1. GCSI-Natsource LLC www.gcsi.ca www.natsource.com Diversifying the Mix: A Workshop on Alternatives to Conventional Generation Technology Westin Hotel Ottawa, Ontario November 25 2002 Session 2: Economic Fundamentals Michael Margolick, Senior Associate

2. GCSI-Natsource LLC www.gcsi.ca www.natsource.com Outline A scenario Transmission Kyoto and green tags Reliability and storage Incentives and programs Public attitudes and the market

3. GCSI-Natsource LLC www.gcsi.ca www.natsource.com A scenario natural gas prices up [2 years] air quality/climate change [2 – 5 years] hydrogen technology [5 – 10 years] mass production and energy infrastructure [10 – 20 years] capital stock is energy-efficient [5 – 100 years]

4. GCSI-Natsource LLC www.gcsi.ca www.natsource.com Transmission Independent transmission decisions essential to – Decide on connection, yes or no – Build the connection – Define the point of interconnection – Allocate costs – Set terms of operation Utility-scale connections for utility-scale plants

5. GCSI-Natsource LLC www.gcsi.ca www.natsource.com Kyoto and green tags Benefits must be monetized – optics and voluntary green purchases limited GHG survey: ~US$10/tonne CO 2 in 2010 Effect of DET on renewables depends on market structure – avg vs marginal cost pricing

6. GCSI-Natsource LLC www.gcsi.ca www.natsource.com Reliability and storage Run-of-river and wind: generation system impacts small if transmission adequate Storage hydro: great advantage Contribution to load serving should be treated statistically Offshore wind will drive hydrogen technology

7. GCSI-Natsource LLC www.gcsi.ca www.natsource.com Incentives and programs Canada is well behind US and EU Programs atomized and restrictive Tax-linked incentives –side-effects –lag technological change –high transaction costs –uncertain outcomes Technology, not Canadian technology Key role to buy down risk – industry is conservative

8. GCSI-Natsource LLC www.gcsi.ca www.natsource.com Public attitudes People do not understand relative magnitudes Green energy is good in the abstract a small business concept tainted if built by big oil and utilities

9. GCSI-Natsource LLC www.gcsi.ca www.natsource.com A definition of success: “nothing special” The industry will be successful when alternate energy becomes just another source of undifferentiated wholesale electricity commodity