot HVDC can skip over congested areas without having to pay a toll to fix the transmission system in intervening areas that are not involved in the market transactions HVDC can inject energy strategically

MISO Wind Variability Management Wind rich areas do not have much load or generation to manage the variability of the wind- problem Managing wind variability at presently projected levels is a political and organizational problem not a technical problem- cooperation solves a good part of the problem 5-6% energy curtailment of wind Solutions –MISO is one area of about 100,000 MW –MISO has a 5 minute dispatch period Less error can occur if adjustments are made every 5 minutes than every hour Total wind output cannot change too much in 5 minutes –Geographic diversity of wind and load 25

Wind Diversity

27 Calculated from data provided though the DOE Eastern Wind Integration and Transmission Study

MISO Wind Diversity Capacity credit in % Capacity credit in % Difference due to wind in Michigan, Indiana and Illinois in addition to Buffalo Ridge in southwest Minnesota Adding more generation in an area with significant wind generation decreases the capacity credit as the probability of loss of a larger amount of generation is increased.

Transmission and Wind Diversity It may be possible to build HVDC transmission of about 1500 MW in capacity to exchange the diversity of wind Possibly paid for by –Reduction in generation capacity and fuel needed to manage wind generation –Improvement in the capacity credit for wind that reduces the need for other types of generation –Reduction in load on peak compared to the sum of two areas a long distance apart –Savings in the operational cost of other generation due to cycling that causes thermal stresses and increased maintenance HVDC could span the East-West ties and make wind more manageable in the west also 30

Inputs Economic development costs- U of Illinois State –$650,000 per MW for wind for construction –$38,000/yr for maintenance HVDC line, terminal, ac substation costs CT Generation costs, O&M, heat rates Wind Generation costs EWITS Wind Diversity factors for variability and capacity credit Annual carrying charge 15%- annual values Discount factor-8%- used for present value

First Year Benefit/CostScenario 20.2 Wind Economic Value including Economic Development values 1.8 Without Wind Economic Development 3.1 Without Wind Economic Development but with carbon dioxide elimination credit supported by transmission 15.8 With transmission economic development. Why Economic Development Should Be Included in Analysis Governors and legislatures have recognized the value of economic development for wind generation, but the regulation function has not used it. Projects could be justified and carbon dioxide production reduced if economic development were allowed.

Price and Quantity of Sources and Sinks Determine Transmission Requirements

Transmission Overlay Design Workshop Example Interface Duration Curve Transmission Capacity designed to deliver 80% of desired energy flow

30% 20% Strong West 20% Distributed 20% Strong Offshore Most Economical + RPS

What Can Be Done with the Surplus Reduce the generation –Paying for the generation but not fuel –Must have transmission to deliver renewable energy to the load. The system was designed to deliver from the fuel generation that most likely in another location. Sell the surplus for a profit –Profit helps reduce the generation payments –Need to be able to deliver energy to the market- pay for transmission-need above $6/MBTU to pay for transmission in the energy market, other products may allow justification of transmission with lower gas prices. –Need access to the markets- need a seller and a buyer pair Store the energy –Use surplus off peak capacity to drive a CAES plant with a 50% capacity factor- would work in the west today –Manitoba offers a way to “store” energy, need transmission in ND,SD

Questions Dale Osborn Principle Advisor Regulatory and Economic Studies Phone: