0316 munropftexas

Emails, Stephen Munro, policy and international analyst, Bloomberg New Energy Finance, March 23-24, 2016

From: Selby, Gardner (CMG-Austin)

Sent: Monday, March 21, 2016 4:09 PM

To: 'bnef-media’

Subject: Texas reporter, urgent inquiry for a fact check

Good afternoon. I write because a White House spokesman, Frank Benenati, invoked BNEF as a useful source in analyzing/confirming President Obama’s recent statement in Dallas: “Right now, here in Texas, wind power is already cheaper than dirty fossil fuels.”

I seek answers to these questions for our fact check: How would BNEF analyze the current costs in Texas of generating power from wind?

How about from fossil fuels?

Is the president’s statement accurate? Why or why not?

Who or what else would you recommend we consult?

Thanks for any speedy help.

W. Gardner Selby

Reporter / News

Austin American-Statesman

PolitiFact Texas

From: wgselby

At: Mar 23 2016 12:38:31

To: Stephen Munro (BLOOMBERG/ BNEF)

Subject: Re:Following up

As mentioned, I am interested in BNEF’s full analysis of the president’s claim in Texas. Also, I am seeking the appropriate coal and natural gas prices for January 2016 to compare to the $43 MWh figure you shared for wind in the Panhandle.

Below, too, I am pasting the reply I fielded from the US Department of Energy. Any thoughts on that?

In our phone interview, you said that since early 2013, the price of wholesale new wind in the Southwest Power Pool has fall below the median price for all electricity fuels. You said, though, this wasn’t a comparison that considered established/historical power plant electricity costs. (Feel free to elaborate on that.)

You said the price of wind is low in TX because the wind blows a lot there. You said the $43 per MWh “levelized cost” in the Panhandle contrasts with the US Central Scenario (?) cost of coal of $74.70 though you also said that’s taking the Panhandle cost of wind and comparing it to the coal cost for a much bigger region. Does that bigger region fold in Texas or part of Texas?

You said the president’s statement fully holds up; a full True, though that’s a judgment based only on the price of wind in the Panhandle.

You said the reason the price of wind is lower than the median price of new electricity from all sources is the price of wind in the Panhandle has dropped precipitously while the price for electricity from all sources has stayed steady. Could you quantify that at both ends?

I failed to ask how your analyses take into account the $23 per MWh wind tax credit. Does the credit hinder or otherwise affect the accuracy of the president’s statement? Why or why not?

Anything else to consider?

Thank you.

W. Gardner Selby

Reporter / News

Austin American-Statesman

PolitiFact Texas

US DOE RESPONSE

From: Selak, Dawn

Sent: Wednesday, March 23, 2016 9:51 AM

To: Selby, Gardner (CMG-Austin)

Subject: RE: More

My apologies for the delay – I was actually just writing you an email.

We have not yet published the 2015 Wind Technology Market report but we are working on it and expect to publish it later this year.

On page 60, the “Important Note” does caution against a comparison—to match the long-term, levelized wind PPA prices against the shorter-term, fluctuating cost of wholesale electricity prices with fossil fuels like coal. But what we are talking about here is “right now”, which clearly shows a lower wind cost than coal in Texas. And the note concludes by saying: “Nonetheless, these comparisons still provide some sense for the short-term competitive environment facing wind energy, and how that environment has shifted with time.” The President’s quote was about the short-term competitive environment, and one could also clearly argue that the market environment has shifted with time more towards wind as price-competitive with coal in Texas (and other fuels in other regions as well). The note was also intended to make the point that there are a number of other costs, benefits and impacts of renewable wind that a simple cost comparison of levelized long-term wind PPA prices with either yearly wholesale electricity prices or forecasts of the fuel costs of natural gas-fired generation naturally can’t quantify - such as the inherent benefit of a constant price for wind established by a long-term PPA as opposed to fluctuating costs of natural gas, coal and other fossil fuels as the markets are affected by a variety of factors.

As Frank noted, the average executed price of wind power purchase agreements was $23.50 / MWh in 2014. And average nationwide wind costs are often even significantly higher than the costs in Texas, given higher wind speeds that drive down the cost of wind energy. You will see on page 57 of the Wind Technology Market Report that the average levelized PPA price for wind in the Interior region (which includes Texas, among other states, and is where much of U.S. wind project development occurs) was just $22.40 /MWh in 2014. Comparing both of these figures with the estimated cost of coal around $59/MWh (according to the 2015 BNEF and other sources), the cost of wind (including in Texas) is less than the cost of coal even with the $23 / MWh PTC factored into the mix.

Best,

Dawn

3:12 p.m.

March 23, 2016

My replies in red:

Based on our data, the president is correct when he’s referring to new wind generation in the Texas panhandle. Since 2013, we have observed that the cost of new Power Purchase Agreements for wind energy has fallen below the average around-the-clock wholesale prices in the wholesale pool that covers much of the wind power generation in the panhandle. Average around-the-clock wholesale prices include power generated from fossil fuels, renewable sources and uranium.

As of the second half of 2015, we observed a levelised cost of power of $43/MWh in PPAs for wind in the utility region including much of the Texas panhandle. For competitive reasons, we won’t release publicly our observations of the amount by which the wind price undercut that of competing fuels.

Yes, the LCOE prices I referred to were for new contracts, which may represent generation just coming on line or expired contracts rolling over. The only change I’d make to what I said is to substitute “average” for “median.”

The numbers you quote are correct.

The central scenario refers to the Southwest Power Pool, which includes Kansas, parts of Oklahoma, New Mexico, Arkansas and Louisiana as well as most of the Texas panhandle and some of East Texas. See map at https://en.wikipedia.org/wiki/Eastern_Interconnection#/media/File:NERC-map-en.svg.

The wholesale price of wind power is notably low in the Texas panhandle and in other parts of the SPP because that region features an extraordinary wind resource and because the costs of land and construction are lower than elsewhere. Developers have taken advantage of this to install advanced, large capacity turbines.

You said the president’s statement fully holds up; a full True, though that’s a judgment based only on the price of wind in the Panhandle.

That is correct. I would add that we are observing the price of new wind generation continuing to fall in the SPP relative to average wholesale prices.

I addressed the wind-cost factors above.

It’s more accurate to say that the average wholesale power price has fluctuated around a relatively flat line since 2012. The price of “non-intermittent” power sources such as coal and gas is subject to less variation because, over a given time period, most of it is delivered under long-term contracts at fixed prices. Over a longer term (since 2008), the wholesale price of all electricity in the mid-continent has drifted slowly downward. This is probably due to flat or declining demand combined with steadily falling prices for natural gas. But the price of wind generation has fallen faster and is continuing to fall.

I failed to ask how your analyses take into account the $23 per MWh wind tax credit. Does the credit hinder or otherwise affect the accuracy of the president’s statement? Why or why not?

In much of the mid-continent region, where most wind power consumed in Texas is generated, the wholesale price of new wind power is less than that of new fossil generation even before the Production Tax Credit is deducted. That is not the case elsewhere in the US, where the $23 per MWh credit is the reason that wind can be sold for less than fossil fuels.

Anything else to consider?

It is likely that some wind power sells at a discount to fossil power because wind is an intermittent resource. Utility resource planners and regulators place a higher value on power that can be used to serve 24/7 demand. In Texas, which for many years has faced lower-than-recommended reserve margins (unused generation capacity available in the event of an unforeseen outage), this has been especially true. We believe that such a value perception will erode over time as more wind capacity is built and dispatch mechanisms become more sophisticated.

Stephen Munro

Bloomberg New Energy Finance

From: wgselby

At: Mar 24 2016 14:41:36

To: Stephen Munro (BLOOMBERG/ BNEF)

Subject: Re:Brief follow-up

A wrinkle: A coal industry spokesman below notes a report that concludes older energy plants cost less per MWh than wind and such. Has BNEF analyzed this report? The link is below.

From: Russ Keene

Sent: Tuesday, March 22, 2016 4:37 PM

To: Selby, Gardner (CMG-Austin)

Subject: RE: Urgent inquiry for a fact check

Gardner, …

If helpful, we recommend that any claims about the comparative price of electric energy sources must be checked to make sure the comparisons are "apples to apples." Two repeated mistakes that policy makers and our friends in the press seem to make are:

1. Comparing prices for new power projects but implying that such a comparison should inform whether to retire existing assets. Existing assets, especially coal, are nearly always more affordable than new coal, gas, or renewables because the significant capital costs associated with power projects will have been covered over the years through past rates. A study that addressed this issue can be found at:

http://instituteforenergyresearch.org/wp-content/uploads/2015/06/ier_lcoe_2015.pdf

2:33 p.m.

March 24, 2016

1. There may be old fossil power plants in the SPP and ERCOT regions that can deliver electricity for less than the price from a new wind plant, but the price of new wind power has been less than average wholesale power prices in the Midcontinenet for several years and would certainly be lower than the price from a new coal plant.

The reason we compare the price of new wind to the wholesale price (which includes power generated by renewables, fossil and nuclear) is that there's not enough data on new coal to make a comparison. We know of only one new coal project in the Southwest Power Pool, an existing plant expansion in Kansas that has not yet secured a permit.

If it were possible to compare the price of new wind to the price of new coal, we believe that that the coal-generated power would be higher because of the higher operating costs of a coal plant and the higher up-front costs of making it compliant with current and proposed pollution regulations. In a September 2015 analysis, we calculated the midpoint cost of power of a new US coal plant at $75 per MWh. While the price would probably be less in the Midcontinent based on lower project and operating costs, it still would be much higher than the low-to-mid-$40 per MWh range for new wind in that region.

2. I think I addressed the subsidization issue in my answer,

"In much of the mid-continent region, where most wind power consumed in Texas is generated, the wholesale price of new wind power is less than that of new fossil generation even before the Production Tax Credit is deducted. That is not the case elsewhere in the US, where the $23 per MWh credit is the reason that wind can be sold for less than fossil fuels."

From: wgselby

At: Mar 24 2016 15:47:51

To: Stephen Munro (BLOOMBERG/ BNEF)

Subject: RE: Re:Brief follow-up

What is the cited report getting wrong?

3:07 p.m.

I'm not able to delve into the report, but I see that its scope is "existing generation resources."

Existing generation must eventually be replaced, and coal generation is being retired faster than any other source. The relevant policy question is, "What is the lowest-cost new power generation?" Our research indicates that in the Midcontinent, the answer is "wind."

That is also true in other parts of the US, but it is most pronounced in the country's midsection because of the combination of plentiful wind and relatively low costs of land and construction.

See http://www.utilitydive.com/news/coal-power-declines-in-southwest-power-pool-aided-by-cheap-gas-wind/411701/ .