1. RETI Workshop March 16, 2015 Arne Olson, Partner Lakshmi Alagappan, Sr. Managing Consultant Identifying High Value Renewable Resources

2. 2 Historical Context RETI 1.0 undertaken in 2008 to identify renewable and transmission needs to achieve 33% RPS Resulting data sets from RETI 1.0 have been institutionalized in the CPUC & CAISO’s planning process, used directly in RPS Calculator Since official close of RETI 1.0, Black & Veatch has continued to curate data sets of renewable potential used in state’s planning process RETI 2.0 provides an opportunity to reengage stakeholders in an effort to focus attention on high priority resource & transmission needs for 50% RPS

3. 3 Identifying High Priority Resource Areas Scope of RETI 2.0 focuses on identifying transmission needed to achieve higher renewable penetrations Choosing where to focus RETI 2.0’s efforts involves answering two questions: 1.Where is renewable potential concentrated, both in California and throughout the WECC? 2.Which of these areas could provide the best value for California ratepayers?

4. Understanding Resource Valuation

5. 5 Valuation Framework Capacity Value Developing a Cost-Based Supply Curve Identifying promising areas for further investigation requires a comprehensive framework that measures the impact of a resource on California ratepayers The components of net cost—the relevant costs and benefits—have been recognized in California’s procurement and planning frameworks IOU’s Least-Cost, Best-Fit CPUC RPS Calculator Levelized Cost of Energy Transmission Cost Energy Value Net Resource Cost Integration Cost − = − + + + Curtailment Cost +

6. 6 Changes in Resource Value with Renewable Penetration With experience studying and operating a system at high renewable penetrations, our understanding of the value of renewables has improved The value of renewable generation will change over time due to saturation effects Declining returns with scale will tend to encourage resource diversity Charts are generic and are shown for illustrative purposes

7. 7 Levelized Cost of Energy Example values are illustrative and do not represent actual markets Levelized costs of energy (LCOEs) serve as a proxy for PPA prices in utility contracts LCOEs will evolve with technological maturation and changes to tax incentives and financing environment

8. 8 Capacity Value Capacity value captures the reduction in a utility’s need to procure resource adequacy (RA) capacity At higher penetrations of renewables, capacity value becomes a less important factor: Value of system RA is low due to a high reserve margin Renewable ELCC declines with increasing penetration as net peak shifts to periods of lower production

9. 9 Energy Value Energy value captures the reduction in fuel & operating costs and/or market purchases needed to serve a utility’s load In California, predominantly driven by gas generation Energy value declines with increasing renewable penetration: Marginal cost of generation decreases as least-efficient units are displaced Once all flexible generation has been displaced, overgen CCGTs CTs Increasing renewable penetration

10. 10 Curtailment Cost Curtailment cost captures the value of the renewable attribute that is lost to ratepayers when renewable generation is curtailed Need to curtail may be driven by: 1.Overgeneration 2.Flexibility constraints 3.Transmission constraints Curtailment becomes increasingly important at higher penetrations, growing rapidly at higher RPS levels Example April Day

11. 11 Integration Cost Integration costs reflect the increased operating costs incurred as a result of the ramping and ancillary services needed to balance the variability and intermittency of some renewable technologies Integration costs stand in for flexibility curtailment cost In D.14-11-042, CPUC adopted an interim integration adder $3/MWh for wind and $4/MWh for solar

12. 12 Transmission Needs & Costs Under Full Deliverability Historically, most California procurement and resource planning efforts have focused on resources with full capacity deliverability status (FCDS) Transmission infrastructure sized to allow delivery of generation to loads during peak periods Resources attributed resource adequacy credit Relatively limited risk of congestion & curtailment Cost of deliverability network upgrades (DNUs) needed to achieve FCDS are ultimately borne by ratepayers

13. 13 A Shifting Paradigm for Transmission As state considers pathways to achieve 50% RPS, there is growing interest in shifting transmission paradigm from FCDS to energy only (EO) Reflects a shift in how to think of transmission need: infrastructure is sized to allow delivery of energy rather than capacity Could allow much fuller utilization of existing infrastructure Fully Deliverable Transmission sized to allow delivery of generation to loads during peak period Cost of DNUs borne by ratepayers RA credit attributed to resource Lower risk of congestion Fully Deliverable Transmission sized to allow delivery of generation to loads during peak period Cost of DNUs borne by ratepayers RA credit attributed to resource Lower risk of congestion Energy Only No transmission upgrades to ensure deliverability No RA credit attributed to resource Higher risk of congestion Potential cost-effective strategy for procurement going forward Energy Only No transmission upgrades to ensure deliverability No RA credit attributed to resource Higher risk of congestion Potential cost-effective strategy for procurement going forward

14. 14 Northern California [3,404 MW] Solano [1,101 MW] Central Valley North & Los Banos [2,000 MW] Westlands [2,900 MW] Greater Carrizo [1,140 MW] Greater Imperial [2,633 MW] Mountain Pass & El Dorado [2,982 MW] Riverside East & Palm Springs [4,917 MW] Tehachapi [5,000 MW] Energy Only Potential & the CAISO Special Study In 2015, CAISO & CPUC studied the impacts of relying on energy-only resources to achieve 50% RPS 1.“Rules of thumb” to estimate limits of energy-only resources identified by CAISO (>25,000 MW statewide) 2.RPS portfolios developed based on rules of thumb using RPS Calculator 3.Production simulation analysis used to study impacts on transmission by CAISO Special Study identified very little congestion-related curtailment Results lend credence to the idea that transmission needed to achieve high RPS may be limited with a shift in focus to delivery of energy rather than capacity

15. RPS Calculator Portfolios (version 6.1)

16. 16 Results Overview CPUC RPS Calculator provides plausible portfolios for 50% RPS, a useful starting point for identifying promising resources Based on version 6.1 of CPUC RPS Calculator Four portfolios examined to begin to identify candidate resources In State FCDS – all selected resources must be fully deliverable In State FCDS & EO – energy only resources allowed WECC-wide FCDS – all selected resources must be fully deliverable; non-California resources included WECC-wide FCDS & EO – energy only and non-California resources included Results are indicative of interesting CREZs for development, but may not capture some small variations or developer insight

17. 17 In State FCDS MW of new transmission, deliverable to CAISO loads

18. 18 In State FCDS & EO MW of new transmission, deliverable to CAISO loads

19. 19 WECC-wide FCDS MW of new transmission, deliverable to CAISO loads

20. 20 WECC-wide FCDS & EO MW of new transmission, deliverable to CAISO loads MW of new transmission, delivered to CA border

21. 21 Scenario Comparison Amount and type of new transmission needed varies significantly with portfolio assumptions MW of new transmission, deliverable to CAISO loads MW of new transmission, delivered to CA border

22. Thank You! Energy and Environmental Economics, Inc. (E3) 101 Montgomery Street, Suite 1600 San Francisco, CA 94104 Tel 415-391-5100 Web http://www.ethree.comhttp://www.ethree.com