Jenell Katheiser Doug Murray Long Term Study Scenarios and Generation Expansion Update January 22, 2013

2 Topics of Discussion Scenario Results –Drought S5C –BAU with PTC –Environmental with DR/EE Generation Diversity Scenario Summary Lessons Learned Future Considerations January 22, 2013

3 Scenario Results: Drought Recap January 22, 2013 Three major adjustments made to the data for these scenarios ‒ Capacity reductions were made to existing generation due to lack of water or high intake/discharge water temperatures ‒ Increase costs of water were added to new thermal expansion generating units ‒ Forecasted load used Moody’s base economic assumptions with ERCOT’S 2011 load shape Additional sensitivities were added to the drought scenario so the impact of water issues could be seen in isolation ‒ Sensitivity A removed the PTC and removed the emission costs (S5A) ‒ Sensitivity B removed the PTC, removed the emission costs and reduced the EIA reference gas price by $2 MMBtu (S5B)

4 Scenario Results: Drought Recap January 22, 2013 Results of S5A include: –13,000 MWs of additional wind –11,000 MWs of solar –16,690 MWs of new natural gas generation Results of S5B included: –5,500 MWs of new wind when most of that is built in 2032 when the price of NG exceeds $6.00 MMBtu. –19,695 MWs new natural gas generation

5 Scenario Results: Drought S5C This scenario included the PTC and emission costs for all thermal units Final build out for this scenario included: –68,000 + MWs of new wind –7,500 MW of Solar –3,600 MWs of Geothermal –10,500 MWs of new natural gas generation –Additionally 8,635 MWs of existing generation retired Reserve margin was % in 2032 while the number of scarcity hours was only 9 (second lowest of all scenarios) January 22, 2013

6 Scenarios Results: Drought S5A-C Residential Water Costs range from $0.003/gal to $0.01/gal –Larger network to pass through –More treatment facilities required Power Plant Water Costs range from $0.0001/gal to $0.003/gal –Long term contracts (10-20 years) While dry-cooled combined cycles (CC) were considered for these scenarios, analysis indicates water costs would need to be about $2.50/MWh for conventional CCs to overcome the increased capital cost of a dry-cooled CC Water costs ranged by weather zone CC uses 283 gal/MWh on average Annual water costs in 2032 –S5A CC at 60% CF = $1,234,000 –S5B CC at 60% CF = $1,470,426 –S5C CC at 60% CF = $776,936 January 22, 2013

7 Scenario Results: BAU with PTC This is an adaptation of the BAU New Wind Shapes –Only change is the assumption of the continuation of the PTC Compared to the BAU New Wind Shapes, 64% of the wind built in this scenario was in 2016 January 22, 2013

8 Scenario Results: BAU with PTC January 22, 2013 Wind Buildout for BAU New Wind Shapes vs BAU with PTC The PTC is a big driver in the economics of wind resources

9 Scenario required 15% of load to be met with energy efficiency by 2025 and 10,700 MWs of mandatory demand response EIA’s “Best Available Demand Technology” Case –This was the only option in the Annual Energy Outlook (AEO) 2012 to achieve the scenario specific assumptions –This was the most extreme of all AEO cases –For example: LED technology was assumed to be used for residential lighting –Included a large reduction in technology costs and improvement of building standards January 22, 2013 Scenario Results: Environmental with DR/EE Non-coincidence peak load forecast comparison

10 Final build out for this scenario included: –51,000 + MWs of wind –3,600 MWs of Geothermal –Additionally 12,700 MWs of existing generation retired Reserve margins are positive due to no load growth and there are no scarcity hours January 22, 2013 Scenario Results: Environmental with DR/EE

11 Generation Diversity Of the various technologies available, only natural gas fired units (combined cycles and combustion turbines) have been found to be economical in the scenario analysis Past studies have shown expansion of coal and nuclear units ‒ 2006 LTSA included the TXU coal fleet expansion ‒ Natural gas prices went from $7/MMBtu in Feb 2003 to a high of $13.42 in October 2005 ‒ 2008 LTSA included nuclear units ‒ Average natural gas price in 2008 was $8.86/MMBtu January 22, 2013

12 Generation Diversity Major differences between that analysis and now: ‒ Fixed amount of wind generation in earlier analysis ‒ Current analysis limits wind only on economics ‒ Nuclear capital cost higher now – around $6,705 / kW in 2022 If the amount of wind is fixed in our model at 15,000 MW or 18,000 MW, nuclear becomes economic if high natural gas prices or emission costs are added in 2022 and 2025 –Typically wind generation occurs in off peak hours which means it directly competes with nuclear generation –If wind is not a fixed amount, then it depresses LMP’s and decreases potential revenue for nuclear units January 22, 2013

13 Generation Diversity Current market prices for natural gas have been below $5/MMBtu since early 2009, except for a brief spike up to $5.83/MMBtu in January 2010 Natural gas prices have been below $4/MMBtu since September 2011 –They have not been that low since before 2000 These low gas prices combined with higher capital costs help explain why other base load technologies are not economic in current models January 22, 2013

14 Scenario Summary: 2032 Generation Breakdown January 22, 2013 As increasing amounts of wind, solar and geothermal prove to be economical, the amount of energy provided by renewables increased from 13% in the BAU w/ Retirements scenario to 63% in the Environmental Scenario.

15 Scenario Summary: Price Duration Curves January 22, 2013

16 Scenario Summary: Wind Economics January 22, 2013 Both S5A and S5B indicate that the natural gas price needs to be greater than $6.00 MMBtu for wind to be economical if the PTC is not included Wind Buildout vs Natural Gas Price: Base and low natural gas prices

17 Scenario Summary: Wind Economics January 22, 2013 Wind Buildout vs Natural Gas Price: BAU with and without PTC The PTC lowers the break even price of natural gas for wind to become economic

18 Scenario Summary: Solar Economics Solar modeled capital costs are lowest in 2022 – $1,369/kW Most solar construction does not begin until 2022 This occurs in all scenarios regardless of NG price The total amount of solar is however highest in scenarios with high natural gas prices January 22, 2013

19 Scenario Summary: Issues with ELCC January 22, 2013 The Environmental with DR/EE scenario did not result in load growth and was the only scenario to have a positive reserve margin in Total Renewables Buildout vs Reserve Margin in 2032

20 Scenario Summary: Issues with ELCC January 22, 2013 Number of Scarcity Hours vs Reserve Margin for 2032 Environmental with DR/EE

21 Lessons Learned The scenarios analyzed in this study are only a few of the potential options that can be studied, however we have captured a range of potential future renewable generation expansion plans within these scenarios Natural gas price is a main driver in what generation gets built Wind and solar are economic resources in many scenarios Higher capacity factor wind units are economic without PTC –Better wind turbine technology assumption in wind data for future units Continuation of PTC is crucial for large wind penetration –For example, the BAU with PTC scenario results in 6,500 MW more wind build than BAU New Wind Shapes scenario where the only difference in the two scenarios is the PTC Solar is economic past 2022 –Capital costs are assumed to decline up to 2022 due to technological advancement January 22, 2013

22 Lessons Learned RM and scarcity hours do not have a direct relationship –Need to re-evaluate ELCC for future units that assume new turbine technology in their wind patterns As intermittent generation increases, operational reliability becomes a concern –System ramp rate considerations –Online inertia January 22, 2013

23 Future Considerations Documentation –Methodology and processes –How has the process evolved –Study results Process Improvement –What are your thoughts on the process? –What did you think was a benefit to the process? –How can the process improve in the future? Future Analysis –What would you like to see analyzed in future studies? January 22, 2013

24 Questions??? If you have any questions or comments please contact us at: Jenell Katheiser Doug Murray January 22, 2013

25 APPENDIX January 22, 2013

Summary of Scenario Results January 22, 2013

27 BAU with all Tech January 22, 2013

28 BAU with Retirements January 22, 2013

29 BAU with updated wind shapes January 22, 2013

30 Environmental with DR/EE January 22, 2013

31 Drought S5A January 22, 2013

32 Drought S5B January 22, 2013

33 Drought S5C January 22, 2013

34 BAU with PTC January 22, 2013

35 BAU with High Natural Gas prices January 22, 2013

36 Environmental January 22, 2013