Copyright © 2013 The Brattle Group, Inc.

ISO-NE Offer Review Trigger Prices 2013 StudyFinal Results

NEPOOL Markets Committee

Sam Newell

September 10, 2013

PRESENTED TO

PRESENTED BY

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  Summary of ORTP Recommendations

  Revised Onshore Wind ORTP Calculations

  Revised Solar ORTP Calculations

  Indices for Future Annual Updates

  Next Steps

Agenda

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Final Recommended ORTP Values

Summary of ORTPs (2018$)

Notes: 1.Overnight costs, fixed O&M, Gross CONE and revenue offsets are calculated based on installed capacities; Net CONE and ORTP values are calculated based on qualified capacities.2.DR categories evaluated at the asset level. Actual resources would be aggregations of at least 100 kW.3.Some values, esp. Onshore Wind, may appear high compared to current costs. These values are in 2018$ and include all cost components (e.g. Onshore Wind is $2,676/kW in 2013$ of which $349/kW is due to interconnection.) 4.FOM includes site leasing costs.5.Revenue Offsets values have been updated from draft results based on current electricity, gas and REC futures.6.Solar revenues are based on MA Class I REC price and not SREC price since SRECs are not available region-wide.7.Net CONE based on Qualified Capacity not applicable if Net CONE Installed is negative and Qualified Capacity is less than Installed Capacity.8.The auction starting price for FCA9 will be determined prior to the auction.

Reference Total Plant Installed Qualified Overnight After-Tax Fixed Gross Revenue Net Net 2018/19 2018/2019Technology Capital Cost Capacity2 Capacity Cost3 WACC O&M4 CONE Offsets5 CONE CONE Final ORTP Draft ORTP

($m) (MW) (MW) ($/kW) (%) ($/kW-mo) ($/kW-mo) ($/kW-mo) ($/kW-mo) ($/kW-mo) ($/kW-mo) ($/kW-mo)

denominator 1 Installed Installed Installed Installed Installed Qualified Qualified Qualified

Combustion Turbine $318 192 192 $1,583 7.2% $2.65 $16.13 $2.71 $13.42 $13.42 $13.42 $13.26

Combined Cycle $878 730 730 $1,108 7.2% $2.33 $12.61 $3.75 $8.87 $8.87 $8.87 $8.75

Onshore Wind $196 60 15 $3,063 7.2% $6.62 $23.89 $27.53 -$3.64 n.a.7 $0.00 $9.87

Solar PV6 $16 6.0 0.9 $2,593 7.2% $4.47 $16.77 $11.27 $5.50 $36.69 Starting Price8 ---

Energy Efficiency n.a. 1.0 1.0 $2,571 7.2% $0.00 $24.39 $25.37 -$0.97 -$0.97 $0.00 $0.00

Large DR n.a. 0.5 0.5 n.a. 7.2% n.a. $1.15 $0.00 $1.15 $1.15 $1.15 $1.15

Mass Market DR n.a. 0.001 0.001 n.a. 7.2% n.a. $7.09 $0.00 $7.09 $7.09 $7.09 $7.09

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  Stakeholders made the following comments:

▀ “Depreciation Schedule should be 5 Year MACRS”

▀ “Qualified Capacity is too low”

▀ “Interconnection costs are too high”

▀ “Capacity Factor is too low due to historically low wind resources and advances in wind turbine technology”

▀ “REC price is too low”

Summary of Feedback on Wind ORTP

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  Qualified Capacity increased based on Seasonal Claimed Capacity values and market rules for intermittent resources

  Overnight capital costs reduced due to lower interconnection cost per mile along existing ROW, based on recent Maine 115 kV projects

  Capacity factor increased due to efficiency of current turbine models being installed

  Depreciation Schedule changed to 5 Year MACRS reflecting current IRS depreciation rules

  Wind ORTP will be set at zero as the Net CONE is negative

Wind ORTP Calculation

Differences between Draft and Final explained further on next slide

Draft Final

Installed Capacity MW 60 60Qualified Capacity % 19% 25%Capital Costs (Overnight) $/kW 3,230 3,063Capital Costs (Installed) $/kW 3,441 3,263Capacity Factor % 31% 35%ATWACC % 7.2% 7.2%

Gross CONE $/kW-mo 26.51 23.89Levelized Capital Costs $/kW-mo 37.84 35.72Fixed O&M $/kW-mo 6.73 6.62Depreciation Tax Shield $/kW-mo -12.53 -12.22Tax Credits $/kW-mo -5.53 -6.22

Revenue Offsets $/kW-mo 24.63 27.53E&AS Margins $/kW-mo 13.35 14.94REC Revenue $/kW-mo 11.29 12.60

Net CONE (Installed) $/kW-mo 1.88 -3.64Net CONE (Qualified) $/kW-mo 9.87 n.a.

ORTP $/kW-mo 9.87 0.00

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0

5

10

15

20

25

30

35

40

$/kW

-mo.

Wind ORTP Draft and Final Comparison

Gross CONEexcl. PTC

Gross CONEexcl. PTC

Non-Capacity Revenueincl. PTC

Non-Capacity Revenueincl. PTC

DRAFTNet CONE = 1.88 $/kW-mo.

FINALNet CONE = -3.64 $/kW-mo.

$32.04$30.16 $30.11

$33.75

$1.93 lower, 75% due to

interconnection and 25% due to Dep. Schedule

$3.59 higher, due to capacity

factor

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  Capacity of 6 MW was chosen based on largest capacity that has been built in MA SREC program and through consultation with a regional solar developer (whose projects in development are 2 – 10 MW)

  Capacity factor of 14% was determined from NREL Solar Advisor Model (SAM) data for New England

  Qualified capacity of 15% was calculated from values in ISO-NE Seasonal Claimed Capacity database for 8 operating facilities (Summer = 44%, Winter = 0%)

  Interconnection voltage of 13 kV is based on recent projects

Solar Technical Specifications

Unit Specifications Solar PV

PV Module Type Polysilicon PV panels, Fixed Tilt, Ground Mounted

Primary Fuel SolarConfiguration 20,000 x 300 WNet Plant Capacity (MW) 6 (DC)Capacity Factor 14%Qualified Capacity 15%Interconnection 13 kVPlot Size (acres) 40Location Massachusetts

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  2013 Overnight Capital Cost of $3,139/kW was developed based on 6 projects beginning operation in 2012 – 2015 with an average capacity of 12 MW and is comparable to publicly available values▀ MA SREC average installed costs for 2012 – 2013 installations >5 MW is $2,940/kW▀ LBNL Tracking the Sun VI 20th Percentile of installed cost for 1-5 MW Fixed-Tilt

Commercial and Utility-Scale Systems is $3,095/kW (in 2013$)

  We assume overnight capital costs decline by 6% per year in real terms through 2018▀ LBNL Tracking the Sun VI: Installed Costs have fallen historically by 6 – 7% per year

in real terms▀ NREL/Black and Veatch Study: Installed Costs projected to decline by 3% per year

in real terms

  We assume no sales tax due to MA exemption from sales tax for the purchase of solar equipment

Solar Capital Costs

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  Capacity = 6 MW (DC)

Solar Capital Cost Components

Capital Costs2013 Overnight

Costs2013 Overnight

Costs2018 Overnight

Costs(2013 $) (2013 $/kW) (2018 $/kW)

EPC CostsEquipment

Solar PV Modules $8,100,000 $1,350 - Other Equipment $0 $0 -

Construction Labor $2,520,000 $420 - Other Labor $1,020,000 $170 - Materials $2,160,000 $360 - Sales Tax $0 $0 - EPC Contractor Fee $1,380,000 $230 - EPC Contingency $1,518,000 $253 -

Total EPC Costs $16,698,000 $2,783 -

Non-EPC CostsOwner's Costs (Services) $1,169,000 $195 - Electrical Interconnection $300,000 $50 - Gas Interconnection $0 $0 - Emission Reduction Credits $0 $0 - Land $0 $0 - Working Capital and Inventories $167,000 $28 - Owner's Contingency $131,000 $22 - Financing Fees $369,000 $62 -

Total Non-EPC Costs $2,136,000 $356 -

Overnight Capital Costs ($) $18,834,000 $3,139 $2,593

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  Projected E&AS margins were estimated using hourly NREL SAM data for New England (with a capacity factor of 14%) and hourly Mass Hub prices for 2010 – 2012▀ 2010–2012 Average E&AS Margin was $4.97 / kW-mo▀ 2018/2019 Projected E&AS Margin is $6.23 / kW-mo

  Assumed contract REC price is the same as for Onshore Wind▀ Assumed 2018/2019 contract REC price is $49/MWh, based on 2016

forwards (updated value based on current futures)▀ Although the MA SREC price (currently $249/MWh) is significantly higher,

we are unable to use SRECs in the ORTP calculation since they are not available region-wide

Solar Revenue Offsets

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  The starting price for FCA9 will be determined prior to the auction

Solar ORTP Calculation (2018$)

Installed Capacity MW 6Qualified Capacity % 15%Capital Costs (Overnight) $/kW 2,593Capital Costs (Installed) $/kW 2,705ATWACC % 7.2%

Gross CONE $/kW-mo 16.77Levelized Capital Costs $/kW-mo 29.61Fixed O&M $/kW-mo 4.47Depreciation Tax Shield $/kW-mo -8.73Tax Credits $/kW-mo -8.58

Revenue Offsets $/kW-mo 11.27E&AS Margins $/kW-mo 6.23REC Revenue $/kW-mo 5.04

Net CONE (Installed) $/kW-mo 5.50Net CONE (Qualified) $/kW-mo 36.69

ORTP $/kW-mo Starting Price

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  Gas Turbines will be indexed to publicly available Bureau of Labor Statistics (BLS) Producer Price Index (PPI)

  Construction and Other Labor will be indexed using non-composite indices from BLS Quarterly Census of Employment and Wages (QCEW)

  Fuel inventories will be indexed based on GDP Deflator

  E&AS revenue will be updated based on futures values for Henry Hub, Algonquin City Gates and Mass Hub On-Peak

Changes to Annual Updates

Cost Component Index

Gas Turbines BLS-PPI "Turbines and Turbine Generator Sets"Steam Turbines BLS-PPI "Turbines and Turbine Generator Sets"Wind Turbines Bloomberg Wind Turbine Price IndexOther Equipment                                        BLS-PPI "General Purpose Machinery and Equipment"Construction Labor                                      BLS-QCEW "Utililty System Construction"Other Labor                                                BLS-QCEW "Power Generation and Supply"Materials                                                      BLS-PPI "Materials and Components for Construction"Electric Interconnection                            BLS-PPI "Electric Power Transmission, Control, and Distribution"Gas Interconnection                         BLS-PPI "Natural Gas Distribution"Fuel Inventories Gross Domestic Product Deflator

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  End of September ORTP report submitted to ISO-NE

Next Steps