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REC cost estimation . April 23, 2010 Eric Lavik. Agenda. Overview Valuation components and calculation Relation to other proposals/comments. Overview. Objective:

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rec cost estimation

REC cost estimation

April 23, 2010

Eric Lavik

  • Overview
  • Valuation components and calculation
  • Relation to other proposals/comments
  • Objective:
    • Infer the cost of RECs from a transaction containing RECs and other products in a manner that is consistent with procurement decisions being made by the utilities
  • Assumption:
    • Residual cost of a contract (e.g., the cost in excess of the avoided brown energy and capacity benefits) is being incurred due to the RPS
  • Proposal:
    • Use solicitation valuation results from each utility to calculate the levelized nominal premium per MWh
      • Valuation methodologies undergo review and approval by the CPUC and are subsequently reviewed by the PRG and an Independent Evaluator during implementation
      • Consistent components and valuation methodology with solicitation approach, limiting any potential product biasing due to implementation of a secondary valuation approach
    • Valuation components included in the calculation are as described on the following slide

Levelized Costs

Levelized Benefits

  • Contract Payments
  • Based on the confidential contract price, contract specific time-of-delivery factors, expected generation profile and contract term
  • Transmission Cost
  • Cost to deliver energy to point specified for energy/capacity valuation
  • Debt Equivalence Mitigation Expense
  • Cost of mitigating contract commitments on SCE’s balance sheet per CPUC approved methodology
  • Integration Cost
  • Deemed to be $0/MWh per D.04-07-029
  • REC cost estimation should be consistent with CPUC valuation methodology
  • Energy Value
  • Based on each utility’s proprietary energy price forecast, which consistently forecasts energy values throughout the WECC (including California)
  • The availability and validity of alternative, public forecasts is limited1
  • Capacity Value
  • Due to the various delivery points and proposed contract structures, each proposal should be valued according to each utility’s approved procurement valuation methodology
  • Firming and Shaping
  • If firming and shaping is included in the contract cost, the incremental benefit to the utility will be incorporated into the energy and capacity benefits

Valuation Components

{Levelized Costs} – {Levelized Benefits} = REC cost in $/MWh

1. A public forecast of energy and capacity benefits has not been identified for use in benchmarking California bids in the MPR

relation to other proposals comments
Relation to other proposals/comments
  • PG&E’s proposal
    • Methodology of Costs – Benefits = REC Cost is similar to SCE’s
    • Contains different cost components from SCE’s proposal
      • Excludes debt equivalence
      • Includes integration costs
  • DRA comments
    • Recommends that the adopted REC pricing method should not favor one transaction type over another
      • SCE’s proposal provides an unbiased approach to procurement when considering all products bid into the solicitation, including firmed and shaped, REC-only, dynamically scheduled, and CA interconnected, within the CPUC approved valuation methodology