Download Keith McGrane - Case study: Storage in Ireland

CAES Study: Storage in Ireland
Commercialising storage, facilitating regulatory and
market measures
3rd November 2009
Agenda
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Introduction to Gaelectric
Geological Risk
Technology Risk
System and Financial Modelling
Project viability and risk-return
Facilitating Commercial Development
EU Grant Funding?
Next Steps
Gaelectric in Ireland
• Founded 2004
• Approx. 60 employees
• 120 MW in planning in NI
• 85 MW in planning in ROI
Gaelectric Montana
Montana Transmission
Montana Wind
Montana
Harlowton
Idaho
Montana Line
Nevada
Colorado
California
Size denotes
number of Mw
Transmission Line
Las
Vegas
Larne: Unique geological potential for CAES
(KBB-UT)
Manageable risk but investors require high returns
30-40% IRRs typically for exploration risk!
Technology Risk
• Two existing plants today (Huntdorf and Alabama)
• 290MW and 110MW
• Commissioned 1978 and 1991
• Developed to provide flexibility to nuclear plant and coal portfolio
• Proven technology, however last project was constructed in 1991
and Ireland’s first would carry a risk premium
System and Financial Modelling
Wind drives CAES
Shadow Prices
€/MWhr
Energy price information
Increasing
spreads
€70.00
€60.00
€50.00
€40.00
Average compression cost
€30.00
Average generation price
Average sell-buy price
€20.00
€10.00
€2015 150MW 0.65 energy
ratio, 14GW GB wind, 4GW
Renewables 4,000 MW
All-Island wind
Year
2020 150MW 0.65 energy 2025 150MW 0.65 energy
ratio
ratio
8,000 MW
6,000 MW
Annual System Benefits
Feature
Annual Benefits 2015 to 2020
CAES Size
150
Reduced System Costs
€6-7mln (up to €42mln)
Reduced Emissions
50,000 tonnes CO2
Curtailment
Reduced the need to curtail
wind
Key Results
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Reduce energy ratio - more utilisation
More wind - more utilisation
Less optimal plant mix – more utilisation
150 MW plant utilised more than a 300 MW
plant
• Societal benefits
– Reduced system costs
– Reduced emissions
– Reduced wind curtailment
Uncertainties with Financial Modelling
• Number of key challenges
– What will plant mix be in 2020?
– What type of market will exist?
– How much wind will be on the system?
– How exactly will wind affect prices?
– What will the regulatory framework be for new
plant?
– How will the value of AS evolve over the coming
decade?
– How could we bid a CAES plant into SEM?
Energy Revenues
Trade-off between compression and
generation in demonstrating availability for
capacity payments
Bidding strategy developed to optimise
capture of this value (80-90% possible)
Recent independent academic studies - Lund et al. (2009)
and Gatzen (2008) also demonstrate this
Energy Revenues
WILMAR with optimised
bidding strategy
Tipping point
Grow returns with bid strategy
Negative
NPV
2,000MW
Positive
NPV
4,000MW
6,000MW
Economic dispatch
from WILMAR
Project Viability - Capital Cost and
Revenues
Revenues
€mln
150
How much left to yield adequate
return post operating costs
depends on capital cost!!
High capital cost would push out
project viability towards 2025 to
generate adequate returns
Capital cost coming in at €850k
indicates viability from 2015/16
with 4,000 – 6,000 MW wind
125
100
€1mln/MW
Ancillary Revenue
Capacity Revenue
75
Energy Revenue
€850k/MW
Operating costs
50
25
0
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
Year
Summary
• Results demonstrate that capital cost, energy ratio and wind are major drivers for
energy revenues – optimise each based on site, system and market specifics
• Capital cost estimates of €850K/MW with wind penetration level of 4,000MW (2015)
demonstrates project viability with adequate returns
• Capacity revenues are likely to decline over the next decade, whilst Ancillary Service
revenues are expected to increase (“new ancillary services”) – revenue uncertainties
• With sensible and conservative assumptions CAES in Ireland could demonstrate
project IRR’s (i.e. Debt financing model) of up to 25% which would be a commensurate
return for early stage geological risks
• Higher returns possible if portfolio benefit of CAES adds value to wind assets, reduces
exposure to system constraints, hedge price risks and monetise system benefits –
extrinsic value elements.
Facilitating Commercial Development
1. Ability to extract value from the market will require a
regulatory/bidding rule for such a plant;
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Development of CAES within the Trading and Settlement code
Hybrid plant where components could be registered separately
2. Banking a merchant plant would be challenging;
• Cashflow risk would have to be mitigated by contracted revenue streams with
credit worthy counterparties
• CAES could contract out certain grid services to the TSO (i.e. congestion
management) under bi-lateral contracts
• CAES could toll with existing incumbents for flexible services and mitigate
wind impacts on their portfolio but based on availability payment
• Option to develop plant on a PPP basis with grant funding – framework for
transport in place
• Involvement of EIB – first projects not for commercial banks
An EU funding Model?
US DOE Funding for CAES
• Advanced Research Project Agency-Energy (ARPA-E)
– Grants of up to $20mln permitted (80% federal, 20% match funding)
– Project to demonstrate the cycling of compressed air in a reservoir
– $400mln to be allocated in April/May 2010. Met directly with US DOE
and follow-up meeting in Washington in Q1 2010.
• American Recovery and Reinvestment Act 2009
– Grants of up to $60mln permitted (50% federal, 50% match funding)
– To involve RTOS, ISOs, IOU’s as project, investors as project
collaborator (team member/financial contributor)
– Integrated teams involving utility, state, national labs, investors
Next Steps
• CAES Larne
– Load-flow modelling of CAES – Locational benefits of CAES
for NI
– Developing a framework with stakeholders for entry of
CAES into the system/market
– Q4 2010/Q1 2011 to commence drilling of salt
• CAES Montana
– Well positioned for federal funding of up to $5mln to
demonstrate air storage in a depleted gas field
– World first and transformational for bulk energy storage