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North American Power Market Update Presenters: Jean Agras, Filsinger Energy

North American Power Market Update Presenters: Jean Agras, Filsinger Energy Debbie Kross, Credit Agricole-CIB. Review of US Merchant Power Markets A bearish load growth forecast. * Source: IHS-Cera, December 2012. Wall Street Journal, January 2, 2013 U.S. Electricity Use on Wane

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North American Power Market Update Presenters: Jean Agras, Filsinger Energy

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  1. North American Power Market Update Presenters: Jean Agras, Filsinger Energy Debbie Kross, Credit Agricole-CIB

  2. Review of US Merchant Power Markets A bearish load growth forecast * Source: IHS-Cera, December 2012 Wall Street Journal, January 2, 2013 U.S. Electricity Use on Wane “The Energy Information Administration is projecting that electricity use in the U.S. will rise an average of just 0.6% a year for industrial users and 0.7% for households through 2040.”

  3. Review of US Merchant Power Markets Gains in efficiency, shifts towards services and less energy-intensive manufacturing are to blame Energy Use per capita and per dollar of GDP and emissions per dollar of GDP, 1980-2040 (index: 2005=1) . * Source: EIA Annual Energy Outlook 2013 Early Release Overview

  4. Review of US Merchant Power Markets After the shale revolution, the fuel transition continues Electricity Generation by Fuel, 1990-2040 (trillion kWh/year) . US Energy Production by fuel, 1980-2040 (quadrillion Btu) . * Source: EIA Annual Energy Outlook 2013 Early Release Overview • Annual growth in electricity generation projected to be +0.9% on average through 2040 • Coal to gas switching driven by economic (first) and regulatory (post 2016) reasons • Renewable generation (excluding hydro) accounts for 32% of the overall growth in electricity generation from 2011 to 2040.

  5. Review of Merchant Power Markets Natural Gas Prices Source: FEP and Velocity Suite.

  6. Review of US Merchant Power Markets Looking at North American Power Markets Weather-related peaks and Scarcity pricing Market Size Electric Transmission Historical Fuel Mix Imports / Exports Current supply/ demand imbalance Cost of New Entry Gas transmission / proximity to coal mines and rail/barges MARKET CO2 and other state environmental regulations Efficiency / Demand Response PUC controls Centralized capacity market or Bilateral (utility-centric)? State RPS mandates Capacity market depth Reserve margin requirement Locational pricing

  7. Review of US Merchant Power Markets Key North American markets snapshot

  8. Review of Merchant Power Markets PJM Merchant Power Market – Energy demand characteristics Source: FEP and Velocity Suite.

  9. Review of Merchant Power Markets PJM: Capacity historical results and looking ahead CAPACITY CLEARING PRICES (in $/MW-day) at the BRA Auctions • Zonal price divergence • Demand response • Change in the CONE • FERC approved PJM’s Minimum Offer Price Rule in April 2011 • Coal retirements / environmental compliance • New renewable generation • New transmission

  10. Review of Merchant Power Markets ERCOT Merchant Power Market – Energy demand characteristics Source: FEP and Velocity Suite.

  11. Reserve margin continues to tighten – expected to drop below 13.75% by 2014 Scarcity pricing: ERCOT considering another raise in the High System wide Offer (wholesale electric rice) Cap from $4,500/MWh to $9,000/MWh ERCOT saw the financing of two large new built merchant assets in 2012: Panda Temple and Sherman (758MW each) Review of Merchant Power Markets ERCOT continues to heat up

  12. Review of Merchant Power Markets NYISO Merchant Power Market – Energy demand characteristics Source: FEP and Velocity Suite.

  13. High profile retirements due to economics and/or bankruptcies in 2012 CSAPR vacation Regulatory and political pressure not to renew Indianpoint 2&3 license (2GW) Modest increase to the reserve margin from 15.5% to 16% in May 2012 FERC ordered recalculation of buyer side mitigation rules for Astoria II and Bayonne using Oct 2010 data. Astoria was using 2008 number. Non retroactive. Review of Merchant Power Markets Improvement of the capacity market; low energy margins prevail outside NYC

  14. Review of Merchant Power Markets CAISO Merchant Power Market – Energy demand characteristics Source: FEP and Velocity Suite.

  15. Resource Adequacy market remains soft Carbon prices (effective Jan 1, 2013): a weaker than forecast start Renewable projects continue to dominate new construction Pressure on transmission – will the “Western REZ” lines get built? Ambitious RPS – but 75% must be sourced in-state – limiting opportunities for generators in other utility-centric, oversupplied WECC markets. Review of Merchant Power Markets CAISO and WECC markets

  16. Review of Merchant Power Markets New England Merchant Power Market – Energy demand characteristics Source: FEP and Velocity Suite.

  17. Review of Merchant Power Markets Capacity Retirement by Region • 49 GW of planned retirements by 2020 • 15 GW each in PJM and SE & SPP • 33 GW of coal; 12 GW of gas • 42 GW retired from 2008 to 2012 • 10 GW each in PJM, SE & SPP, and ERCOT • 23 GW of gas and petro; 17 GW of coal Source: FEP and Velocity Suite.

  18. Panel Discussion Moderator: Debbie Kross, Credit Agricole-CIB • Panelists: John Foster, CPV Mark Voccola, EIF Jay Frisbie, TCM David Rhodes, Southwest Generation

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