Nrg Energy, Inc. · NYSE:NRG
Nrg Energy — Investor Presentation (August 2016)
26 slides from Nrg Energy's investor presentation, Aug 30, 2016
Slide 1: Capacity markets & efficient renewable procurement in a carbon-constrained world: Two-Tier Pricing
NEPOOL IMAPP Stakeholder Discussion August 30, 2016 Capacity markets & efficient renewable procurement in a carbon-constrained world: Two-Tier Pricing Pete Fuller
Slide 2: I. Objectives and Context
I. Objectives and Context
Slide 3: Market & policy design goals
Market & policy design goals 1. Ensure that the Forward Capacity Market continues to support investment in existing and new resources where and when needed, while accommodating State actions to meet carbon goals. 2. Explore a market-based forward procurement strategy for renewable generation resourc
Slide 4: Challenge: to create an investment climate that supports the "4 Product Future"
Challenge: to create an investment climate that supports the “4 Product Future” ‘4 product future’ 1 2 3 4 Renewables Storage Controllable demand Fast-ramping gas Renewables will provide Utility-scale or Smart, controllable Fast-start gas capacity the vast majority of commercially-sited load
Slide 5: IMAPP solution set
IMAPP solution set Carbon Shadow Pricing – enhances energy market revenues for non-emitting resources in the near term. Forward Clean Energy Market (FCEM) – Potential market-based structure for financing new renewables. Two-tier Pricing in the Forward Capacity Market (FCM) – maintains price si
Slide 6: II. Why Focus on the Capacity Market?
II. Why Focus on the Capacity Market?
Slide 7: Capacity markets are critical for enabling a clean energy future
Capacity markets are critical for enabling a clean energy future ISO-NE states have ambitious renewable energy deployment and carbon reduction targets (e.g. MA’s Global Warming Solutions Act). Public policy generally focuses on deploying zero-carbon, renewable MWh – however, equally important ar
Slide 8: New England states have ambitious goals for deploying renewables
New England states have ambitious goals for deploying renewables New England Renewable Portfolio Est. renewable capacity additions in Standards (RPS), by state and year ISO-NE, by resource and year 8,000 7,000 6,000 5,000 ME 40% MW by 2017 4,000 3,000 VT 75% 2,000 by 2032 NH 1,000 24.8% by 2025 MA 2
Slide 9: States continue to pursue out-of-market contracts
States continue to pursue out-of-market contracts While an FCEM may ultimately fund development of renewables, New England states are currently engaged in pursuing long-term contracts for renewable energy resources. Such contracts include a three-state RFP for up to 5 TWh/yr (or more) of clean e
Slide 10: Successful renewables integration requires new investment in fast-start, flexible capacity
Successful renewables integration requires new investment in fast-start, flexible capacity Increased penetration of renewables will From the “Duck” to the “Platypus”: reshape supply-demand dynamics in the NY Winter Net Load with Levels of Solar Integration (MW) (3,000 MW penetration represents NY-
Slide 11: Ongoing cost declines bode well for new, innovative financing mechanisms for renewables
Ongoing cost declines bode well for new, innovative financing mechanisms for renewables – like the FCEM Generation-weighted levelized wind PPA prices Generation-weighted levelized solar PV PPA prices as a percentage of the 2008 price as a percentage of the 2008 price by year of PPA execution date, n
Slide 12: III. Two-Tier Pricing
III. Two-Tier Pricing
Slide 13: Rationale behind a two-tier capacity market proposal
Rationale behind a two-tier capacity market proposal Goals: Create a financeable capacity market structure that continues to incent investment when and where needed, even as state-contracted resources proliferate. Ensure that resources relying on market revenues receive adequate revenues to main
Slide 14: Mechanics of two-tier pricing – NRG Proposal
Mechanics of two-tier pricing – NRG Proposal The capacity auction would occur in two stages. All resources, including resources receiving out-of-market contracts to support state policy goals, would be subject to offer price mitigation in the 1st stage. The 1st stage of the auction would clear a q
Slide 15: PJM has also discussed capacity market reforms, and offered a version of two-tier pricing
PJM has also discussed capacity market reforms, and offered a version of two-tier pricing To accommodate both state policy High-level summary of PJM’s capacity proposal goals and competitive markets, offered during Grid 20/20 (Source: PJM Grid 20/20 slides) PJM has released a discussion proposal t
Slide 16: Design considerations for two-tier pricing
Design considerations for two-tier pricing NRG analysis, PJM proposal, and market participant feedback have identified several design aspects to explore: The application of offer floor mitigation. Mechanics of the auction; constructing the offer curve; clearing demand. Treatment of ‘in-between
Slide 17: Application of Offer Floor Mitigation
Application of Offer Floor Mitigation NRG’s perspective: to fully develop a clearing price without price impacts of state policy (SP) contracts, offer floor mitigation would apply to all resources (new and existing) that receive ‘out-of-market revenues’ as defined in ISO-NE MR1 Appendix A.21: “Out-o
Slide 18: Auction mechanics
Auction mechanics NRG’s perspective: Using the unadjusted demand curve produces the most accurate pricing; pro-rating for in-between resources reduces risk and maintains incentive for marginal cost offers Other points for consideration: Clear against the full demand curve, or an adjusted curve (as
Slide 19: Treatment of In-between Resources
Treatment of In-between Resources NRG’s perspective: Two-tier pricing creates a set of resources that would clear at the higher price but not at the lower price (the ‘in-between’ resources). The potential for these resources to receive no CSO even though the clearing price is above their offer creat
Slide 20: An example for considering in-between resources
An example for considering in-between resources With full application of mitigation, i.e., all Illustrative two-tier auction pricing resources offering at a competitive level, the clearing price in this example is 20 $7.66/kW-mo, and the cleared quantity Net ICR is 35,429MW. 18 *Units J and K are
Slide 21: Treatment of in-between resources – one 'bookend'
Treatment of in-between resources – one ‘bookend’ At one extreme, all ‘in-between’ Illustrative two-tier auction pricing resources would get a full CSO 20 The total (market) cost for this Net ICR approach is: 18 o (P1 X Q1) + (P2 x Qsp), or 16 o ($7.66/kw-mo x 35,429MW) + $6.83/kW-mo x 1,000MW)
Slide 22: Treatment of in-between resources – the other 'bookend'
Treatment of in-between resources – the other ‘bookend’ At the other extreme, there is no CSO Illustrative two-tier auction pricing awarded to ‘in-between’ resources. 20 If the 825 MW of in-between capacity of Net ICR Units E & F receives no CSO, the total 18 (market) cost would be: 16 o (P1 x (
Slide 23: Treatment of in-between resources – a middle option
Treatment of in-between resources – a middle option One approach to managing over- Illustrative two-tier auction pricing procurement is to pro-rate CSO quantity for all resources cleared at P1 and all SP 20 resources. Net ICR 18 o For example, pro-rate all CSO awards so that the resulting total (m
Slide 24: Treatment of in-between resources – summary comparison
Treatment of in-between resources – summary comparison NRG’s perspective: Either of the CSO award Options Total Quantity Purchased Total (Market) Cost (MW) ‘bookend’ approaches has clear negative impacts; to avoid or Full mitigation of OOM Q1 35,429MW x $7.66/kW-mo mitigate those impacts, NRG Reso
Slide 25: Interaction of FCM and FCEM
Interaction of FCM and FCEM Some points for consideration: Both markets are intended to support fixed cost recovery and enable cost-effective financing Which market clears first? Are FCEM resources required to / able to / prohibited from participating in FCM? How are rational offers established
Slide 26: Questions?
nrg. Questions?