Getting to 100% “Clean Energy” Independent Energy Producers Association’s 37th Annual Meeting Fallen Leaf Lake, South Lake Tahoe, California October 3, 2018 Arne Olson, Senior Partner

Senate Bill 100 and Executive Order B-55-18 continue California’s leadership on climate SB100: EO B-55-18 It is the policy of the state that eligible renewable energy resources and zero-carbon resources supply 100% of retail sales of electricity to California end-use customers and 100% of electricity procured to serve all state agencies by December 31, 2045.

Key provisions of SB 100 What does SB100 say? What does SB100 not say? Stage agencies should plan for plan for 100% of retail sales to come from renewables and zero-carbon resources by 2045 60% of retail sales should come from renewables by 2030 “Transition to a zero-carbon electric system” should not increase greenhouse gas emissions increases elsewhere in the western grid What does SB100 not say? California power system cannot emit any carbon

What is the definition of 100% Zero Carbon Energy? SB 100 refers to “100% of retail sales” Production from eligible resources ÷ Retail sales Similar definition as current RPS Allows in-state gas generation and imports of unspecified power, as long as Zero Carbon Energy production >= retail sales over a compliance period RPS accounting in California (and elsewhere) allows netting, but does not line up exactly with carbon accounting Exports: RECs retained, GHG attribute lost Unspecified Imports: No impact on RPS, but GHGs counted Electric sector CO2 emissions under “100% Zero Carbon Energy”: 0-20 MMt

Results from various E3 modeling exercises How would we get to 100%? Results from various E3 modeling exercises

Analysis of high renewable scenarios This section draws from various E3 modeling exercises over the years CPUC, CEC, Calpine, Nature Conservancy, others Studies indicate that California can meet its goals, at a significant cost, by continually investing in solar and energy storage Cost-containment measures will become increasingly important as solar penetration increases These include load shifting and access to alternative sources of Zero Carbon Energy supply

Key questions that will shape the physical portfolio Question 1: How much electric load will California utilities serve in the 2040s? Question 2: Will gas generation and imports be available for firming? Question 3: How do alternatives to solar such as geothermal and wind factor in? Question 4: Is there enough land for all of the solar and wind resources that will be needed? Question 5: What if solar and battery costs fall through the floor? Question 6: Can the California market withstand many hours of negative pricing?

Question 1: How much electric load will California utilities serve in the 2040s?

Electrification will result in significantly higher electric loads (California example) Electrification of transportation, buildings and industry aids in decarbonization of the California economy Electric load may increase by 50% relative to Current Policy Scenario Existing and New Electricity Loads under California 80% GHG Reduction Scenario Electrification Industry Transportation Buildings Existing Loads Other

Electricity portfolio under two bookend cases High Electrification scenario results in over 500 TWh by 2050 High Biogas scenario has less building electrification and results in just over 400 TWh in 2050 Difference of 100 TWh = 41 GW of solar + 29 GW of batteries

Question 2: Will gas generation and imports be available for firming?

Storage Duration (hrs) Using gas generation for firming will be a key cost containment strategy as renewable penetration increases Least-cost 2050 scenario has 23 GW of gas for capacity 2050 Gas Resources 23 10 2050 Selected Resources 6 18 12 Storage Duration (hrs) Reducing gas capacity below that level requires a significant increase in solar and storage

Using gas generation for firming will be a key cost containment strategy as renewable penetration increases 2050 Incremental Revenue Requirement 2020 RR: $50b 2050 Base RR: $100b Further Reducing gas capacity adds significant cost to the system… Base 10 GW Gas 0 GW Gas Marginal carbon cost: $6500-7500/tonne … but does little to save carbon

Question 3: How do alternatives to solar such as geothermal and wind factor in?

A diverse set of renewable integration solutions reduces the cost of achieving 100% Clean Energy In-state resources like geothermal and offshore wind become interesting above 60% RPS Accessing high quality out-of-state wind has already been demonstrated to reduce cost significantly This will require coordination of resource procurement, transmission development and system operations with neighboring jurisdictions 2045 Installed Capacity (MW) 2045 Installed Capacity (MW) 2045 Average Rate (¢/kWh) 2045 Average Retail Rate (c/kWh) Diverse Sensitivity includes 10 GW of out-of-state wind, higher exports, flexible loads, 10% RECs and reduces total electricity bills by $17 Billion relative to Base Case 100% RPS+ scenario assumptions

Question 4: Is there enough land for all of the solar and wind resources that will be needed?

In-state case procures huge amounts of solar from high-quality CREZs California Resources External Resources

22,370 MW of Distributed Solar Built A more balanced case builds wind and solar on non-conflict lands throughout the West California Resources External Resources 22,370 MW of Distributed Solar Built

Question 5: What if solar and battery costs fall through the floor?

100% RPS+ Sensitivity Summary: Low Battery and Solar Costs Low-cost batteries displace pumped storage and reduce solar overbuild slightly; rates decrease by almost 5 cents due to cheaper solar and batteries 2045 Installed Capacity (MW) 2045 Installed Capacity (MW) 2045 Average Rate (¢/kWh) 2045 Average Retail Rate (c/kWh)

Question 6: Are widespread negative power market prices politically sustainable?

RPS policies create market distortions that devalue other zero-carbon resources Daily Energy Price Profile under High RPS – California Market prices remain at traditional levels when fossil is on the margin Prices are negative during oversupply events due to lost REC value Daily Energy Price Profile under low GHG Cap – California High market price on carbon drives high prices when fossil is on the margin Prices drop to zero but not below during oversupply events Persistent negative pricing presents a significant policy risk due to transfers among market participants May also dampen investment in clean energy resources due to perceived market risk

RESOLVE simulations at 70% RPS show negative prices in 27% of hours

What work did the legislature leave undone?

SB 100 establishes a goal but leaves to the agencies all of the hard work of figuring out the details Definition of 100% Zero Carbon Energy? Status of the RPS Portfolio Content Categories (“Buckets”)? Expansion of the ISO grid to include neighboring states Near-term procurement continues to be stalled due to load migration uncertainty Mechanism for financing needed large projects, e.g., pumped hydro, new interstate transmission, offshore wind Resolution of PCIA and net energy metering issues and fair allocation of fixed costs Advanced rate design to provide incentives for beneficial electrification and load shifting

Concluding Thoughts

Summary and concluding thoughts 100% Clean Energy may be achievable under the right conditions There is a significant amount of work to be done to mobilize demand-side solutions and facilitate access to alternative supplies The land-use implications of 100+ GW of solar are enormous and are only beginning to be thought through Some form of dispatchable generation like gas or gas with CCS is needed for reliability Direct carbon pricing would result in better economy-wide outcomes

Thank You! Energy and Environmental Economics, Inc. (E3) 101 Montgomery Street, Suite 1600 San Francisco, CA 94104 Tel 415-391-5100 Web http://www.ethree.com Arne Olson, Senior Partner arne@ethree.com