1. INTERACTION OF RISKS ASSOCIATED WITH NATURAL GAS AND RENEWABLE BASED ELECTRICITY DAN ESPOSITO | JOHN RUPP | SANYA CARLEY

2. INTRODUCTION  The challenge:  Increasing demand for energy, especially electricity, will require development of new power sources  To meet and exceed emissions standards, much of new power will be sourced using natural gas (NG), wind and solar (RE) energy  To meet the various demands in different settings/circumstances, development will include a variety of power sources  Deployment will include combinations of NG and RE, in both centralized and distributed applications  The risks:  Development of new sources of power will have negative impacts or “risks”  Which power sources are deployed will determine which risks occur

3. INTERACTION OF RISKS  As development of multiple types of sources progresses, risks unique to specific types of deployment will interact  Assumed that multiple types of power systems will be developed at the same time in overall portfolio  Assessed the interaction of individual risks unique to specific energy sources to determine the combined impacts or risks to development of the overall generation portfolio

4. “ILLUSTRATIVE FRAMEWORK FOR EVALUATING INVESTMENT OPTIONS BY RISK SOURCE, MAGNITUDE, AND TIMESCALE” -NREL

5. ANALYSIS  Analysis is qualitative, conceptual and uncertain!  Complicated site specific interactions, regional advantages and public sensibilities not considered  Assumptions:  4 types of power systems:  Natural gas centralized, Natural gas distributed, Renewable centralized, Renewable distributed.  The risks associated with each system are somewhat unique  All types of power deployed in equal amounts  All sources developed synchronously  Timeframe is fixed as midterm

6. TYPES OF RISK INTERACTION  Assumed that risks could interact in three basic manners:  Independent – individual risks do not interact, merely adding in a linear or arithmetic manner  Compounding – individual risks interact in a synergistically additive way, resulting in an overall risk that is greater than the sum of its parts  Offsetting – individual risks interact in a subtractive way, resulting in a diminished overall risk  On occasion, risk interactions were unclear and could take any of the three forms listed above; these ambiguities were recorded with notes for further research and consideration Risk 1Risk 2

7. INDIVIDUAL RISKS AND CATEGORIES  Some risks are closely related to each other and interact in important ways  To account for this, where appropriate, risks were organized into “risk categories”  When considering the interaction of risks for centralized and distributed natural gas and renewable energy, all risks within the category were aggregated to give us a more complete picture of the interaction  Ex. fuel supply (prominent risk for NG) and resource variability and dispatchability (prominent risk for RE) were grouped into the category of supply availability

8. ASSESSMENT OF INDIVIDUAL RISKS AND RISK INTERACTIONS FOR THE SYNCHRONOUS DEPLOYMENT OF NATURAL GAS AND Darker colors indicate greater risks White cross-hash overlay indicates ambiguity

9. SUPPLY AVAILABILITY  Risk: having reliable access to electricity  1 – Fuel supply risks  2 – Resource variability and dispatchability risks  Net Interaction: Offset

10. ELECTRICITY SOURCE DEVELOPMENT  Risk: actual and perceived impacts of development  1 – Spatial impacts of development  2 – Public perception of development  Net Interaction: Ambiguous

11. TRANSPORTATION/TRANSMISSION RISKS  Risks were also analyzed for transportation and transmission adequacy, construction, and planning & permitting  Risks were found to offset for adequacy and planning & permitting; they were ambiguous for construction  Section skipped for brevity; treatment is similar to supply availability and electricity source development

12. TRANSPORTATION AND TRANSMISSION ADEQUACY  Risk: ability of in-place natural gas pipeline systems and electrical transmission grids to reliably transfer fuel and transmit electricity respectively without the necessity of building new ones  Net Interaction: Offset

13. TRANSPORTATION AND TRANSMISSION DEVELOPMENT - CONSTRUCTION  Risk: actual and perceived impacts of development  1 – Spatial impacts of development  2 – Public perception of development  Net Interaction: Ambiguous

14. TRANSPORTATION AND TRANSMISSION DEVELOPMENT – PLANNING AND PERMITTING  Risk: that transportation and transmission projects would be slowed or halted completely in their development as a result of planning and permitting difficulties  Net Interaction: Offset

15. SYSTEM COSTS  Risk: having access to stable and low-cost electricity  1 – Variable cost risks  2 – Fixed cost risks  Net Interaction: Offset

16. ENERGY POLICY – ENVIRONMENTAL REGULATION  Risk: that the resource is utilized for electricity generation  1 – Enhanced environmental regulation  2 – Status quo  Net Interaction: Offset

17. ENERGY POLICY – GRID CONNECTION FEES  Risk: that the resource is utilized for electricity generation  1 – Grid connection fee is implemented  2 – Grid connection fee is not implemented  Net Interaction: Offset

18. ASSESSMENT OF INDIVIDUAL RISKS AND RISK INTERACTIONS FOR THE SYNCHRONOUS DEPLOYMENT OF NATURAL GAS AND Darker colors indicate greater risks White cross-hash overlay indicates ambiguity

19. CONCLUSIONS  The analysis appears to suggest that:  Construction-related issues (i.e. of sources of electricity or of transportation and transmission systems) have risks that may compound, although it is possible that they may act independently of each other or even offset  Other types of risks (i.e. resource availability and reliability, planning, costs, and policy decisions) tend to offset with the synchronous deployment of both resources  If construction issues could be designed or shown to have independent or offsetting risks, the case could be made that risks in general tend to decrease with diversification of the U.S. electricity generation portfolio  If the above is true, investments in all four resource categories would minimize overall risks, and wise policies would prevent any of the four categories from being stunted

20. AVENUES FOR ADDITIONAL RESEARCH  Individual risks, categories, and interactions deserve more rigorous and nuanced attention, allowing for quantitative comparisons between risks  While risk interactions were examined within categories (“horizontally” in the diagram), interactions could also be examined across categories (“vertically”), with the ultimate goal of determining a net interaction across all factors

21. QUESTIONS?