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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 l.jpg

REC cost estimation

April 23, 2010

Eric Lavik

Agenda l.jpg


  • Overview

  • Valuation components and calculation

  • Relation to other proposals/comments

Overview l.jpg


  • 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

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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

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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

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