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Uncertainty in the Regional Portfolio Model

Uncertainty in the Regional Portfolio Model. Michael Schilmoeller for the Northwest Power and Conservation Council Generation Resource Advisory Committee Thursday, January 22, 2009. Overview. Construction Costs Electricity Price Uncertainty Economic Retirement

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Uncertainty in the Regional Portfolio Model

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  1. Uncertainty in the Regional Portfolio Model Michael Schilmoeller for the Northwest Power and Conservation Council Generation Resource Advisory Committee Thursday, January 22, 2009

  2. Overview • Construction Costs • Electricity Price Uncertainty • Economic Retirement • Variable Capacity for Existing Units 2

  3. Attributes of Cost Futures • Generation Resource Advisory Committee (GRAC) at their December 18, 2008 meeting suggested futures should reflect • Expectations about cost trends • Greater uncertainty associated with technology that is immature or carries more political baggage • Correlation among costs, due to common elements such as steel, switches, labor, and concrete • Distinctions due to unique elements, likely reliance on sources outside the United States and associated exchange rate uncertainty, and so forth 3

  4. Cost Components More Consistent 4 Source: Forecasting construction costs.xls, worksheet MJS 2 (See also range “CERA Commodity Inputs” on wks MJS 3

  5. Expectations 5 Source: Random Variable 02.xls, worksheet “Graphs of Futures”

  6. Cost Matrices 6 Source: 2008 Nov 17 CCAF Power Tabular Data _ MJS.xls, worksheet “Table 2”

  7. Input-Driven Behavior based onCERA Scenarios 7

  8. Influences in Plant Cost current overnight costs steel stochastic GBM wmr stochastic GBM wmr auxillary equipment I/O matrix correlations plant costs plant cost escalators … … stochastic growth stochastic uncertainty in growth stochastic GBM wmr major equipment cost growth expections correlations with other plant costs 8

  9. Individual Futures 9 Source: Random Variable 02.xls, worksheet “Graphs of Futures”

  10. Cost Deciles 10 Source: Random Variable 01.xls, worksheet “Statistics”

  11. Cost Deciles 11 Source: Random Variable 01.xls, worksheet “Statistics”

  12. Cost Deciles 12 Source: Random Variable 01.xls, worksheet “Statistics”

  13. Cost Deciles 13 Source: Random Variable 01.xls, worksheet “Statistics”

  14. Cost Deciles 14 Source: Random Variable 01.xls, worksheet “Statistics”

  15. Cost Deciles 15 Source: Random Variable 01.xls, worksheet “Statistics”

  16. Cost Deciles 16 Source: Random Variable 01.xls, worksheet “Statistics”

  17. Cost Deciles 17 Source: Random Variable 01.xls, worksheet “Statistics”

  18. Overview • Construction Costs • Electricity Price Uncertainty • Economic Retirement • Variable Capacity for Existing Units 18

  19. Current Electricity Price Forecast • Interim, created Monday 1/5/2009 • PNW prices east of the Cascades • Average hydrogeneration conditions • Most recent (12/20/2008) frozen efficiency electricity requirements forecast • Most recent (11/28/2008) natural gas price forecast • To be updated: • CO2 penalty assumptions • RPS resource development assumptions • cost and availability of new resources 19

  20. Current Electricity Price Forecast 20 Source: chart “MONTHLY PRICES”, wkb “AO_6P_11112008_ABL_HD MONTHLY POWER PRICE FORECAST.XLS”

  21. Current Electricity Price Forecast 21 Source: chart “MONTHLY PRICES2”, wkb “AO_6P_11112008_ABL_HD MONTHLY POWER PRICE FORECAST.XLS”

  22. Current Conditions (ICE) 22 Source: chart “Chart 1”, wkb “ICE MONTHLY AVERAGE 2005-2008.XLS”

  23. Current Electricity Price ForecastOn- and Off-Peak Average 23 Source: wks “Electricity Price Futures”, wkb “Illustrations and graphs from L805 after extraction.xls”

  24. Current Electricity Price Futures 24 Source: wks “Electricity Price Futures”, wkb “Illustrations and graphs from L805 after extraction.xls”

  25. Deciles for Electricity Price 25 Source: wks “EP Deciles”, wkb “Illustrations and graphs from L805 after extraction.xls”

  26. Close-Up on Deciles 26 Source: wks “EP Deciles”, wkb “Illustrations and graphs from L805 after extraction.xls”

  27. Overview • Construction Costs • Electricity Price Uncertainty • Economic Retirement • Variable Capacity for Existing Units 27

  28. Retirement Decision • Prescribed number of evaluation and mothball periods for each plant • If decision criterion, using only forward-going FOM is negative, begin evaluation • Once evaluation period is over, begin mothball state (no generation) • Once mothball periods have passed, decommission and incur cancellation cost • If any period yields a positive decision criterion value, reset all the counters above 28

  29. Issues • What kind of costs, in addition to normal operating costs, would be incurred in each phase? • Is there a better representation of the retirement decision? 29

  30. Overview • Construction Costs • Electricity Price Uncertainty • Economic Retirement • Variable Capacity for Existing Units 30

  31. New Capability • Only for existing plants with a single cohort • Variable capacity could be stochastic • Representing uncertainty about whether anticipated capacity will materialize • Each future’s capacity different • Can increase or decrease during over the study within a future • Capacity would affect only FOM costs • Could be used to model RPS development uncertainty, if restricted to the case of increasing capacity over the study 31

  32. Issues • Are there other aspects of a plant with varying capacity, such as construction cost? 32

  33. End 33

  34. CERA Cost Components 34 Source: 2008 Nov 17 CCAF Power Tabular Data _ MJS.xls, worksheet “Table 2”

  35. CERA Cost Components 35 Source: 2008 Nov 17 CCAF Power Tabular Data _ MJS.xls, worksheet “Table 2”

  36. Existing Features • Market-Driven Planning • A feature we do not use for our planning: unplanned market additions, at a higher price • Early construction – response to circumstances • Existing decision based on market viability and prospective adequacy of the system • Mothball and cancellation options • Option to incur all expenses in the first period 36

  37. New Features • Overnight construction cost uncertainty • Applies to mothball and cancellation costs as well • Distinct costs if mothballed or cancelled in the first period of early construction • Fixed operations and maintenance (FOM) cost uncertainty • Capacity uncertainty • Decision criterion re-evaluated with revised going-forward cost only 37

  38. New Features • Economic retirements • Based on covering FOM, optionally FOM with uncertainty • Internal, cohort-specific calculation of decision criterion • VOM uncertainty optional • Uncertainty in availability for immature technologies, transmission completion, u.s.w. • Distinct construction cost rates in early and late phases • Cohort-specific stochastic forced outages 38

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