Technology Assessment, Market Analysis, and Generation Planning - Program 178

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1 Technology Assessment, Market Analysis, and Generation Planning - Program 178 Program Description Program Overview Electric sector companies today face an unprecedented array of uncertainties. Low natural gas prices which may or may not persist have turned conventional dispatch priorities upside down, dramatically increased the reliance of the electric system on gas and fundamentally altered planning questions. Coal plants which have run intensely for decades have been cut back or idled leaving large fuel inventories and changing the risk profile of generation. Renewable mandates at the state level have created significant and growing deployment of intermittent generation, which affects the value of existing generation and the assessment of investments in existing and new capacity. Tightening environmental regulations will require retrofit capital investments at virtually all coal plants in the next few years. Many plants are closing creating a need for new capacity. New Clean Air Act regulations that limit CO2 emissions have been proposed and standards for existing plants are on the way. On top of this, load growth has been slowed and in some cases reversed due to slow economic growth and a transforming economy; the future cost, performance and public acceptance of new generation, transmission and distribution technologies are highly uncertain; and the emergence of advanced distributed generation, storage and grid technologies may be changing some fundamental planning questions. Combined with increased public scrutiny and media coverage of the electric sector decisions, these factors create new, high-stakes challenges for planners. Program 178 helps companies address the issues by providing objective technical information, a variety of tools for exploring familiar and emerging planning issues, and a place for planners to meet to assess technical challenges, possible solutions, and emerging information and analytical needs. The program has a long track record of success in providing technology cost and performance data and in informing the planning process. More specifically, the programprovides: Comprehensive, credible, and up-to-date data and analyses of technology costs and performance. The annual EPRI Technical Assessment Guide TAG has long set the standard for this type of information for the industry. Combined with TAGWEB, an internet-based software package for creating customized technology cost estimates and rapid-response support from the EPRI team, this information provides a sound technology basis for understanding and comparing technology cost estimates and validating results of more detailed, engineering studies. Clear assessments of fuel and electricity market trends. Natural gas prices drive electricity prices and fundamentally affect the economics of capital investments. At the same time, power industry demand for natural gas is an important agent of change in fuel prices and fuel market dynamics. EPRI research on industry trends and the near-term prospects for fuel markets provides insights and understanding to complement projections from other sources. Consistent analysis methodologies and tools: TAGWEB for providing up to date technology costs and performance in asset planning The Utility Fuel Inventory Model for managing traditional fuel risks as well as gaining insights to some of the emerging fuel supply and storage questions The Electric Generation Expansion Analysis System (EGEAS) is increasingly being employed to understand key issues such as the deployment of non-dispatchable renewable and the recent dash to gas The Energy Book System (EBS) for evaluating physical and financial portfolio strategies. Custom analyses to explore emerging issues in planning. Market transaction analyses, hedging analyses, the value of a diverse generation portfolio, and exploratory analyses of other planning issues identified by members may be undertaken by the program. p. 1

2 For continuing funders, the basic structure of Program 178 remains the same in 2013 with two project sets, described in more detail below. A number of interest and user groups have been created as supplemental projects to allow companies with narrower interests to participate in elements of the program where their interests are focused. These interest groups provide a low-cost entry point and will provide a meeting place to discuss model applications, challenges and solutions, and possibly generate more substantive research and model development agendas. Program 178a funds will provide support to the TAGWEB supplemental project, providing P178a funders with a 1-year license to TAGWEB and access to the supplemental project results. Program 178b will provide partial support for several users groups including the Energy Book System (EBS), Utility Fuel Inventory Model(UFIM), EGEAS and a more general Utility Planners Group, which will provide P178b funders with access to these discussions. Research Value In a time of unprecedented uncertainty for the industry, good planning decisions can save hundreds of millions to billions of dollars for companies and their customers. EPRI s Technology Assessment, Market Analysis and Generation Planning program (Program 178) has a long track record of providing information and tools that have helped companies make more-informed planning decisions and helped them communicate with the many interested and diverse stakeholders. By combining technology assessment and market analysis with an array of planning tools and analyses, Program 178 provides members with an integrated solution to support company planning: Comprehensive data, methodologies, and tools, resulting in a sound technical basis for technology planning, investments, and market strategies; Insights to fuel market trends and uncertainties that drive electric sector economics and risks; Tools and analyses which inform company strategy and capital investment choices; and A meeting place to anticipate and explore emerging planning challenges. Approach Program staff work closely with funders to identify research topics, review results, and to communicate effectively key results and insights. Members have a variety of ways to access results: Technical reports provide industry-wide cost and market data, establish reference values, offer new and improved analysis methods, and provide insights into key fuel and electricity market trends. Algorithms development and software tools provide customizable and flexible application of accepted methodologies to analysis of technology costs, asset portfolio planning, market risk, and price/cost volatility. Flagship products include TAGWeb and the Energy Book System (EBS). Research meetings such as the annual EPRI/EEI conference on Power Technology, Fuel Supply and Market Risk provide in-depth discussions of analyses and results. Webinars provide a stream of results in a timely fashion without requiring travel. User groups examine both broad planning interests and narrower, model-focused issues, providing a place to share ideas, identify emerging issues, and create focused plans for model support and enhancements. Accomplishments EPRI s Technical Assessment Guide (TAG ) is recognized as an authoritative source for up-to-date technology information. It is well-accepted by regulators, and is sought after as a critical resource by both U.S. and international agencies and researchers. EPRI s fuel and industry markets research continues to expand understanding of the link between power plant project developments and domestic and global fuel markets; changing assessments of fuel supply and availability; and impacts of changes in infrastructures critical to the fuel supply chain. EPRI tools and methodologies such as the UFIM, EGEAS, and the EBS have helped companies make better-informed decisions, providing significant value to their shareholders and their customers. Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 2

3 Current Year Activities The Technology Assessment, Market Analysis and Generation Planning program in 2013 will focus on updating existing data and methodologies and well as aggressively exploring an array of new planning issues identified by members: The annual TAG technology reports will examine an array of technology issues identified by members. The TAGWEB software will be updated to reflect new technology cost and performance information as well as updates to costing methodologies The annual EPRI-EEI Power & Fuel Supply Seminar will examine in-depth key fuel market and electricity industry trends. User and interest groups will be continued or created to increase support and communication about existing EPRI planning tools A process will be created to inform members about the variety of commercially available planning tools and their core capabilities New, emerging issues identified by members will be discussed and, if appropriate, initial analyses conducted. Candidate topics include: Value of portfolio diversity. In a world of cheap natural gas, what is the value of maintaining other technology options such as nuclear and coal? Fuel inventory analysis. With uncertain coal burns possibly persisting for years and increased reliance on natural gas for baseload generation, how can companies management fuel procurement and inventories effectively? Risk and hedging. How does the rush to gas affect company risk profiles and hedging strategies? Hedges, such as forward contracts for power or fuel, reduce future cash flow uncertainty but at the risk of locking prices that may appear unfavorable with hindsight. Furthermore, application of even the most systematic procedures may be seen by regulators as speculation leading to unfavorable rulings in rate cases. Related research addresses fundamental changes in price and heat rate volatility, peak/off-peak price spreads, and price correlations. Ways to project future technology costs. Estimating today s technology choices is a challenge. Nearly as important for many investment decisions today are future technology choices. Technology cost and performance are changing rapidly. What approaches may provide insights regarding their direction and how can this uncertainty be integrated into planning decisions? Modeling future policy uncertainty. The Clean Air Act provides a framework for continual tightening of regulations. Compliance today does not mean compliance tomorrow. In addition, the climate issue has not been resolved and will likely re-emerge at some point, with dramatic effects on coal and gas generation. What are options for including these fundamental uncertainties in planning? In 2013, Program 178 again will consist of two project sets: Project Set 178-A on Technology Assessments continues its focus on conventional and advanced technology cost and performance for new generation capacity screening, with supporting information on technology risks, cost escalation, and technology deep dives. Members suggest topics of interest and technologies where in-depth cost updates are needed, They are actively engaged in reviewing results. Project Set 178-B on Markets and Generation Planning will provide insights regarding fuel markets, planning analyses and tools to help planners deal with emerging challenges, and support for addressing a variety of risk management issues. Together these project sets provide a consistent set of information, analyses and planning tools to inform and communicate company investment decisions. Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 3

4 Estimated 2013 Program Funding $2.0M Program Manager Thomas Wilson, , Summary of Projects PS178A Technology-Based Business Planning Information and Services (TAG) (069229) Project Set Description The electric industry faces declining demand for power, increasing environmental regulations, and an aging infrastructure. However, these challenges are part of a typical industry cycle, and an upward swing in power demand is anticipated in the next few years, which will require new generation facilities to make up for retirements and to meet new demand. The current planning process for new generation facilities requires credible technology information and data that can be customized to individual company needs to meet changing regulatory environments. The Electric Power Research Institute s (EPRI s) Technical Assessment Guide (TAG ) project set delivers time-critical, technology-based business planning information, tools, and services that help planners, technologists, engineers, marketers, and financiers optimize capital investments in generation, storage, and transmission and distribution infrastructure. Research priorities in 2013 will include: Production of the annual Power Generation and Storage Technology Options report, capturing the latest industry data on technologies and cost and performance A report on generation capacity impact topics identified by funders. Recent topics have included technology risks, impacts of environmental regulations, life-cycle management, and cost escalation trends Complementary research completed via supplemental projects, addressing customized technology evaluation using the TAGWEB software. Project Number Project Title Description P Technical Assessment Guide (TAG ) The TAG focuses on power industry and fuel market developments and asset management questions, drawing on previous studies, premier analysts, databases, and market simulation techniques to provide critical planning information. In addition to the TAG technical report, project participants can obtain a one-year subscription, from 1/1/2013 to 12/31/2013, depending on the project participant funding year for up to five users of the TAG -Web software package. P Technical Assessment Guide (TAG ) (065783) Key Research Question Electricity generators are considering large retrofit investments in existing coal generation today to keep the units operating. Many are choosing to retire capacity and with increases in the demand for power in the United States anticipated in the next few years, companies are actively considering what types of generation capacity to build. As the planning process for new capacity additions is fairly long and a diversified set of technologies has to be considered, energy companies need credible and consistent information on the performance and cost of both conventional and emerging power system technologies. Implementation of environmentally friendly and effective, capital-intensive, and long-asset-life technologies is more important than ever before. Developing and Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 4

5 implementing strategic technology solutions require linking technology plans to business plans, which in turn requires critical information on the technologies. This information includes consistent, up-to-date data on the performance and cost of conventional and emerging electricity technologies and facilitates analysis of plant retrofits, retirements, major asset replacement/refurbishment, and new capacity additions. Approach The program offers a range of tools from cost and performance (including emissions) reports to customizable software and technology-planning case studies that target specific, current issues while staying focused on technology trends. Research covers issues such as cost escalation and credit squeeze for new plants, in addition to the annual cost and performance update for as many as 19 power generation and storage technologies. Examples include understanding and clarifying escalation or decline in project costs; the impact of significant amounts of renewable technologies in the system on baseload technologies; the impact of new EPA emission rules on existing fossil assets; and the role of combustion turbines/combined-cycle systems in planning for new capacity in the near term. While the principle focus is on technology costs in the U.S., these methodologies can be adapted for use in other countries. EPRI has performed recent, detailed technology cost assessments in Australia, China, and South Africa. Impact Benefits of collaborative research in this area include: Up-to-date market and technology-relevant databases, methods, and tools. Quick support to members on current issues. Cost and performance data and evaluation tools help participants make decisions on technology choices and facilitate integrated resource planning and interaction with regulatory agencies. TAG is an authoritative source of cost and performance information on advanced and conventional generation, storage, transmission and distribution, and environmental control technologies. The TAG program format and content are updated annually to meet changing industry conditions. Technology planning case studies provide information upstream of technology information. How to Apply Results Project technical reports help participants with preliminary technology screening, preliminary project planning, negotiating with vendors, and communicating options for new generation capacity to upper management and to regulatory agencies, where applicable. EPRI's program staff performs industry issue-specific analyses to enhance the application of results. The web-based programs provide consistent cost and performance information and methodologies that allow users to customize information to company-specific situations in advanced and conventional generation, storage, and environmental control technologies Products Product Title & Description Technical Assessment Guide (TAG ): The TAG contains technology descriptions, trends, design basis, cost estimate bases, and key technology data, including capital costs, operating and maintenance costs, heat rate, and availability. The technology descriptions include an overview of process conditions, emissions and any required controls for effluents, market data including vendor offerings, resource (fuel) requirements and data, current R&D activity, and future potential for enhancements. Planned Completion Date Product Type 12/31/13 Technical Report Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 5

6 Product Title & Description Generation Capacity Addition Topics - Technology Risks, Life-Cycle Management, Regulatory Impacts, Material, Equipment, and Labor Cost Escalation: In addition to the cost and performance information on power generation technologies in the Technical Assessment Guide (TAG ), the new generation capacity additions warrant explicit information on complex topics that may affect the capital investment and operating life. In the past, these topics have been addressed to a lesser degree in the TAG report. In the current environment, the scope of these topics has expanded. This special report would complement the TAG and would address the implications of technology risks, life-cycle management considerations, regulatory impacts due to emission control requirements, portfolio standards, and cost-escalation impacts on materials (concrete, structural steel, and piping). Technical Assessment Guide (TAG ) - Advanced Technologies: The power generation industry is attracting new capital investments in R&D for the development and implementation of new technologies for new generation and storage capacity additions. Many of the developments are taking place outside the current industry infrastructure and are driven by environmental regulations and expectation of high return on investments. Some of the advanced concepts include integration of currently available commercial technologies such as wind and storage, and solar and storage. A breakthrough in technologies that have been in long development cycles such as fuel cells also is possible. This report would cover the potential for various technologies and provide a feasibility analysis by looking at the various components of the technology and their break-through time frame. In general, the time frame for this would be TAGWEB Software (also available as supplemental project): The TAGWEB (Technical Assessment Guide Web) software is an integrated, web-based software that provides current cost and performance data and technology trends for: Fossil technologies: pulverized coal, coal gasification/combined cycle, fluidized-bed combustion and combustion turbine/combined cycle Nuclear technologies Renewable energy in the form of wind, solar thermal, photovoltaic, geothermal, and biomass technologies Small-scale generation such as fuel cells, internal combustion engines (diesel), small CTs less than 25 MW, and microturbines Storage technologies represented by compressed air energy, batteries, pumped hydro, flywheels, and superconducting magnetic energy technologies Planned Completion Date Product Type 12/31/13 Technical Report 12/31/13 Technical Report 12/31/13 Technical Report The TAGWEB data facilitates input to simulation models for integrated resource plans, which lead to selection of least-cost technology and fuel choice for the benefit of the public. Ratepayers can benefit from more-informed decisions by utilities and by their PUCs with regard to increased capacity planning and implementation. The Energy and Environment Analysis group develops public-domain technical analyses and assessments of energy technologies, energy-economic analyses, and potential for emissions reductions, including CO 2 from TAG derived data Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 6

7 PS178B Fuel & Power Market Analysis, Generation Planning, and Risk Analysis (072104) Project Set Description With a fundamental upheaval in fuel markets, possible changes in the business paradigm with the emergence of distributed generation, storage and grid technologies, an emerging need for better integration of operations and planning, the need for forward-looking planning research has never been higher. This project set provides an integrated set of information, analyses and tools that help members address critical issues: Markets. Insights into the persistence of current low natural gas prices are essential for planning. This project funds original analysis to create market insights and to feed other analyses. Planning. The project provides a place for companies to discuss emerging planning needs, examine in some depth tools that may provide insights, and when appropriate, funds methodology and tool development. Potential topics include fuel inventory strategies, integrated analysis of gas supply physical and contractual options and unit deployment, and methods for incorporating future policy and technology uncertainties. Risk management. This project will undertake special analytical efforts identified with members to understand and communicate key risk-based messages, e.g., the value of portfolio diversity, transaction structure, fundamentals of risk and hedging strategies. Project Number Project Title Description P Natural Gas, Coal and Power Market Analysis P Fleet Migration and Advances in Generation Planning P Emerging Issues in Corporate Risk Management This project will analyze energy market developments to provide indepth understanding of the recent, fundamental changes in natural gas and coal markets, implications of these changes for forecasting and market modeling, and the impacts of a changing fuel and generation infrastructure. This is a hands-on project, where members are provided the opportunity to identify issues, help choose approaches to address the issues, and participate in the analyses. The rapid changes in the electric sector along with changes in markets and regulation continue to create new issues in risk management. The move to much greater reliance on natural gas further exposes the electric sector and the public to the volatility of natural gas markets. With fundamental change, companies can rely less on historic precedents. This project performs a mix of market studies, case studies, and algorithm development. Delivery will be via reports, webcasts, advisory presentations, applications of program software. P Natural Gas, Coal and Power Market Analysis (072101) Key Research Question The unanticipated impact of vast, potentially low-cost shale gas in the U.S. and elsewhere has fundamentally changed electric sector economics over the past few years. Currently in oversupply and selling at prices below cost, and with coal plants subject to increasingly stringent Clean Air Act regulations, gas is an amazingly attractive fuel. Yet utility and industrial demands for gas are starting to rise rapidly in response and prices must increase sometime. The U.S. could even become an exporter of gas although the extent is debatable. At the same time, coal exports have helped link domestic and international prices, a linkage that could extend to the Powder River Basin. What is driving these trends, how long might they last, what factors could change the current picture? Better understanding of fuel markets and gas demand is essential for effective generation planning. Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 7

8 Approach This project will track energy market developments and generate original analyses to provide in-depth understanding of the changing generation infrastructure; related markets in coal, natural gas (NG), and emission allowances; and impacts on generation assets. Key trends in markets will be identified and key limits of gas expansion in the electric system will be considered. The project will also identify key market uncertainties and potential mileposts that could signify market changes ahead. Project results will be delivered via: Member briefings and webcasts. Regular webcasts will be scheduled to communicate and discuss important fuel and power market issues. EPRI staff are available to provide staff and executive briefings for members. Technical reports. One or more technical reports will be produced examining in-depth a key fuel or energy market issue. An ongoing example is analysis of gas and power industry developments across the Marcellus Super-Region. EPRI-EEI Annual Seminar on Power Technology, Fuel Supply and Market Risk. This flagship event delivers and expands upon EPRI s research findings and introduces topics of growing urgency for consideration by planners and as topics for future research. Newsletters. The project issues a series of newsletters (articles) on new power plants, retirements, critical forces in gas and LNG markets, and timely research topics not addressed in the primary deliverables. Impact Fuel is an enormous expense for energy firms. Relative pricing among fuels dictates generation asset utilization, significantly impacts asset value, and can cause dramatic shifts in new capital investments. Better understanding trends in fuel pricing and possible future directions, the duration of different market conditions, and key uncertainties will enhance decision-making and potentially save companies and the public billions of dollars. How to Apply Results Information delivered via in-person briefings, reports, webcasts, seminars, and newsletters will improve staff decision-making. There are opportunities for custom or collaborative projects to help ensure effective application of knowledge and extend the research yet further Products Product Title & Description Analysis of Key Fuel Market Issue(s): One of more in-depth studies of a key fuel market issue will be produced. Topics will be chosen based upon member interests. Communication of Fuel and Power Market Trends: Regular newsletters, interactive webcasts and member briefings will engage members in understanding key market trends in fuel and electricity markets and in driving the inquiry. Planned Completion Date 12/31/13 12/31/13 Product Type Technical Update Technical Resource Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 8

9 P Fleet Migration and Advances in Generation Planning (073460) Key Research Question Electric sector companies today face an unprecedented array of uncertainties. Low natural gas prices which may or may not persist, frequently idled coal plants with large fuel inventories, widespread deployment of nondispatchable renewable generation, new capital investment requirements for existing coal to continue operation and lots of plant retirements, slow load growth and a faltering economy, new distributed generation, storage and grid technologies suggesting new business paradigms, deep uncertainty about the form and timing of future climate and other environmental policies, and increased public scrutiny help create new, high-stakes challenges for planners. Planning challenges include: Closer integration of planning and operations. A number of changes in the electric system suggest a need for further integration of operational considerations in planning tools: Valuing flexible generation asset additions to the system. Rapid deployment of non-dispatchable renewables in some regions of the world has led to an increased need for flexible generation that can rapidly ramp up or down. Understanding the value of flexibility in making capacity investment choices is an emerging field of study. Expanded environmental dispatch. Near-term compliance with environmental regulations such as EPA s Cross-State Air Pollution Rule (CSAPR) and other new Clean Air Act requirements may require operational changes in addition to capital investments in plants in order to achieve near-term compliance. Plant-level integration of gas supply contracts and delivery uncertainties with unit commitment. Low natural gas prices have created a dramatic shift from coal to gas. EPA Clean Air Act regulations may lead to additional, significant refueling of coal plants to natural gas. In many locations, one of the key challenges to doing this creating a strategy for secure supply of gas (e.g., contractually, by building pipelines, or developing storage) and linking gas supply uncertainty with dispatch models. Better representations of future policy uncertainties. Just a few years ago, the electric sector faced a significant likelihood of being driven by a market-based climate policy that used a carbon price to substantially decarbonizing the electric system over a 40-year period. The timing, stringency and form of a future climate policy are now uncertain. What are effective ways to include this critical uncertainty in planning? New business paradigms. Advances in distributed generation, storage, and grid technologies create an increasing need to integrate supply, transmission, distribution and end-use choices in planning. Both long-term investment and operations activities could be significantly impacted. Power infrastructure changes and implications. The extent and timing of retire/retrofit/replace alter the mix along with renewables/transmission. What different trajectories may occur and how do they alter regional energy and capacity values? The project provides a meeting place for member companies to discuss new planning challenges, identify possible approaches to gain new insights, test existing tools to see how they address key issues, and, where appropriate, develop new analytical capabilities. Approach This project will be driven by working closely with the members in face-to-face sessions and webcasts to identify emerging planning issues, discuss possible approaches to address the issues, identify possible modeling platforms to explore, and road-test possible approaches by conducting representative investment case studies. One of the key needs members have expressed is the need to understand more deeply what modeling capabilities are available or could be adapted to meet emerging planning needs. Modeling tools to consider include both EPRI tools and other commercial tools. Program members will work with staff to identify key planning issues, to identify possible modeling platforms for addressing the issue, to help select an approach and Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 9

10 have the opportunity to participate with the vendor in learning about model capabilities, scenario/assumption choices, reviewing results, and to suggest analysis refinements. This hands-on exposure will provide members with a more in-depth understanding of both the planning issue at hand and the capabilities of the model(s) being used. If desired by members and sufficient funding is available, in-depth efforts may be funded to add fundamentally new modeling capabilities to existing tools. Impact The current, rapid fleet transition resulting from low natural gas prices, closure of coal plants for environmental and economic reasons, retrofit and refueling decisions, and integration of non-dispatchable generation requires companies to make many capital decisions with costs in the billions and 10s of billions of dollars. This project provides several types of benefits: Facilitates improved modeling approaches that take into account some of the new planning challenges can yield substantial savings to companies and the public. Provide members will a deeper understanding of commercial modeling tools for addressing both routine and emerging planning issues How to Apply Results This is a hands-on project, where members are provided the opportunity to identify issues, help choose approaches to address the issues, and participate in the analyses. For those that are unable to participate actively, issues and results will be communicated in a Technical Update Products Product Title & Description Analysis of an Emerging Planning Issue: Planners face a wide variety of new challenges in the current, uncertain environment. This deliverable will documents approaches for addressing one or more key challenges identified by members. Planner Roundtables, Webcasts and Discussions: A critical element of this project will be frequent webcasts and discussions of planning issues to identify important topics for research, to discuss possible technical approaches and to review and discuss ideas generated by this research. Planned Completion Date 12/31/13 12/31/13 Product Type Technical Update Technical Resource P Emerging Issues in Corporate Risk Management (073461) Key Research Question The rapid changes in the electric sector along with changes in markets and regulation continue to create new issues in risk management. The move to much greater reliance on natural gas further exposes the electric sector and the public to the volatility of natural gas markets. From 2008 to 2012, coal s share will drop from 50% to below 40% and natural gas will increase from 20% to 30%. Several questions identified by members in 2012 include: Estimates of the value of portfolio diversity. Low natural gas prices are generating a new dash to gas squeezing out other forms of generation (unless mandated like renewables). However natural gas prices historically have been quite volatile. Given price uncertainty and questions about future limits on CO 2 emissions, what is the portfolio value of investing in other generation technologies such as coal or nuclear? Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 10

11 Hedging strategies. The dash to gas can also affect companies risk profiles. What are appropriate changes to hedging strategies? How can these strategies be effectively communicated to regulators, shareholders and other interested parties? Hedges, such as forward contracts for power or fuel, reduce future cash flow uncertainty but at the risk of locking prices that may appear unfavorable with hindsight. Furthermore, application of even the most carefully considered opinions on hedging decisions may be seen by regulators as speculation entailing unfavorable rulings in rate cases. This research will examine actual hedging practices and contrast with views and rulings by regulators. Updates in price modeling. Shale gas may have fundamentally changed natural gas price dynamics, including local basis. What are ways to estimate this potential shift and what are possible implications? Can heat-rate approaches provide new insights? Coal retirements, new gas capacity, transmission, etc. are all altering price behavior from prior norms. New fuel inventory issues. With low natural gas prices and higher coal prices, the utilization of coal units has become uncertain, leading in the short term to large coal inventories and storage challenges. How can inventory strategies and contracts best be altered to address this new uncertainty? And how do retirements and coal and gas outlooks alter burn expectations? Approach This project performs a mix of market studies, case studies, algorithm development and model application. EPRI staff will work closely with members to identify emerging risk issues, to examine a range of approaches for addressing these issues and (where appropriate) initiating modeling activities to explore the possible approaches. Delivery will be via reports, webcasts, advisory presentations, application of program software Impact Failure to properly assess and manage risk exposures can result in suboptimal or even catastrophic performance. Improvements in assessments of market-based value and financial risk management have very high leverage in terms of cash flow and business stability. How to Apply Results Information delivered via reports, webcasts, and software will improve staff decision-making capability. There are opportunities for custom or collaborative projects to help ensure effective application of knowledge and extend the research yet further Products Product Title & Description Analysis of Risk Management Issues: From major resource decisions to fuel inventories, this deliverable offers insights into problems and methods for several critical topics identified by members. Planned Completion Date 12/31/13 Product Type Technical Update Future Year Products Product Title & Description Analysis of Risk Management Issues: Future year products will continue to examine emerging risk management issues identified by members. Planned Completion Date 12/31/14 Product Type Technical Update Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 11

12 Supplemental Projects TAGWEB Technology Integration & Analysis (072453) Background, Objectives, and New Learnings The TAGWEB (Technical Assessment Guide Web) software is integrated, web-based software that provides current cost and performance data and technology trends for: fossil technologies: pulverized coal, coal gasification/combined cycle, fluidized-bed combustion, and combustion turbine/combined cycle nuclear technologies renewable energy in the form of wind, solar thermal, photovoltaic, geothermal, and biomass technologies small-scale generation such as fuel cell, internal combustion engines (diesel), small CTs less than 25 MW, and microturbines storage technologies represented by compressed air energy, batteries, pumped hydro, flywheels, and superconducting magnetic energy technologies The research results of the Technical Assessment Guide(TAG ) are the input to the TAGWEB database. TAGWEB facilitates customized input to simulation models for integrated resource plans, which lead to selection of technology and fuel choice for the benefit of the public. Rate payers will benefit from informed decisions by utilities and by their PUCs with regard to increased capacity planning and implementation. EPRI s Energy and Environmental Analysis group benefits from TAGWEB derived database for public-domain technical analyses and assessments of energy technologies, energy-economic analyses, and potential for emissions reductions, including CO2. Project Approach and Summary Several new capabilities have been added based on 2012 research. Database updates were based on the research in the following areas: The downward trend in power demand in Europe and the U.S. and its impact on new power plant project execution Continuing impact of recession on prices of bulk materials (piping, structural steel, and electrical cables etc), labor, and equipment used in power plant construction Continuing impact of global warming concerns, particularly CO 2 emissions, on continued operation of existing and planning for new fossil-fuel-based power plants New trends in technology designs that enhance performance Database and analysis to support environmental retrofit decisions In addition to the annual technology cost and performance evaluations, the TAGWEB database has been significantly enhanced on a frequent basis to reflect current market conditions and technology trends in the following areas: cost and performance updates for Pulverized Coal with CO 2 capture/transportation/sequestration, large Combustion Turbine/Combined Cycle, Nuclear, Solar Thermal (ST), Photovoltaic (PV), Biomass, Wind, and Storage technologies. The following topics have also been addressed and included in the 2012 TAGWEB database: CT/CTCC demand and market impact, transmission impacts due to generation capacity addition/retirement, cycling duty impact on PC and CTCC plants, environmental emissions and control, impact of worldwide construction activity, and analysis of cost escalation impacts on future power plants. The TAGWEB software was also enhanced with modeling capability for evaluation of renewable/storage technologies, analysis of data, and improved user friendliness. The TAGWEB software platform has also been upgraded to the.net environment to enhance its graphical user interface (GUI), and upgrades to the analytical and reporting functions have been added to evaluate options for current industry uncertainties. Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 12

13 Benefits An overview of the TAGWEB software and its benefits are provided below: One-Stop information source and analytical tool for capital investment planning Consistent, credible, current information Extensive research on specific technologies and competing options Cost and performance information on advanced and conventional generation, storage, and environmental control technologies Analyze key uncertainties, such as: What if natural gas prices increase by 20% in one year, in five years What if combustion turbine heat rates increase by 10% after 2 years in operation What if initial market price for electricity is only 1 /kwh How does it affect return on investment (ROI) How do I analyze market uncertainties with respect to technical parameters Which electricity technologies should be considered How do renewable and storage technologies fit into future planning Electric Generation Expansion Analysis System (EGEAS) Users Group (073462) Background, Objectives, and New Learnings EGEAS (Electric Generation Expansion Analysis System) is a well-respected modular production costing and generation expansion software package developed under EPRI sponsorship for use by utility planners to develop and to evaluate integrated resource plans, avoided costs, and plant life management plans. It also has modules that accommodate demand-side management options and facilitate development of environmental compliance plans. EGEAS contains three capacity analysis options that range from preliminary analysis tools based on screening curves to sophisticated nonlinear optimization using generalized Benders decomposition and dynamic programming algorithms. A stand-alone, detailed, probabilistic production-costing algorithm is also available for production cost and reliability analysis. The key features of EGEAS are: Dynamic programming logic to form candidate portfolios from identified alternatives meeting a capacityplanning constraint (e.g., maintain x% reserve margin). Present Value Revenue Requirement or lowest electric rate economic ranking of candidate portfolios dispatched with an existing and future set of assets. Ability to quickly run a number of scenarios to test different generation plans. Simple economics - easy to understand and explain results. Current applications: Front-end screening tool Asset Retirement evaluations Emission Evaluations from power plants EGEAS has particular capabilities that are highly valued by users. It can be used to determine a reduced number of portfolios requiring a more detailed analysis (hourly dispatch, stochastic analysis) of fuel and transmission-related costs. It also provides the option to limit run time for specific portfolios. The purpose of the EGEAS Users Group is to share user experiences with the model, to share analyses that have been conducted, to identify possible model enhancements, and to get very basic model support. The EGEAS model has been used many times in recent years in public analyses to examine key issues for regional electric systems, e.g., implications on recent EPA regulations or influx of non-dispatchable renewable generation. By sharing experiences and providing a forum for model enhancements, the project will provide benefit to the public via better analyses, identifying paths for economic, environmentally responsible, and reliable electric supply. Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 13

14 Project Approach and Summary This project provides three meetings annually (in-person or webcast) for funders to learn about EGEAS applications, discuss model features and propose model enhancements. It also helps provide very basic model support. Benefits The primary benefits of this project are improved communication and the creation of a launching point for new model development: Regular meeting place for EGEAS users to share knowledge Opportunity to examine model strengths and limitations and to identify enhancements Catalyst for model enhancement efforts Low-cost entry point for potential new users Energy Book System Users Group (073463) Background, Objectives, and New Learnings EPRI s Energy Book System has been developed over the last decade as a research tool for market-based value and risk analysis of energy assets and portfolios. It has proven useful to many power companies for risk analysis and asset planning. EBS has been used in custom analysis projects and often serves as the test bed for new algorithm development. The Energy Book System Users Group is a forum for members to share perspectives on issues and approaches to address emerging risk management issues, to learn about available tools and to discuss research needs. Project Approach and Summary The User s Group will hold three meetings per year either in-person or via webcast. Objectives of the meetings are to: Provide a forum for individuals with risk management responsibilities to develop perspective on state-ofthe-art methods and responses to common problems through structured discussions with their peers. Take a wide look at utility risk management issues and approaches, and consider what advances are needed, and how advances can be made and integrated in EPRI s research programs to better support utility planners. Benefits The primary benefits of this project are improved communication and the creation of a launching point for new model development: Regular meeting place for EBS users to share knowledge Opportunity to examine model strengths and limitations and to identify enhancements Catalyst for model enhancement efforts Low-cost entry point for potential new users Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 14

15 Electric Utility Planning Users Group (073464) Background, Objectives, and New Learnings Rapid change in the electric sector has created many new challenges for planners. Large supplies of newly-lowcost natural gas, the rapid retirement of coal generation, the regional influx of large amounts of non-dispatchable generation, the uncertainty around cost, performance and public acceptance of most technologies, load growth uncertainty, the tighter linkage between demand-side and generation options, the tightening linkage between operations and planning, and the fundamental uncertainty about the timing and stringency of new energy and environmental regulations have joined the usual planning uncertainties to create new analysis needs. The Electric Utility Planning Users Group (EUPUG) is a forum for planners to share perspectives on issues and approaches to address emerging issues associated with planning, to learn about available tools and to discuss research needs. The user group provides value through better-informed planning which should help provide the public with lower cost, environmentally responsible and reliable electricity. Project Approach and Summary The User s Group will hold three meetings per year either in-person or via webcast. Objectives of the meetings are to: Provide a forum for individuals with broad planning responsibilities to develop perspective on state-of-theart methods and responses to common problems through structured discussions with their peers. Take a wide look at utility planning issues and approaches, and consider what advances are needed, and how advances can be made and integrated in EPRI s research programs to better support utility planners. Benefits Rapid change in the industry is creating new, high-stakes planning challenges. The planning users group can help: Explore challenges with peers and researchers to identify strategies Hear from leading tool providers Benefit from low-cost entry point that encourages broad participation Technology Assessment, Market Analysis, and Generation Planning - Program 178 p. 15