SPSC Meeting Committee on Regional Electric Power Cooperation Draft - PowerPoint PPT Presentation

SPSC Meeting Committee on Regional Electric Power Cooperation Draft Presenter: Colin Crowley, Consulting Energy Trader October, 2011

Background 2

Puget Sound Energy at a glance PSE Energy Resource Mix (by capacity) PSE- Owned Hydro Mid- Other 5% Columbia Long-Term Contracts Contracts 14% 21% Wind Coal 16% 14% Combined Simple Cycle Cycle 18% 12%  PSE serves over 1 Million electric customers and over 750,000 natural gas customers.  PSE is the second largest utility owner & operator of wind in the United States. 3 3

Leaders in renewable energy development  Largest in the Pacific Northwest and second-largest utility owner of wind energy in United States (430 MW capacity)  157 MW Hopkins Ridge – 2005  229 MW Wild Horse – 2006 44 MW Wild Horse Expansion – 2009   500 kW Wild Horse solar demonstration – 2007  343 MW Lower Snake River Wind Energy Project to come online in 2012 4 4

Natural gas supply keeps growing 5

U.S. shale gas production increased 14-fold over the last decade; reserves tripled over the last few years Source: Wood Mackenzie 6

Steady increases in production driven by shale gas Source: EIA, 2011 Annual Energy Outlook 7

Production in the West 8

Economic uplift from NGLs driving production gains Producers are shifting resources between plays to exploit the best opportunities. In many cases, drillers are focusing on liquids rich plays such as the Eagle Ford, Woodford, Granite Wash, and sections of the Marcellus. 9

Natural gas industry is searching for demand 10

LNG exports may provide new demand in 2015 Multiple factors are converging to make North American LNG exports a real possibility – Gas to oil price spread (new demand and switching from oil linked contracts) – Expanding shale gas resource base – Contract expirations for major buyers – Strategic financing by national oil companies 11

Coal displacement helping natural gas demand Economic displacement of coal has been an important supply/demand balancing item over the past few years, but more permanent displacement through CSAPR (Cross State Air Pollution Regulation) is on the way Source: SNL Coal retirements likely to add 2 BCF of demand, with the largest incremental additions to occur in Source: PIRA 2014 &2015 12

Other potential new demand for natural gas – Transportation could add ~ 1/2 BCF/d of new demand by 2015. Commercial initiatives are making this more probable. – Marine market could provide ¾ BCF/d of new demand. Idea is to replace diesel with cleaner burning natural gas. The regulatory driver is the EPA Emissions Control Area for large ships effective in August of 2012 – Industrial resurgence because of low gas prices could add 2 BCF/d by 2015 – Based on open pipeline capacity, Mexico could add 2 BCF/d of incremental demand over the next few years 13

Renewables lower potential natural gas demand – According to the EIA, wind contributed 64,393,000 MWhr from January- June 2011 (~ 2.4 BCF/d). Solar contributed 889,000 MWhr – If we assume that wind generation expands by ~ 30% between 2011 and 2015, this would imply that wind generation will reach a gas equivalent of ~ 3.6 BCF/d by 2015 (using 8 HR conversion and actual generation from Jan 11-Jun 11) – The natural gas industry may not be enthusiastic about changing operations to accommodate renewables 14

Operational challenges come with greater reliance on natural gas 15

Natural gas gen expected to provide ancillary services  PSE’s future resource  Meeting Future Ancillary Service Requirements: portfolio:  Less hydroelectric  As hydro capacity decreases, more following generation will be met by combined  More gas-fired and simple cycle gas generation turbines.  More wind generation  Altered operations will increase O&M costs Greater reliance on natural gas for ancillary services is not unique to PSE 16 16

Wind in the Northwest continues to expand  Wind Development in N.W. Wind Development in the Northwest  45% Increase in operating wind 10000 capacity over the past two 8,908 9000 years 8000  Over 11,000 MW either under 7000 6,341 Total Capacity (MW) construction or in various 6000 4,620 5000 stages of approva l 3,609 4000 3,194 3,105 3000 2,045 2000 788 1000 0 Operating Under Construction Approved In Permitting / Proposed 2009 2011 17 17

Challenges of integrating wind  Wind resources introduce additional uncertainty and variability to the system, and can impact the reserves need in every hour, not just peak hours.  Uncertainty – what level of generation will be observed in the future?  Variability – even with a perfect forecast, wind generation can still fluctuate within an hour  Not static – reserves level varies by time of day, season, and wind forecast Over-generation Wind Wind generates generates less than more than schedule; schedule; therefore therefore other system other system Under- generation generation generation must be must be increased. reduced. 18 18

Linepack & storage may not always be available Gas travels at roughly 30 mph. Below are the approximate travel times from supply basin to market • Opal to Malin ~ 22 hrs • Alberta to Malin ~ 30 hrs • Station 2 to Sumas ~ 24 hrs Linepack and storage can provide gas on demand to local area, but operating conditions can impact availability (e.g. pipeline or storage maintenance, extreme cold) 19

Long-term planning issues – The lack of redundancy or N-1+ contingency planning for loss of major natural gas assets. – Power Cost and environmental impacts of having to use natural gas generation to integrate VERs. – Transmission reliability impacts of early shut-down of regional coal generating plants. – Much like the concern about high-voltage transmission, a concern that capital investment in new pipeline capacity will not keep pace or be sited in optimal locations. 20

Future Considerations – Hourly gas scheduling  Good idea if you have storage  In most markets, liquidity is lacking for intraday supply  Natural gas storage holders may realize more value – Synching of trading schedules for power and gas – Coordination of pipeline maintenance with power industry – Study reliability impact of less diversification in controllable generation – Flexible solutions for different markets (e.g. different load and storage characteristics by region may warrant different solutions) 21

Questions 22

Appendix 23

Shale gas is flattening the forward price curve 24

Rig counts illustrate shale gas efficiency gains Source: Baker Hughes 25