Randy Manion: Good morning or good afternoon wherever you may be and welcome to the second webinar of the 2016 DOE Tribal Renewable Energy Webinar Series: Exploring Your Energy Markets. I’m Randy Manion, today’s webinar chair and manager of Western Area Power Administration’s Renewable Resource Program. Sorry for the delay in getting started but I hope you’re all set for an excellent webinar. We’re going to go probably for a full two hours today. We have many speakers, so let’s get started.
Today’s webinar is being recorded and will be made available on Western’s website along with copies of today’s PowerPoint presentations in about one week. Everyone will receive post-webinar e-mails with the link to the page where the slides and recording will be located. Because we’re recording the webinar today all phones have been muted for this purpose and we’ll answer your questions at the end of all the presentations.
However you can submit a question anytime by clicking on the question button located in your webinar control box and then just typing your question in. And if you entered your audio pin if we have time at the end of the webinar today we’ll unmute the phones so you can ask our panelists a question directly. And again we’ll try to keep the webinar to no more than two hours. And our first speaker today is Doug MacCourt.
Doug is a senior policy advisor in the Office of Indian Energy and works throughout DOE and with other Federal and State agencies on policy, legislative, and funding issues that are critical to the office’s mission of developing and deploying clean energy and related economic development projects in Indian country. And with that Doug I’m going to turn it over to you for opening remarks. The floor is yours.
Doug MacCourt: Well thank you Randy and hello everyone. I join Randy in welcoming everybody to the second webinar of the 2016 series. This webinar series is sponsored by two United State Department of Energy organizations: the Office of Indian Energy Policy and Programs, and one of our largest power marketing agencies the Western Area Power Administration. The webinar series is really designed to promote tribal energy sufficiency to foster economic development employment on tribal lands and move the ball forward with renewable energy and energy efficiency technologies.
So a little bit about what we do at the Office of Indian Energy. And to boil it down we implement energy planning, education, management, and programs that assist tribes with energy development, capacity building, energy infrastructure, reducing or at least stabilizing energy costs and electrification of Indian lands and homes. In order to provide that assistance we work throughout the Department of Energy across other Federal and State agencies and of course most important with the tribes and Alaska Native both regional and village corporations to promote tribal energy policies and initiatives and help tribes to overcome the barriers to more energy independence.
So one way we do that is we developed several programmatic initiatives and partnerships and this Tribal Renewable Energy Webinar Series is an example of the education capacity building efforts we develop with our other DOE partners. After today we have another nine webinars remaining in the series. And each webinar builds upon a foundation set and added to in the previous webinars. So the idea is this is a strategic energy planning foundation and the often undervalued or overlooked benefits of economic development in the strategic planning process.
And we’re trying to address each one of the critical issues in that process. So in each of 2016 monthly webinars we’ll try to include tribal case studies and information, hands on tools that you can use to progress towards self-determination and energy independence. One thing I want to add to our opening here is the Department of Energy is again engaged in the development of what we term the Quadrennial Energy Review. And this cycle we are focusing on the state of energy infrastructure throughout the United States.
It’s a national look of what the state of that infrastructure is and it’s actually a mandate by the White House to the Department of Energy to provide that information to the American public so they can become informed and help make decisions regarding our energy future. The reason we’re bringing that up on this series is that we want to make sure that the status of energy and electricity infrastructure in particular is well-represented from Indian Country the Department of Energy develops that Quadrennial Energy Review.
You can go to the Department of Energy website: www.doe.gov and there’s the bar across the top but you can also Google either the letters “QER” or “Quadrennial Energy Review” and you’ll find a series of statements that explain the details about it how you can access the process and we welcome tribes or tribal organizations – any of the intertribal organizations or NGOs to contact us, set up a face-to-face meeting, a teleconference, or participate in one of the many nationwide listening sessions that will be conducted throughout 2016.
And if anybody has any additional questions or interest in that I welcome you to contact me. So with that let us get started with today’s webinar. And I’ll now turn the virtual floor back over to Randy. Randy?
Randy Manion: Thank you Doug. And Doug will you be staying on for the Q&A?
Doug MacCourt: Unfortunately I will not be available for the Q&A today. But if people do have questions for me please e-mail them to me and I can pop back on the phone.
Randy Manion: That sounds great. And I’ll put Doug’s contact information up at the end of all the presentations. So with that let’s get started. Our next speakers today are Philipp Beiter, Al Austin, Todd Hegwer, Wenona Benally Baldenegro, and Robert Kennedy. And Philipp we’ll start. I’ll go ahead and give brief bios for all our speakers up front and then we’ll get started.
So Philipp Beiter is an energy markets and policy analyst at NREL’s Strategic Energy Analysis Center. His work focused on analyzing renewable energy data, cost, and deployment trends. He is using a variety of economic models related to market activity and employment to analyze the economic potential of renewable energy.
And then following Philipp will be Al Austin. He has worked in the energy business for 32 years and he has spent the first half of his career working for one of the nation’s largest public power systems: Salt River Project. He is currently working for Western Area Power Administration. He has helped established Western’s first 24 hour trading desk in the Southwest which he led for six years and is now responsible for all pre-scheduling and energy settlement activities in the Energy Management and Marketing Office out of the Phoenix office of Western Area Power Administration.
And then following Al will be Todd Hegwer. Todd is president of Timber Canyon Energy Consulting which was formed in 2010 to meet the needs of the municipals and cooperatives throughout the United States. He has more than 33 years of experience working in the power industry. He has spent 27 of those years with Xcel Energy as the director of wholesale contracts and origination.
And then following Todd will be Wenona Benally Baldenegro. She currently serves as the executive director for the Navajo-Hopi Land Commission. She most recently served as an assistant attorney general for the Pascua Yaqui Tribe near Tucson, Arizona. And Wenona holds a JD from Harvard Law and a Master in Public Policy also from Harvard’s John Kennedy School of Government.
And then closing out will be Robert Kennedy. He is a general systems engineer with 28 years of combined experience in broad disciplines including renewable energy and resources with an emphasis in solar geothermal and biomass engineering economics and Net Present Value estimation. And so with that let’s get started with you Philipp. The virtual floor is now yours.
Philipp Beiter: Well thank you very much for organizing this webinar and thank you all for participating. So I’ll be presenting today on a report that we published in summer of last year entitled Estimating Renewable Energy Economic Potential in the United States: Methodology and Initial Results. If you could please go to the next slide.
So just to give you a brief overview of the topics that I’ll be covering – So I’ll be starting out with a couple of observations with trends in renewable energy over the past few years. And I’ll then go into detail about a bit of background that motivated our study in assisting economic potential quests, several renewable energy technologies. I’ll explain the method and then I’ll show you some of the initial estimates that we found coming out of our analysis.
So to start out I’ll show you a few graphs, sort of an overview of current trends in renewable energy in the United States that are featured in our data book which is an annual publication. As of 2014 the total installed nameplate capacity was about 1,200 gigawatts which corresponds to about 4,100 terawatt hours of electricity in the United States. About 15.5 percent of capacity is sourced from renewable energy. About 13.5 percent you know in terms of generation.
Most of that renewable energy is made of up hydropower followed by wind, solar, biomass, and geothermal. And I would keep the number of 4,100 terawatt hours in mind ‘cause I’ll show you some comparisons of how that relates to the economic potential that we found. Here the development of renewables over time – So what you can see is that renewables have really almost doubled since 2000 both in terms of capacity and generation. And this includes hydropower. If you want the percentage increase in renewables that do not include hydro it’s even greater.
I think these charts that you see here illustrate the growth story that you see in the real world quite nicely. So in 2014 52 percent of the capacity additions were from renewables, 47 from natural gas, and then very little from coal. If you compare that to the pie chart on the upper right retirements are mostly from coal, followed by natural gas, and then petroleum, nuclear, and a small fraction of renewables. And below in the bar graph you see that wind and solar combined when you subtract the retirements and the capacity additions to see what the net effect is you see that wind and solar really have most of those net capacity additions followed by natural gas.
Very briefly the next two slides show you the top five states in renewables in the country. California, which has quite a resource mix when it comes to renewables, followed by Washington, Oregon – And this is installed renewable electricity capacity and includes all of renewables. So Washington, Oregon, most are driven by hydro. You have Texas with a lot of wind. And New York also is one of the states with the highest renewables. Now keep in mind these are the top five states so obviously you have renewables across the country, but these are the top five states for all renewables.
Here a breakdown by renewable electricity technology. And I don’t think I want to spend too much time on this but you can see that some of the renewable energy technologies are concentrated as for example in hydropower or CSP. So you see that there’s quite a regional aspect to the deployment of renewables. So if you want to go to the next slide.
So this observation really created the motivation for our study of economic potential in that we wanted to assess at a high geospatial resolution where you have both the resource for renewables available and then to see what the economic potential for different renewable technologies is. So up front, to give you a snapshot of some of our results – and I will go into detail in the following slides about the definition of economic potential and what our methodology was.
So we found that economic potential ranges from about one-third to over ten times 2013 total years’ generation from all sources, we found that it appears in every state for at least one of the technologies that we assessed. We saw that historic technology cost reductions between 2010 and 2014 have increase the economic potential considerably and according to our study will also increase economic potential in the future considerably.
We ran a lot of sensitivities around our results and found that the economic potential is very sensitive to the specific assumptions that you take. So whatever you factor into your cost assumptions or into your market price assumptions. We found wind to be in the range of 550 terawatt hours to 870, a UPV in the range of 430 to 600 terawatt hours, a DPV of about 290 terawatt hours, hydropower about 64 to 76 terawatt hours, geothermal 130 to 153 terawatt house, and we found no economic potential for biopower.
And so the range is because you know these are kind of the lower and upper limit of the scenarios that we ran. Now keep in mind that this compares to a 2013 electricity generation of about 4,100 terawatt hours. So the economic potential that we found is comparatively high. Next slide please.
So for the purpose of our analysis we define economic potential to be the subset of resource where the cost required to generate the electricity is below the available revenue. And I think this chart illustrates quite well the different factors or you know considerations that are important in determining what resource is available for renewable energy. We started out with resource potential which is basically the wind blowing, the sun shining. We then converted that to so-called technical potential which takes into account system constraints, land use constraints, and system performance.
For this estimate we built a subset which we called economic potential which compares at a high geospatial resolution what the cost of a renewable energy technology would be to the available revenue which is largely defined by the wholesale price in that region. Now it’s important to point out that economic potential is not a project of actual deployment because there are many additional market factors that play a role here in terms of –
There’s regional competition with other energy sources. There is policy. There are the regulatory limits. And there is investor response. And so we did not factor these things into our analysis. So it’s important to realize that the economic potential numbers that we found are not a projection of what we think will be actually deployed in the markets.
So just to expand a bit on the purpose or motivation for our analysis with the economic potential metric we wanted to show in what locations of the United States there is potential economic viability of renewable electricity at detailed geospatial resolution. That is important because there is significant variation in local resource quality and cost and the revenue potential which is largely defined by both capacity payments and wholesale prices. And in this initial application we applied the method to several technologies that you’ve seen on the previous slides.
The land-based wind, utility, photovoltaics, distributed photovoltaics, hydropower, geothermal, and biopower. And as I mentioned the analysis itself does not consider any market dynamics, customer demand, exports from one site to another, or policy drivers such as the CPP that may incentivize or deincentivize renewable energy generation. So that’s the important distinction that I would draw here.
It does also not take into account region-specific characteristics such as for example specific regulations that apply to tribal lands. So that’s another thing to take into account as we did this analysis for the entire country and did not capture any region-specific considerations at least at this point.
So just to summarize the method we applied very briefly, we looked at the technical potential which is based on geospatial assessment of available resource and resource quality. We then for over 150,000 and those vary by technology we estimated the levelized cost of energy (LCOE) which takes into account regional plant construction costs, technology cost, performance and intra-regional transmission.
We compared this estimate of cost to an estimate of levelized avoided cost (LACE) which has been calculated at the same locations and proxies the potential revenue that’s available to a renewable generation project. So it factors in wholesale prices and proxy for capacity payment. And whatever at a given location the revenue that was available to a project LACE was greater than the cost to a project we considered the associated capacity and generation to be the economic potential.
So here are some of the results that we found. I will not go into the distinction here that you see on the bottom between No CV and Full CV which basically stands for capacity. So either us taking into account capacity value or not, but what you can see here is in blue the 2013 generation for a certain technology and in green the economic potential we found for our standard case. So you can see that we found a lot of economic potential for wind, a lot for UPV especially when compared to the current or the 2013 generation level, and the same with DPV.
Hydropower we found that you know compared to what’s already installed and on the grid probably there’s a bit less of economic potential relatively. We found considerable economic potential compared to 2013 generation levels for geothermal, and as mentioned before no economic potential for biopower. One thing I should mention is that our – what is called the primary case or essential case – takes into account 2020 technology costs. That’s an important thing to keep in mind here.
Then on this slide here I’d like you to focus on the bar chart to the very right that shows you kind of the relationship between technical potential, economic potential, and deployed capacity. What you can see here is that in absolute terms the economic potential we found was really big. But it’s only a small subset of the technical potential which is basically the resource potential that we found across these technologies.
These two maps provide you with a snapshot of the distribution of economic potential across all the renewable energy technologies that we assessed across states. Driven by the wind economic potential mostly we found that there’s a lot of economic potential in Texas. California is driven also by UPV and Nevada. And now one thing to consider here is that this is really the results of two things. One is the costs of renewables which have a tendency to be higher, the lower the recess quality is for the technologies to be assessed. And for the revenue that’s available to a renewable energy project, so the wholesale prices that you’ll find in these places and the value of capacity.
Here is a depiction that shows you more the results at a regional level, split up here. So we see a lot of UPV potential – economic potential – in the South Atlantic and the Mountain region. Lots of economic potential for wind, not surprisingly, in the West South Central and the East North Central. A lot of DPV in the Pacific area and then a geothermal because of resource constraints concentrated in the Mountain and Pacific areas.
So to sum up this presentation our initial results – as this is still ongoing work – shows that the economic potential metric can serve as a screening indicator for understanding the economic viability of renewable generation technologies. It is not a projection of actual deployment but we think it can serve as a first pass screening indicator of understanding economic viability at you know a high geospatial resolution.
We found that economic potential ranges from about one-third to over ten times of 2013 Total U.S. generation. Economic potential appears in every states for at least one of the assess technologies. We saw that economic potential is highly sensitive to technology cost declines. We’ve seen that already for historic cost declines between 2010 and 2014. And what we also found is that economic potential is highly sensitive to the specific assumptions.
So we ran cases that for example consider the Social Cost of Carbon, considered the declining value of variable generation as penetration of renewables increases within a market region capacity value, technology costs, construction year, and so on. And I encourage you to take a look at the report itself if you’re interested to find out more about our results and how they look even on a sub-state level.
I’ll skip the potential for the work here but also encourage you to send the organizers of the webinar an e-mail as I’ll not be able to stick around for the Q&A. So please e-mail them if you have any questions and I’ll get back to you.
Randy Manion: Thank you Philipp. And Philipp you have some backup slides here. Do you want to just say a few words about the additional slides?
Philipp Beiter: So basically I would recommend – These slides are taken out more or less directly from the report. So I would recommend for now to not go into them in detail. But if you have any questions please feel free to e-mail me or take a look at the report which includes all the backup material here.
Randy Manion: Okay great. Well thank you so much. And let’s go to our next speaker: Al Austin. And Al give me a moment while I pull up your slide deck.
Al Austin: All right. Well listen everyone it’s really great to be here and to participate in this webinar series. As Randy said my name is Al Austin. I work at Western Area Power Administration, Desert Southwest Region. And Western Area Power Administration is one of the four Power Marketing Administrations – or the PMAs – under the DOE. WE generated and deliver clean Federal hydropower over 16 of the Western United States. We run all the dams on the upper and lower Colorado River and many of the other rivers and deliver that hydropower to preference customers.
What I wanted to talk about today is you know my presentation is based on the assumption that most of the people in the group don’t have a real deep understanding of kind of what goes on on the grid. And that most people – if you’re like me prior to me getting into the energy business – you turn on the light switch and you really don’t understand what it takes to deliver that energy right to your home or to your meter.
And so what I think is important – especially as tribes – whether you’re considering a root, just a standalone off the grid arrangement in remote areas whether you’re considering community solar, whether you’re considering standing up your own tribal utility authority. You know whatever position you’re in its incumbent and I think it’s really important that people understand the basics of what goes into the production, delivery, and consumption of electricity.
And what are the major components in those processes of the production delivery and consumption. And then how those processes relate to costs because ultimately if you’re like me you get your power bill from the local utility and it’s like, “Okay well there’s my power bill. I pay that.” But you really don’t – Unless you’re in the business really it’s hard to understand or appreciate well how does my $200.00 a month power bill – what does that go to?
So hopefully will be able to address some of that and you’ll go away with a clearer understanding or at least appreciation of some of the major components that go into that process. Next slide. So we’re going to be talking first about the electric grid. Then one of the concepts we’ll be talking about will be wholesale versus retail ‘cause there really are two different distinctions in the electrical world. I want to talk about really how the West is structured. And my presentation is –
You know I live out West so that’s where my main expertise is focused. However the West is not entirely from the rest of the country. There are a lot of similarities. So what I say about the West will definitely apply to other parts of the country. And then I want to talk about what an organized market [audio cuts out].
To really understand and to have the discussion about energy markets you really have to start with the grid and have kind of a basic understanding of the components of that grid or that production, delivery, and consumption cycle that I referred to a few minutes ago. And so on this slide what you can see is at the top there are really four tiers – if you will – of the grid. The first tier is what we call generation. And if you will the generation is where we’re actually producing the electricity.
And that production can occur at just a myriad of different power plants that use different fuels, that have different characteristics about them. Each of them has different costs associated with them. But in general out West most of the generations were built outside of town in remote sights. A lot of them are coal. And they were built outside hundreds of miles away from the load centers which is where the demand really sits or resides.
And so these generators – whether they’re coal or nuclear, hydroelectricity – whatever they are – are sitting a lot of times at least historically very remote or long distances away from the load center. The second component is the transmission system. And these are the long high voltage transmission lines that were built to take this electricity produced at these remote power plants and to move that electricity from the power plant where it’s being produced to the distribution system and then ultimately onto the loads, or generally the population centers.
And so there you’ve got a transmission system which is made up of these high voltage lines. They’re up on typically these lattice metallic towers. And as you’re driving across the interstate you see these big huge transmissions – these long transmission lines. And those are the high voltage transmission lines that are moving energy over hundreds of miles across the country. Once they get close to the load centers or where the energy is being consumed the voltage is being stepped down at substations.
And then there’s the local distribution company which takes that high voltage energy, steps it down to a more manageable voltage, and then distributes that voltage out through the wires. And these are the wires that you see out in neighborhoods and basically in the city. And they can be varying voltages and whatnot but it’s the local utility company who’s responsible to maintain those wires and then take that electricity and deliver it to ultimately all of these loads which are made up residential customers, commercial customers, maybe industrial loads if you’ve got some fabrication places – whatever it is. And so those are the main components of the electric grid. Next slide please.
When we think about the grid though there are really two views: one, there is a reliability view. And these are what we call the grid operators. What they do is they look at the grid – all components of the grid – and they make sure that from a physical operational perspective there’s a balance – an ongoing balance – between the energy that’s being produced and the energy that’s being consumed. Because it’s very, very important that that balance be maintained. And it’s not just sometimes. They’re looking at this every two to four seconds.
They’re monitoring the system, the flow of electricity, the output generators, and the consumption. And they do that because we have to maintain that constant balance. If things get too far out of balance what will happen is things will start to cascade and you’re going to get outages, rolling outages, and those kinds of things. And that’s what people obviously want to prevent. In order to assure that we avoid those kinds of things as much as possible these reliability operators have mandatory compliance standards that they have to adhere to.
And so these are the rules of the road that say if you’re going to run a transmission system, if you’re going to be looking at loads, and you’re a distribution company, here’s the way you have to operate your system in a reliable fashion to ensure that we don’t have outages and that we can maintain a constant supply of electricity from a reliability perspective. Well to really to understand energy markets – So that’s just from a reliability perspective.
And that’s the way things have always been. Back in the mid- to late-‘90s the Federal government deregulated the electrical energy much like the phone industry was deregulated. And what they did is they actually split out and said, “We need competition.” Because what you had back then, prior to that, was you had a bunch of individual utilities who each had their own distribution systems. And they each had their own generators and pieces of transmissions lines.
But they were all very isolated and everything was fragmented. And each of them was looking out for themselves to say, “I have my load that I have to maintain so I’m going to build generators. I’m going to procure, or produce, or go out and get enough energy to keep my customers happy.” Well the Federal government decided competition is good. And so they deregulated the industry. And if we’ll go to the next slide –
We created this kind of wholesale energy market. This is a view of the West. And what you’re seeing here is what we call balancing areas. So from a reliability perspective what they’ve done to assure that we can maintain reliability is the grid that I kind of reviewed two slides ago has been really divided up into specific areas or geographic areas each of which contain transmission lines, loads, distribution systems, and generators.
And the people – the reliability operators – that operate these during balance – and there are 37 of them out West. Historically each one of these balancing authorities really kind of correlated with a utility or what you and I would know as a utility – with certain exceptions. But generally speaking if we assume that these are all utilities, and most of these are, as I said they would build power plants, they would build transmission lines.
And their focus was how can I maintain enough capacity or ability – you know generation capacity – to serve all of my loads at my peak load period. And that’s what they would do. And so what they would do is they would build enough power plants to serve their loads during the peak time and build enough transmission lines. And then the costs of all of that infrastructure would get rolled into the rates that they charged to everyone who’s connected to their distribution system okay?
So with deregulation what happened is the Federal government says, “You know what? We need to deregulate the power production side of the business. And we need to introduce competition.” And so what happened was after it was deregulated in the mid- to late-‘90s what you saw was there were organized markets that began to form. And in these markets – And the California Independent System Operators or the CISO out here in California was one of the markets that developed in the late-‘90s.
And what they did is not only did they look at it from a reliability perspective but they also said, “All right we’re going to facilitate the providing of all of the energy needs for all of the loads or the demand that sits inside our footprint.” And so they developed a market mechanism to do that. After deregulation what popped up is you began seeing independent power producers. And these would be companies that weren’t utilities, didn’t have specific loads that they were obliged to serve.
But they were simply people saying, “Hey I’m really good at building power plants and I think I can do that effectively and I can sell that energy at a wholesale level and make money.” And so you had intendent power producers popping up, building power plants. And then they would in turn sell that energy to whomever the folks were that needed to actually serve the loads. Okay next slide.
And so what you began to see was the development of these markets. And out West the CAISO was the only really organized market. And there’s the CAISO and then kind of everyone else which are all still very utility-based. What we’re seeing though is that these markets are really expanding. And some of the drivers – So I wanted to talk about really what is a market? And a market is – All it is is anytime a buyer and a seller get together to exchange anything you can create a market.
And so in the energy world the Federal government deregulated the generation side or the production side of the energy as well as the consumption side. And they said okay so you had independent power producers producing electricity and then making that energy available to potential buyers. And the people who are really buying are the utilities who have additional needs or who say, “I can buy that energy from this independent power producer at a lower price than I can produce it myself.”
And so they created these markets with the thought that by introducing competition ultimately prices would come down or at least not go up as fast. Now in these energy markets you deal with multiple time horizons. We deal in real time which is hourly. And so there’s energy that’s being traded or bought and sold on an hourly basis for each hour of the day. There’s energy that’s being bought and sold on a day ahead basis.
And there’s also energy that’s purchased on a forward basis, meaning there are people out there that are buying energy for next summer – for 2017. And there’s a marketing out there. There are people that will say, “I will sell you energy for the summer of 2017.” And there’s a price there. And so there are people that will go out there and do that. And the reason that people trade on a forward basis or on a look ahead basis is so that they can lock in prices and to avoid risk.
Because if I’m a utility or if I have an obligation to delivery energy or I have consumers that need energy what I want to do is assure my price. And so I’m going to go out there and maybe hedge and say I want to lock in a price for next summer. Because what if prices really, really skyrocket? And so you have to methodically go through a process of procuring your energy so that you have some price surety and so that you can avoid risk. And that’s what the markets are there to do. Okay next slide.
So the people that are actually participating in the market – well who are the sellers? Well they may be utilities. These might be some of these utilities who in the past were serving their own loads but who may, during many months of the years, have excess capacity than they actually really need right? They had to build enough generating capacity so that they could cover their summer peak load, especially like here in the Southwest. But during a lot of different months of the year they don’t need all that capacity.
So they have excess capacity on their generators that they can actually turn around and run and sell that energy in the wholesale market. So you’ve got utilities who will go out there and sell excess energy that their consumers don’t need. Municipalities, government agencies, and like I said earlier you have independent power producers who producer energy for the wholesale market. These are all the sellers.
And the buyers can come in many, many different flavors. And really what I’ve said here is anyone who has an obligation to serve load or to deliver energy to someone. Anyone who has an obligation to serve load or has an obligation to deliver energy to someone is a potential buyer. A lot of those are made up of utilities and municipalities. Western Area Power here – there are times when we are out buying energy because there’s not enough water to move through the dams to generate enough electricity.
And we have contractual obligations to deliver our Federal hydropower to our customers. So we end up having to make purchases in the market to supplement or to augment the energy that we’re producing off our damns. So we’re very active in the wholesale markets. Next slide please.
What goes into a deal? As I said a market is just made up of a buyer and a seller. Anyone that wants to buy something and people that want to sell something get together. What they have to agree upon is price – and that’s really expressed in the wholesale market as energy is priced at $ per megawatt hour. Meaning that’s a megawatt of electricity produced for an hour. And that’s how energy is bought and sold. So it’s priced at X number of dollars for X megawatt hours of energy.
There are different products, whether it’s firm or non-firm. Is that energy contingent on something? The volume: how many megawatt hours of energy are you consuming or do you need? The term: am I buying or selling hourly, am I buying or selling daily, monthly, quarterly? And then where? Physically there are various trading hubs. And typically these trading hubs are at physical locations meaning they’re at large switch yards or at power plants that are commonly used.
So those are some of the things that actually go into these deals. If I’m a consumer I have an obligation to deliver energy to somebody. I’m going out at these various hubs and saying, “Okay I need to procure some supplemental energy. I need this much. I’m willing to pay this. And I need to have it delivered to this particular point.” And then I’ll make a purchase and then I’ll make sure I have enough transmission capacity to move that energy from that hub to where my load is. Next slide.
So what goes into setting these prices in this wholesale market? Well generally prices are determined by what people are willing to pay. Well I know that sounds kind of vague and probably doesn’t help you a whole lot but think about it. If I’m a utility I may have a broad fleet of generators available for me to serve my load. I may have some nuclear energy. I may have some coal. I’ve got some natural gas capacity. And then I may have some other units that are quick start, that are really fast units.
But each of those generators – I may have some renewables: some solar, some wind. Each of those generators, as I said on that first slide, have a production cost that’s associated with them. If I’m a utility what they do every day is they look and say what’s the best plan for me to serve my demand for the next day? And they put together a plan to say, “All right what generators do I want to run tomorrow in order so that I can meet my demand? And what’s the best plan to do that?”
Now it’s not simply a matter of price ‘cause there are a lot of other variables that go into the development of that plan. But price certainly is a real driver. If I can buy energy at the wholesale market at a price that’s less than what I can produce it at well then obviously I’m going to want to go out and procure – I want to buy that energy rather than produce it myself. So that’s one of the drivers that go into prices.
If people don’t have a lot of capacity available to them and they actually need more than they have well then they’re certainly going to be a lot more motivated to buy than someone who has a plethora of excess capacity. They’ve got a bunch of extra generators. The price that they’re willing to pay then is whatever their next expensive resource is. Hey I can meet my load with all of these cheapest generators. And if I have to run this next one it’s $2.00 more. So I’d better go out and let me see if I can buy in the market.
And if the market price is next than that $2.00 generator, the next more expensive one, then maybe I’ll buy. Otherwise I’m going to go ahead and provide it myself. And so for them the price of their next most expensive unit to serve that load becomes the price driver for them. So there are a lot of things. Supply as I said is a driver, demand, weather, and the fuel costs. So if I’m burning natural gas the cost of natural gas is a driver. If I’m burning coal, that’s a driver. So there are a lot of different drivers.
And then risks play a big role as well into how people price things out and what they’re willing to do in the market. The longer the horizon the more difficult it is to forecast. So if I’m out in the market wanting to buy energy for next summer there’s going to be a certain amount of premium that I may end up having to pay going out that far because there’s risk involved. There are a lot of things that can happen between now and then that would impact a price. All right, next slide.
I wanted to go through kind of the life cycle of an energy deal. What we do out West is the buyer and the seller communicate their intent to buy and sell. We do that in a number of different ways. We negotiate the terms, the product that we want, the price, the volume, where we want it, and that sort of stuff. Once we agree on a deal we confirm the deal. We put in a schedule as to what we need to have happen. Then the energy actually flows.
And then after the fact we go back and we settle to make sure that hey this is how much energy I intended to flow and I intended to deliver but this is how much actually was delivered based on certain circumstances. And so we settle up after the fact and pay our bills. Next slide.
We’ll go back to this graphic. There is really wholesale versus retail. As I said up on the wholesale side of things it’s really the generators and the high voltage transmission system is where these wholesale energy deals are being made. They’re either at a generating station or switchyard. Or they’re at one of these high voltage switchyards before it actually gets delivered to the utility or distribution company. So these wholesale deals are being made up here on the high voltage system. Next slide.
Now let me just talk about what’s going on out in the West. Historically if you recall I showed that slide that had 37 balancing authorities. And each one of those I said was their own utility by and large. And what they do is they look at the next day, put together a load forecast. They figure out what generators do I have available to me? All right so what’s the plan for serving my load? And then they’ll do is get on the phone or whatever mechanism and they go into the day ahead market and either buy or sell electricity to serve their load.
And that’s what we call a bilateral market. They’re a bunch of independent buyers and sellers. They get together and they’re transacting among themselves. And the price and terms are agreed to by the two parties. Whereas in an organized market – The big difference between an organized market and a bilateral market is under the organized market like the CAISO or ERCOT or MISO or PJM – some of these organized markets the market operator serves all of the loads inside the geographic footprint of the market.
And the market operator also – what they do is they put together the plan. And really everything gets melded together. And then through the market operator they’re able to more efficiently utilize a broader supply of energy or generation resources to serve the loads that are inside the market footprint. So the idea is that rather than each utility just serving their own load, by banding together they’re able to more efficiently dispatch or generate the electricity in a more efficient fashion and in a more cost effective fashion to serve the loads of the entire footprint.
And then what they do is they also do some other things. But that’s what’s really happening right now. What we’re seeing is things really transitioning from a bilateral world or a bilateral market of individual utilities doing their own thing to utilities coming together under more of an organized market structure. All right so what the market does is says, “All right for all of the energy I supplied for this day or for each of these hours here is the price.”
So that all the loads pay for whatever the prices are and the generators – whoever supplies the energy – gets paid and the market just takes the money from the loads – whoever is consuming it. And then they’re paying the generators for that electricity. That’s a very simplistic view. But I wanted to just really kind of do an overview of that so that as you’re considering whether or not to be a tribal utility authority, whether or not you want to do a renewable project, whether you have a renewable developer wanting to come and potentially build a commercial scale plant on your land and maybe export it.
Whatever the circumstance may be by understanding the process here of what goes into generating and delivering the energy you get an idea of what the costs are – where the costs are. Somebody has to produce it and there’s a cost to the electricity. There’s a cost to moving that electricity across the transmission lines. So you have to have transmission capacity that you reserved. And there’s a cost to moving it. And then there are also costs at the end because somebody has to measure it.
The metering; there’s costs to distributing it. And then there are costs to billing and all of those things that have to occur by the distribution company in order for you as a consumer to really consume the electricity. So with that in mind though hopefully this gives you a broad overview of the processes that go into that. And I’m certainly available. Again I apologize – It’s a very high level but any of you have – I’m available. I’ll stick around for questions. And if any of you want to contact me directly and have questions that you’d like answered I would be more than happy to answer your questions directly. Thank you very much for your time.
Randy Manion: Thank you Al. Excellent overview. Todd, just give me a moment to get your deck pulled up.
Todd Hegwer: All right. My name is Tod Hegwer. I’m the co-CEO of Public Power Energy Services. Public Power Energy Services was a company that is a partnership between Timber Canyon Energy Consulting and Hutch Energy. I actually partnered with a utility manager from Hutchinson Municipal Utilities in Hutcheson, Minnesota. We basically focus on trying to serve municipals and coops and usually public power entities throughout the United States.
I was going to give you a little overview. I have 27 years of experience working with Xcel Energy as the director of wholesale markets. The wholesale markets are the companies and municipals and coops within the Xcel footprint. And then a lot of the origination or sales contracts outside of the footprint especially all the areas that Al just showed you in the Western United States. So I’ve got experience in working in all of those things. And we actually focus on a lot of the energy contract restructuring of gas and electric contracts.
We help wind providers find offtake agreements, solar as well and then bioenergy where we specially work with a bioenergy company that takes organic waste and waste water and converts it into natural gas and into solids. And we also work on conventional generation which are gas turbines and engines and actually held by the pipeline. Next slide.
So what I want to talk about a little bit is there are a lot of energy opportunities out there both in saving money and making money. And again a lot of the utilities that we’ve found throughout the United States is you can restructure your current supply agreements. The market has changed considerably over the years. And as Al was talking about a little bit before there are all these organized markets out there that have very active and fluid electric commodity markets that can actually deliver very low priced power to anywhere on that organized grid.
You could also add renewable energies to your utility. We found that solar and wind are very economical to start adding. Solar has come down in price now. Wind has been there for quite a while. Wind is actually we believe pretty much at the bottom of its cost cycle. You can buy wind in the $20.00 to $30.00 a megawatt hour price range depending on where it’s located. Solar is a little bit higher but solar has a little bit more capacity value that actually lowers your cost.
You can also build your own generation. We actually look at building generation for companies to save them money. Typically we restructure a utility contract. And you can actually – There are other companies out there besides us that do this. But we actually try to restructure their contracts, then look at options – kind of break the contracts into energy and capacity and ancillary services so you can buy these different components.
And if you can build a generator there’s a possibility that you can use the capacity for yourselves and then sell an option or the energy to another party – another customer. It makes the cost of that generation much more efficient to build and own. We also ran across – We’re working with a small hydro facility. And they actually have gotten a ruling from FERC. In the past out here in the West there’s a coop – A small hydro facility wanted to sell power to the coop.
And what they do is you can sell under a qualified facility. And all renewable projects count as a qualified facility. But there was also co-generation, using generation and excess steam off a generator can run and be used to heat a facility. Those facilities also count as qualified facilities. What FERC had ruled is typically a lot of these generation and transmission companies have put in limits on what their member cooperatives could actually buy and FERC basically overruled that. You can actually sell excess generation to these member coops out there which have a higher avoided cost.
And that’s the cost that’s being supplied by the GNT or your wholesale provider of power. What I basically work in is the wholesale arena. And there is also the retail arena as well as Al had previously discussed. So you can also make money. And one way to make money is to form your own utility. You can also save money by forming a utility to access the wholesale markets.
Typically I think if you’re a retail customer utility company now you can potentially form your own utility, have access to the wholesale markets and buy power out of the wholesale markets and serve your own load. And then that actually gives you access to again building your own generation. You can actually build generation to supply some of your needs and sell the excess off into the markets. You can develop your own renewable generation.
A lot of you have land that’s available on good wind resources or even solar resources. So you can actually go ahead and develop those specific renewable projects for your own land and sell those into the market. You just need to find an offtaker to take it and structure the agreements. A lot of you actually have natural gas resources and oil that you can develop and take those out and move them. We have customers in the Midwest that are looking to buy long term contracts of natural gas.
And somehow you can actually structure those agreements to help finance your projects if you have a long term offtake. You don’t have to worry about the prices in the market changing, as volatile as the oil and gas markets have been. And then there is also building pipelines. If you develop your natural gas resources then you need a pipeline to get your gas to the market. Or you build a pipeline and form your own gas resources to your own generation. Next slide please.
This is more of the organized markets, these Independent Systems Operators across the United States. And like I said these are more of an active commodities market within those footprints of each of those ISOs. Typically we work in the MISO and SPP markets a lot of times. Another very good market is the PJM and the New England ISO, ERCOT. In Texas is a very liquid market. They’re all relatively the same but they do have some differences.
ERCOT doesn’t have a capacity market so everything is energy related. There is no capacity component in that market. Of course the CAISO. Other regions out West are starting to tie into the California ISO such as PacifiCorp. They want to be – They’re starting to move to kind of be an associate member of that market so they can develop some of their wind resources. These markets are very efficient for moving wind and renewable energy. And they also are very efficient for pricing long term electric pricing. And we’ll get into that on the next few slides here.
So under the energy pricing right now what we found is the cost of service prices are increasing. And these typical investor owned utilities and even public power utilities, if they own generation now they’ve got to add a lot of renewable or environmental controls onto their generation equipment. Well these environmental upgrades actually cost fixed capital dollars. So that’s make the cost of their service higher. But they are still generating the same price of energy into the market.
So if you’re a customer on those systems and leave based on your contracts you can access a lower priced commodities market which is what we found. The market price power is flat or falling. And a lot of it is based on the natural gas prices too. The natural gas prices have steadily dropped over the last few years. And they’re pretty flat going out into the future. So what we’ve found is you can go out – And we’ve actually structured deals.
For example you can go out to 2025 and get a flat price of power to serve all your load. And typically it’ll be in that 10 to 30 percent reduction of what you’re currently buying. Go to the next slide please. So what we’ve found – and these are just three states that we’ve worked in. In Wisconsin we had 10 municipals and they’ve saved over $80 million over approximately 10 years from their previous supplier. Then there are also 3 coops in Wisconsin that have saved over $60 million.
Now these are in higher priced areas of the country. When we get into Nebraska we’ve actually worked on a power district and one of them left. And they’re saving about $12 million over a 10 year period. And then there are 3 municipals that were projected to save about $20 million over a 10 year period. And in Nebraska it’s all a public power state. They have some of the cheapest power in the nation and there are still potential savings out there. We also started working on some other customers in Minnesota.
In Minnesota again one of them had saved about $12 million and then there are 14 others that have saved approximately another $12 million for the whole aggregate. And what we like to do is try to get a group and aggregate those customers ‘cause as an aggregate customers can actually save money as a group and don’t have to spend so much money to go out and put their transactions together. Next slide please.
This is what you get. You can actually go out and take your load shape. These companies will go out and hedge several years – typically it was 5 years out in the future. But now we’ve found that they can go out farther than 5. They’ve actually gone out 9 years in the future now. It’s different in each region. But what this does is your load shape changes every day. But you can actually get it hedged at a fixed price over up to 9 years now an actually at a price 10 to 30 percent lower than what you’re currently buying at.
In the past that was very difficult to do ‘cause you always had to have generation. But these organized markets out there actually help provide the ability to provide a long term fixed price hedge on your energy and end capacity over that period. What you no longer have are fuel cost adjustments. So you have a very steady price of power for a period of time. It acts as a very good hedge. It doesn’t matter what the price of gas is now after you’ve locked in. You’ve actually hedged it for a longer period of time. Next slide.
So in making money again you can develop your own energy opportunities and with conventional generation what you have is you can sell the capacity component. And what we look at is for smaller utilities we look at smaller engines. These smaller engines have typically like a nine megawatt engine. You may not need all that capacity. And so you can sell the excess into the market because there are other buyers in the market for that.
The energy – you may want that energy or you can go out to the market and lock in a longer term price hedge which we’re kind of recommending utilities do at this time since the energy is pretty cheap. If you want to sell your energy then there are options to sell it. It’s called a tolling _____ where you can have another party. What they’re called is power marketers out there that will pay you to run – They’ll deliver gas to you through your engine and you provide them the electricity back.
The good thing about it is all this can be managed by another party. So you don’t really have to know a whole lot. You just have to be able to have the asset to be able to get the transaction to move forward. And then there are ancillary services. When you have a wind generator in the market if the wind is blowing you know that kind of pushes all the other generation down. And when the wind stops blowing you’ve got to have generation to come back up and start to fill in that void where the wind generation was what was provided into the market
So there are different ancillary services. There are spending reserves. That is just actually carrying excess on your generator. There are regulation up and regulation down. And there is voltage control. You can actually sell bars which is kind of getting out of our range here but what I’m just trying to get across here is there are other services that you can sell off of your generator if you actually would develop one. Wind and solar – again you have a lot of excess land if you have that available.
And you can go ahead and develop these wind and solar projects. They can be very efficient located in the right places. As for solar projects as you go to the Southwest solar becomes a more viable product. Wind is more in the central mid-continent of the United States is some of the best wind in the United States. There are maps that NREL also provides to locate those things. Again you can develop your oil and gas resources.
Right now is maybe when you want to start developing them, when everybody else’s prices are low because eventually they stop drilling out there in the fields. So as you start developing your oil and gas resources then by the time you get those things moving hopefully the prices are back up to a point where you can make a good profit on the sale of either oil or gas. And you know again you can sell all these excesses into the markets. It doesn’t matter. Any of these energy products will always have a buyer for them. So that’s why you should at least have a plan to hopefully develop those things in the future. Next slide.
Some of the things that you need to develop a project, and like I said I always think the key one is you have to have an offtake agreement. That’s one of the requirements. If you want to develop a wind project – a 100 megawatt wind project, and you might want to use some of it yourself but then you want to sell the excess off you need somebody to agree to take that. That’s one of the key items to getting financing. Another credit quality: everybody wants a counterparty. Typically you want a good credit quality counterparty in the transaction.
They want to make sure that if you develop a wind project that you’re going to be there for the long run, that you can make sure if the turbine falls down or something that you can get it through insurance to put it back up. Or you have the financial means to put it back up and meet your contract requirements. Financing is another key. Typically the financing groups, like a bank or such, will want to come in and they’ll want to make sure that you have the offtake agreements, the credit quality of the offtaker. They’ll look at that as well.
There are ways to improve the credit quality. There are ways to structure agreements so that if you or your counterparty doesn’t have good credit we can actually put somebody in between to ensure that they are financeable over the long term. Interconnections – typically you have to go out and if you’re putting in a wind or solar project you’re going to need to make an interconnection request. All the grids basically and all the utilities are going to require that you make that requests. That’s just one of the requirements of getting the project developed.
Again you need the natural resources as well. You don’t want to put a wind project in a place where there’s no wind. They are putting solar projects in places that don’t have a lot of solar but some people just want to have solar projects in Minnesota such that they get developed. And land – land is a good resource. And if you have land and a good interconnection then you’re on your way to potentially developing a nice project. Next slide.
And so in summary you know you can always reduce your costs. And potentially these new markets right now are really an excellent place to restructure your own power supply agreements, and forming a Tribal Utility to access these markets, especially if you’re a retail customer off of a new utility. Looking at forming a Tribal Utility really would give you access to the wholesale markets and the price in the wholesale market can be extremely inexpensive compared to the retail market that you’re currently buying.
Again you can create additional revenues by building generation. And that’s wind, solar, or even conventional generation. Also you can develop your natural resources. And potentially you can actually sell the right-of-ways to access across reservations and such. I think that’s it. And if you need any contact information you can contact me, Todd Hegwer, or my partner, Mike Kumm.
Randy Manion: Thank you Todd, excellent presentation. Wenona and Robert, give me a moment to pull your slide deck up.
Wenona: All right. Great, thank you Randy. And thank you again for inviting us to participate. Good afternoon everyone. My name is Wenona Benally Baldenegro. I’m the executive director for the Navajo-Hopi Land Commission Office which is an office within the Navajo Nation. And I was appointed to my position in June of 2015 by our new Navajo Nation President, Russell Begaye. Also presenting with me is Robert Kennedy who is our energy consultant from Tetra Tech.
Robert Kennedy: Next slide.
Wenona: Next slide. The proposed project, the Paragon-Bisti Land Project, we’re proposing to build it on lands that are located in Northwestern New Mexico. And these lands were actually set aside for the Navajo Nation under what is known as the Navajo-Hopi Land Settlement Act. Congress passed the Navajo-Hopi Land Settlement Act in 1974 to bring finality to the land dispute between the Navajo Nation and Hopi Tribes. And part of the land settlement agreement lands in New Mexico were selected and set aside for the benefit of Relocatees
Actually I skipped a slide, sorry. Our office has been working on the Paragon-Bisti grant for several years now. We received our Federal grant award in 20087. And since that time we’ve received two additional Federal grant awards, one from BIA and the other from DOE to conduct Phase One and Phase Two of the project. Sorry about that. I had jumped to that slide but we can go to the next slide.
This particular map demonstrates the project site is located on the eastern side of the Navajo Reservation. And our project site is the dark green block of land that is circled in red on the map. And for those of you who are familiar with New Mexico the project site is located east of Highway 371 which is between Farmington and Crownpoint, New Mexico. Next slide.
The project itself is a mix of land conveyance from the Bureau of Land Management to the Navajo Nation. And these lands are held in trust. And as you can see from the map on the slide Paragon Ranch is a mix of Tribal trust land, Tribal sea land, lease land, and Indian allotted land. And despite the _____ tracts of land that cover Paragon Ranch our project has been able to identify tracts of Tribal trust lands that are feasible for development. I will now turn the time over to Robert Kennedy to talk about the technical aspects of the projects.
Robert Kennedy: Quite literally passing the paper from one to another. And so next slide please. So here are those same four sites with the checkerboard layer removed. So you can see just the land and the outline of the sites. There are four green ones and a red one – Site 1 – which is the one where we want to begin. Next slide please.
So in the DOE-funded feasibility study we screened lands and we screened all the various renewable energy generating technologies that could be applied. And after screening we picked one RE resource to exploit. We came with a up with a conceptual design. We did a transmission and interconnection analysis which I won’t talk about today due to time constraints.
We also built an investment grade pro forma to analyze the cash flows. I’ll talk about that a little. A business plan for implementation and environment study – those are ghosted. We won’t talk about them. We will discuss the socioeconomic benefits a little and we’ll talk about what we’re doing now, and next steps. Next slide please.
So in the renewable resources we’ve ruled geothermal. It is hot very deep down but it’s dry. It’s hot, dry rocks, so you have to bring your own water. There is a hydrothermal resource shallower and closer to the surface but it’s warm, not hot, and it’s not really utility scale. We also ruled out wind power because although it appears to blow all the time when you’re standing out there at Paragon, according to NREL it’s really not commercial scale quality or constancy.
So we settled on solar. Also biopower because it is a desert so biopower was ruled out very early on. So we settled on solar. And of the solar technologies we settled on flat plate photovoltaic at a summertime bias. We rules out concentrating or tracking PV systems and we ruled out solar thermal systems because the marginal costs of those systems do not justify the marginal revenue that those slightly different types of power plants would generate. Next slide please.
So this is a quick view of the wind resource and those light salmon patches are the only commercial quality. And they’re really not even commercial quality. NREL classes them as weak and poor. They’re far off the roads so you would have to build a road to get up to them. It’s just not economic. Next slide.
This is a picture of the geothermal resource. And what you’re seeing is on the large area that’s more or less the same shade of yellow. So it’s good and hot but it’s very deep. And because it’s a uniform shade of yellow what that’s telling you is it’s not concentrated in any one place or another. So there’s no reason to put a geothermal power plant in any specific spot in our study area. It could just as well go somewhere else. So it was ruled out in our study area for that reason. Next slide.
Now here’s the solar resource of the United States. And if you look at New Mexico you see that little black rectangle in the upper left corner of New Mexico that’s our study area. And it’s not the richest resource in the United States, but it’s pretty good. It’s certainly good enough to make some money one. Next slide please.
In the course of doing the land screening we developed a huge GIS database, almost one gigabyte of data, with numerous layers: land slope, flood plain, insulation, and surface roughness, load bearing capacity, ownership, critical habitat, and all kind of parameters. Here in the computer model that we built of the site we’re flying over it like Superman over the Badlands. And you can see colored in red are places where the slope exceed three percent which steeper than that it’s too steep to put panels on.
So those are excluded. And then to the north of the Badlands you see a pretty flat area of green and that’s our ideal site number one would be. We also developed these tools because we can make CGI movies by flying through this data visualization tool. This is actually a very effective technique for communicating with the public and with stakeholders. There’s the old saying, “A picture is worth 1,000 words.” Well then a movie is worth one million. Next slide please.
So here, continuing in flyover mode we’re zooming in on Site 1. And this is where we think the project – if it begins anywhere – should begin, because this site has got the trifecta. It’s got oodles of sunny, flat land that’s under the Navajo Nation’s control. There’s a good road running just to the west of it. That’s the red dotted line you see. That’s Highway 371. You want a good road so you can get construction equipment in and out. Most importantly the wires and a big substation are already there in place.
And even more important they have spare capacity on the wires – lots of it – 150 Mega Volt Amperes which is a transmission person’s way of saying megawatts. So because the land is flat and loadbearing and under the Tribe’s control, and the wires are already there, and the road is already there, the costs you would normally incur developing a green energy site out in the middle of nowhere you don’t have. This is the obvious place to begin. In case you’re wondering that blue dotted line going through on a diagonal is a cluster of natural gas pipelines.
And the pipelines have a compressor station. And that’s why the substation and the powerline were put in there in the first place was to run those pipelines. But the substation is way bigger than it needs to be and so are the powerlines. So we’re going to take advantage of that spare capacity. Next slide please.
Here’s a bird’s eye view of the same Site 1 subdivided into the individual power blocks that are either 1.4 or 2.8 megawatts each. Site 1 totals about 1,300 acres upon which can sit almost 300 megawatts of capacity. And this capacity can be built on a pay as you go basis. So we’ve tiled them in like Lego. You could build a few and get some revenue and then build more. And now we’re zooming in on the individual power blocks. Next slide please.
And so you see them either in 1.4 or 2.8 megawatts in size in either landscape or portrait orientation. And this is how you fill up land efficiently with the power blocks. Next slide please. Now a word about summer bias. Everybody assumes with normal photovoltaics that you just tilt the panel at latitude which is shown on the left-hand side. But if you tilt the panels a little flatter so they’re flatter to the sky and pointing up you can pack the panels a lot closer to together because they don’t shade each other.
By packing them close together you fit more panels on the same amount of land. And that’s something you really want to do for environmental purposes, but also cost purposes. There are costs at scale according to how much land you’re using. So you want to use as little land as possible but build the biggest plant possible.
So recapping – next slide please – here is the overall picture of the site. And if all five of these were developed at once that’s 10,000 acres of colored land you’re looking at which could hold over 2 gigawatts of power which is an enormous amount of power. It’s equal to the entire of State of New Mexico, almost. And if it were built all at once it would be the largest solar project on Earth. Next slide please.
Same summary but in tabular format. And you see at the top in the salmon color that’s the one where we want to begin because just by itself it’s a nice big project. It’s got good roads, in-grid access. So it’s’ ready to go there. The others – the green ones – would require extending the grid to them. But if you did that over the next couple of decades ultimately you would have just under 2,100 megawatts of peak load capacity. Next slide please.
This is a master timeline of the entire Paragon project wherein the revenue from one phase pays in a holistic, organic way, to build the next phase by the phenomenon of securitization. So we imagine that even after Site 1 is built out that it would take decades to build out the following sites. And given how long panels are lasting in actual service this site would be producing electricity well past mid-century, possibly approaching the end of the century. It’s a very long term, big project.
Okay we built an investment grade pro forma – next slide please. This is a very busy slide. I won’t expect you to remember all these numbers but just look at what’s circled in green. This shows with reasonable assumptions, given a Power Purchase Agreement of say $75.00 a megawatt hour for a profit making, taxable entity, that the after tax internal rate of return for the owners is between 6 and 8 percent which is a decent IRR for a utility, for a long term investment.
That’s assuming a PPA of $75.00 per megawatt hour, a debt to equity ratio of 5 or better, competitive access to capital, and the investment tax credit. Depending on how much debt you’re carrying the cost of production is between $.01 and $.06 per kilowatt hour. Now if the project goes municipal or terra or a quasi-municipality then that knocks off some money off what you can afford to settle for on the PPA.
Or if the project gets access to those ultra-low interest state revolving funds for green energy that also knocks off some money off the PPA. So you could settle for something say in the $60.00 range which is what people are talking about today. Next slide please.
So the socioeconomic benefits are even though panels are imported the labor to set them up obviously cannot be offshore. So most of the labor is local. Solar plants are increasingly dominated by the labor component. And these would be long term after the construction is over – just the O&M. These would be long term jobs going 25 years at least because that’s what a panel is guaranteed for. So we expect 15 to 30 full-time equivalents per 100 megawatt block, or in total between 8,000 and 16,000 man-years of employment.
Over $500 million total payroll in today’s dollars. This cash flow, this revenue, is much superior to the traditional ways of using the land in the West for grazing or low productivity agriculture. It can return 10 to 100 times as much per square mile. And it does that every year. That’s compared to mining where once you mine the land that’s a one-time benefit and then it’s done. The minerals run out and you have a landscape that looks like the moon. So green energy is a lot better and a more productive way to use the land.
I’m turning this back over to Wenona. Next slide.
Wenona: Well since the completion of the feasibility by Tetra Tech the Navajo Nation has taken on a much more active role in moving this project forward. Just two weeks ago for example the Navajo Nation Council voted to reestablish the Navajo Nation Energy Taskforce. The first responsibilities of the taskforce will be to create a Navajo Nation Office of Energy. And as we speak we are participating in a work session with the Bureau of Reclamation and key stakeholders to develop a Clean Energy Strategic Implementation Plan for the Navajo Nation.
And with that that actually brings to the current stage in our project. As far as the project itself goes we are in the process of securing site control of Site 1 through the Navajo Nation Land Withdrawal process. And of course after we secure Site 1 we’ll then move to obtaining a business site lease for the project and then an environmental review will be conducted. Next slide.
Robert Kennedy: I think this is me. So after these current action items are done Tetra Tech is supporting our client Wenona to draft and issue RFIs or a Sources Sought working with industries: what industry is available and what they’re willing to do. Following that we’ll draft and issue a Request for Qualifications. And then having a good idea of what industry is willing to do we can then put an RFP on the street that will have a good chance of being actually responded to. Then the last step in Phase Three is to review those bids and proposals and select the best value developer.
Wenona: Next slide. Well that concludes our presentation. Thank you again for inviting us to participate. I think we can be here for a couple more minutes before our meeting starts again. And so we’ll be happy to take any questions if there are any. Thank you.
Randy Manion: Thank you Wenona and Robert. And also thank you Doug, Phillip, Al, and Todd – excellent presentations. There are some questions coming in. Let’s see if anyone has their hand raised. Let’s do it the opposite of how we usually do it because I don’t think we’ll have time to answer all the written questions. Well there are no hands raised. So let’s go to the written questions. Who paid Tetra Tech to assist your Tribe Wenona?
Robert Kennedy: Credit for that goes to what used to be called the Tribal Energy Program TEP out of Golden, Colorado. They sit next NREL and they’ve now been combined into the Office of Indian Energy. And Lizana Pierce whom I’m sure you all know, was the program manager for that.
Randy Manion: Okay great. Thank you so much. Let’s see what other questions there are. Just give me a moment to scroll down through. Al are you still there?
Al Austin: Yes I am.
Randy Manion: All right what is Western doing to help move energy generation by Tribes to the market?
Al Austin: Well what Western is doing is any of our Federal hydro customers that were Tribes we’re providing, as Randy as our renewable program manager. If they are preference customers or our Tribes are looking to access our transmission system we’re providing assistance there. And I know that we also are doing a lot in the education area. And we’re also looking for, as people have – or Tribes have particular project that they’re interested in considering – I know that we’ve got some expertise in the analysis field to kind of do some load and resource analyses.
And we’re actually providing some of those services. We’ve started doing that here this last year. So all of that is being coordinated through Randy and we’ve got a good partnership with DOE. So we’re here to educate. We’re here to provide expertise as those requests come in. And then we’re also looking at opportunities whereby Tribes potentially can maybe partner with other Federal agencies or other consumers – you know Federal installations, and those kinds of things.
So we’re out there in the market. We keep our eyes open and we’re here as a resource as folks are interested.
Randy Manion: Okay great, thanks Al. Let’s go to a few other written questions. This is a general question for everyone. Are there any studies being done to connect energy efficient housing with PV and battery renewables and microgrids that would provide ancillary services to the existing grid? Does anyone have a response for that? I do know that NREL is looking at something that’s called synthetic spinning inertia which looks at using technology – advanced technology to provide certain ancillary services.
Our next webinar is also on the grid and it will discuss interconnection and also get into some of the grid issue in a little bit more detail. Let’s see what other questions there are. Just bear with me. Okay Al this is a question for you. Can one balancing area sell to a different balancing area? And the second part of that is do the two balancing areas have to be next to each other?
Al Austin: That’s a real good question. The answer to the first question is yes. Balancing authorities buy and sell between each other today all the time out West. These are balancing authorities that obviously are outside of any organized market. So yes that does occur. One of the constraints though between that is as I said if you generator or the location where you’re producing the electricity is far away or is not immediately next to it.
If the two balancing authorities are not immediately next to each other one of the two balancing authorities can go out and you can actually buy transmission capacity on some other balancing authority’s transmission system if it’s available. And they procure or secure transfer capacity to move the energy from the two non-contiguous balancing authorities. So that happens all the time and the transmission system is one of the areas of the delivery process that is heavily regulated.
FERC has a real hand in that. And the idea is that they want to make sure that everyone has equal and fair access to this transmission capacity as it’s a finite resource. But yes balancing authorities sell to each other and yes they do move it around between non-contiguous balancing authorities.
Randy Manion: Okay thanks Al. Wenona are you still there?
Wenona: Yes I’m still here.
Randy Manion: Okay a question for you: what is Council favoring in financing structures and sources for buildout of the solar infrastructure?
Robert Kennedy: Well that depends. So we’re not to that decision yet because the decision between own versus lease hasn’t been made yet. That’s a fundamental decision that has to happen at the Council’s level. The advantage of leasing is you limit your operational responsibilities and you get to learn by doing. The advantage to owning is of course you own all the revenue. But then again you own all the risk and the complications. So the Navajo Nation has not made that decision yet. That is one of the reasons they’ve established this taskforce.
Randy Manion: Great. And so just for clarification leasing the land a developer would come in and be responsible for finding the PPA and taking care of all the infrastructure.
Robert Kennedy: That’s correct.
Randy Manion: Okay excellent, thank you. Let’s just see what other questions we have. Bear with me here. Question for Todd: in reference to the independent system operator Todd you mentioned that there are some markets that do not have capacity markets developed. What does that mean exactly? And you may be muted Todd. Todd are you there? Okay let’s go to the next question. Or Al do you want to take a shot at that?
Al Austin: I’m sorry, my attention was somewhere else for the last few seconds.
Randy Manion: No problem.
Al Austin: Can you repeat the question?
Randy Manion: Sure question for Todd regarding that there are some markets that do not have capacity markets developed yet. What does that mean?
Al Austin: Okay yeah one of the big concerns is there are really two components. There is the energy piece which is just the consumption of the electricity. But if I’m a load serving entity there is also capacity. As I said each of the balancing authorities or the utilities historically, or even the market operators who have the reliable – the obligation to serve all of that demand – They have to assure that there’s enough capacity available to meet all of their loads.
Meaning they don’t necessarily have to use the energy that’s produced off of the resources that are in their footprint, but they just have to have enough capacity or the ability to produce it at any point in time so that they can assure the reliability of the grid. So what the markets do is they have actually created capacity markets so that – ‘Cause if I’m a merchant or a producer I may be able to buy and sell energy only. But I may not have any capacity associated with that.
Meaning I may not have the capacity built in the ground that I have a right to. I’m just buying the energy from somebody else. Well as a load serving entity these markets and BAs need to make sure that they have enough capacity to serve their load. And so the markets have said, “You know that’s a requirement. So we’re going to set up a mechanism whereby entities within the market can procure that capacity so that they can meet their capacity requirements.”
Randy Manion: Thank you Al. And Wenona and Robert another question for you: if a developer leases the land does the Nation get any cost savings for the power?
Robert Kennedy: Good question. It depends on the size of the initial project. There is some room for local consumption. But this might surprise you. The Navajo Nation is already very green. I’m getting to the answer. They have a surprising amount of their capacity from hydropower. So they’re already very green. It would be superior financially to just sell the energy into the open market but especially if there’s an incentive for the green energy rather than using it yourself. And the analogy I’ll make is with the energy subsidies in the Middle Ease.
They provide cheap electricity to their populations. But that energy is provided by diesel-fired generators. In years past they could’ve been selling that oil at $100.00 to $150.00 a barrel. And instead they were making cheap electricity at pennies per kilowatt hour and giving it away. So if you can it’s better to just export to the market.
Randy Manion: Okay, great thank you. Todd and Al another question for you both: can a municipality become a wholesaler and sell to residents? Where do they fit into the diagram?
Al Austin: Well can a municipality become a wholesaler and then sell to residents –
Randy Manion: Resident.
Al Austin: the residential side?
Randy Manion: Yes.
Al Austin: Well yeah they can ‘cause a lot of the utilities right today. What they did is they actually separated them and said all right if you separated the merchant side of the business – the marketing side – from the reliability side and the transmission side. And so a lot of your utilities right now are in the wholesale energy market. And like I said in my earlier example – So I may be a municipality and I may decide you know what? I’ve got access to some generators but I may be able to buy cheaper than I’m going to produce it myself.
So yes in that regard they have the ability to go out and procure energy at the wholesale level and take delivery of that energy to satisfy their obligation to serve their retail customers.
Randy Manion: And I think this question Al is for a municipality that does not have electricity responsibility at this time too.
Al Austin: Okay if they currently don’t have it then I think what needs to occur in that case then is the municipality then would go to – If they’re representing their retail customers then I would think they would then focus on who their current energy provider is. You know? And then look for options there to secure kind of a wholesale supply with their supplier. So that would be something that they would want to go and have a discussion with if their retail loads are sitting inside of a coop or a larger balancing authority or utility.
Then as a load it’s an opportunity for them to maybe go and talk to whoever it is that’s providing them their energy services right now and explore the possibility of procuring at the wholesale level.
Randy Manion: And some states now have community aggregation laws right, such as California.
Al Austin: Correct.
Randy Manion: They allow cities or counties to actually aggregate their load and the local serving utility is then required to work with that entity on the energy delivery piece. Is there anything you want to say on that?
Al Austin: Yeah I mean that’s a good point. California, before they laid in their market you had some legacy customers who were large load that sat inside the three large utilities: Pacific Gas & Electric, Southern Cal Edison, and Sand Diego Gas & Electric, all of which combined there in the late ‘90s and were the basis for the forming of the California market. So you had these loads that were kind of legacy loads. And they had these unique legacy arrangements with their host utility that preceded the market.
So going into the market basically what the CAISO did was said, “All right we’re going to treat you guys a little bit differently and we’ll treat you like a wholesale customer.” But they’ve put a cap on that so they haven’t really opened the door for quite some time to let more of those customers really have a presence in the wholesale market. So as you said Randy there is quite a movement out there for loads or groups of customers to aggregate and then do their procuring either themselves or by a third party.
And so really what they’re doing is saying, “We think we can do this better or at least we want to have a choice in our energy supply piece of our bill.” I would also note that in the ERCOT area in Texas they have what they call retail choice. And so you as an individual residential customer can actually pick your energy supplier. And so there are parts of the country where you actually do get choice. You can on the energy piece of your bill say who do I want to create the megawatts? And who do I want to buy them from?
Randy Manion: Okay great. Thanks Al. And Robert are you still on? Robert and Wenona? Todd was that you? I thought somebody was chiming in. The next question: UPV and DPV – please define. I was going to defer that question to Robert. That’s Utility Photovoltaic and Distributed Photovoltaic. And basically the easiest way to define that would be Utility Photovoltaic would be a large project, say 50 megawatts or larger that’s interconnecting into a sub-transmission or transmission system. And the power is being _____ on a wholesale basis to a buyer.
And then Distributed Photovoltaic would be solar at a smaller scale, say 20 megawatts or less that’s interconnecting into a distribution system at a distribution voltage of say 69 KV or less. And it’s usually serving a single large load or a community solar project that can still connect into a distribution system.
Just bear with me. I know we’re over by quite a bit. Let me see if there are any other last questions here and let’s see if there are any hands raised. And then if there are not I think we’ll adjourn the webinar. No hands are raised so with that I want to say thank you again to all of our speakers. And I do want to put our next webinar up on the screen. It’s March 30, Transmission and Grid Basics for Tribal Economic and Energy Development.
And with that I hope everyone has a great day and we’ll talk to you all next month. Thank you.
[End of Audio]