Evaluating the Benefits of the SPP EHV Buildout

Evaluating the Benefits of the SPP EHV Buildout Moving forward on policy for funding 765 KV Larry Holloway CAWG Meeting February 25, 2009

Benefits Beyond Adjusted Production Cost • Already Discussed – Line loss benefits – Additional reliability benefits – Reductions in capacity margin and reserves – Increased options for different futures • What we haven’t discussed is a way to use the wind resources we are attempting to reach to help solve cost problems

What are the cost problems? • Many benefits go to tier one entities that do not have to fund the investment – SPP and others have attempted to minimize this by not evaluating benefits and costs of “export legs” of the EHV buildout – “rebalancing these costs leads to large rate impacts for some entities soley based upon location in a zone and past construction decisions. • Is there a way to justify access to the wind resources and fund investment for this access?

NREL Wind Maps • SPP Maps for all states except Louisiana • Western regions of SPP have superior wind resources (class 4 or better) • Eastern regions of SPP have lesser wind resources (class 3 at best)

What does this show? • Wind Resources are significantly located in the Western regions of SPP • Very limited wind resources in Missouri, Arkansas, and eastern SPP portions of Texas, Kansas, Oklahoma – Eastern Nebraska and Kansas have some class 4 wind resources

What difference does wind class make?

Capacity Factor vs Wind Class

Production of Same Wind Equipment at Different Wind Classes

Basic Equations • Cc = installed capital costs of wind generation in $/kw • Cr = Charge Rate (carrying charge - %) – Pretax ROR + Depreciation • • • Om = O&M costs in $/MWH Tc = Production Tax Credit in $/MWH H = Om – Tc CF = Capacity Factor - % AC = Annual Costs in $/KW of installed capacity

Basic Equations (cont) • AC = Cc Cr + HCF ( 8760 ) 1000 Then • AC = Cc Cr + 8. 76 HCF

What Is Location Worth? • Assume 2 wind units, same installed costs, variable O&M, PTC, and carrying costs – The only difference is average wind speed or capacity factor Then, • AC 1 = Cc Cr + 8. 76 HCF 1 • AC 2 = Cc Cr + 8. 76 HCF 2 – Therefore • AC 1 - AC 2 = 8. 76 H(CF 1 - CF 2)

Example Used in Analysis of Wind Generation Costs • Cc Cr - Overall annual fixed costs of $326. 40 per KW installed nameplate capacity – – 12% pretax ROR 5% depreciation (twenty years) Results in 17% carrying charge $1920/KW of installed nameplate capacity • May 2008 DOE EERE publication • Om - $9/MWH average O&M costs • Tc - $20/MWH PTC then H = -$11/MWH, therefore, • AC 1 - AC 2 = 8. 76 H(CF 1 - CF 2), goes to • AC 1 - AC 2 = -96. 36(CF 1 - CF 2)

Annual Cost per MWH of New Wind Generation Based on Wind Class Average

How much is the increase worth?

How much transmission investment is justified to access better wind resources?

How much transmission investment is justified to access better wind resources?

How much transmission investment is justified to access better wind resources? (cont)

Base Case Assumption Moving from East to West Increases Capacity Factor by Around 50%

Things to consider for EHV system • Is there a method of using an access fee for better wind resources to justify portions of the EHV buildout? – This may allow consideration of the export legs of EHV plan – Export legs of EHV plan may bring additional benefits to Eastern SPP transmission zones • But typically many benefits to tier 1 • These benefits could be captured with some type of access charge for funding the EHV buildout – Nebraska should be included in EHV proposals

Wind Access Fee • Is there a way to charge a wind access fee that would be equitable for both regional customers and customers outside SPP? – For example could the wind access fee be a credit to zones already paying an SPP regional EHV rate? – Could the export revenue be used to lower costs and justify expansion? – Could “reservations” be used to justify EHV expansion (such as an export capacity auction? )