Power Task Force Agenda Number 3. W holesale Energy Markets in the W est Brad Albert – GM Resource Managem ent May 1 8 , 2 0 1 7 A Major Evolution is Underw ay! • The power supply portfolio in the west is changing rapidly due to: • Renewable energy policies • Customer desire for green energy – Large customers seeking “additionality” – Rooftop solar supported by net metering and tariff policies • Relatively low natural gas prices – Driven by horizontal drilling and hydraulic fracturing technologies • Just some of the consequences: • Low (and even negative) wholesale power prices • Merchant natural gas generators struggling to remain viable • The need for baseload power sources changes as customer demand patterns change and relatively inflexible renewable generation is added 2 1
The Magnitude is Staggering California’s Grid ‐ Scale Renewable Production on April 27, 2017 Over 9,000 MWs of Solar Over 3,000 MWs of Wind About 13,000 MWs grid ‐ scale renewables across the middle of the day (This doesn’t include another 5,000+ MWs of rooftop solar) 3 Solar Resource Grow th • California - Renewable Portfolio Standard 50% energy production by 2030 – Rooftop solar is in addition – Utility scale solar currently near 10,000 MWs – Community Choice Aggregation programs – Customer driven to show they are “Green” - Google, Microsoft, Universities, etc. • APS – Utility scale solar - 530 MWs – Rooftop solar is over 600 MWs and growing at 10- 15 MWs per month 4 2
Natural Gas – Market Outlook San Juan Gas Five-Year Outlook $ / MMBTU $4.60 $ 2 .5 3 $4.30 $ 3 .5 5 $4.00 $3.70 $3.40 $ 2 .8 4 2017 $3.10 2016 $2.80 2015 $2.50 $2.20 $1.90 $1.60 2017 2018 2019 2020 2021 * Five-year average prices down 28.7% from 2015 • Long-term, stable outlook • Large, high-efficiency natural gas combined cycle generators produce at approximately 25 $/ MWH 5 APS’ Participation in W holesale Energy Markets 6 3
Arizona Public Service Co. Largest utility in Arizona 1.1 million customer accounts 34,646 square miles Scope of Energy Delivery 28,000 distribution miles 5,300 transmission miles Phoenix 410 substations Resources 9,000 MW total capacity Peak demand – 7,100 MW APS Retail Service Territory 7 Five Major Categories of Resources Nuclear • Reliable source of carbon ‐ free around ‐ 1,146 • Palo Verde the ‐ clock power MWs • Lowest operating cost • Affordable source of around ‐ the ‐ clock Coal 1,672 power • Four Corners • Relatively expensive and time consuming MWs • Cholla to start/stop • Navajo • Large, high efficiency units, with longer Natural Gas Intermediate Units 3,151 ramps and longer minimum up and down times • Redhawk, Gila River, Arlington MWs • Reliable and Flexible to System Demands • West Phoenix Units 1 ‐ 5 Reliable and Flexible to System Demands • Ocotillo Steamers • Small, less efficient units, quick start that Small, less efficient units, quick start that 1,017 Natural Gas Peaking Units can be online in 10 ‐ 30 minutes MWs • Sundance • Very flexible • Yucca • West Phoenix, Saguaro, and Ocotillo GTs • Clean source of energy with low long ‐ 855 term costs Renewables (utility ‐ scale) • Inflexible, must take energy as it is MWs • Wind produced (non ‐ dispatchable) • Solar • Geothermal/Biomass 4
2 0 1 6 - W ell Balanced Energy Portfolio 1 1 % Nuclear 2 6 % 1 0 % Coal Natural Gas Renewables 2 1 % Energy Efficiency 3 2 % 9 8 5 5 MW s of Grid-Scale Renew ables Arizona Arizona New Mexico New Mexico 9 2 16 16 4 7 3 8 AZ Sun Operating Plants PPA Operating Plants 23 23 22 22 Generating Facility Capacity COD Generating Facility Capacity COD 21 21 1) CE Turbo 12 01/27/06 California 10 10 13) Paloma 17 09/12/11 19 19 24 24 2) Aragonne 90 12/29/06 11 11 5 14) Cotton Center 17 10/24/11 3) Snowflake 14 06/10/08 14 14 15) Hyder 16 10/31/11 4) High Lonesome 100 07/16/09 13 13 16) Chino Valley 19 11/25/12 12 12 20 20 15/18 15/18 5) Glendale Energy 2.86 01/13/10 1 6) Ajo 4.5 09/26/11 17) Foothills 03/18/13 17 17 17 7) Prescott 10 11/29/11 17) Foothills 18 12/27/13 8) Bagdad 15 12/30/11 6 18) Hyder II 14 12/17/13 9) Perrin Ranch 99 06/24/12 21) Gila Bend 32 10/17/14 10) Waste Management 3.2 08/31/12 22) Luke AFB 10 09/18/15 11) Saddle Mtn 1 Solar 15 12/20/12 23) City of Phoenix 10 09/18/15 12) Solana 250 10/08/13 19) Badger 1 Solar 15 11/08/13 EPC In Development *Does not include 600+ MWs of 20) Gillespie 1 Solar 15 12/31/13 Generating Facility Capacity COD rooftop solar 24) Red Rock 40 03/01/17 7 1 0 5
APS’ Philosophy on Energy Markets • Our participation in energy markets is a means to an end: • APS is not a trading company! • We participate in energy markets to serve our customers better: – Improve cost effectiveness and reliability – Promote price stability • We also believe in using all of the tools in the toolbox: – Participation in the Western EIM – Creation of a “trough hours” trading product 1 1 Extensive Participation in Energy Markets • 3-year rolling commodity hedge program: • Hedge energy price risk • Primarily natural gas prices • Conducted through OTC swap contracts and physical commodity • Optimization of energy supply: • This activity is continuously happening – Seek to minimize net cost of meeting our customer’s needs • Buy/ sell in all electricity markets: – Real-time (hourly), day-ahead, term • Participating in the Western Energy Imbalance Market (EIM) – EIM is a 5-minute dispatch optimization – APS started participating in October, 2016 1 2 6
Risk Managem ent I nfrastructure • Clearly Defined Policies: • Commodity hedge policy • Energy risk management guidelines • Credit risk • Independent Oversight of Trading Activities: • Risk Management and Back Office organizations – Report thru a different part of organization • Oversight committees with diverse representation – Energy Risk Oversight Group – Executive Risk Committee • Established processes for vetting/ approving non-standard deals • Active credit risk management organization • Routine Reporting and Monitoring • Risk reporting infrastructure in place 1 3 W here are W holesale Electricity Markets Going? 1 4 7
California Load on February 2 3 ,2 0 1 7 CAISO Load vs Net Load (i.e., the “duck” curve) (MWs) 30000 29000 28000 Customer Load (includes impact of rooftop solar) 27000 26000 25000 24000 23000 22000 21000 Difference is 20000 amount met by grid ‐ scale renewables 19000 Ramping Capability Needed 18000 17000 16000 Net Load 15000 14000 13000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 1 5 A Closer Look at February 2 2 nd & 2 3 rd Real ‐ Time Price at Palo Verde Hub ($/MWH) Solar Window Solar Window 1 6 8
CAI SO Future Load Shape Net Load 9200 MW on April 23, 2017 9 1 7 …. And Substantial Amounts of Renewable Energy Being Curtailed in California ‐ This chart shows CAISO Year to date (2017) curtailed renewable MWHs thru April 27th 1 8 9
Projected Renew able Curtailm ent in California 10 1 9 Negative Prices Occurred on Nearly Every Day in March, 2 0 1 7 Statistics March 2017 Fifteen Minute LMPs 21% of intervals are negative $17.18/MWh Average Price $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $ ‐ $(50.00) $(100.00) $(150.00) $(200.00) 3/1 3/6 3/11 3/16 3/21 3/26 3/31 2 0 10
Thank You for the Opportunity to Speak to You Today! 2 1 11
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