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Energy Procurement Best Practices - tema-testing.s3 ...€¦ · TEMA Conference 2019 May 1, 2019 5....
Transcript of Energy Procurement Best Practices - tema-testing.s3 ...€¦ · TEMA Conference 2019 May 1, 2019 5....
Energy Procurement Best Practices
Bob Wooten, C.P.M., CEP, is Director of National Accounts for Tradition Energy. Bob has over 25 years’ experience managing government procurement programs for a wide variety of clients including cities, schools, colleges, universities, housing authorities, and municipal districts. Bob holds professional certifications from the Association of Energy Engineers and the Institute for Supply Management, as well as a B.A. from Texas A&M University, and a Masters in Public Administration from the University of Houston.
Energy Procurement Best Practices
Energy Procurement Best Practices
Energy Procurement Best Practices
1 – Get Organized
Energy Procurement Best Practices
1 – Get Organized
Energy Procurement Best Practices
1 – Get Organized
Energy Procurement Best Practices
1 – Get Organized
Energy Procurement Best Practices
2 – Understand the Wholesale Market
Energy Procurement Best Practices
2 – Understand the Wholesale Market
Energy Procurement Best Practices
2 – Understand the Wholesale Market
Energy Procurement Best Practices
2 – Understand the Wholesale Market
Energy Procurement Best Practices
2 – Understand the Wholesale Market
Energy Procurement Best Practices
3 – Analyze When You Use Energy
Energy Procurement Best Practices
3 – Analyze When You Use Energy
Energy Procurement Best Practices
3 – Analyze When You Use Energy
Energy Procurement Best Practices
3 – Analyze When You Use Energy
Energy Procurement Best Practices
3 – Analyze When You Use Energy
Energy Procurement Best Practices
3 – Analyze When You Use Energy
Energy Procurement Best Practices
4 – Develop a Strategy That Meets Your Needs
Energy Procurement Best Practices
4 – Develop a Strategy That Meets Your Needs
Energy Procurement Best Practices
4 – Develop a Strategy That Meets Your Needs
Energy Procurement Best Practices
4 – Develop a Strategy That Meets Your Needs
Energy Procurement Best Practices
4 – Develop a Strategy That Meets Your Needs
Energy Procurement Best Practices
4 – Develop a Strategy That Meets Your Needs
Energy Procurement Best Practices
5 – Prequalify Energy Suppliers
Energy Procurement Best Practices
5 – Prequalify Energy Suppliers
Energy Procurement Best Practices
5 – Prequalify Energy Suppliers
Energy Procurement Best Practices
6 – Conduct a Thorough Pricing Process
Energy Procurement Best Practices
6 – Conduct a Thorough Pricing Process
Energy Procurement Best Practices
6 – Conduct a Thorough Pricing Process
Energy Procurement Best Practices
6 – Conduct a Thorough Pricing Process
Energy Procurement Best Practices
6 – Conduct a Thorough Pricing Process
Energy Procurement Best Practices
7 – Negotiate Terms, Then Reprice
Energy Procurement Best Practices
7 – Negotiate Terms, Then Reprice
Energy Procurement Best Practices
8 – Verify Enrollment, Invoices
Energy Procurement Best Practices
8 – Verify Enrollment, Invoices
Energy Procurement Best Practices
8 – Verify Enrollment, Invoices
Energy Procurement Best Practices
8 – Verify Enrollment, Invoices
Energy Procurement Best Practices
9 – Never Stop Monitoring, Reporting, Adjusting
Energy Procurement Best Practices
9 – Never Stop Monitoring, Reporting, Adjusting
Energy Procurement Best Practices
9 – Never Stop Monitoring, Reporting, Adjusting
Energy Procurement Best Practices
Summary
Debunking The RFP MythPresented by:
OVERVIEW
✓Market Opportunities
✓Long Term Advantage
✓Procurement Options
www.menti.com Code 26 78 04
What is the fastest growing city
in the United States?
A) Atlanta
B) Austin
C) Los Angeles
D) Midland
E) Manhattan
Around the Clock Real Time Power Prices
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$100.00
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$140.00
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Long period of stable prices are now on the rise…what happened???
Historical Power Prices
What Happened?
Lions, tigers, bears and retirements…oh my!!!
Summer 2018
CHANGING SUPPLY STACK – RETIREMENT OF COAL AND INEFFICIENT GASPlant Retirements
Summer Reserve Margins
Concerns over Summer Demand – Minimum Target 13.7%
2019: 8.1%
2020: 10.7%
2021: 12.2%
2022: 9.8%
2023: 7.5%
Target 13.7%
Current Power Pricing Trend
➢ Power Plant Retirements
➢ Substantial Population Growth in TX
➢ Shrinking Reserve Margins
➢ Natural Gas impact
NG STORAGENatural Gas Storage
Storage remains below last year and 5 year average
NYMEX NG EXPORTSNatural Gas Exports
Exports continue to increase
WHY BUY NOW?
$20.00
$23.00
$26.00
$29.00
$32.00
$35.00
$38.00 Houston Hub ATC
Cal'20 Cal'21 Cal'22 Cal'23 Cal'24 Cal'25
Forward Prices
Lower Prices in Future Years
WHY BUY NOW?
Power Plant Retirements
Substantial Population Growth in TX
Increased Liquified Natural Gas Exports
Shrinking Reserve Margins
Higher Pricing Is On the Horizon
TEST YOUR KNOWLEDGE
Why are power prices increasing?
A. Increasing Population
B. Power Plant Shutdowns
C. Increased LNG Exports
D. Adam Quinn’s Blow Dryer Usage
E. All Of the Above
What words come to mind when you hear RFP?
Bill Shoemaker
Born: 08/19/1931Died: 10/12/2003Earnings: $123,375,524 as a jockey; $3.7 million as a trainer
8,882 WINS
https://www.youtube.com/watch?v=80p88TDhEr4
YOUR PROCUREMENT OPTIONS
Education Code Ch. 44
Sec. 44.031. PURCHASING CONTRACTS.
(a)Except as provided by this subchapter, all school district contracts
for the purchase of goods and services, except contracts for the
purchase of produce or vehicle fuel, valued at $50,000 or more in the
aggregate for each 12-month period shall be made by the method, of the
following methods, that provides the best value for the district:
(1) competitive bidding for services other than construction services;
(2) competitive sealed proposals for services other than construction
services;
(3) a request for proposals, for services other than construction
services;
(4) an interlocal contract;
(5) a method provided by Chapter 2269, Government Code, for construction
services;
(6) the reverse auction procedure as defined by Section 2155.062(d),
Government Code; or
(7) the formation of a political subdivision corporation under Section
304.001, Local Government Code.
YOUR PROCUREMENT OPTIONS
Interlocal
➢ “Getting three prices gets me the best value and
price!”
➢ “RFPs help buy my price down like they do with
everything else we purchase!”
➢ Time doesn’t affect price
➢ Commodity purchases should be “bid out”
➢ Electricity is completely different than professional
services
What are the MYTHs
Interlocal
➢ Negotiate your contract BEFORE asking for
pricing
➢ Electricity is a TIME game, not a PRICE game
➢ Procurement / legalities should not force you into
a position of asking suppliers to hold their price
➢ Work with a top tier supplier
Food for Thought
TEST YOUR KNOWLEDGE - Fact or Fiction
➢ RFP is perceived as “safe”
➢ POLR is an abbreviation for the North Pole
➢ Getting prices on same day ensures lowest price
➢ Contract term lengths do not matter
➢ Contracts are all “apples to apples”
➢ Tuesday is the best day to run an RFP
➢ Lowest price is the best price
➢ Long term is not less expensive
➢ Supplier pays the Broker / Consultant
TEST YOUR KNOWLEDGE – Fact or Fiction
LONG TERM ADVANTAGE
$20.00
$23.00
$26.00
$29.00
$32.00
$35.00
$38.00 Houston Hub ATC
Cal'20 Cal'21 Cal'22 Cal'23 Cal'24 Cal'25
Forward Prices
KEY TAKEAWAYS
Key Takeaways
WRAP UP
➢ Power plant retirements combined with load
growth have put pressure on the grid
➢ More upside potential with power prices – BUY
NOW
➢ RFPs not always best option if price there is price
volatility
➢ Longer term power contracts currently a great
value and cheaper than shorter term contracts
➢ Regardless of purchasing strategy should look
longer term
Debunking The RFP MythPresented by:
Shell Energy 1
ERCOT DEMAND RESPONSE UPDATE
Prepared for:
Shell Energy
ERS CHANGES
May 1, 2019 2TEMA Conference 2019
1. ERCOT’s Risk Assessment (impacts pricing):
• ERCOT assigns a risk value to each time period
throughout the year. This value drives the
budget allocation for those time periods.
• The risk values were 1 -10; now are 1-100
allowing for more concentration of funds.
• Went into effect Oct ‘18; we now have two
periods of actual data of impacts:
Shell Energy
ERS CHANGES - continued
May 1, 2019 3TEMA Conference 2019
2. Change in time periods:
• Both load and generation are dynamic and ERS
is changing due to changes seen in load.
• Nearly set a summer peak on a Saturday last
summer.
• The following changes to time periods are
starting AFTER this summer:
Shell Energy
ANCILLARY MARKET CHANGES
1. Protocol language has been passed, with full implementation expected in 2020, to create a new subset of
Responsive Reserve Service (RRS) called Fast Frequency Response (FFR):
• This new service will require extremely fast responses to small frequency changes on the grid.
• Energy storage with batteries is expected to be the front-runner technology.
• There is no increase of RRS to accommodate the approximate 400-450 MWs of potential new FFR.
• Likely will cause addition proration of Load Resources, lowering their value, but not having much overall
impact to consumer costs.
May 1, 2019 4TEMA Conference 2019
Shell Energy
ANCILLARY MARKET CHANGES - continued
2. Protocol language has been passed, with full implementation expected in 2022, to create a new ancillary
service called ERCOT Contingency Reserve Service (ECRS):
• This new service will be similar to Load Resources in that:
• Hourly, day ahead ancillary service market
• Required two-second telemetry
• 10 minute dispatch
• ECRS will NOT have an under-frequency relay (UFR) and therefore are not required to be immediately
responsive to frequency change.
• Non-Spinning Reserve Service (NSRS) procurement will likely go down, but too early to say what the
economic opportunity / cost is for this service.
May 1, 2019 5TEMA Conference 2019
Shell Energy
4CP
• For schools, the best bet for managing 4CP appears to be a standard usage
reduction during the summer week starting at 3:45 pm. This would historically
have captured 98% of the 4CP intervals from 2006 forward.
• The value of 4CP reductions continue to rise.
May 1, 2019 6TEMA Conference 2019
Shell Energy
SUMMER OUTLOOK - definitions
1. CDR – Capacity, Demand and Reserves Report. Comes out twice a year and uses 10 year forecast of demand
and generation.
2. SARA – Seasonal Assessment of Resource Adequacy. Similar to CDR; comes out seasonally and includes near-
term weather forecasts, generator trends, and updates to the generation fleet.
3. Seasonal Mothball – Power plant that has suspended service but will run for summer peak load season.
4. Mothball – Power plant that has suspended service for an unknown amount of time but not decommissioned and
therefore could return to service.
5. Retired – Power plant that has been decommissioned and will not return to service.
6. Capacity – Maximum amount of generation that could be generated from a generation resource or curtailment
from a demand response resource.
7. Reserve Margin – The percentage of excess capacity needed to meet load forecast.
May 1, 2019 7TEMA Conference 2019
Shell Energy
RETIRING AND MOTHBALLED RESOURCES
Seasonal Mothballed Resources
SPENCER STG U4 SPNCER_SPNCE_4 DENTON GAS NORTH 1966 57.0
SPENCER STG U5 SPNCER_SPNCE_5 DENTON GAS NORTH 1973 61.0
Total Seasonal Mothballed Capacity 118.0
Mothballed Resources
J T DEELY U1 (AS OF 12/31/2018) CALAVERS_JTD1_M BEXAR COAL SOUTH 1977 420.0
J T DEELY U2 (AS OF 12/31/2018) CALAVERS_JTD2_M BEXAR COAL SOUTH 1978 420.0
GIBBONS CREEK U1 (AS OF 10/1/2018) GIBCRK_GIB_CRG1 GRIMES COAL NORTH 1983 470.0
Total Mothballed Capacity 1,310.0
Retiring Resources Unavailable to ERCOT (since last CDR/SARA)
S R BERTRON U1 (AS OF 1/23/2019) SRB_SRB_G1 HARRIS GAS HOUSTON 1958 112.0
S R BERTRON U2 (AS OF 1/23/2019) SRB_SRB_G2 HARRIS GAS HOUSTON 1956 168.0
Total Retiring Capacity 280.0
Cumulative Retiring &
Mothballed 1,708.0
May 1, 2019 8TEMA Conference 2019
◼ 1,700 MWs of capacity going offline over the last year (more than1,300 MWs being coal)
Shell Energy
NEW GENERATION
Coming Online over the LAST year (Volumes reflect Operational “Nameplate” Capacity):
- 960 MW of Non-Coastal Wind
- 201 MW of Coastal Wind
- 740 MW of Solar
- 674 MW of Gas
Expected to Come Online over the NEXT year (Volumes reflect Operational “Nameplate” Capacity):
- 1,018 MW of Non-Coastal Wind
- 389 MW of Coastal Wind
- 37 MW of Solar
- 201 MW of Gas
May 1, 2019 9TEMA Conference 2019
ERCOT plans for a fraction of renewable
resources to be available when needed:
◼ Non-Coastal 15%
◼ Coastal 58%
◼ Solar 74%
Shell Energy
CDR REPORT - December 2018
May 1, 2019 10TEMA Conference 2019
◼ ERCOT’s most recent CDR Report
from December 2018, estimating
reserve margin just over 8% for
Summer 2019
◼ Historically, this is the lowest Reserve
Margin reported in a December CDR
for the upcoming Summer, since
Nodal market began in 2011
Shell Energy
HISTORICAL CDR RESERVE MARGINS
May 1, 2019 11TEMA Conference 2019
15.9%
12.1%
14.3%13.8%
15.7%
16.5%16.9%
9.3%
8.1%
7.0%
9.0%
11.0%
13.0%
15.0%
17.0%
19.0%
Summer 2011 Summer 2012 Summer 2013 Summer 2014 Summer 2015 Summer 2016 Summer 2017 Summer 2018 Summer 2019
Historical December CDR Reserve Margins for the Upcoming Summer
The ERCOT minimum target reserve margin
is 13.75%
2011 is the only time ERS was dispatched in the summer – due to
extreme heat
Shell Energy
SARA REPORT - March 2019
May 1, 2019 12TEMA Conference 2019
◼ More recently released
SARA Report showing
Reserve Margins now just
over 7.3%
◼ Fewer resources and
higher expected demand
◼ Sets the stage for
potentially higher volatility,
increased scarcity pricing,
and more frequent
Emergency Response
Shell Energy
SARA REPORT - March 2019 - continued
May 1, 2019 13TEMA Conference 2019
Finally, the report details several ”worst-case” scenarios above. If just one of these scenarios occurs, the ERCOT system could be
in jeopardy of having less supply available than needed demand. Again, creating the potential for scarcity pricing, volatility and
demand response events.
Shell Energy
GENERATION DIVERSITY
May 1, 2019 14TEMA Conference 2019
◼ Capacity contribution of wind resources is
estimated at 15% for Non-Coastal and 58% for
Coastal resources
◼ As for Renewables, tax incentives have created a
very interesting situation, where prices are driven
lower as the marginal cost of production declines
◼ With more Base Load Coal resources retiring, as
the ERCOT market becomes more reliant on
renewable generation, this could spell uncertain
production declines with Wind or Solar misses,
causing sharp volatility spikes in Real Time
Shell Energy
WEATHER TALKING POINTS
HEAT:
- June, July, August all expected to be hotter than normal
- 8.4% hotter than 30 year normal
- 9th Highest Number of Cooling Degree Days since 1950
RAIN:
- 65% chance weak El Nino conditions will continue through Summer 2019
- Creating wetter than normal conditions in the South (including Texas), drier than normal out West
STORMS:
- Below Normal Season expected for number of Hurricanes/Tropical Storms
May 1, 2019 15TEMA Conference 2019
Shell Energy
WEATHER TALKING POINTS - continued
May 1, 2019 16TEMA Conference 2019
WSI Trader. https://www.wsitrader.com/LongRange/Seasonal/SeasonalECMWFGraphics 4/23/19
Shell Energy
NATURAL GAS
May 1, 2019 17TEMA Conference 2019
Shell Energy
ANCILLARY SERVICES
May 1, 2019 18TEMA Conference 2019
0
10
20
30
40
50
60
70
1/1/2012 4/1/2013 7/1/2014 10/1/2015 1/1/2017 4/1/2018
ERCOT - Historical Clearing Price - RRS [$/MWH]
-
10
20
30
40
50
60
70
05/01/19 09/01/20 01/01/22 05/01/23 09/01/24
RRS Forward Curve
DateHistorical Cleared -
RRS [$/MWH]Cal-15 $11.2Cal-16 $11.1Cal-17 $9.8Cal-18 $18.5
◼ Forward RRS curve demonstrates how the market is valuing future
Summers very close to Summer 2018
DateRRS Forward
Curve [$/MWH]Bal Year $27.8 Cal-20 $20.5 Cal-21 $20.5 Cal-22 $20.5
Shell Energy
HISTORICAL ERCOT POWER PRICES COMPARED TO FORWARD CURVE –by calendar year
May 1, 2019 19TEMA Conference 2019
$42.44
$25.17
$30.50
$36.44
$23.78
$21.10
$23.26
$29.96
$18.00
$23.00
$28.00
$33.00
$38.00
$43.00
2011 2012 2013 2014 2015 2016 2017 2018
ERCOT - Settlement - RT ATC - NORTH [USD/MWH]
$37.47
$31.16
$28.38 $26.39
$24.73 $23.21 $22.56 $22.82 $22.38 $22.27 $22.35
$18.00
$23.00
$28.00
$33.00
$38.00
$43.00
Bal-2019 2021 2023 2025 2027 2029
North - ATC - Forward Curve [USD/MWH]
◼ Similar to NG, market expectations have the back of the forward curve fairly low relative to the more volatile front
Shell Energy
WEST TEXAS GROWTH
May 1, 2019 20TEMA Conference 2019
◼ Primarily driven by Oil and Gas Development
◼ Rig count in Permian Basis at 463 (360 in Texas)
◼ Annual Load Growth in West Texas at 8% (for
perspective, system-wide load growth in all of
ERCOT is 2%)
Shell Energy
WEST TEXAS GROWTH - continued
May 1, 2019 21TEMA Conference 2019
◼ ERCOT determined a Reliability Need to improve
transmission due to load growth
◼ Began implementing improvement projects, some
of which are beginning to come online now
Shell Energy
SUMMER OUTLOOK – wrap up
May 1, 2019 22TEMA Conference 2019
Be prepared for sustained high energy prices and volatile spikes in energy prices. This could impact forward
markets for some time.
If you are participating in an emergency demand response program, be conservative with your commitments and
be prepared to respond when needed.
THANK YOU!Tim Carter
832-510-1061