DON'T STOP BELIEVIN' THE SCOTTMADDEN ENERGY INDUSTRY UPDATE - Volume 18 - Issue 2
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
DON’T STOP BELIEVIN’
THE SCOTTMADDEN ENERGY INDUSTRY UPDATE
Volume 18 - Issue 2
2 SCOTTMADDEN, INC. | TABLE OF CONTENTS
TABLE OF
CONTENTS
04 View from the Executive Suite 57 Clean Tech and Environment
05 Executive Summary: Don’t Stop Believin’ 58 Solar Plus Storage: System Configuration Impacts
Operational Flexibility and Economic Value
06 Mergers and Acquisitions: The Deals Keep Coming
13 Energy Supply, Demand, and Markets 63 The Industry in Charts
64 The Energy Industry: By the Numbers
14 Efficient Electrification: The Electric Industry Sees
a Growth Opportunity
22 Liquefied Natural Gas: Exports Begin Reshaping 66 Recent Insights: Available at scottmadden.com
Both Domestic and International Markets
67 Energy Practice: ScottMadden Knows Energy
29 Infrastructure and Technology
30 Electric Vehicles: Time for Utility Engagement and
Planning
36 Power Transmission: Much Planned, but Tailwinds
Are Abating
42 Gas Pipelines: Projects Proceed, but Resistance
Remains
49 Rate and Regulatory Issues
50 Grid Modernization: States and Utilities Test the
Waters
View from the Executive Suite
EXECUTIVE SUMMARY DON’T STOP BELIEVIN’ | SCOTTMADDEN, INC. 5
EXECUTIVE SUMMARY
DON’T STOP BELIEVIN’
Belief (noun): “the feeling that something is real and true; trust; confidence”
Believe in (phrasal verb): “to have faith in the existence of; to feel sure of the value or worth of”
A strong domestic economy, evolving regulations and policies, continued technology development, and ongoing interest in developing new energy
resources are shaping the energy landscape. Energy and utility companies are pursuing growth and are developing and modernizing needed infrastructure
while being responsive to stakeholders with disparate interests and concerns.
The theme, “Don’t Stop Believin’,” characterizes customer and regulator interest in reliable and reasonably priced energy, environmental objectives for
fewer emissions from energy resources, and utilities’ goals of growth and bolstering the energy ecosystem. However, with so many “believers”—energy
companies and other stakeholders—there are bound to be frictions, which are showing up across the energy ecosystem.
In this issue of The ScottMadden Energy Industry Update, we look at some of the emerging and continuing trends in the industry, helping energy and
utility industry leaders move from “believin’” to realization.
Some Highlights of This ScottMadden Energy Industry Update
∙∙ Companies across the gas and power value chains continue to entertain growth through both company and asset acquisitions, while recent
merger activity has been mostly characterized by a few large transactions
Believin’ in ∙∙ With growing interest by some in decarbonizing the energy sector, both the electric sector and environmental communities are promoting
Growth increasing electrification of activities historically fueled by carbon-based fuels, but the limits of electrification are still unclear
∙∙ Electric vehicle sales forecasts get rosier each year, and while some electricity sales growth is expected along with those sales, where and when
charging occurs could create localized impacts where electric vehicle sales are concentrated
∙∙ Utilities around the United States have been proposing and implementing grid modernization initiatives. Drivers of those efforts are varied:
replacing aging equipment, improving resilience, and preparing for increasing levels of distributed energy resources, potentially “Smart Grid 2.0”
Believin’ in for the distribution system
the Grid
∙∙ Federal policy toward infrastructure development is in flux. In power transmission, as FERC’s Order 1000 continues to play out, competitive
transmission continues to face hurdles, and FERC is re-examining financial incentives that have been in place for years
∙∙ Driven by increasing supply, gas pipeline development has been continuing, although there has been active opposition to some projects.
Divergent opinions at a divided FERC on gas pipeline approval criteria could mean a more difficult path for investment
Believin’ in
Energy
∙∙ U.S. and Canadian liquefied natural gas export capacity is growing and, along with North American production, appears poised to serve
increasingly more global gas demand
Resources
∙∙ Solar photovoltaic (PV) power linked with battery energy storage is garnering attention as a way to manage temporal variations in solar output,
but how storage is configured and linked to the grid and to the PV system affects both value to the system owner and to the grid
6 SCOTTMADDEN, INC. | MERGERS AND ACQUISITIONS THE DEALS KEEP COMING
MERGERS AND ACQUISITIONS
THE DEALS KEEP COMING
Energy and utility companies place some measured bets to grow their business.
Merger Activity Continues, But No Boom
∙∙ North American energy and utility industry merger activity continues at a measured pace,
reflecting both strategic ambitions and relatively high valuations
∙∙ A few large mega-deals accounted for significant aggregate deal value both in the utilities
sector as well as gas midstream and upstream sectors
∙∙ Despite still relatively low interest rates, increasing clarity on federal tax policy, particularly
additional capital needs to offset write-downs of deferred tax assets, may also be a factor in
slower transactional activity
∙∙ Corporate deal activity overall has been roughly on par with the same period in 2017, but
aggregate announced deal value for larger (>$100M) deals year-to-date is $32B compared
with Q1–Q3 2017 of more than $64B
∙∙ Larger asset deal activity has been greater in YTD 2018 compared with Q1–Q3 2017, totaling
$17B versus $9B, largely for acquisition of both renewable and thermal generation
MERGERS AND ACQUISITIONS THE DEALS KEEP COMING | SCOTTMADDEN, INC. 7
Utility, IPP, and Renewable Asset Transactions ($100M+)
(Q3 2015–Q3 2018) KEY TAKEAWAYS
14 $12,500
Merger and acquisition
12 activity continues, but
$10,000
it has been dominated
Number of Transactions
Aggregate Value ($M)
10 recently by a few mega-
$7,500
deals
8
6
$5,000
4
$2,500
2 Further oil and gas
consolidation, especially
0 $0 in the upstream sector,
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
is expected as smaller
2015 2016 2017 2018 players in high-cost basins
Number of
Transactions seek to exit
Aggregate
Transaction
Value ($M)
Utility, IPP, and Renewable Whole Company Transactions ($100M+)
(Q3 2015–Q3 2018)
6 $80,000
Utilities face near-term
balance sheet challenges,
5
rising interest rates, and
Number of Transactions
$60,000 an evolving regulatory
Aggregate Value ($M)
4 environment, which
may keep mergers and
3 $40,000 acquisitions to a measured
pace
2
$20,000
Note: Q3 2018 1
through early
August
0 $0
Source: S&P Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Global Market
Intelligence 2015 2016 2017 2018
8 SCOTTMADDEN, INC. | MERGERS AND ACQUISITIONS THE DEALS KEEP COMING
Selected Significant Proposed Energy and Utility Merger and Acquisition Transactions Since January 2017
Announced/ Transaction
Acquiror Seller Target Target Sector Target Region
Closed Value*
May 21, 2018/
NextEra Energy Southern Co. Gulf Power Co. Electric utility Southeast $5.66B
Pending
Pivotal Utility May 21, 2018/
NextEra Energy Southern Co. Gas utility Southeast, Mid-Atlantic $0.53B
Holdings, Inc. July 29, 2018
Pivotal Utility Elkton Gas, Elizabethtown Oct. 16, 2017/
South Jersey Industries, Inc. Gas utility Mid-Atlantic $1.7B
Holdings, Inc. Gas companies July 1, 2018
Energy Transfer Oil & gas Aug. 1, 2018/
Energy Transfer Equity, L.P. National $66.14B
Partners, L.P. midstream Pending
Discovery Midstream TPG Capital Oil & gas Denver-Julesberg Basin July 30, 2018/
Investor group $1.17B
Partners, LLC Management, L.P. midstream (Colorado) Pending
Trans Mountain pipeline system Oil & gas May 29, 2018/
Government of Canada Kinder Morgan, Inc. Western Canada $3.46B
& expansion project midstream Pending
Enbridge Energy Oil & gas May 17, 2018/
Enbridge Inc. Midwest, Upper Midwest $13.92B
Partners, L.P. midstream Pending
South Central South-central Feb. 7, 2018/
Cleco Corporate Holdings, LLC NRG Energy, Inc. Electric utility $1.0B
Generating, LLC Mississippi Valley Pending
Global Infrastructure Management, NRG’s renewable Independent Feb. 7, 2018/
NRG Energy, Inc. National $8.08B
LLC energy business power producers Pending
Independent Oct. 30, 2017/
Vistra Energy Corp. Dynegy Inc. National $10.39B
power producers Apr. 9, 2018
Oil & gas Permian Basin Aug. 14, 2018/
Diamondback Energy, Inc. Energen Corp. $9.25B
production (Texas, New Mexico) Pending
Combination Apr. 23, 2018/
CenterPoint Energy, Inc. Vectren Corporation Midwest $8.13B
utility Pending
Combination Jan. 3, 2018/
Dominion Energy, Inc. SCANA Corporation Southeast $14.35B
utility Pending
Oncor Electric Aug. 21, 2017/
Sempra Energy Electric utility Texas $16.48B
Delivery Company, LLC Mar. 9, 2018
Connecticut Water Apr. 5, 2018/
Eversource Energy Water utility Northeast $0.77B
Service, Inc. Pending
Independent Aug. 18, 2017/
Investor group Calpine Corporation National $16.49B
power producers Mar. 8, 2018
July 19, 2017/
Hydro One Limited Avista Corporation Electric utility Pacific Northwest $5.3B
Pending
Gas utility; oil & Feb. 1, 2017/
ONEOK, Inc. ONEOK Partners, L.P. Central United States $16.84B
gas midstream Jun. 30, 2017
Jan. 25, 2017/
AltaGas Ltd. WGL Holdings, Inc. Gas utility Mid-Atlantic $6.9B
July 6, 2018
Notes: *Information as of late August 2018; **Purchase price plus assumed debt Sources: S&P Global Market Intelligence; ScottMadden research
MERGERS AND ACQUISITIONS THE DEALS KEEP COMING | SCOTTMADDEN, INC. 9
Different Sectors, Different Drivers
∙∙ Merger activity is being pursued in different sectors for varying Price Change of Selected Stock Indexes
reasons (Dec. 30, 2016–Sept. 21, 2018)
∙∙ For electric investor-owned utilities, rationales include: 40
-- Rebalancing the business portfolio
30
-- Broadening the territorial footprint
-- Strengthening the balance sheet by monetizing assets 20
-- Expanding into the renewables sector
Price Change (%)
-- Making measured bets in areas such as technology 10
∙∙ Some large midstream acquisitions have been driven by an
interest in simplifying and restructuring existing master limited 0
partnership (MLP) arrangements, which had been seen as
undervalued -10
-- Simplification permits sponsors to return cash to MLP unit
holders -20
-- In addition, cash payouts formerly payable to general
partners can now be used for business reinvestment -30
Jan ‘17 Apr ‘17 Jul ‘17 Oct ‘17 Jan ‘18 Apr ‘18 Jul ‘18 Sept ‘18
-- Importantly, tax law changes reduced the attractiveness
of MLPs as did FERC’s March 2018 decision not to permit Dow Jones Utility S&P 500 Pipelines and Midstream
pipeline MLPs to recover income tax allowance in pipeline
Source: S&P Global Market Intelligence
cost-of-service rates, a decision that has since been eased
∙∙ Growth through regulated gas distribution utility exposure
continues to be of interest (e.g., Alta Gas/WGL, CenterPoint/
Vectren)
∙∙ In upstream gas (and oil), an emerging trend is for players in
higher cost-per-acre plays like the Permian to seek opportunities
for consolidation and cost reduction (e.g., Diamondhawk/
Energen)
10 SCOTTMADDEN, INC. | MERGERS AND ACQUISITIONS THE DEALS KEEP COMING
Valuations
∙∙ For recent large, strategic transactions in Electric and Gas Utility Price-Earnings Multiples
the utility sector, announced deal values (Deals $50M+) (Q2 2015–Q2 2018)
range from 1.3 to nearly 3.2 times book value, 45x
implying idiosyncratic value opportunities for
40x
some acquirors Electric
35x Utility
∙∙ Transaction multiples for electric utilities have
30x Gas
ticked down in 2018, while roughly holding
Utility
steady for gas utility deals (see chart at right) 25x
∙∙ Overall, market valuations are not getting 20x
cheaper with the Dow Jones Industrials trading 15x
recently near 19 times earnings, but large,
10x Source:
diversified utilities’ trailing year price-earnings
Pricewaterhouse
ratios have fallen back below their five-year 5x
Coopers (citing
average of 21.4, and price-to-book values hover 0x S&P Capital IQ)
around their long-term average of 1.9 times Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
∙∙ A key question is whether financial overhang 2015 2016 2017 2018
from tax law adjustments, pending Federal
Reserve-driven interest rate increases, and an
evolving regulatory environment will temper SNL Energy Large Diversified Utility Index Price-to-Latest
future deal activity Twelve Months Earnings Ratio (Aug. 2013–Aug. 2018)
26x
IMPLICATIONS
While utility valuations are not exorbitant by
historical standards, a better play for some 24x
acquisitive utilities may be to look out for modest-
Price/TM EPS (X)
sized deals—assets or companies—that round out
the resource portfolio (e.g., renewables) or some 22x
regulatory or geographic diversification in the
core business.
20x
Sources: The Wall Street Journal; S&P Global Market
Intelligence; industry news; company presentations;
PricewaterhouseCoopers; S&P Capital IQ; ScottMadden analysis 18x
Source:
S&P Global
Market
16x Intelligence
Jul ‘14 Jul ‘15 Jul ‘16 Jul ‘17 Jul ‘18MERGERS AND ACQUISITIONS THE DEALS KEEP COMING | SCOTTMADDEN, INC. 11
For more ScottMadden energy
insights visit our Insights Library:
scottmadden.com/insightsEnergy Supply,
Demand,
and Markets14 SCOTTMADDEN, INC. | EFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY
EFFICIENT ELECTRIFICATION
THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY
Electrification could grow energy sales, but by how much?
A Working Definition Utility Electrification:
∙∙ Electrification is the process of switching from the combustion of non-electricity fuel Examples for Selected Customer Segments
(e.g., natural gas or propane) to using electricity to provide a comparable service
California’s regulated utilities were
∙∙ Electrification can affect most energy usage sectors (buildings, industrial, and recently authorized to spend a
collective $738M to support the
transportation), albeit to differing degrees Transportation
electrification of the transportation
∙∙ The Electric Power Research Institute (EPRI) recently prepared a national sector through the installation of
electric vehicle supply equipment
electrification estimate, selected results of which are outlined later
-- The electrification of the transportation sector is widely seen as having the largest Dakota Electric Association and
potential increase in electricity usage Great Rivers Energy partnered
Residential
with a homebuilder to install grid-
-- Space and water heating are also seen as having a high electrification potential interactive electric water heaters
but face potentially slower electric adoption, at least for retrofits, due to initial
fixed costs (to purchase and install new equipment) and generally long useful lives Tennessee Valley Authority
Industrial incentivizes the switch from ICE
of existing stock forklifts to electric forkliftsEFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY | SCOTTMADDEN, INC. 15
Different Players, Different Interests in Some Hurdles to
Electrification Electrification KEY TAKEAWAYS
∙∙ In the face of declining loads due to ∙∙ Environmental benefits of electrification depend upon
efficiency gains and a less energy-intensive some key premises or assumptions: increasing energy EPRI believes that
economy, electricity providers see efficiency (offsetting consumption growth) and a relatively electrification of non-
electrification as a source of increased load less carbon-intensive power production resource mix electric end uses is
∙∙ Environmental and climate change ∙∙ In addition to high fixed costs for space and water heating, expected to increase
electricity’s share of final
advocates see environmental benefits low natural gas costs may impede adoption of electric
energy from 21% today to
from electrification, along with the technology applications, although relatively higher fuel
32% to 47% of final energy
decarbonization of electric generation, as a oil and propane prices (depending upon efficiencies) may
in 2050
key component for cost-effective reduction make some applications better candidates for conversion
in global emissions ∙∙ Location matters for some “electrified” applications, such
∙∙ Local governments are interested in as heat pumps, which have historically not performed as The transportation sector
electrification (electric public transportation well in very cold climates (although there have been some has the highest and most
and limits on non-electric vehicles) to efficiency improvements) and often require a supplemental immediate potential of
reduce local air pollution heat source electrification, while
electricity could continue
to displace natural gas in
Residential Electrification Theory (AGA’s View)
the buildings sector
Theory – Using clean electricity to replace CO2 Emission Rates
1 gas-fired technologies eliminates CO2 emissions by Fuel
CO2 Emissions
Renewables/
Nuclear
Coal Grid planning and
Gas Furnace
Natural Gas Electric modernization will be
CO2 Emissions Heat Pump
Distribution Residential especially critical for grid
System Load Fossil Fuel Generation 209 lb/MMBtu
0 lb/MMBtu operators as electrification
No Emissions is expected to change
Natural
Oil
Gas load profiles in addition to
Up to +350%
Up to 97% increasing peak loads and
efficient
efficient load factors
Renewables/Nuclear 160 lb/MMBtu
Generation 117 lb/MMBtu
Fuel Use & Losses
Transmission Losses Generation Losses High upfront costs,
low natural gas prices,
Practice – Net benefit is a function of heat
incumbency technology
2 pump efficiency and associated emissions 3 The Equation advantages, and
profile of regional power grid technological challenges
Heat pump Required electricity Generation requirements (MWh) may prevent the
efficiency input determines and projected generation stack
determines required associated generation and dispatch determine widespread electrification
electricity input (MWh) requirements resulting emissions output of some applications
Source: Adapted from AGA16 SCOTTMADDEN, INC. | EFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY
Any electrification scenario depends upon assumptions about technology, prices, and behavioral responses.
EPRI’s U.S. National Electrification Assessment: Key Points and Issues
Findings and Scenario Results Assumptions Issues to Consider
∙∙ Electricity growth: 32% ∙∙ Natural gas price: $4/MMBtu ∙∙ Predicting fluctuations and trajectory of natural gas
electricity growth between natural gas price over next 30+ prices is notoriously difficult
2015 and 2050 (0.8%/ years; higher ($6/MMBtu cost by
year); compare 1.2% for 2050 in Transformation scenario
∙∙ Cost of electricity is a key variable and differs by
Transformation scenario yields more electrification)
region, affecting electric adoption
∙∙ Energy: Overall energy ∙∙ Carbon price: No carbon price ∙∙ Space heating is highly dependent upon heat pump
consumption (all fuels) in base case; starts at $50/ton in
performance improvements and availability of
decreases by 22% by 2050 2020 in Transformation scenario
relatively inexpensive power
∙∙ Transportation: Electric share ∙∙ ICE vehicles efficiency: 50 miles ∙∙ Upfront capital costs can be significant and may
of transportation (rail, truck, per gallon by 2050 for internal
pose a barrier to retrofitting, although new stock
bus) grows from 1% today to combustion engines
might be amenable to increased electric applications
40% by 2050
∙∙ VMTs: Electric vehicles comprise ∙∙ Consumer behavior is uncertain and multi-faceted:
∙∙ Electric vehicles: Electric and 25% of vehicle miles traveled by
price, incentives, inertia, income all play a role
hybrid vehicles reach 40% of 2030, rising to 70% by 2050
new vehicle sales by 2030
and 75% by 2050 ∙∙ Role of mandates and incentives must be defined,
∙∙ EV battery: Li-ion battery costs for including any cost of greenhouse gas emissions, as
electric vehicles assumed to decline
well as implications for utility rates and rate design
∙∙ Buildings: Heat pump space to about $50/kWh by 2050
heating grows from 15% of
square footage today to 50% ∙∙ Interaction of increased power demand (time,
∙∙ Generation fuel mix: Increasing amount, location) and related gas demand may yield
by 2050; increases driven by
shift from coal-fired to gas-fired
growth in warmer climates unforeseen market outcomes
power generation (including carbon
and availability of gas backup
capture and sequestration) and
in colder climates
increased solar and wind ∙∙ Transition time is uncertain and may depend upon a
technology adoption “tipping point”
Sources: EPRI Electrification Reference scenario; ScottMadden analysis
A key question: How much work is performed using how much primary energy and producing how much in emissions?EFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY | SCOTTMADDEN, INC. 17
Gas Utilities May Have a Different View of Electrification, Especially for Residential Customers
∙∙ The American Gas Association (AGA) recently studied potential impacts of “policy-driven” electrification of the residential sector
∙∙ Their key conclusions are summarized below:
-- Magnitude of emissions savings: With residential natural -- Customer costs: Total energy costs for customers, including
gas sector CO2 emissions less than 4% of total, payoff from incremental amortized appliance and grid costs, would increase
electrification may be limited by 38% to 46%
-- Shifting emissions: Electrification will lead to higher power sector -- Expensive GHG reduction: AGA’s analysis pegs GHG emissions
emissions reduction costs of $572 to $806 per metric ton, higher than other
-- Grid use changes: Changes in power use will lead to winter emissions reduction options
peaks and higher grid utilization, which AGA says would require -- Not addressed – gas distribution stranded costs: AGA’s analysis
incremental grid and energy resource investment did not look into cost implications of lower residential direct use
of gas (e.g., fixed-cost allocation to gas customers)
Comparison of Cost Ranges for GHG Emissions by Reduction Mechanism (AGA Estimates)
$900
U.S. Average – Renewables-Only Case ($806)
$800
$700
$2016 per Metric Ton of CO2
$600 U.S. Average – Market-Based Generation Case ($572)
$500
$400
$300 $94 to
Costs up to $232
$188
$200 Costs up to
Costs up to
$123
$100
$100 Less than $47 to $72
$4 to $16 $26
$-345 to $5
$0
-$300
Transportation - Power Sector Policy-Driven Coal Social Cost Renewable Transportation - Natural Gas - Atmospheric Residential
Fuel Efficiency GHG Credits Generation of Carbon Natural Gas Low Carbon Fuel Demand Side CO2 Removal Electrification
Measures (2018) Retirement (New York) Standard Management
Source: AGA18 SCOTTMADDEN, INC. | EFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY
Policymakers to Contemplate Their Role
∙∙ Regulators will view electrification through a cost-benefit Primary U.S. Energy Consumption Shares in 2015:
lens and are reluctant to intervene absent a market failure Where Opportunities (or Limits) Might Lie for Electrification
or impediment Transportation Industrial Residential Commercial
28 Quads Total 31 Quads Total 21 Quads Total 18 Quads Total
∙∙ Regulatory-driven electrification would modify policy 0 Quads Electricity 10 Quads Electricity 14 Quads Electricity 14 Quads Electricity
focus from energy efficiency to GHG emissions reduction, 100%
Non-Electricity
Other
requiring broader, end-to-end emissions analysis Other Other
Water Heating
∙∙ Broad free-rider problems may appear if utilities “electrify” Other Water Heating
Commercial Light Trucks
at a local or state level while the rest of the world does not Space Heating
∙∙ There appears to be some consensus that transportation
Air
% of Total 2015 Primary Energy Consumption
Space Heating
electrification, especially electric vehicles, is where market 75%
Electricity
Paper
adoption is more imminent
Freight Trucks Mining
∙∙ For other technologies, a key question: should public policy
“push” electrification, or should markets drive technology
evolution and adoption? Refining
Other
Other
50%
Transportation Sector Transformed by Light-Duty
Vehicles in EPRI Electrification Scenarios Bulk Chemicals
∙∙ EPRI sees transportation electrification as the leading
driver of efficient electrification Light-Duty Vehicles
Refrigeration
∙∙ EPRI’s Reference scenario sees electricity’s share of 25%
Lighting Lighting
transportation energy increasing from a meager 0.1% in Other
2016 to 25% in 2050 Space Cooling Space Cooling
∙∙ Lower operating costs (fuel and maintenance) of light- Paper
Water Heating
duty PEVs outweigh the higher upfront costs, incentivizing Mining Refrigeration
Refining
customers to choose PEVs over traditional ICEs, but this Bulk Chemicals Space Heating
Space Heating
0%
growth segment assumes those buyers drive at least
Source: NREL
18,000 miles per year (50% greater than average)
∙∙ Electric heavy-duty vehicles have an opportunity for higher
savings compared to ICEs, as utilization factors of heavy-
duty vehicles are much higher than light-duty vehiclesEFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY | SCOTTMADDEN, INC. 19
Building Efficiency Outweighs Electrification Load Duration Estimates for NREL Electrification Scenarios
(Current and in 2050)
∙∙ By 2050, EPRI expects that efficiency gains will offset any increase in
1,200
electricity end use (in different building applications), decreasing electricity
consumption for building end uses by 20% by 2050
∙∙ EPRI’s electrification analysis projects additional heating applications 1,000
-- Electric heat pumps are expected to heat 50% of residential space
800
heating by 2050, increasing from approximately 15%
High 2050
-- Heat pump water heaters are expected to serve more than half of
GWs
600 Medium 2050
households by 2050, but this growth is dependent on the continuation
of declining heat pump costs and an increasing displacement of electric Reference 2050
resistance heating and non-electric fuels 400 2015
Electrification Increases Productivity of Industrial Sector
200
∙∙ EPRI contends that the electrification of industrial processes (induction
melting and infrared drying) can improve product quality, productivity, and
0
working conditions 0 2,000 4,000 6,000 8,000
∙∙ Industrial vehicles are also opportunities: for example, there has been Hours per Year Source: NREL
widespread electrification of forklifts (currently two-thirds of U.S. forklifts Load Factor Estimates for NREL Electrification Scenarios
are electric) (2017 to 2050)
0.74
NREL’s View: Increased Peak Demand and Other Potential Grid Impacts
0.73
∙∙ National Renewable Energy Laboratory (NREL) performed analysis similar
0.72
to EPRI’s, studying three electrification scenarios
∙∙ NREL projects that winter demand will increase faster than summer demand 0.71
due to the increased use of electric space heaters and heat pumps for space
Load Factor
0.70
heating Reference
0.69
∙∙ By 2050, due to the electrification of electric space heating, a greater Medium
fraction of the top 100 load hours during the year for southeastern states 0.68
High
occurs during winter months; however, the absolute peak still occurs in the 0.67
summer
0.66
∙∙ Load factor, the ratio of average-to-peak demand, is expected to increase
due to electrification, possibly impacting the current generation mix 0.65
∙∙ Electrification, along with electric vehicle charging flexibility, could result 0.64
2017 2030 2050
in more uniform load (higher load factor) and possibly result in more
Year
consistent use of generation sources
Note: Moderate technology advancement projections shown. Source: NREL
Profiles shown include estimated impacts of flexible load as modeled.20 SCOTTMADDEN, INC. | EFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY
Economics, Technology, and Regional Issues, Among Other Things, Could EPRI’s Reference Scenario Projections for U.S. Total Final
Restrain Widespread Electrification Energy by Fuel and Electricity Demand
∙∙ There is a significant amount of necessary investment in electric vehicle supply Total Energy by Fuel (Quadrillion Btus) and Drivers
equipment (e.g., charging stations) to enable the adoption of the forecasted GDP GROWTH (AEO)
PEVs 120
∙∙ Additionally, challenges with electrifying large vehicles (vehicle range, battery
size, added weight, and charging duration) and the continued low price of diesel 100 STRUCTURAL
CHANGE (AEO)
Quad Btus Final Energy
fuel could limit the market for heavy-duty PEVs, compared to light-duty vehicles
∙∙ In some regions, increased electric load (particularly when supplied by gas-fired 80
EFFICIENCY
resources) could complicate fuel availability issues, especially in winter IMPROVEMENTS
∙∙ Adoption of electric technologies may be slowed by increased efficiencies in 60
ELECTRIFICATION
current technologies (e.g., ICEs) and by gas efficiency programs
∙∙ Non-electric technologies (mainly natural gas-fired) in the building sector have 40 OTHER NON-ELECTRIC
an installed base and some economic advantages depending upon technology.
Widespread adoption of electric heat pumps is limited by upfront costs and 20 NATURAL GAS
INCREASED
lower efficiency than conventional cold-climate fuel-oil furnaces ELECTRICITY
∙∙ Electrification of industrial boilers offers little benefit to industrial facilities, many 0
21% ELECTRICITY 36%
of which rely on fuel-fired boilers or cogeneration for a substantial amount of 2015 2020 2025 2030 2035 2040 2045 2050
industrial energy end use; electric boilers provide only a marginal increase in ELECTRIC Source:
SHARE EPRI
productivity compared to the electrification of other industrial end uses
Electricity Demand (TWh) by Sector
IMPLICATIONS 6,000
Efficient electrification may prove to be a growth strategy for electric utilities. Utilities
and policymakers considering efficient electrification initiatives will need to look
5,000 +32%
2015 2050
carefully at technology applications, potential adoption rates, customers’ economic
TWh Electricity Demand
VEHICLES
trade-offs, and grid and resource implications to assess costs and benefits, both 4,000 ELECTRIFICATION
BUILDINGS
financial and environmental. INDUSTRY
3,000
Notes: GHG means greenhouse gas; ICE means internal combustion engine; VMT means vehicle miles
traveled; PEV means plug-in electric vehicle. For additional discussion of electric vehicles, see relevant BUILDINGS
(before electrification)
section at page 31 of this Energy Industry Update. 2,000
Sources: Electric Power Research Institute, U.S. National Electrification Assessment (April 2018); National
Renewable Energy Laboratory (NREL), Electrification Futures Study: Scenarios of Electric Technology
Adoption and Power Consumption for the United States (July 2018); American Gas Association, 1,000
Implications of Policy-Driven Residential Electrification (July 2018); National Regulatory Research INDUSTRY
Institute, Electrification: The Link between Markets, Consumer Behavior, and Public Policy, Report No. 18- (before electrification)
02 (January 2018); S&P Global Market Intelligence; industry news; ScottMadden analysis
0 Source:
2015 2020 2025 2030 2035 2040 2045 2050 EPRIEFFICIENT ELECTRIFICATION THE ELECTRIC INDUSTRY SEES A GROWTH OPPORTUNITY | SCOTTMADDEN, INC. 21
For more ScottMadden energy
insights visit our Insights Library:
scottmadden.com/insights22 SCOTTMADDEN, INC. | LIQUEFIED NATURAL GAS EXPORTS BEGIN RESHAPING BOTH DOMESTIC AND INTERNATIONAL MARKETS
LIQUEFIED NATURAL GAS
EXPORTS BEGIN RESHAPING BOTH DOMESTIC AND
INTERNATIONAL MARKETS
The United States is on the cusp of being a major global LNG player.
2017 Begins Wave of Increased U.S. Exports
∙∙ In 2017, U.S. liquefied natural gas (LNG) operational export capacity ∙∙ Due to delays in the construction of pipelines connecting it to the
reached 1.94 BCF/day and operated at 91% utilization United States, Mexico increased its reliance on U.S. LNG to satisfy
∙∙ As of early September 2018, there were five operational trains in the gas demand from its power generation sector
United States, operating at 3 BCF/day (>23 MTPA) ∙∙ About 60% of exported U.S. LNG was transacted on the spot
-- Cheniere Energy’s Sabine Pass: Four trains in Louisiana market, and the price of exported LNG averaged $4.65/MCF in
June 2018 and had a range of $3.65/MCF to $6.44/MCF from June
-- Dominion’s Cove Point: One train in Maryland 2016 through June 2018
∙∙ In 2017, three countries received more than half of U.S. LNG exports:
Mexico (20%), South Korea (18%), and China (15%)
∙∙ Exports from the United States to Asia were partially driven by a decline
in Henry Hub gas prices—to which certain LNG prices are indexed—
versus crude oil prices, which serve as a benchmark for Asia LNGLIQUEFIED NATURAL GAS EXPORTS BEGIN RESHAPING BOTH DOMESTIC AND INTERNATIONAL MARKETS | SCOTTMADDEN, INC. 23
Average Annual Global Gas and Oil Prices (2009–2017) ($/MMBtu and $/Bbl)
KEY TAKEAWAYS $18 $120 Oil
$16 Brent (right axis)
Increased global demand $100 West Texas
for LNG, especially in $14 Intermediate
Asia, is responsible for (right axis)
the majority of last year’s $12 $80 LNG
increase in global LNG
$/MMBtu
$10 Japan CIF
trade, with this trend
$/Bbl
$60 Japan-Korea
expected to continue over
$8 Marker
the next 20 years
Gas
$6 $40
German Import
$4 Price
The United States and $20 U.K. Heren NBP
Australia are both poised $2 Index
to meet growing demand Netherlands TTF
for LNG $0 $0
2009 2010 2011 2012 2013 2014 2015 2016 2017 U.S. Henry Hub
Source: BP
2017 U.S. LNG Exports by Destination
Completion of LNG export
Country/Region (Incl. Re-Exports)
terminals currently under
(in Billion Cubic Meters)
construction will more Monthly Average Price of U.S. LNG Exports
than triple U.S. export (Feb. 2016–June 2018) ($/MCF)
capacity in the next two
$7
years to 10 BCF/day,
volumetric equivalent $6 Mexico
to 13% of average daily 3.8
natural gas consumption $5
Rest of World
in 2017 5.6
$4
$/MCF
$3
$2
Due to the overwhelming South Korea
number of export terminal $1 2.7
applications, FERC
has made operational $0 Japan
M -16
N -16
M -17
N -17
M -18
A -16
M r-16
Ju -16
Ju 16
A -16
Se -16
O -16
Fe -17
A -17
M r-17
Ju -17
Ju 17
A -17
Se -17
O -17
Fe -18
A -18
M r-18
Ju -18
18
D -16
Ja -16
D -17
Ja -17
changes in an attempt to 1.3
n-
n-
n-
b
ct
b
b
ct
n
ar
ay
l
ug
p
n
ar
ay
ar
ay
l
ug
p
ov
ec
ov
ec
p
p
p
Fe
review applications in a Middle
Source: EIA China East
reasonable timeframe 2.1 1.9
Source: BP24 SCOTTMADDEN, INC. | LIQUEFIED NATURAL GAS EXPORTS BEGIN RESHAPING BOTH DOMESTIC AND INTERNATIONAL MARKETS
U.S. LNG Export Projects (Under Construction)
Facility and Train Owners Location (State) Capacity (MTPA) Latest Announced Start Year
2018 2019 2020
Elba Island LNG T1-6 Kinder Morgan, EIG Global Energy Partners GA 1.5 check
Cameron LNG T1 Sempra, Mitsubishi/NYK JV, Mitsui, ENGIE LA 4.0 check
Corpus Christi LNG T1 Cheniere TX 4.5 check
GA
Freeport LNG T1 Freeport LNG, JERA, Osaka Gas TX 5.1 check
Sabine Pass LNG T5 Cheniere, Blackstone TX 4.5 check
LA
Cameron LNG T2 Sempra, Mitsubishi/NYK JV, Mitsui, ENGIE LA 4.0 check
Elba Island LNG T7-10 Kinder Morgan, EIG Global Energy Partners GA 1.0 check
Corpus Christi LNG T2 Cheniere TX 4.5 check
Freeport LNG T2 Freeport LNG, IFM Investors TX 5.1 check
Cameron LNG T3 Sempra, Mitsubishi/NYK JV, Mitsui, ENGIE LA 4.0 check
Freeport LNG T3 Freeport LNG TX 5.1 check
Source: IGU
U.S. Export Terminal Construction: The Trains Keep Rollin’
∙∙ In the next two years, the following projects are expected to become ∙∙ For reference, U.S. dry gas production totaled 27.3 TCF, or about 74.8
commercially operational: Elba Island LNG (Georgia) and Cameron BCF/day; 11 BCF/day would be the equivalent of nearly 15% of U.S.
LNG (Louisiana) in 2018, Freeport LNG (Texas) and Corpus Christi dry gas production
LNG (Texas) in 2019, and Sabine Pass (border of Louisiana and ∙∙ Of the 92 MTPA liquefaction capacity under construction worldwide
Texas), with more than 7.1 BCF/day peak LNG terminal capacity in March 2018, more than half (49 MTPA) was in the United States,
expected in service by the end of 2019 which should propel the United States to be the largest source of
∙∙ A total of 11 liquefaction trains on the U.S. Gulf Coast are projected incremental liquefaction capacity through 2023
to come online in the next five years, increasing domestic export ∙∙ Alaska Gasline Development Corporation, a state-sponsored
capacity to almost 10 BCF/day (76 MTPA) by 2020, and more than 11 developer, recently signed a deal with Exxon Mobil to help supply
BCF/day (85 MTPA) by 2023, which could result in U.S. LNG exports its three-train (20 MTPA) LNG terminal, which could come online in
comprising about 20% of global LNG exports by 2023 and potentially 2024
making the United States the world’s swing LNG supplierLIQUEFIED NATURAL GAS EXPORTS BEGIN RESHAPING BOTH DOMESTIC AND INTERNATIONAL MARKETS | SCOTTMADDEN, INC. 25
Global LNG Market Demand Is Growing Actual and Forecast LNG Imports by Region (BCF/Day)
∙∙ LNG is the fastest growing gas supply source globally 80
Actual Forecast
74.6
∙∙ Led by Asian countries, which represented 74% of the increase, global 71.2
70 64.9
LNG trade increased 10% (3.5 BCF/day) in 2017, reaching 38.2 BCF/day
∙∙ Driven by record-high demand due to environmental regulations focused 60
58.3 Other Emerging
Asia
on reducing air pollution, China’s imports of LNG increased 1.6 BCF/day 48.7
(46%) in 2017 to an average of 5 BCF/day, surpassing South Korea to 50 China
BCF/Day
make China the world’s second largest importer of LNG, behind Japan’s
40 32.6 Europe
imports of 11 BCF/day
∙∙ Japan and South Korea continue to import LNG for power generation to 30
29.6
India
offset low nuclear power production
18.2
20 OECD Asia
United States Poised to Supply Much of That Growth 13.3
10 6.9 9 Others
∙∙ Australia, Russia, and the United States added a combined 3.4 BCF/
day of export capacity in 2017, with Australia and the United States
0
comprising the two largest increases in exports (adding 2.7 BCF/day of
90
95
00
05
10
15
20
25
30
35
40
capacity in 2017)
20
20
20
20
19
20
20
20
19
20
20
∙∙ In the next three years, U.S. export capacity is expected to surpass 10 Source: BP
BCF/day, which would be about 10% of U.S. gas demand
Actual and Forecast LNG Exports by Region (BCF/Day)
Monitoring Domestic Price Impacts 80
Actual Forecast
74.5
∙∙ Increasing LNG exports have led some U.S. agencies to re-examine the 71.2
70 64.9
potential for impacts on domestic natural gas prices
∙∙ The DOE and the CFTC did independent, scenario-based studies of this 60
58.1
North America
48.8
issue and came to divergent conclusions
50 Africa
-- The CFTC study found that increasing exports could increase
domestic gas prices anywhere from negligibly to up to 20% (for BCF/Day 32.7
40 Russia
reference: in 2017, the average natural gas price at Henry Hub was
$2.99/MMBtu) 29.6
30 Australia
-- The DOE study found that increasing LNG exports leads to only small 18.2
20 Middle East
increases in gas prices by 2040
13.1
-- DOE’s reference case estimated domestic gas prices in a range of $5 10 6.9
8.8 Others
to $6.50 per MMBtu (in 2016$), even with increased exports
-- Both reports noted that price impacts were highly dependent upon 0
90
95
00
05
10
15
20
25
30
35
40
domestic production response
20
20
20
20
19
20
20
20
19
20
20
Source: BP26 SCOTTMADDEN, INC. | LIQUEFIED NATURAL GAS EXPORTS BEGIN RESHAPING BOTH DOMESTIC AND INTERNATIONAL MARKETS
FERC Streamlines LNG Applications to Reduce Lag
∙∙ In response to long review times for LNG terminal applications and ∙∙ Also on August 31, FERC released information on steps it had taken
the issuance of revised notices of schedule for two projects, FERC to improve the LNG application process
recently addressed its review process in an attempt to streamline -- FERC and PHMSA agreed to coordinate the siting and safety
LNG project applications reviews of LNG facilities, requiring the approval of safety
∙∙ On August 31, FERC issued environmental schedules for 12 LNG standards from PHMSA prior to FERC’s review if the project is in
terminal applications, which, according to Chairman Kevin McIntyre, the public’s interest
are nine to 12 months shorter due to FERC’s improvements in their -- Addition of FERC staff focused on LNG
regulatory process
-- An outside contractor will assist in construction inspections
-- Third-party contractors may review non-proprietary application
information
Proposed U.S. LNG Export Plants (as of June 2018)
PENDING FERC APPLICATIONS
Location Size (BCF/d) Company
1 Brownsville, TX 3.60 Rio Grande LNG — NextDecade
10 2 Port Arthur, TX 1.86 Port Arthur LNG
3 Pascagoula, MS 1.50 Gulf LNG Liquefaction
4 Cameron Parish, LA 1.41 Venture Global Calcasieu Pass
5 Brownsville, TX 0.90 Annova LNG Brownsville
6 Brownsville, TX 0.55 Texas LNG Brownsville
7 Calcasieu Parish, LA 4.00 Driftwood LNG
8 Plaquemines Parish, LA 3.40 Venture Global LNG
9 Nikiski, AK 2.63 Alaska Gasline
10 Coos Bay, OR 1.08 Jordan Cove
11 Freeport, TX 0.72 Freeport LNG Dev
12 Jacksonville, FL 0.13 Eagle LNG Partners
PROJECTS IN PRE-FILING
13 Corpus Christi, TX 1.86 Cheniere — Corpus Christi LNG
3 12 14 Cameron Parish, LA 1.18 Commonwealth, LNG
14 8
11 4 15 LaFourche Parish, LA 0.65 Port Fourchon LNG
7 15 PROPOSED TO U.S.-MARAD/COAST GUARD
13 2
9 16 16 Gulf of Mexico 1.80 Delfin LNG
1 5
6 Source: Platts (citing FERC)LIQUEFIED NATURAL GAS EXPORTS BEGIN RESHAPING BOTH DOMESTIC AND INTERNATIONAL MARKETS | SCOTTMADDEN, INC. 27
IMPLICATIONS
The race to build export terminals is in stark contrast to 2005 when import facilities
were being constructed and the EIA estimated that the United States would import
18 BCF/day by 2025. A high level of North American LNG export facility construction
activity is focused in a few select regions: Gulf Coast, U.S./Canada West Coast (British
Columbia and Alaska), and Nova Scotia. There is a diversity in U.S. export markets with
24 countries already having received U.S. exports in 2018, but it is highly concentrated
with three countries (Mexico, South Korea, and China) comprising half of total U.S.
exports; thus, any change to one of these markets could have a significant impact.
Notes: LNG means liquefied natural gas; DOE means U.S. Dept. of Energy; CFTC means U.S. Commodity
Futures Trading Commission; PHMSA means U.S. Pipeline and Hazardous Materials Safety Administration;
MTPA means million metric tons per annum; BCF means billion cubic feet; MCF means thousand cubic feet;
TCF means trillion cubic feet; Bbl means barrel. One BCF/day roughly equals 7.6 MTPA. An LNG “train” is a
natural gas liquefaction and purification unit.
Sources: U.S. Energy Information Administration; U.S. Dept. of Energy; U.S. Federal Energy Regulatory
Commission; U.S. Commodity Futures Trading Commission; S&P Global Market Intelligence; Platts;
Bloomberg New Energy Finance; RBN Energy; Natural Gas Week; International Gas Union (IGU), 2018
World LNG Report (July 2018); BP, 2018 Energy Outlook (Feb. 2018); BP, Statistical Review of World
Energy (June 2018); R. Hickman, Royal Dutch Shell, “The Growing Importance of U.S. Petroleum and LNG
Exports,” presented at 2018 EIA Energy Conference (June 2018)
For more ScottMadden energy
insights visit our Insights Library:
scottmadden.com/insightsInfrastructure and Technology
30 SCOTTMADDEN, INC. | ELECTRIC VEHICLES TIME FOR UTILITY ENGAGEMENT AND PLANNING
ELECTRIC VEHICLES
TIME FOR UTILITY ENGAGEMENT AND PLANNING
As electric vehicles gain traction, utilities should consider possible infrastructure needs.
Plug-In Electric Vehicle Sales Are Growing Steadily in Distinct Markets Improving News: Light-Duty BEV Annual Sales
Forecasts (EIA Annual Energy Outlooks 2015–18)
∙∙ The term “plug-in electric vehicles” (PEVs) includes plug-in hybrid electric vehicles (PHEV)
and battery electric vehicles (BEVs) 1,800
The U.S. Energy Information 2018 AEO
∙∙ PEV sales are concentrated among urban, higher income, and more educated car buyers 1,600 Administration has been steadily
Unit Sales (in thousands)
1,400 increasing its forecast of BEV
along the East and West Coasts sales over the past several years
1,200
∙∙ September 2018 marked the 36th month of consecutive year-over-year gains in monthly PEV 2017 AEO
1,000
sales, with more than 40 different vehicle models sold in 2018
800
∙∙ Cumulatively, nearly 1 million PEVs have been sold in the United States as of September 2018; 600
California accounts for roughly half of all U.S. PEV sales 2016 AEO
400
∙∙ In 2017, the Edison Electric Institute forecasted that by 2025: 200
2015 AEO
-- Annual PEV sales will exceed 1.2 million vehicles and account for 7% of annual 0
vehicle sales 2015
2020
2025
2030
2035
2040
-- The stock of PEVs on the road will be 7 million, accounting for roughly 3% of all registered
cars and light-duty trucks, and will need to be supported by 5 million charge ports Source: EIAELECTRIC VEHICLES TIME FOR UTILITY ENGAGEMENT AND PLANNING | SCOTTMADDEN, INC. 31
Growing Number of Vehicles—Not Named Tesla—Being Purchased by Consumers
KEY TAKEAWAYS ∙∙ Tesla dominates electric vehicle headlines and thereby allowing owners many of the advantages
accounted for 35% of PEV sales in the first half of 2018 of electric vehicles without the downside of range
Light-duty PEV sales ∙∙ However, despite that accomplishment, the cheapest anxiety
are growing and Model 3 currently available (with a long-range ∙∙ Longer term, many auto manufacturers have
are forecasted to battery) starts at $49,000, far from the highly touted announced ambitious plans. This includes the
continue growing at Model 3 base price of $35,000 following targets:
an accelerated pace
in certain markets; an ∙∙ Consequently, consumers shopping for new PEVs are -- 2020: 12 PEV models from Hyundai-Kia and 10
increasing number finding—and purchasing—a growing number of makes PEV models from Toyota
of models are and models available for less than $40,000 -- 2022: 40 PEV models from Ford
becoming available to
∙∙ Just 10 PEVs, all starting below $40,000, accounted -- 2023: 20 PEV models from GM
consumers
for 45% of electric vehicles sales in the first half of
2018 (see below) -- 2025: 80 PEV models from Volkswagen and 25
While most attention
PEV models from BMW
is focused on light- ∙∙ As possible harbinger of the future PEV market, more
duty vehicles, than 70% of vehicles in this subset were PHEVs;
medium- and heavy-
duty vehicles will have
a larger grid impact 1H 2018 PEV Sales by Type Top 10 (in 1H 2018 Sales) PEVs Available under $40,000
per vehicle and tend (% of Total) PEV Vehicle Sales PEV Market Starting Total Range
Brand Model
to concentrate load 100% Type (1H 2018) Share (1H 2018) MSRP (Miles)
by charging at depots Prius
Toyota PHEV 14,255 11.5% $27,300 640
Prime
The number and Chevrolet Bolt BEV 7,858 6.3% $37,495 238
80%
scope of utility
engagement Chevrolet Volt PHEV 7,814 6.3% $34,095 420
opportunities is
60% Clarity
expanding and is Honda PHEV 6,669 5.4% $33,400 340
PHEV
larger than just
Nissan LEAF BEV 6,659 5.4% $29,990 151
public charging
infrastructure 40% Fusion
Ford PHEV 4,302 3.5% $33,400 610
Energi
With sufficient Pacifica
Chrysler PHEV 3,090 2.5% $39,995 570
penetration of light- Hybrid
20%
duty and heavy-duty
Tesla Mitsubishi
Outlander
PHEV 1,956 1.6% $34,595 310
PHEV
PEVs, grid operators
will need to study and Fiat 500e BEV 1,420 1.1% $32,995 84
0%
anticipate potential Niro
changes to system Other Kia PHEV 1,247 1.0% $27,900 560
PHEV
demand, as illustrated
Top 10 under $40K Sources: insideevs.com; EPA; ScottMadden analysis
by the “dragon curve”
Tesla (Models S, X, and 3)32 SCOTTMADDEN, INC. | ELECTRIC VEHICLES TIME FOR UTILITY ENGAGEMENT AND PLANNING
Rising PEV Sales Means More KWhs... PEV Share of New 2017 Vehicle Registrations by Metropolitan Area
with Limits
∙∙ With increasing PEV sales, electricity
consumption for charging is expected to
grow as well
∙∙ The EIA’s most recent Annual Energy
Outlook forecasts electricity demand
from light-duty vehicles growing to more
than 48,000 GWh by 2030
∙∙ A key question for utilities: Will this
constitute meaningful load growth?
-- Efficient electrification is increasingly
of interest to the electricity industry
as well as environmental advocates
-- Some recent studies show that
widespread transportation
electrification, including medium- Source: ICCT
and heavy-duty vehicles, will spur
electricity growth, but perhaps
limited to around 1% annual load PEV Consumption (GWh)
growth or less depending upon the (2017 Actual and 2020–30 Projected)
study and scenario 60,000
∙∙ Location and timing of usage will matter 53,756
-- Similar to early adoption (see map), PEV KWh Consumption in Context:
50,000
the advance of PEVs will likely be How PEV Consumption (2017 Actual and
uneven across the United States, 2020–30 Projected) Compares to Household
Consumption and Total Retail Sales
impacting individual utilities with 40,000
different penetrations along varying 2017 2020 2025 2030
timelines 29,871
GWh
Equivalent to 5M
30,000
-- Even if load growth is minimal, Number 2.8 M
of U.S. 0.9 M
it will be important to consider Households 0.2 M
PEVs contribution to peak load 20,000
as unmanaged charging may Percentage 1.3%
of Electricity 0.8%
be concentrated in evening and 10,000
9,285 Sales 0.1% 0.2%
overnight hours
1,900
0
2017 2020 2025 2030 Sources: EIA; Argonne Nat’l Lab; ScottMadden analysisELECTRIC VEHICLES TIME FOR UTILITY ENGAGEMENT AND PLANNING | SCOTTMADDEN, INC. 33
Anticipating Grid Impacts: PEVs Will Require Public Charging, but 80% to 90% of Charging Will Occur at Home
∙∙ California has been aggressively promoting EV expansion, where 900 MWs of residential charging demand occurring at 8 PM on
officials have approved nearly $1 billion in ratepayer-backed EV- weekdays (see chart below)
charging investments, and Gov. Brown has proposed an additional ∙∙ While public infrastructure has received considerable attention, the
$2.5 billion program to further a goal of 5 million zero-emissions findings from California reveal how electric utilities must consider and
vehicles by 2030 plan for the behaviors and impact of large-scale residential charging,
∙∙ Anticipating increasing uptake of PEVs, the California Energy which is largely not visible to electric utilities
Commission and the National Renewable Energy Laboratory recently ∙∙ Managed charging, which enables utilities to control the charging of
estimated the number of chargers required for California to support PEVs, will be a “must-do” rather than “can-do” activity for electric
1.3 million PEVs by 2025 utilities
∙∙ The analysis found 229,000 to 279,000 chargers would be required ∙∙ Some utilities, such as DTE Energy and Duke Energy, have proposed
at work places, public destinations, and multi-unit dwellings; these customer incentives for Level 2 chargers with certain communication
figures do not account for chargers at single-family homes protocols (e.g., OPCC and OpenADR) to allow visibility and control of
∙∙ The analysis also forecasts the timing of PEV charging, finding nearly residential charging
Enter the Dragon (Curve): Late Afternoon Power System Ramping Could Be Exacerbated by PEV Charging
California Statewide Aggregated PEV Electricity Load California Statewide Aggregated PEV Electricity Load
for a Typical Weekday for a Typical Weekend
1,000 1,000
Residential L1 Residential L1
900 900
Residential L2 Residential L2
Weekend PEV Charging Load (MWs)
Weekday PEV Charging Load (MWs)
800 Work L2 800 Work L2
Public L2 Public L2
700 700
Fast Charging Fast Charging
600 600
500 500
400 400
300 300
200 200
100 100
0 0
0 4 8 12 16 20 24 0 4 8 12 16 20 24
Time of Day Time of Day
Source: California Energy Commission34 SCOTTMADDEN, INC. | ELECTRIC VEHICLES TIME FOR UTILITY ENGAGEMENT AND PLANNING
A Broad Array of Actions to Maximize Value from PEVs Drivers of Growth
∙∙ In order to realize the benefits of transportation Infrastructure Value-Add Products
electrification, electric utilities need to determine their and Services
∙∙Personal chargers – Level 2
role (or roles) in the PEV ecosystem ∙∙Charger sales/leases
∙∙Public chargers – Level 2, DC
∙∙ Maximizing long-term value may require developing fast charging, high power ∙∙Infrastructure consulting
strategic engagements across multiple engagement
channels (see graphic at right) Vehicles and Grid Services
Transport Equipment
∙∙ A broad assessment of all engagement channels ensures ∙∙Demand management/
a holistic strategic approach that considers the utilities’ ∙∙Vehicle rebates response
capabilities, market dynamics, and long-term desired role ∙∙Procurement group ∙∙Aggregate storage
More than Kilowatt-hours: Utilities Should Consider Value Generation
Multiple Value Opportunities through Electric
∙∙ Energy sales: PEVs can mitigate declining load growth by Transportation Strategy
providing additional electricity sales
∙∙ Grid management: Managed charging with current
technology allows load shifting and demand response;
vehicle-to-grid technology not ready for mass adoption
∙∙ Return on assets: A number of utilities have been able to
rate base PEV charging infrastructure and earn a return
Energy Sales
on those assets
Grid Management
∙∙ Additional revenue streams: Additional products and
Return on Assets
services (e.g., retail charger sales/leases) represent
opportunities for utility revenue growth Additional Revenue Streams
∙∙ Brand value: Enhanced customer offerings can also Brand Value
increase brand value with customers and regulators
Policy
Collaboration
Don’t Forget Heavy-Duty Vehicles ∙∙Influence legislation and
regulations ∙∙OEMs
∙∙ Most incentives and targets are for light-duty vehicles ∙∙Influence state and local ∙∙EV supply equipment
incentives providers
∙∙ However, light-duty vehicles only account for a portion of
vehicle emissions
Rates Education/Awareness
∙∙ Discussions of transportation electrification should include
∙∙Residential/commercial ∙∙Events and educational
medium and heavy-duty vehicles, which will have a larger time of use materials
per-vehicle emissions impact ∙∙Depot charge tariff ∙∙PEV showrooms
Enablers of GrowthELECTRIC VEHICLES TIME FOR UTILITY ENGAGEMENT AND PLANNING | SCOTTMADDEN, INC. 35
IMPLICATIONS
There is significant opportunity for utilities to identify strategic
engagements and proactively plan for PEVs.
Note: OEMs are original equipment manufacturers
Sources: California Energy Commission; International Energy Agency;
International Council on Clean Transportation; U.S. Environmental Protection
Agency; Edison Electric Institute; Argonne National Laboratory; U.S. Energy
Information Administration; InsideEVs.com; National Renewable Energy
Laboratory; S&P Global Market Intelligence; auto manufacturer websites;
industry news; ScottMadden analysis
For more ScottMadden energy
insights visit our Insights Library:
scottmadden.com/insights36 SCOTTMADDEN, INC. | POWER TRANSMISSION MUCH PLANNED, BUT TAILWINDS ARE ABATING
POWER TRANSMISSION
MUCH PLANNED, BUT TAILWINDS ARE ABATING
Industry and regulators are trying to find the right incentives.
Planned Transmission Continues Apace But Project Completion Has Been Slowing
NERC Assessment Areas with
∙∙ Despite low or flat load growth, about 6,200 circuit ∙∙ Completed miles of transmission lines have High Levels of Prospective
miles of new transmission is planned throughout the declined year over year from 2013 to 2017 Transmission Additions
2018–2022 assessment period with more than 1,100 ∙∙ NERC says that lead times can be up to
circuit miles currently under construction 15 years to permit, site, and construct
∙∙ Increasing levels of intermittent resources are expansion projects
requiring new transmission facilities and devices, ∙∙ Together, electric transmission and
such as static VAR compensators or synchronous distribution expenditures are expected to
condensers account for about 46% of electric utility
∙∙ And while nearly 80% of the 6,200 miles of planned spending from 2018 to 2020
additions are for reliability, about 13% are for ∙∙ From 2017 to 2018, transmission rate base
renewable resource integration, and many of the miles growth* slowed to 9.3%, a significant
are planned for the Midwest, as well as the Rocky decrease compared to the previous three Over 500 Circuit Miles
Mountain West and Mid-Atlantic, and other areas with years: 13.1% from 2016 to 2017, 15.8% from 250–500 Circuit Miles Under 250 Circuit Miles
high amounts of wind penetration (see figure at right) 2015 to 2016, and 19.0% from 2014 to 2015 Source: NERCYou can also read
