2013 recc current generation - 1st place 130128

Ross Renewable Energy Case CompetitionFirst round presentation

CurrentGenerationHanson BoydDuncan CooperTravis DistasoJaime MartinezBryson Saez

Executive summary

BackgroundSolar

marketRegulation scenarios

Business plan

ERCOT will enact

new regulation to

drive capacity

growth

Commercial solar

is most attractive

market segment

Capacity market

with DR/DG

mandate is most

desirable outcome

Strategy: Large commercial solar with long-term PPA

2

3

BackgroundSolar


Business plan

ERCOT background and solar opportunity

• Current ERCOT policies are insufficient to drive capacity growth

• ERCOT will enact new policies in the near future to drive capacity growth

Changing ERCOT regulation to meet reserve shortfall creates an opportunity for SunEdison

65

70

75

80

85

90

2013 2015 2017 2019 2021

GW

ERCOT capacity forecasts

Load

Reserves

Reserve Shortfall

4

8.3 GW of new generation is needed in the next 10 years to meet reserve margins

ERCOT generation shortfall BackgroundSolar


Business plan

8.3 GW

5

Combining production and pricing data yields expected revenue

Calculating annual solar revenue BackgroundSolar


Business plan

-

0.4

0.8

1.2

1 4 7 10 13 16 19 22

MW

h

Real-time solar output

$66 $67 $68

$124

$75$87 $86

$156

$0

$30

$60

$90

$120

$150

$180

Houston North South West

Tho

usa

nd

s

Annual value of solar generation

Fixed Tracking$0.0

$1.0

$2.0

$3.0

Tho

usa

nd

s

Hourly electricity pricing

6

BackgroundSolar


Business plan

Market sizing and accessibility

7

Solar panels can operate on either the customer or the utility side of the meter

Two models for solar interconnection BackgroundSolar


Business plan

Distributed model(Residential and Commercial)

• Customer avoids paying retail rates, capturing high value from the system

Utility model

• Solar competes with other generation technologies on the wholesale market

Retail market

Wholesale market

8

Calculated solar LCOEs are 250%-400% higher than average market prices

Solar LCOE calculations BackgroundSolar


Business plan

$0

$100

$200

$300

$400

Utility Commercial Residential

Solar LCOEs• Solar LCOEs vary based on regional insolation and observed market prices

• Competitiveness should be assessed compared to prices for conventional grid energy

Solar is closest to being competitive in the commercial market

400% gap

250% gap

300% gap

Electricity price

LCOE

9

SunEdison’s best opportunity:Large-scale commercial users consume $200 MM in electricity per year

Opportunity

• The total addressable market for commercial-scale solar is $387 MM

• Larger projects will allow SunEdison to operate at scale, increasing profitability

Challenges

• Wide geographic distribution of customers

• Need to develop in-state resources and personnell

2%

52%

0%

25%

50%

75%

100%

# of Businesses % of Energy Consumption

Small Medium Large

BackgroundSolar


Business plan

10

BackgroundSolar


Business plan

New ERCOT regulation scenario analysis

Demand response

MW

Time

Peak shaving from demand response

Predicted Load

Reduced wholesale electricity prices

• Addition of virtual peaking plants to the grid

• Peak shaving reduces price at peaks times

• Reduces revenue for all IPP including utility solar

Small effect on short-term retail electricity prices

• Wholesale electric price reductions decrease costs for LSE and REP

• Additional expense to demand response providers

• Savings in wholesale electricity may not be passed down to ratepayers

11

Support for demand responseNegative impact on utility solar

Residential: Minimal

Commercial: Minimal

Utility: Negative

Effect on SunEdison:

BackgroundSolar


Business plan

Short-term

• Increased revenue for utility solar (max ~$10/MWh)

Long-term

• Incentives new generation in the long-term

• No relative advantage for new solar investment

12

Increased SWOC to $9000/MWh

Total hours at SWOC in 2011

28.5 hours

% available to solar (summer)

68%

Increase in SWOC price

$4,500

Maximum potential value

$87,210 per MW/yr

Positive benefit for utility solar


Commercial: Minimal

Utility: Positive


BackgroundSolar


Business plan

Capacity market gives additional revenue stream to help finance solar projects

• 3 year forward period gives general advantage to solar whose price has historically fallen faster than other generation

Solar will not be able to bid all of its nameplate capacity in auctions

• New England ISO rules: intermittent power resources will bid at the median power produced during defined “reliability hours”

• Residential and commercial will not feasibly be able to bid at all

13

New forward capacity marketPositive impact on utility solar


Commercial: Minimal

Utility: Positive


BackgroundSolar


Business plan

• Load Serving Entities (LSE) will invest in new generation to increase reserve ratio

• LSE will construct lowest LCOE projects that fulfill this requirement

• Utility, Commercial, and Residential solar do not have the lowest LCOE

$0

$100

$200

$300

$400

$500

$600

Coal Nuclear Wind Solar Gas

($ p

er M

Wh

)

LCOE by generation technology

14

13.75% reserve mandateMinimal impact on all solar segments


Commercial: Minimal

Utility: Minimal


BackgroundSolar


Business plan

Mandate to Load Serving Entities for 10% of their reserve margin to come from distributed generation and demand response

• Residential and commercial solar will compete with demand response

• 1,100 MW needed of total customer-sited resources

• In some cases solar could be the only option to fulfill mandate

Total capacity

Reserve margin

Mandated DG and DR1,100 MW

11,000 MW

86,000 MW

Residential: Positive

Commercial: Positive

Utility: Minimal


15

10% reserve margin DR/DG mandate benefits residential and commercial

Customer sited-resource mandate BackgroundSolar


Business plan

Water is consumed for traditional power but not solar

• Condensers in Rankine cycle (Coal, nuclear, gas)

• Water injection for gas turbines (Gas)

• Hydraulic fracturing (Gas)

• 108 million gallons consumed in tradition power generation

All solar segments receive slight benefit depending on tax

• Increased operating costs raises electricity prices

• Solar become more attractive relative to traditional power

16

Water tax or feeNew water tax is mildly beneficial for all solar segments

Residential: Positive

Commercial: Positive

Utility: Positive


BackgroundSolar


Business plan

0%

1%

2%

3%

4%

5%

6%

1 3 5 7 9 11 13 15 17 19 21 23

Hour

Residential load profile

0%

1%

2%

3%

4%

5%

6%

1 3 5 7 9 11 13 15 17 19 21 23

Hour

Commercial load profile

25%

32%

17

Net metering

ERCOT lacks universal net metering laws

Net metering allows projects to reach scale

• Solar installations can be sized for total energy usage rather than power usage

• Energy generated in excess of consumption is kept as a credit

Without net metering:

• Commercial load profile better matches solar generation

Lack of net metering reduces optimal system size by 60-75%

Load

Solar

SolarLoad

BackgroundSolar


Business plan

Beneficial to all production

• DR support• Water tax

Benefits other generation more than solar

• Net metering• Capacity markets• 10% customer sided assets

Potential policy initiatives

18

Policy analysis summaryWeeding out policy recommendations

• Raising SWOC

• Reserve mandate

Marginal impact

Of the wide variety of possible

policy changes in ERCOT,

few make solar more attractive

BackgroundSolar


Business plan

19

Regulation scenario rankingMost beneficial regulations scenarios for SunEdison

BackgroundSolar


Business plan

Rank 2

Forward market with reserve mandate and

water tax

• Forward market bidding gives the opportunity to secure PPA

• Beneficial for IPP investment in new solar utility installations

• Water tax raises electricity prices making solar more attractive

Rank 3

Energy market with water tax • Water tax raises electricity prices making solar more attractive

Rank 1

Forward market with reserve mandate

(10% from DR and DG)

• Forward market bidding gives the opportunity to secure PPA

• Beneficial for IPP investment in new solar installations

• DR and DG mandate creates market opportunity for residential solar

20

BackgroundSolar


Business plan

SunEdison business plan and go to market strategy

21

Business modelCommercial approach is the most attractive

BackgroundSolar


Business plan

Long-Term PPA

Solar system installation

Capacity payment

Addition to reserve margin

Diversified IPP

Lease Solar system

Lease payments

plus tax and depreciation

benefits

Purchase

Solar System

$

Considerations• Geography• Ownership structure• Risk mitigation• Economics• Target market / scale

$

$

$

22

Go to market strategyTargeting large scale commercial users

BackgroundSolar


Business plan

Install >100 kW PV systems on large commercial rooftops with a long-term PPA

Secure financing using a diversified IPP with stable PPAs (and possibly capacity payment revenues)

Most compatible with ERCOT regulation changes

Considerations Recommendation

Solar systems benefit from economies of scale

Easiest to target with fewer sales force

LCOE is most attractive

23

SWOT analysisAs market leader in Texas, SunEdison can exploit positive regulatory changes

STRENGTHS

• Solar market leader in Texas

• Experienced sales staff

• Go-to-market previous experience

WEAKNESSES

• Small

• Mostly utility experience

• Financially undiversified

OPPORTUNITIES

• Potential favorable changes in regulation

• ERCOT partnerships

• Precedent from other solar success

THREATS

• Strong competition in solar installation

• Low electricity prices

• Minimal regulatory incentives

• Low margins

SunEdison’sIndustry Outlook

BackgroundSolar


Business plan

Internal

External

24

Market runwaySunEdison has a very large potential market to expand into

Total capacity required with 13.75% reserve

Size of the reserve margin

10% of the reserve margin

Value at current 80% share

86,000 MW

11,000 MW

1,100 MW

880 MW

Total commercial electric market

Max SunEdison market = 880 MW

BackgroundSolar


Business plan

25

Marketing strategyFinding our target market

Product: Large scale commercial solar

Price: Competitive PPA pricing, $3.23 per

watt installed

Place: All of Texas, especially targeting West Texas and

congested nodes

Promotion: Cold

calls, referrals, conferences, industr

y-specific magazines

Target Customer

BackgroundSolar


Business plan

26

Market opportunity for SunEdisonSunEdison can generate $500 MM in sales over the next 5 years

Implementation

• Repurpose sales staff from other states

• Gradually create dedicated Texas sales and support staff

• Continue to pursue while Texas market matures

Assumptions

• $8 MM per sales person per year

• Five new sales staff per year for first five years, one per year thereafter

• Increasing sales efficiency

$10

$200

$240

0

100

200

300

400

500

600

$-

$50

$100

$150

$200

$250

1 2 3 4 5 6 7 8 9 10

Cu

mu

lati

ve M

W In

stal

led

Rev

enu

e ($

MM

)

Years

Sales revenue Cumulative MW sold

BackgroundSolar


Business plan

27

ConclusionSunEdison going forward

BackgroundSolar


Business plan

• >100 kW systems on large, commercial rooftops• Utilize long-term PPA• Finance with diversified IPP • Possibly capture payment revenues

Recommendation:

• One year capacity market• DG eligible for capacity payments• Net metering

• Create solar sales force and marketing plan• Locate and begin contacting potential customers

Lobby for:

Next Steps:

28

- Appendix -

(50)

50

150

250

350

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

MW

h/M

W

Houston

Tracking Fixed

(50)

50

150

250

350


MW

h/M

W

North

Tracking Fixed

(50)

50

150

250

350


MW

h/M

W

South

Tracking Fixed

-

100

200

300

400


MW

h/M

W

West

Tracking Fixed

29

Monthly solar generation by zone

0%

5%

10%

15%

20%

25%

Pro

bab

ility

Price ($)

Houston

0%

5%

10%

15%

20%

25%

Pro

bab

ility

Price ($)

North

0%

5%

10%

15%

20%

25%

Pro

bab

ility

Price ($)

South

0%

5%

10%

15%

20%

25%

Pro

bab

ility

Price ($)

West

30

Appendix - Distribution of ERCOT market prices

$0

$5

$10

$15

$20

$25

$30


Tho

usa

nd

s

Houston

Tracking Fixed

$-

$5

$10

$15

$20

$25

$30


Tho

usa

nd

s

North

Tracking Fixed

$0

$5

$10

$15

$20

$25

$30


Tho

usa

nd

s

South

Tracking Fixed

$0

$5

$10

$15

$20

$25

$30


Tho

usa

nd

s

West

Tracking Fixed

31

Appendix - Value of solar generation by region

Appendix - All Segments Assessment

Energy-only Forward Capacity Market

Increased SWOC

Increased SWOC with DR-support

New water tax or fee

13.75% Reserve Mandate

13.75% Reserve Mandate (10% from customer-sited resources)

13.75% Reserve Mandate, new water tax or

fee

Residential

Commercial

Utility

32

33

Appendix - Forecasts for natural gas and electricity

$20

$30

$40

$50

$2

$3

$4

$5

$6

$7

1-Nov-05 1-Nov-07 1-Nov-09 1-Nov-11

Forecast Electricity & Natural Gas Prices

Goldman Sachs Gas Forecast

High Prices

Low Prices

Whole-sale Electricity Price

• Grid Operation and management for over 85% of the deregulated electrical market in Texas

• Operates under the “energy-only model,” market is driven only by energy price signals

Congestion Revenue Right: the owner of this right receives the difference of what is paid in a congested system and the amount paid to the generators.

Congestion Costs: a measure of inefficiency in the system. It is calculated by what would have been paid in an uncongested system subtracted by congestion rent.

Congestion: Two Key Aspects

34

Appendix - ERCOT 101, Congestion

• 4,000 Node Network used to:

– Increase system dispatch efficiency.

– Lower risk of blackout.

– Lower prices through Improved price signaling.

– Direct assignment of local congestion.

• This system creates:

– Day-ahead market (DAM)

– Reliability unit commitment (RUC)

– Real-time or security constrained economic dispatch (SCED)

– Congestion revenue rights (CRRs)

35

Appendix - ERCOT 101 Nodal Wholesale Market Design

• Properly incentivizing IPPs is critical to inducing growth ERCOT capacity

11.814.5

9.4

6.6

13.5

3.4

-

10

20

30

Privately-Held IPPs

Publicly-held IPPs

Muni/Coop REP Large Customers

GW

Pre 2000 Since 2000

36

Appendix - IPPs account for 51% of capacity growth since 2000

2013 recc current generation - 1st place 130128

Documents