Electric Utility Resource Planning Economics, Reliability, and Decision-Making

Acknowledgements

Author

Part I: The Fundamentals of Electric Utility Resource Planning

1. Introduction

Why Write This Book?

Who Is This Book Written For?

An Overview of the Book’s 1^st Edition (i.e., Part I of This Book)

An Overview of the Book’s 2^nd Edition (i.e., Part II of This Book)

Are We Keeping It Simple?

A Few Words Regarding Assumptions Used in This Book

A Couple of Disclaimers

2. How Does an Electric Utility Actually "Work"?

Two "Types" of Electric Utilities

Whose Perspective Will Be Taken?

What Aspects of an Electric Utility Will We Focus On?

Types of Generating Units a Utility May Have

How Does a Utility Decide Which Generating Units to Use?

Let’s Create a Hypothetical Utility System

Now Let’s Operate Our Hypothetical Utility System

Utility System Operation on the Summer Peak Day

Utility System Operation over the Course of a Year

So What Have We Learned and Where Do We Go Next?

　

3. Overview of Utility Resource Planning

One More Assumption Regarding Our Hypothetical Utility System

Three Questions Utility Resource Planning Must Always Answer

Reliability Analysis: When Does a Utility Need to Add New Resources

and What is the Magnitude of Those Needed Resources?

Reserve Margin Perspective (Simple to Calculate)

Probabilistic Perspective (Not So Simple to Calculate)

Which Reliability Perspective is More Important?

Resource Option Evaluation and Selection: What Is the Best Resource

Option to Select for a Given Utility?

Two Basic Types of Resource Options: Supply and Demand Side

Management Options

Integrated Resource Planning (IRP)

Economic Evaluations

Preliminary Economic Screening Evaluation of Supply Options

Preliminary Economic Screening Evaluation of DSM Options

Final (or System) Economic Evaluations

Non-Economic Evaluations

Non-Economic Consideration Example (i): The Length of Time

It Takes Before a Resource Plan Becomes the Economic Choice

Non-Economic Consideration Example (ii): The Utility System’s

Fuel Usage Due to a Resource Plan

Non-Economic Consideration Example (iii): The Utility System’s

Air Emissions Due to a Resource Plan

 

4. Reliability Analyses for Our Utility System

When Does Our Utility System Need New Resources?

What Is the Magnitude of the New Resources Needed by Our Utility System?

What Have We Learned and What Is Next?

 

5. Resource Option Analyses for Our Utility System: Supply Options

Types of Supply Options Under Consideration

Capital Costs: Rows (1) through (3)

Other Fixed Costs: Rows (4) through (7)

Operating Costs: Rows (8) through (16)

Preliminary Economic Screening Evaluation of the Supply Options

Creating the Competing "Supply Only" Resource Plans

Final (or System) Economic Evaluation of Supply Options

Overview

Total Cost Perspective (CPVRR) for the Supply Only Resource Plans

Electric Rate Perspective (Levelized System Average Electric Rate)

for the Supply Only Resource Plans

 

6. Resource Option Analyses for Our Utility System: DSM Options

Types of DSM Resource Options Under Consideration

Preliminary Economic Screening Evaluation of DSM Options: Understanding

the Cost-Effectiveness Screening Tests

Preliminary Economic Screening Analyses of DSM Options: Results

Creating the Competing "With DSM" Resource Plans

Final (or System) Economic Analyses of DSM Options

Overview

Results for the With DSM Resource Plan 1

Results for the With DSM Resource Plan 2

 

7. Final Resource Option Analyses for Our Utility System

Economic Comparison of the Resource Plans

Non-Economic Analyses of the Resource Plans

"Cross Over" Time to Being the Most Economic Resource Plan

System Fuel Use

System Air Emissions

Summary of Results from the Resource Option Analyses for Our Utility System

 

8. Are We Done Yet? Other Factors Than Can (and Will) Complicate

Resource Planning AnalysesConstraints on Solutions: Six Examples

Examples of "Absolute" Constraints

1. Siting/Geographic Constraints
2. Potential Tightening of Environmental Regulations

Examples of Legislative/Regulatory-Imposed Constraints

3. "Standards"/(Quotas) for Specific Types of Resource Options
4. Prohibition of Specific Resource Options

Examples of Utility-Imposed Constraints

5. System Reliability Constraints

The Voluntary Nature of DSM Options

6. Load Shape Constraint

What Are the Impacts of Addressing These Constraints?

Part II: Moving Towards Zero Carbon

1. An Overview of Part II

Introduction

A Different Approach is Taken in Part II

How Part II is Structured

2. Moving Towards Zero Carbon: How Many MW of New Resources Will Be Needed?

Introduction

The 1^st Estimation Approach

The 2^nd Estimation Approach

How Accurate Do We Believe the 2^nd Estimation Approach Is?

A "What If" Analysis: How Many Additional New Resource MW Would be Needed if Our

Utility’s Nuclear Capability Was Not Available?

Summary: Key Takeaways Regarding the Magnitude of New Resource MW Needed to

Reach a Zero-Carbon Goal

3. Moving Towards Zero Carbon: Resource Planning Considerations for Solar (PV) Resources

Introduction

PV Installed Costs ($/kW): 2009 – 2022

Tax Credits for PV from the 2022 Inflation Reduction Act (IRA)

Impacts of PTC Over the 25-Year Analysis Period

What Do We Conclude From This Discussion of the 2022 IRA’s PTC Impact on Solar Resource Options?

A More Complete Look at the Firm Capacity Value Aspect of Solar

Firm Capacity Value of PV at Our Utility’s Winter Peak Hour

Summer Firm Capacity Values as Increasing Amounts of PV are Added in the Future

How Serious are the Challenges that Utility Resource Planners Will Face From These

Two PV Firm Capacity Value Characteristics?

System Reliability Analysis During the Transition Period

Summary: Key Takeaways for Resource Planning Regarding PV Resources

4. Moving Towards Zero Carbon: Resource Planning Considerations for Battery Storage Resources

Introduction

A Representative Projection of Battery Storage Installed Costs ($/kW): 2023 - 2030

Tax Credits from the 2022 Inflation Reduction Act (IRA)

A Graphical Look at the Firm Capacity Value Aspect of Battery Storage

A Better Method to Determine the Needed Duration of Battery Storage Options

The Relationship Between the Needed Duration of Battery Storage Options and the Cost

of Batteries

A Brief Look at Battery-and-PV Combinations in Regard to System Reliability

Summary: Key Takeaways for Resource Planning Regarding Battery Storage Resources

5. Moving Towards Zero Carbon: Ramifications for System Operations and Transmission Planning

Introduction

Solar Curtailment

Operation of Existing Conventional Generation with Ever-Increasing Amounts of PV

Invertor-Based Resources (IBRs) and System Stability

Summary: Key Takeaways Regarding System Operations, Transmission Planning, and Resource Planning

6. Final Thoughts (Including Some Opinions)

A Quick Look Back

Summary of the Key Points We Have Learned About Utility Systems in General

Summary of the Key Lessons We Have Learned Regarding Utility Resource Planning

Summary of the Key Lessons We Have Learned Regarding Moving Towards Zero Carbon

A Few Opinions on Various Topics

What Lies Ahead for Electric Utilities and Utility Resource Planning?

Closing Thoughts

Appendix A: Four Fundamental Principles of Electric Utility Resource Planning

Appendix B: Glossary of Terms

Appendix C: Mini-Lesson #1 – Concepts of Revenue Requirements, Present

Valuing of Costs and Discount Rates, Cumulative Present Value of Revenue

Requirements (CPVRR), and Levelized Costs

Appendix D: Mini-Lesson #2 – Further Discussion of the Limitations of a Screening

Curve Analytic Approach

Appendix E: Mini-Lesson #3 – Further Discussion of the RIM and TRC Preliminary

Cost-Effectiveness Screening Tests for DSM

Appendix F: Mini-Lesson #4 – How Can a Resource Option Result in Lower Costs,

but Increase Electric Rates?

Appendix G: Mini-Lesson #5 – How Can a Resource Option That Produces Emissions

Lower a Utility’s Total System Emissions?

Index

Biography

Dr. Steven Sim has worked in the field of energy analysis since the mid-1970s. He graduated from the University of Miami (Florida) with bachelor’s and master’s degrees in mathematics in 1973 and 1975, respectively. He then earned a doctorate in environmental science and engineering from the University of California at Los Angeles (UCLA) in 1979 with an emphasis on energy.

During his doctoral work, Dr. Sim also completed an internship of approximately a year and a half at the Florida Solar Energy Center (FSEC), a research arm of Florida’s state university system located in Merritt Island, Florida, near Cape Canaveral. His work at FSEC involved an examination of consumers’ experience with solar water heaters and projections of the potential for renewable energy in the Southeastern United States.

In 1979, Dr. Sim joined Florida Power & Light Company (FPL), a subsidiary of NextEra Energy, Inc. FPL is one of the largest electric utilities in the United States. In the more than 40 years from 1979 to the time the 2^nd edition of this book is being written, FPL has experienced tremendous population growth in the geographic area it serves. Annual average growth has been roughly 74,000 net new customer accounts per year during that period. With each customer account representing approximately 2.5 people, this represents a growth of approximately 185,000 more people per year that FPL needed to serve.

Therefore, the growth that FPL had to keep up with was roughly equivalent to 1 million new people every 5.4 years. Few, if any, other electric utilities have had to face the challenges inherent in meeting continued growth of this magnitude over such an extended time. This extraordinary growth, combined with the planning issues that all utilities face including changing environmental regulations, fuel decisions, modification/retirement of existing generating units, changes in generating technologies, etc., ensured that FPL’s planning efforts have addressed a wide variety of resource planning challenges.

During that time, Dr. Sim has had several roles in regard to FPL’s resource planning efforts. He spent approximately the first 10 years of his career at FPL designing a number of FPL’s demand side management (DSM) programs. One of these, the Passive Home Program, earned a U.S. Department of Energy (DOE) award for innovation. Among the numerous other DSM programs he either designed or co-designed were the Conservation Water Heating Program (that featured heat pump and solar water heaters) and one of the nation’s most successful load management programs (FPL’s residential load control program, known as the On Call Program, has approximately 800,000 participating customers).

In the course of designing these DSM programs, he became very interested in gaining a better understanding of how DSM programs affect FPL’s entire utility system. Of particular interest were how FPL’s DSM programs impacted the actual operation of FPL’s generation, transmission, and distribution systems, including impacts on air emissions for the FPL system as a whole, and fuel usage by all of the power plants in FPL’s system.

This interest led to him joining FPL’s System Planning Department in 1991. This department (since renamed the Integrated Resource Planning Department) is charged with determining when new resources should be added to the FPL system, the magnitude of the needed new resources, and what the best resources are for FPL to add to meet the continued growth in customers (and their demand for electricity), changing environmental laws, and other regulatory requirements.

Dr. Sim has found this work to be challenging, continually evolving, and always interesting. Over this time, Dr. Sim has performed, directed, and/or collaborated on many thousands of analyses designed to examine how FPL can best serve its customers given these changing circumstances, laws, and regulations. In addition to these analyses, Dr. Sim has also served as an FPL witness in dozens of hearings before the Florida Public Service Commission (FPSC) and in hearings/meetings with other Florida governmental agencies and organizations. A partial list of the subjects addressed in these hearings included: the economic and non-economic impacts to the FPL system of proposed new resource additions including nuclear, coal, natural gas, solar, battery storage, and conversion of existing fossil-fueled generating units to hydrogen-fueled units; the economic and non-economic impacts to the FPL system of FPL’s DSM programs that are alternatives to new power plants; analyses of generation additions versus transmission additions; the air emission and fuel use impacts to the FPL system from each of these resource options; the reliability of the utility system; and the planning processes that can be used by a utility to plan for new resources.

In these numerous regulatory hearings, Dr. Sim has provided both written and oral testimony. In so doing, he has had the opportunity to respond to a wide variety of inquiries from regulators, administrative law judges, environmental organizations, fuel suppliers, etc., regarding a host of issues. Dr. Sim has also participated in various collaborative efforts with other electric utility organizations and individual utilities, including advisory groups for the international Electric Power Research Institute (EPRI). In addition, he has served on the Southeast Electric Exchange’s (SEE) Integrated Resource Planning Task Force and the resource planning group of the Florida Reliability Coordinating Council (formerly the Florida Coordinating Group). He has also served as Chair for the latter two groups.

These activities have further broadened his perspective of the challenges facing other electric utilities across the country and how these challenges are being addressed. Over the years, he has spoken at a number of electric utility conferences, both national and international. At one of those conferences, the 6th National Demand-Side Management Conference, Dr. Sim was awarded the Outstanding Speaker Award. He has also enjoyed speaking with, and to, a variety of individuals and groups that were interested in energy issues, particularly those issues that directly involve electric utilities. He has seen this interest grow in recent years as issues such as energy prices, climate change, renewable energy, and federal/state energy policy are regularly in the news.

In light of this growing public interest, Dr. Sim wrote the 1^st edition of this book in 2012 to share the insight he had gained in over 30 years of directly analyzing energy-related issues for one of the biggest electric utilities in the United States, and in collaborating with others in the electric utility industry regarding the challenges they have faced.

In the decade since 2012 and the publishing of the 1^st edition of this book, there have been many changes in the electric utility industry that FPL and other utilities have faced in their resource planning work. As an example, one of Dr. Sim’s major projects was to direct the resource planning analyses to determine what it would take for FPL to get to zero-carbon operation in various target years. Based in large part on the results of these analyses, NextEra Energy made an announcement in June 2022 of a "Real Zero" goal of getting to zero carbon emissions by 2045.

The utility industry changes that have occurred since the 1^st edition of this book was published, and especially the analyses of what it takes to achieve a zero-carbon goal, led to the writing of the 2^nd edition of this book.

Dr. Sim retired from FPL in October 2022. He continues to teach a resource planning course for FPL and other NextEra Energy companies. His hope is that, through the 2^nd edition of this book (and/or the resource planning course sessions), he will be able to convey insight he has gained in over 40 years of various aspects of resource planning work for such a large, rapidly growing electric utility. And, as a result, that this insight will help to facilitate discussions on a variety of energy-related issues, leading to better informed decisions by utilities, regulators, and legislators. Finally, he hopes that you will not only find this book informative, but enjoyable to read as well.