Energy Consulting - Case Studies
California Regulatory Analysis
Over the last several years the rules and regulations associated with the California RPS standards have been a moving target. Energy GPS has provided ongoing support to a large renewable energy developer helping them to understand the impact that changing regulations will have on their development portfolio. For example, as the California legislature and the CPUC were re-drafting the rules around renewable power imports, Energy GPS provided the client with advice on how the rule changes would impact out-of-state projects and recommended advocacy positions to the client’s regulatory staff. When the rules were finalized, Energy GPS advised the client on the impact that the rule changes would have on existing and development assets. Our advice enabled the client to effectively advocate for the rules that would be most beneficial to them and to clearly understand the impact of the final rules on their portfolio.
Landfill Gas Analysis
An international energy company asked us to assist in its analysis of a landfill natural-gas acquisition in Pennsylvania. The project in question was operational and producing pipeline-quality natural gas. Our client wanted us to do three things: (1) determine the value of the natural gas commodity, (2) determine the value of the renewable energy credits and other environmental attributes, and (3) build a flexible spreadsheet model to calculate potential future revenue streams given different assumptions. Determining the value of the natural gas was relatively straightforward. We then performed due diligence on the project’s natural gas specifications and transportation agreements to ensure that it could deliver natural gas into the wholesale markets. Then, we used a combination of NYMEX and locational-basis-forward price curves to estimate the value of the natural gas at its delivery point. We performed a high-level review of state Renewable Energy Credit rules and determined that landfill natural gas qualifies for several of these credits. We then used our network in the energy trading business to assess what the forward value of the renewable energy credits could be. Finally, we built a spreadsheet model that enabled the client to calculate monthly revenue streams under a variety of input assumptions. The client then linked the Energy GPS revenue model into its project proforma to perform its valuation of the project.
Market Study for New Biomass Fuel Technology
Energy GPS was retained by a firm that had patented technology for converting crop waste into pellets that can be blended with coal and burned in coal-fired power plants. Under most state renewable portfolio standard rules, the proportion of power produced from the pelletized biomass waste is considered renewable power. We developed a model to compare the cost of producing power using biomass pellets with other renewable and fossil technologies and researched the cost of producing power using wind, solar and biomass technology. We also calculated the cost of producing “brown” power using coal and natural gas under a variety of fuel-price assumptions. Our resulting market study compared the costs of the various generation technologies under a variety of input assumptions (coal price, natural gas price, interest rates, tax incentives) and ultimately became a marketing tool for the client as it raised additional equity for a pilot plant.
Merchant Wind Portfolio Optimization and Risk Management
Energy GPS was approached by a company with a new merchant wind project in ERCOT – their first merchant wind facility. They needed advice on how to structure an Energy Management Agreement, how to develop a Risk Management Plan, and how to optimize the value of their resource. Energy GPS staff worked closely with the client to negotiate a suitable energy management agreement. We helped the client to define their needs and were intimately involved with drafting and negotiating the Energy Management Agreement. We also helped them to develop a Risk Management Plan using industry best practice standards. Finally, we provided the client with the tools and analysis that will enable them to identify suitable hedging and optimization strategies, enabling the client to minimize risk while maximizing the potential value of the wind resource.
Pumped Storage Analysis
Prior to making an investment in pumped storage projects in the western U.S., an international private equity firm wanted a study that would tell them two things: the sources of revenue they could expect from a merchant-pumped storage facility (they planned on a long-term contract with the grid operator but wanted to know the merchant economics since this would impact the capacity payment required from the grid operator), and the economic returns of pumped storage versus other technologies that could provide flexible response to the grid. We worked closely with the client to define the operating parameters and costs associated with pumped storage and determined that it would earn two merchant revenue streams: one from capitalizing on the spread between off-peak and on-peak electricity prices and the other from providing regulation-up and regulation-down services to the grid operator. We built a “back-cast” and a “forecast” model to calculate the gross revenue that could be expected from a pumped storage unit. We used historic California ISO data (the location of one potential project) to estimate how much gross-margin pumped storage would have earned from 2006 to 2009. While electricity prices are largely driven by natural gas prices, we performed statistical analysis to determine the drivers of regulation up/down prices. With the results, we performed a Monte Carlo analysis to model potential future electricity and ancillary service prices and the corresponding gross margin for pumped storage. We then performed a comparative analysis between several competing technologies using the same historical and Monte Carlo methodology. Our analysis gave the client insights into the key drivers of electricity and ancillary service prices, as well as the range of potential outcomes under a variety of future scenarios. They also gained an understanding of the returns to pumped storage projects relative to other technologies.
A number of states have RPS carve-outs for solar RECs. Typically, these carve-outs involve a complex set of rules that govern the supply and demand for solar projects. The market structure in these jurisdictions typically does not lend itself to executing long term PPA’s. As a result, developers are forced to sign shorter term transactions, leaving significant exposure to lower SREC prices in the future. Energy GPS has performed work for several clients in this area. We have developed models that estimate the ongoing supply and demand balance in numerous states. These models help the client understand what the value of solar REC’s will likely be in the future so that they can evaluate long term project economics.
Transmission Queue Analysis
Energy GPS was approached by a client with a large number of solar projects under development in California. With more than 60 GW in the California ISO interconnection queue, the client needed to know which of its projects had the best possibility of successfully navigating through the interconnection process. Specifically, the client had to post a significant amount of money with the California ISO in order to continue the interconnection process, and they needed to know which projects to move forward with. Energy GPS developed a model that enabled the client to evaluate the competitive position of each of its projects in California. We culled data from the CPUC, the CAISO, and the California Energy Commission to build a model that revealed the major transmission constraints associated with each project and identified nearby competing projects in the queue. The Energy GPS analysis provided vital insights that the client used to determine which projects to move forward with. Energy GPS has performed similar transmission queue analyses in other markets.
Valuation of Peaker Projects in California
Energy GPS was retained by a private-equity investor who owned a portfolio of small peaking plants in the California market. The plants, which had been under long-term contract, would become merchant plants in the near future. In order to assess alternatives, the client wanted to know what revenue stream to expect from the projects over the next 10 years. Our task was to develop a revenue and gross-margin model for the fleet of plants. To accomplish, we performed both a “back-cast” and a “forecast” model for the plants. Using historic California ISO energy and ancillary service prices we calculated how much money the projects would have earned had they been merchant projects during the last five years. Our model calculated energy margins, ancillary service revenue, and capacity factors for the plants. For the forecast model we used statistical analysis to develop probability distributions of forward prices. Since peaking plants operate at very low capacity, we had to carefully estimate the distribution of the most expensive electricity prices. We performed a Monte Carlo analysis to obtain a range of future-energy and ancillary-service margins. Our analysis incorporated sensitivity analysis for natural gas prices so the client could better understand the range of potential outcomes given different assumptions. Our analysis provided the client with the information they needed to enter long-term contract negotiations for the output of the projects.
Energy GPS was approached by a company with an innovative approach to forecasting short term wind output. While the company had great wind forecasting technology, they needed help quantifying the value to clients of an improved forecast and identifying target customers. In short, they needed help trying to figure out how to take their technology from the lab into the marketplace. Energy GPS performed an analysis where we quantified the value of an improved wind forecast in several major US wind markets including MISO, CAISO, ERCOT, and the Pacific Northwest. We worked closely with senior management to define the company’s value proposition and to identify markets and clients where their wind forecast would generate the most value for potential clients. We developed tools that they could use to calculate value creation and provided research on the forecast needs of potential clients.
Energy GPS was approached by a major Pacific Northwest utility that wished to offer wind integration services to clients. The client asked us to help them to build a model that would estimate the impact of integrating wind projects into its balancing authority. Working closely with the client, Energy GPS crafted a Monte Carlo simulation model incorporating reliability criteria, generation availability, changes in load, and additional wind resources. The model then provided statistical estimates of the impact of different amounts of wind resources on CPS1 and CPS2 reliability criteria. As a result of this analysis, the client was able to understand how much wind they would be able to integrate with existing generation assets.