1. INTEGRATION COST

2. Integration Cost in RPS Calculator While “Integration Cost” is included in NMV formulation, the Commission stated that the Integration Adder in LCBF is valued at $0/MWh Some parties have suggested that a non-zero “Integration Adder” is needed to compare fairly among renewables, but there is little consensus on how it should be calculated or what impacts it should include A non-zero “Integration Adder” suggests that other components of NMV do not capture the full costs and benefits of renewables upon the system RPS Calculator Valuation Framework Levelized Cost of Energy Transmission Cost Capacity Value Energy Value Net Resource Cost Integration Cost* − = − + + + *Not currently quantified in RPS Calculator

3. Defining “Renewable Integration” There is no standard definition of “renewable integration” Many factors could be included under the scope of the costs of integrating higher penetrations of renewables to the system: –Saturation effects – Addressed in Version 6.0 Declining ELCC with penetration Declining dispatch savings with penetration Curtailment of renewable output due to renewable output shapes –Flexibility effects – Proposed for Version 6.2 Costs of additional ancillary services needs Costs of increased plant cycling and ramping Curtailment of renewable output due to lack of power system flexibility Cost of procuring new flexible capacity resources

4. SATURATION EFFECTS

5. Declining Capacity Value  Saturation Effect: as the penetration of a resource grows, the “net peak” shifts away from the time that it produces, reducing its marginal impact on reliability  Treatment in RPS Calculator: capacity value of new resources is calculated based on Effective Load Carrying Capability (ELCC), which accounts for the reliability impact of the existing portfolio

6. Declining Energy Value  Saturation Effect: as the penetration of a resource grows, renewable generation will displace conventional generation from increasingly efficient, low cost resources  Treatment in RPS Calculator: reduction in system operating costs for each increment of renewables calculated by comparing net load with a “stack” of gas generators CAISO market prices increase with the amount of load served by gas generation & imports Data Source: CAISO OASIS & Daily Renewables Watch, 2010-2013

7. Increasing Overgeneration  Saturation Effect: as the penetration of a resource grows, curtailment of renewables occurs when total must-run production exceeds load plus export capability. This could occur even if generators were highly flexible.  Treatment in RPS Calculator: marginal curtailment for each renewable resource type approximated by comparing net load in each month-hour with an assumed minimum level of thermal generation, assuming no ramping or start constraints. 33% RPS40% RPS50% RPS

8. Saturation Effects in RPS Calculator Version 6.0 accounts for the major impacts of saturation on resource value –Declining energy value, declining capacity value, overgeneration The marginal value of each resource type decreases as more is added to portfolio –Declining returns with scale encourages portfolio diversity Additional functionality to account for impacts such as flexibility needs is planned for Version 6.1.

9. Impact of Saturation on Value (33%) Marginal Resource Cost at 0% RPS (shown as a reference) Marginal Resource Cost at 33% RPS 40% solar 40% wind 20% baseload Figures are illustrative of model functionality – not an RPS Calculator result Capacity and operational values decline slightly at 33%

10. Impact of Saturation on Value (40%) Marginal Resource Cost at 0% RPS (shown as a reference) Marginal Resource Cost at 40% RPS 40% solar 40% wind 20% baseload Rate at which operational value declines increases Figures are illustrative of model functionality – not an RPS Calculator result Need to curtail renewables imposes additional cost

11. Impact of Saturation on Value (50%) Marginal Resource Cost at 0% RPS (shown as a reference) Marginal Resource Cost at 50% RPS 40% solar 40% wind 20% baseload Figures are illustrative of model functionality – not an RPS Calculator result Declines in operational value continue Costs of curtailment becomes significant

12. FLEXIBILITY EFFECTS

13. Flexibility Effects in RPS Calculator Additional costs due to power system flexibility needs are proposed for Version 6.2 of the RPS Calculator –Costs of procuring additional ancillary services during system operations –Costs of increased plant cycling and ramping –Curtailment of renewable output due to lack of power system flexibility –Cost of procuring new flexible capacity resources These costs would be appropriate to include in an “integration adder”

14. Potential Methodologies Cost CategoryPotential Methodology Costs of procuring additional ancillary services Statistical analysis of net load variation within operating hour to determine regulation and load following needs at various penetration levels Conventional production simulation analysis to estimate cost of procuring additional services Costs of increased plant cycling and ramping Production simulation analysis to estimate cycling and ramping frequency at various penetration levels Literature review of effect on O&M costs & lifetime Curtailment of renewable output due to lack of power system flexibility Stochastic production simulation analysis at various penetration levels to estimate the quantity of curtailment for a given fleet of dispatchable resources Cost of procuring new flexible capacity resources Stochastic production simulation to evaluate cost- effectiveness of new flexible capacity resources relative to “default” curtailment solution