Item 2: VOS presentation by Austin Energy — original pdf

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Value of Solar Methodology Babu Chakka, Manager - Energy Market Analysis, May 28th, 2014 Value of Solar Study_AGRPTF Presentation Value of Solar Review •First study conducted in 2006 by Clean Power Research, value used internally •Value has fluctuated historically based on market changes •Integrated into residential solar tariff in 2012 and reviewed annually •In July 2013, Clean Power Research was hired again to review the study •In October 2013 –CPR presented the study results to the Joint EUC/RMC meeting –VoS for 2014 was announced to be effective from Jan 1st, 2014 2 How is the VoS calculated? 3 Value of Solar Components 4 0.0000.0200.0400.0600.0800.1000.1200.140Cents per kWh NodalLoss SavingsT&D DeferralEnvironmentalGen. CapacityEnergyInitial (2012) VoS 12.8 Cents Approach to Calculate Energy and Capacity Value of PV Energy Value: •Obtain implied hourly heat rates from 2014 to 2022 •Match 2011 PV fleet production to 2014 – 2022 hourly heat rates •Multiply 2011 PV fleet production times 2014 - 2022 heat rates •Sum results and divide by energy to obtain results in $/kWh Capacity Value: •Implied value of capacity based on avoided cost of a simple cycle gas turbine –Capital cost of a simple cycle gas turbine technology is based on EIA Spring 2013 update. 5 Sample Energy Value Calculation 6 Prepared by Clean Power Research for Austin EnergyNodal Price Value Calculation19[A][B]= [A] x [B]HE (CST)Fleet Energy (MWh) Nodal Price ($/MWh)Value ($)1/1/2011 6:000.00028.460.001/1/2011 7:000.00032.390.001/1/2011 8:000.38534.8013.381/1/2011 9:001.95336.2070.681/1/2011 10:004.01636.97148.471/1/2011 11:005.59934.06190.711/1/2011 12:006.58741.78275.211/1/2011 13:006.94029.13202.171/1/2011 14:006.76732.46219.661/1/2011 15:006.03729.13175.851/1/2011 16:004.78226.90128.641/1/2011 17:002.92127.7681.081/1/2011 18:000.89534.5930.961/1/2011 19:000.03646.811.671/1/2011 20:000.00044.770.001/1/2011 21:000.00042.590.00* Repeat calculation for all hours of year and sum result.VOS Calculation 7 •Guaranteed Fuel Value = Energy Value * (1+Loss factor) Where Energy Value = ∑(Heat rate * Gas Price* PV Production*Risk Free discount factor) ∑(PV Production*Risk Free discount factor) •Plant O & M value = ∑(O & M Cost *(1+Inflation)^year* PV Capacity*Risk Free discount factor) ∑(PV Production*Risk Free discount factor) •Generation Capacity value = ∑(Annual Capital carrying cost* PV capacity*Risk Free discount factor) ∑(PV Production*Risk Free discount factor) * (1+ Loss factor ) *load match* (1+ Loss factor) VOS Calculation Contd… 8 •Avoided Transmission cost = where Transmission cost is Austin Energy contribution to ERCOT T-Cost •Avoided Environmental cost = $0.02/kWh *load match* (1+ Loss factor ) ∑(Transmission cost* PV capacity*Risk Free discount factor) ∑(PV Production*Risk Free discount factor) Key Parameters 9 Prepared by Clean Power Research for Austin EnergyKey Parameters for Value of SolarData inferred from Austin Energy’s Heat Rate Forecast (2014-2022) and PV fleet production (2011)•Solar heat rate: 8,024 Btu/kWh•Effective capacity: 62% of capacity costData provided directly by Austin Energy•Capacity cost: $676/kW•Planning Reserve margin: 13.75%•O&M cost: $7.04/kW-yr3Inferred and Assumed Values Inputs to Economic Analysis 10 Utility-Owned GenerationEnvironmentalCapacityAvoided Environmental Cost$0.020per kWhGeneration Overnight Capacity Cost$676per kWEnvironmental Value Escalation Rate2.60%per yearGeneration Life30yearsReserve Planning Margin13.75%TransmissionEnergyCapacity-related capital cost$28.0per kW-yrHeat Rate8024BTU per kWhYears until new capacity is needed0yearsHeat Rate Degradation0%per yearO&M cost (first Year) - Fixed$7.04per kW-yrDistributionCapacity-related Capital Cost$0per kWEconomic FactorsPV AssumptionsDiscount RateVariousper yearPV Degradation0.50%per yearGeneral Escalation Rate2.10%per yearPV Life25yearsGas Curve 11 Prepared by Clean Power Research for Austin EnergyKey Parameters for Value of SolarNatural Gas Prices4Guaranteed Price (Austin Energy) is a 25-yr firm price quote Austin Energy received from a counter party with AA credit rating on 9/23/2013 willing to lock in pricesNYMEXfutures prices are only available through 2025NYMEX Escalated are futures prices escalated at 4.75% after 2025Guaranteed Price (Austin Energy) and NYMEX futures prices match wellDiscount Rate 12 Prepared by Clean Power Research for Austin EnergyDiscount Rate SelectionOptions•Use utility discount rate, exclude effect of difference between utility discount rate and risk-free discount rate•Use utility discount rate, include effect of difference between utility discount rate and risk-free discount rate•Use risk-free discount rate to discount all costs and levelizeVOS rateRecommendation•Use risk-free discount rate to discount all costs and levelizeVOS•This captures the benefit of uncertainty reduction but eliminates discussion about what is the correct discount rate to use in the analysis because only one discount rate is usedThis assumption may not apply to other typical utility resource evaluations52014 VOS 13 Prepared by Clean Power Research for Austin EnergyEconomic ValueLoad Match (No Losses)Distributed Loss SavingsDistributed PV Value($/kWh)(%)(%)($/kWh)Guaranteed Fuel Value$0.0534%$0.055Plant O&M Value$0.0054%$0.005Gen. Capacity Value$0.02662%6%$0.017Avoided Trans. Capacity Cost$0.01562%6%$0.010Avoided Dist. Capacity Cost$0.00039%7%$0.000Avoided Environmental Cost$0.0200%$0.020$0.119$0.1072014 VOS Results7Natural Gas and the VoS 14 •The VoS and the future price of natural gas generally trend with one another •Other components also influence the result 2468101214$/MMBTU --------------------->Year -------->201120122013Year of StudyVOS Effective dateLong term Avg. Gas Price($/MMBTU)VOS(Cents/kWh)20112012$9.1912.820122013$8.83NA20132014$7.9010.72012 VoS calculated ~18 months prior to implementation Basis for 2012 VoS Basis for 2014 VoS How Do Results Compare to Previous Study? 15 16% Reduction in VoS 16 Prepared by Clean Power Research for Austin EnergyWhy Have Results Changed?•Natural gas prices have declined•Assumed system life aligned to warranty period (25 vs. 30 years)•Loss savings are slightly lower•Transmission savings results have increased•Methodology has been refined for ERCOT market5Appendix 17 How VoS Applied? Residential Solar Tariff: •Meter consumption and production separately •Customer billed for whole house consumption –Energy delivered (by utility) to home, plus total energy produced by PV •Customer credited for solar production –Credited for all solar generation, whether used onsite or sent back to grid •Solar credit = Total kWh produced x VoS factor –Balance applied to electric bill until it zeroes, remaining credits roll over month-to-month 18 Understanding the Residential Solar Bill 19 The solar customer is billed on Whole House Consumption which is applied to the five tier rate schedule. Whole House Consumption is calculated by adding the net energy consumed from the grid to the PV production. The solar customer is then credited for their PV production at the Value of Solar Rate. If the Total Current Charges result in a negative amount, a credit will roll forward to the next month’s bill. Credits are non-transferrable and non-refundable and may only be applied to the electric bill they are associated with, or other electric accounts on the same premise, in the same customer’s name.