the wecc scenarios: early indicator, trends and scenario ... trends and early indicator... ·...

The WECC Scenarios: Early Indicator, Trends and

Scenario Movement Analysis

The 20th Monthly Report to WECC and the SPSG

for May 2017

Published June 7, 2017

The Quantum Planning Group

San Francisco, California

Specialists in Scenario Planning, Analysis & Strategy Development

Early Indicators, Trends & Scenario Movement June 7 2017

Quantum Planning Group of 23

EXECUTIVE SUMMARY

Scenario Movement: There are changes in our view about trends indicating movement in the scenario matrix during May from our last report. This month’s report finds no clear combination of trends and indicators of movement towards Scenarios 1, 2 and 4, while a combination of broad indicators are trending towards Scenario 3. Events and trends around both scenario axes and other indicators continue to point strongly to Scenario 5: Energy, Water, and Climate Change. Scenario Axis Trends Economic indicators are beginning to show faster-growing economies in the US and globally, yet at the same time indicators such as GDP growth are showing continued mixed growth within the Western Interconnection (see the Economic Growth Axis section below). There is a conflicting mix of data and information on economic growth around Scenarios 1, 2, and 4, yet we note trends towards scenario 3.

Unemployment across the interconnection continues to be mixed in April, ranging from a high of 7.9% in Alberta to a low of 2.3% in Colorado. New job openings across the region are going begging for applicants as the lack of skilled workers coupled with fewer adults in the labor force is holding back faster growth. 2016 GDP growth across the interconnection was also mixed, ranging from a high in Washington of 3.7% to negative growth in Alberta, New Mexico, and Wyoming.

By most accounts, the global economy is in a faster growth period, yet is still fragile. We are still waiting for the fallouts from the United Kingdom’s decision to exit the European Union, we have yet to see the details of the Trump Administration’s tax reform, budget, infrastructure plans, and the final health care reform bill (if any). New concerns over China’s private and corporate debt and how the government will support it has caused Moody’s and Standard and Poor’s to downgrade China’s credit ratings.

Progress along the Technology Innovation axis has not changed since our last report(s). We continue to see no revolutionary breakthroughs in technology innovation, although there continue to be continuous improvements in renewables, storage, energy efficiency and energy production costs, what we would expect to see in scenarios 1 and 3 and with negative impacts on Scenario 5.

Of note, a new Brookings Institute study based on a review of clean energy patent filings (a very good indicator of innovation) found that while the number of new patents per year doubled between 2001 and 2014, the numbers since have fallen by almost 10%.

The continuing incremental improvements within electricity supply and distribution technology innovation and the decline of clean energy patents over the past two years point towards Scenarios 1 and 3 and away from Scenarios 2 and 4. Our Scenario Axis trends full discussion begins on page 8.

https://www.brookings.edu/research/patenting-invention-clean-energy-innovation-trends-and-priorities-for-the-trump-administration-and-congress



Uncertainties, Major Trends and Wild Cards

While no EPS in May brought to light a new significant uncertainty, a number of events other than those just discussed may have significant impacts on the WECC Scenarios: Grid Modernization and DER, and events impacting Scenario 5: Energy Water and Climate Change.

The modernization of the utility transmission and distribution systems by adding new components that incorporate information, communication or sensing technologies is gaining impetus based on ideas about the potential benefits to customers and enabling new opportunities for energy services.

President Trump announced that the US would start the 4-year long process of withdrawing from the Paris Climate Change Agreement, and halt all voluntary actions immediately. It will take some time to understand exactly what the implications will be for this action.

California's five-year drought increased electricity bills statewide by $2.45 billion while boosting levels of smog and greenhouse gases. The primary cause of the increases in electricity costs, smog and greenhouse gas levels was the reduction in hydroelectric power produced in California, while natural gas-fired plants, which are more expensive to run and pollute more, took up the slack. Although California received higher-than-normal rainfall and snowpack during the Winter of 2016-17, ratepayers are still feeling the effects of rate increases based on the 2011-16 drought.

Despite repeated statements by EPA chief Scott Pruitt and others that “over the past two decades satellite data indicates there has been a leveling off of global warming”, a review of data since 1978 (known as the satellite record period) shows consistent and unprecedented warming increases over that period.

Researchers at the University of Exeter in England say that the Antarctic Peninsula is one of the more rapidly warming areas in the world, with temperatures increasing by about 1/2 degree Celsius each decade since the 1950s. The researchers say that the increase s directly caused by global warming.

As many countries are attempting to reduce the use of coal-fired power plants, India is shirking emissions targets and Pakistan is building more coal plants. For both countries, the issues are preserving jobs, not being able to meet electricity demand with other forms of generation, and promoting economic growth.

Recent numbers from the EIA show a mixed bag for progress in decreasing carbon intensity across the US economy in five primary energy consuming sectors: transportation, commercial and residential usage, electric power generation and industrial usage. In 1975 through 2016, the good news is that electric power and industrial sectors are now the two least carbon-intensive sectors. However, carbon intensity in the transportation sector has hardly changed.

Our full discussion of Trends and Wild Cards begins on page 5 and continues in the



Scenario Axis Trends beginning on page 8 and in the Scenario 5 section beginning on page 19.

INTRODUCTION

This is the 20th of the monthly reports by the Quantum Planning Group (QPG) to WECC and the Scenario Planning Steering Group (SPSG) delivered on the 7th day of each month, covering:

1. Significant Event-Pattern-Structure (EPS) Events and Early Indicators (EIs) for the WECC scenarios and their implications; and

2. Significant Uncertainties and Major Trends within the EPS and Early Indicators; 3. Movement and progress indicated by the trends towards one or more of the WECC

scenarios.

These reports include Scenario 5: Energy, Water, and Climate Change since EPSs can be related to this scenario, even though there are no specific Early Indicators for this scenario other than a 3-degree F temperature rise by 2034.

While this monthly report details EPS submittals for May 1-31 2017 inclusively, our analysis considers and builds on learnings from the last 19 reports. We refer the reader to our report to the SPSG of November 3, 2015, entitled: WECC Scenarios Trends and Early Indicator Analysis, and the prior WECC Scenarios: Early Indicator, Trends and Scenario Movement Analysis reports of October 2015 - April 2017 for additional information found here.

The links to the event EPSs that follow in this report are “hot” and, when clicked, will take the reader directly to the EPS in the SPSG pages on the WECC website, or to referenced articles.

For May there were: 19 new EPS with significant events added, 14 EPS (74%) with one or more EIs flagged for 19 EIs flagged

For the period September 2015 – May 2017 there were: 382 Total EPS with significant events added 229 EPS (60%) with one or more EIs flagged for 406 EIs flagged

This month’s report includes the following sections:

Executive Summary……………………………………………………. Page 2 Significant Uncertainties, Recent Trends & Wild Cards… Page 5 Scenario Axis Trends………………………………………………….. Page 8 EPS Events with EIs and Scenarios 1-5 Movement……….. Page 15 EPS Events without EIs Flagged………………………………….. Page 23

https://www.wecc.biz/SystemAdequacyPlanning/Pages/Events-Pattern-Structure.aspx



SIGNIFICANT UNCERTAINTIES FOR CONSIDERATION

No central issue draws special attention in May; however, we will highlight a number of events in this section (Grid Modernization), and in the following sections on the Scenario Axes (economic growth uncertainty and declining clean energy innovation, and Scenario 5: Water, Energy, and Climate Change (US withdrawal from the Paris Agreement, continued global warming, increased coal use, costs of extreme weather and carbon intensity).

RECENT TRENDS from May EPS submissions

Grid Modernization at the Center of Electric Industry Evolution

Over the last several months our Trends Reports have in various ways touched on topics related to the integration of distributed energy resources (DER) and investments needed to modernize existing utility transmission and distribution (T&D) systems to accommodate various uses of DER (e.g., service models like community power). We first took note of this issue several years ago with the ideas generated by New York State regulators suggesting new business models for local distribution systems.1 We feel it is safe to say that this issue now sits at the center of electric industry evolution and that decisions made in this area might lead to structural changes in how the power industry operates similar in scale to that brought on by the Public Utilities Regulatory Policy Act of 1978 (PURPA). PURPA ushered in the era of non-utility independent power generation, open access transmission and the creation of regional independent system operators in electric power transmission.

However, we also think DER integration is a far more complicated issue to understand and implement than non-utility owned independent generation, which was mostly driven by significant technological innovation in power generation: cost competitive and efficient at smaller than traditional sized power plants. We think it will be much more difficult to make regulations and policies that will be national in scope. Economic conditions, historical rate treatments of costs, e.g. performance-based rates, and industry structures in each state, such as the role and extent of public power in a state, might make a standard list of factors for analyzing how to integrate DER into local grids all but impossible. The analyses needed to determine the cost versus benefits to customers will vary widely as the underlying factors on both sides of the meter will differ. In the Western Interconnection this might lead to widely different levels and forms of new regulations in different states and provinces as they shape the integration of DER into local utility T&D systems.

From our research to date we see the following as fundamental drivers pushing the industry toward investment in new information, communications and sensing technologies which will modernize the transmission and perhaps, more importantly, distribution systems in the U.S. power industry:

1 EPS: 5 Key Proposals for New York's Grid Transformation, Green Tech Media, September 9, 2014

https://www.wecc.biz/SystemAdequacyPlanning/_layouts/15/listform.aspx?PageType=4&ListId=%7BA675FE69%2D4008%2D4C1C%2DACDF%2DBAE648103A42%7D&ID=948&ContentTypeID=0x0100728BBD353EAC38499FA7F4990EDE8A54



1. Similar to the technological innovations that made electric power at smaller scales possible, especially gas-fired turbines in the 50 megawatts and under range, some investors see rooftop solar, energy storage and energy efficiency applications as another level of small-scale innovation enabling new market structures.

2. Historically, the build out of T&D systems was not done with extensive distributed intelligence, as modern systems were not available or needed since the purpose of these systems was low-cost transmission and distribution of power. Safety and power system conditions were the focus in the early building of these systems. The potential benefits of more extensive sensing, measuring and communications in T&D systems is just emerging.

3. Some industry analysts, e.g., the Rhodian Group (item 2 below), are suggesting that based on the current and potential declining costs of information, sensing and communications technology, the cost of gathering this information and its benefits to lowering consumer costs and providing new service options will be reasonable. Exactly what those benefits are and whether different classes of consumers will value them is unproven.

4. It is unclear how the costs and benefits of modernizing T&D systems should be shared among different customer classes. Measuring the benefits and costs, and predicting how they may change over time, seems to be an open area of analysis with room for debate by industry engineering and economic analysts.

5. There are some suggestions that implementing DER will change the focus of maintaining electric reliability from something that is managed within the bulk transmission system to what can be managed locally in the distribution network. If this occurs, it will likely have implications for the role of WECC in reliability planning. Additionally, continued observation and analysis of the process and pace of DER integration will be critical in understanding if it is an issue which will have significant impacts for reliability planning within a 10-year or 20-year timeframe.

We want to direct the attention of readers to the following EPS submissions in particular, as they help provide several views of how to understand how DER integration is present in a range of industry events.

1. The debate over distribution expansion and value of DER continues in SCE rate case: EPS: Southern California Edison rate case generates debate on distributed power http://www.utilitydive.com/news/the-socal-edison-rate-case-a-canary-in-the-coal-mine-for-der-policy-debate/438970/

2. New studies attempt to frame utility grid upgrades and DG EPS: Energy experts at Rhodium assess benefits of grid modernization http://rhg.com/wp-content/uploads/2017/01/RHG_WhatsItWorth_Jan2017.pdf

3. More evidence of utility engineering and economics in the implementation of DER: EPS: California PUC approves DER interconnection study http://www.utilitydive.com/news/how-californias-utilities-are-mapping-their-grids-for-distributed-resource/436899/


http://www.utilitydive.com/news/the-socal-edison-rate-case-a-canary-in-the-coal-mine-for-der-policy-debate/438970/

http://www.utilitydive.com/news/the-socal-edison-rate-case-a-canary-in-the-coal-mine-for-der-policy-debate/438970/


http://rhg.com/wp-content/uploads/2017/01/RHG_WhatsItWorth_Jan2017.pdf


http://www.utilitydive.com/news/how-californias-utilities-are-mapping-their-grids-for-distributed-resource/436899/

http://www.utilitydive.com/news/how-californias-utilities-are-mapping-their-grids-for-distributed-resource/436899/



http://www.cpuc.ca.gov/General.aspx?id=5071

As we noted in the Executive Summary, trends affecting the Scenario Axes and Scenario 5: Energy, Water, and Climate Change, will be discussed in their respective sections to follow.

http://www.cpuc.ca.gov/General.aspx?id=5071



WILD CARDS

No new Wild Cards were added in April. We continue to monitor the current Wild Cards of a preference for fossil fuels, solar financing problems, cyber-security, and BREXIT.

SCENARIO AXIS TRENDS

The WECC Scenario Matrix

Each of the four original WECC scenarios fits into one of four quadrants within a 2 x 2 matrix, using the two primary scenario drivers chosen by the SPSG of 1) Economic Growth in the WECC Region; and 2) Technology Innovation in Electric Supply and Distribution.

Each scenario can thus be described – at a high level – by the combination of the matrix axes.

For example, Scenario 1: Focus on Economic Recovery would be characterized as: “Widespread Economic Growth in the WECC Region with Increasing Standards of Living and Evolutionary Changes in Electric Supply and Distribution Technology”.

The matrix provides both a quick visual model for the scenarios and a reference for the discussions that follow. However, for a complete understanding of the scenarios, we encourage readers to read the 2013 WECC scenario narratives found here. Economic Growth in the Western Interconnection

Jobs and Unemployment - Reports were released in May covering activity during April 2017.2 The US added 211,000 jobs in April 2017 compared to March’s 98,000, and the unemployment rate - those workers out of work and receiving unemployment benefits - dropped from March’s 4.5% to 4.4%, setting a 10-year record for the second month in a row. In April, annual hourly wage grew by 0.3%, though year over year growth dropped to 2.5%.

The broadest measure of unemployment, which includes people who are working part-time or have dropped out of the labor market, was down sharply in April to 8.6%, from 8.9% in March.

In the Western Interconnection, Colorado had the nation's lowest unemployment rate at 2.3%.

2 EPS: US April Unemployment at 10-Year Low, The New York Times, May 5, 2017

https://www.wecc.biz/SystemAdequacyPlanning/Pages/Scenario-Planning.aspx




Figure 1, May 2017 Job Growth and Unemployment - Sources: New York Times and US Bureau of Labor Statistics3

Though the official jobless rate dipped even lower in April, the labor participation rate fell slightly to 62.9 percent last month from 63 percent in March, a signal that workers who had been sidelined are not being drawn back into the labor market. It is still hard to bring in workers whose skills have been marginalized, eroded or no longer needed.

Outdated skills and the inability to move to a place where jobs are available may be preventing some people who would like to work getting back into the labor market. As one analyst put it, “…at this point, optimism or pessimism is more about identifying yourself as being part of a political tribe and not so much an indicator of where the economy is headed…”

Canada created fewer new jobs in April than anticipated, yet overall unemployment dropped to its lowest since 2008 as the number of young people looking for work dropped.4 Only 3,200 new jobs were added in April, far short of the 10,000 forecast. The nation’s unemployment rate fell to 6.5%, and hourly wage growth remained slow at just 0.5%.

In the Western Interconnection, British Columbia's unemployment was little changed at 5.5%, and Alberta held relatively steady at 7.9% down 0.5% from March. Alberta continues to struggle as it tries to recover from the continuing depressed oil and gas prices.

US businesses large and small are facing a new problem: even as unemployment rates continue to fall, a lack of new workers5 is preventing them from taking advantage of new growth opportunities as their customers want increased and faster deliveries and new goods and services, driven by new orders from their customers.

This phenomenon is widespread across the interconnection; for example, Alberta is having a hard time drawing skilled workers back to the province as new job growth in the oil & gas sector open up and go begging for workers.

3 US Bureau of Labor Statistics, News Release, May 19, 2017 4 EPS: April Unemployment a Mixed-Bag for Canada, Reuters, The Calgary Sun, and Statistics Canada, May 5 2017 5 EPS: Lack of Workers Holding Back US Economy, The New York Times, May 22, 2017

https://www.bls.gov/news.release/laus.nr0.htm





Another example of this phenomenon is northern Utah, where labor shortages are weighing on overall economic growth, slowing the pace of expansion in that state.

As the unemployment rate continued to drop in Utah’s recovering economy, businesses did not adjust wages upward fast enough to counter the decline in the available workforce, making it difficult to attract workers. That decline in the available workforce - a problem facing Utah employers across business sectors - is indicative of another broad national trend: The share of Utah adults who have withdrawn from the labor force remains higher than before the recession.

Last year, 31.7 percent of adults in Utah were neither working nor looking for work, up from 28.2 percent in 2006. Utah's recent unemployment rate of 3.1% means that there are only about 50,000 people in Utah looking for work.

2016 Growth - Providing a good look at last year’s regional growth, full 2016 GDP growth numbers6 were released in May for the US and Canada.

While we have noted before the perceived limitations of traditional GDP numbers, it still serves to show overall growth in the interconnection and patterns within that growth.

In Canada, the national economy grew at a very slow rate of 1.3%. The Western Interconnection provinces of British Columbia led the provinces with GDP increasing by 3.7%, up from 3.1% in 2015, while Alberta, still struggling from impacts of continued low oil and gas prices, saw its GDP fall by 3.8% - the largest drop among the provinces.

In the US, the national economy grew at 1.5% in 2016 following an increase of 2.6% in 2015. The Western Interconnection states and provinces showed a wide range of GDP growth. Of note, Washington, Oregon, and Utah were the fastest growing states in the US in 2016, and Wyoming and New Mexico were two areas of negative growth.

However, as illustrated in the following table, growth among states and provinces within the interconnection continues to be mixed, and we are not seeing increasing growth across a wide set of 21 industry sectors that make up GDP.

6 EPS: 2016 State and Provincial GDP Numbers Out, US Bureau of Economic Analysis, East Kootenay News, Statistics

Canada, May 11, 2017




Table 1, 2016 GDP Growth in the Western Interconnection States and Provinces - Sources: US Bureau of Economic Analysis7, and Statistics Canada

State 2016 GDP Growth %

Top 2 Highest Growth Sectors in % Top 2 Lowest Growth Sectors in %

Alberta 2 -3.8 Not available at this writing British Columbia 2 3.1 Not available at this writing

Arizona 2.1 Health Care & Social Assistance +0.37 Real Estate Rental & Leasing +0.27

Mining -0.40 Educational Services – 0.04

California 2.9 Information +0.71 Government +0.31

Mining -0.07*

Colorado 2.0 Information +0.46 Professional, Scientific& Technical Services +0.37

Mining -0.54 Management of Companies & Enterprises -0.14

Idaho 1.8 Construction +0.59 Durable Goods Mfg. +0.39

Mining -0.85 Government -0.22

Montana 0.2 Nondurable Goods Mfg. +0.79 Health Care and Assistance +0.38

Mining -1.57 Transportation & Warehousing -0.16

New Mexico -0.5 Professional, Scientific& Technical Services +0.22 Health Care & Social Assistance +0.22

Mining -0.97 Transportation & Warehousing -0.13

Nevada 2.4 Construction +0.38 Management of Companies & Enterprises +0.35

Mining -0.67 Accommodation & Food Services -0.21

Oregon 1 3.3 Real Estate Rental & Leasing +0.38 Construction +0.34

Accommodation & Food Services -0.21 Nondurable Goods Mfg. -0,11

Utah 1 3.0 Information +0.48 Professional, Scientific& Technical Services +0.41

Mining -0.52*

Washington 1 3.7 Information +1.12 Real Estate Rental & Leasing +0.27

Durable Goods Mfg. -0.25 Mining -0.03 & Utilities -0.03

Wyoming -3.6 Nondurable Goods Mfg. +0.49 Health Care & Social Assistance +0.08

Mining -1.72 Construction -0.69

1 Washington (1), Oregon (2) and Utah (3) were the three fastest-growing states in 2016 2 We will update information for Canada as soon as we find comparable data * California and Utah each had only one negative sector in 2016

Note in the table above that in 2016 Mining was the single largest contributor to negative growth across the interconnection, affecting 10 of 11 states, with Oregon the exception.

Of the growth sectors noted above, it is evident that service and information-based sectors provided a disproportionate amount of growth over traditional “hard” manufacturing sectors.

The chart below provides a three-year historical perspective: note the wide range of growth rates in 2016.

7 Gross Domestic Product by State: Fourth Quarter and Annual 2016, Full Release Table 5, US BEA, May 11 2017

https://www.bea.gov/newsreleases/regional/gdp_state/qgsp_newsrelease.htm



Figure 2, GDP Growth in the Western Interconnection, 2014-2016 – Sources, US Bureau of Economic Analysis and Statistics Canada

While we have noted before the limitations of using traditional GDP indicators, it still serves to show that overall, the Western Interconnection is not seeing high and widespread growth across the states and provinces or across industry sectors.

The Global Economic Front - We noted in our last report the problems of China’s debt and “shadow economy”.8,9 Those worrying issues are beginning to have real implications for the country as Moody’s Investors Service downgraded China's credit ratings in May for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.10 If this happens, global growth is bound to erode as well.

China's continuing debt overhangs are being seen more and more as a critical issue in the ability of China to meet its economic growth goals while acting as a major driver of global growth. Standard and Poor’s also downgraded China's credit, citing rising debt and uncertainty about government authorities’ ability to carry out reform.

China's private and corporate debt problems have reached the point where the bad debt problem is so large that the government will have to step in to resolve this issue at some point - but that means a sizable increase in government debt.

On the broader front, these concerns come at a time when broad indicators continue to

8 The New York Times, April 19 2017 9 EPS: China's Economy Grows at 6.9% - But Doubts Remain, The New York Times, April 17, 2017 10 EPS: China's Worrying Debt Problem = Credit Downgrade, Reuters, May 24, 2017

https://www.nytimes.com/2017/04/19/business/china-minsheng-shadow-banking.html?_r=1





show a faster growing global economy. 2017 first-quarter economic indicators show faster sales growth consistent with global growth pickup and all major regions are on pace for positive earnings growth.

As noted by Bloomberg11, a picture of strong earnings growth and positive surprises has emerged across both industries and geography, adding to evidence that the world’s major economies are increasingly running in lockstep:

• Earnings growth is the strongest in years • It’s synchronized. 2017 is on track to be the first year since 2010 when all major

regions should be posting earnings growth • More than halfway into Europe’s earning season, 69 percent of companies had

beaten earnings-per-share estimates • More than 70 percent of S&P 500 companies had topped the earnings-per-share

consensus.

All in all, a positive yet fragile outlook; any hiccup in China, the EU (as BREXIT looms), or the US could have far-reaching negative impacts.

In summary, events and trends in May, while indicating a faster growth period in the global economy, continue to paint mixed signals and unclear understanding of economic growth in the US and the Western Interconnection. We believe we are in a period of ambiguity and uncertainty around the trajectory of both US and Global economic growth, but recent events do trend towards Scenarios 3 and 4 and away from Scenarios 1 and 2. Technology Innovation in Electricity Supply and Distribution

We continue to note that progress along this axis has not changed since our last reports, as innovation in this sector continues to focus on incremental improvements in renewables, storage efficiencies, and production costs. A recent article is a good indicator of just what is happening along this axis12: According to a new study by Brookings Institute, clean energy technology innovation is slowing.

Figure 3, Clean Energy Patent Filings 2001 to 2016 - Source: Brookings Institution

In a review of patent filings - a very good indicator of innovation - Brookings notes that while the number of new patents per year doubled between 2001 and 2014, the number since has fallen by almost 10%.

11 EPS: Global Economic Expansion in Synch and on Track, Bloomberg/BusinessWeek, May 18,2017 12 EPS: Clean Energy Innovation is in Decline, MIT Technology Review, April 26, 2017

https://www.brookings.edu/research/patenting-invention-clean-energy-innovation-trends-and-priorities-for-the-trump-administration-and-congress





MIT notes a number of drivers for the decline: 1. There is currently little financial incentives to develop new clean energy

technologies - there is more money to be made at a cheaper cost for consumer-facing technology than there is turning profits on a new battery, solar panel, wind turbine or nuclear power technologies.

2. The increase in filings may have been a direct result of the Obama Recovery Act of 2009, that poured $27 billion into energy efficiency and renewable’s R&D - that money has run dry.

3. It is likely that R&D efforts are slowing down as the Trump Administration begins to reduce basic R&D funding, especially in clean energy.

However, states could fill this gap to some degree - if they choose - by putting more money into clean energy R&D.

The continuing incremental and continuous improvement within electricity supply and distribution technology innovation remains pointing to scenarios 1 and 3 and uncertain for Scenarios 2 and 4.



EPS EVENTS WITH EARLY INDICATORS & SCENARIO MOVEMENT

Scenario 1: Focus on Economic Recovery (S1): Widespread economic growth in WECC region with increasing standards of living and evolutionary changes in electric supply and distribution technology EPS Events Noting Flagged Early Indicators:

EPS Key Drivers EIs Flagged

April Unemployment a Mixed-Bag for Canada*

Economic Growth in the WECC Region; Evolution of Electric Demand in the WECC Region

NONE

US April Unemployment at 10-Year Low* Economic Growth in the WECC Region; Evolution of Electric Demand in the WECC Region

NONE

2016 State and Provincial GDP Numbers Out*

Economic Growth in the WECC Region; Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region

NONE

Southern California Edison rate case generates debate on distributed power

Innovation in Electric Supply and Distribution; Changes in Regulation of Electric Power Systems in the WECC Region

NONE

Bonneville Power looks at distributed options to meet reliability

Innovation in Electric Supply and Distribution 1.4,1.5

Clean Energy Innovation is in Decline* Economic Growth in the WECC Region; Innovation in Electric Supply and Distribution; Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region; Changes in Social Values Related to Energy Issues; Changes in Society’s Preferences for Sustaining Environment and Natural Resources

1.4

Energy experts at Rhodium assess benefits of grid modernization

Innovation in Electric Supply and Distribution 1.5

California ISO seeks ways to keep power generation in the system


Carbon Intensity Falling in Industrial & Electric Power Sectors*

Innovation in Electric Supply and Distribution; Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region; Changes in Social Values Related to Energy Issues; Changes in Society’s Preferences for Sustaining Environment and Natural Resources; Shifts in Availability and Prices of Fuels used in Electricity Sector

1.4

Global Economic Expansion in Synch and on Track*

Economic Growth in the WECC Region; Shifts in national and global financial markets

1.3

Lack of Workers Holding Back US Economy* Economic Growth in the WECC Region NONE

Planned Transmission Line between Oregon and Washington Dropped*

Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region

NONE

Note: Items with * indicate EPS affecting more than one scenario

S1 Trends

Economic Growth: Considering the sections above on Recent Trends and the Economic Growth axis, we continue to consider economic trends as uncertain for Scenario 1.

Technology Innovation: Current trends continue to indicate continued incremental improvements in electricity supply and distribution technology, therefore pointing towards the Scenario 1 technology quadrant.
























Other indicators: The Wild Cards of continuing financial issues in the solar sector, fossil power generation protection, cyber-security and BREXIT impacts remain as Wild Cards. S1 Movement NO CHANGE: Year to date events indicate continued conflicting movement around S1.

Scenario 2: Focus on Clean Energy (S2): Widespread economic growth in WECC region with increasing standards of living and paradigm changes in electric supply and distribution technology EPS Events Noting Flagged Early Indicators:




2.2


NONE



NONE

Unanticipated Real Costs of Extreme Weather*

Economic Growth in the WECC Region; Changes in Social Values Related to Energy Issues; Changes in Society’s Preferences for Sustaining Environment and Natural Resources

NONE

Roof top solar system sales to consumers show decline in growth




2.4



NONE


One of the Coldest Places on Earth is Getting Greener*

Changes in Social Values Related to Energy Issues; Changes in Society’s Preferences for Sustaining Environment and Natural Resources

NONE



NONE


S2 Trends

Economic Growth: Considering the sections above on Recent Trends and the Economic Growth axis, we continue to consider economic trends as uncertain for Scenario 2.

Technology Innovation: We are still not seeing the breakthrough or paradigm changing electricity supply and distribution technology innovations presumed in this scenario.

Other indicators: There is continued strong growth in renewable energy in the Western Interconnection and the US. The Wild Cards of continuing financial issues in the solar





















sector, fossil power generation protection, cyber-security and BREXIT impacts remain as Wild Cards. S2 Movement

NO CHANGE: Year to date events show no clear movement towards S2 from either axis or other indicators.

Scenario 3: Focus on Short-Term Consumer Costs (S3): Narrow and slow economic growth in the WECC region with stagnating standards of living with evolutionary changes in electric supply and distribution technology

EPS Events Noting Flagged Early Indicators: EPS Key Drivers EIs Flagged



3.3


3.3



NONE


NONE

China's Worrying Debt Problem = Credit Downgrade*


3.2



3.2




3.2


S3 Trends

Economic Growth: Considering the sections above on Recent Trends and the Economic Growth axis, we see economic events now trending towards Scenario 3.

Technology Innovation: Current trends continue to indicate continued incremental improvements in electricity supply and distribution technology – pointing towards the Scenario 3 technology quadrant.
















Other indicators: The Wild Cards of continuing financial issues in the solar sector, fossil power generation protection, cyber-security and BREXIT impacts remain as Wild Cards. S3 Movement

CHANGE from our last report: Considering the sections above on Recent Trends and the Economic Growth axis, we see both economic and technology events trending towards Scenario 3.

Scenario 4: Focus on Long –Term Societal Costs (S4): Narrow and slow economic growth in the WECC region with stagnating standards of living with paradigm changes in electric supply and distribution Technology EPS Events Noting Flagged Early Indicators:




NONE


NONE



NONE



4.3

China's Worrying Debt Problem = Credit Downgrade*


NONE



4.4

India and Pakistan Continue Building Coal Generation*

Shifts in Availability and Prices of Fuels used in Electricity Sector

4.3




4.3



NONE


S4 Trends

Economic Growth: Considering the sections above on Recent Trends and the Economic Growth axis, recent economic events are trending towards Scenario 4.





















Technology Innovation: Current trends continue to indicate continued incremental improvements in electricity supply and distribution technology – pointing away from the S4 technology quadrant.

Other indicators: The Wild Cards of continuing financial issues in the solar sector, fossil power generation protection, cyber-security, and BREXIT impacts remain as Wild Cards. S4 Movement

NO CHANGE: There continues to be no clear combination of indicators pointing towards S4.

Scenario 5: Energy-Water-Climate Change (S5): S5 assumes a 3 degree F rise in global average temperature by 2034 and is the single key driver for this scenario. S5 does not have any associated Early Indicators; however, the SPSG is planning work to complete S5 that could include new early indicators for the scenario.

Of the 19 EPS reported in May, 12 are relevant to S5, some with significant effects as discussed below.




2.2, 3.3


3.3



NONE



4.3


1.4

Scientific assessment shows climate change is not leveling off

Changes in Society’s Preferences for Sustaining Environment and Natural Resources

NONE



1.4,2.4,3.2,4.4

India and Pakistan Continue Building Coal Generation*

Shifts in Availability and Prices of Fuels used in Electricity Sector

4.3



1.3
























4.3



3.2


Even though there are no specific Early Indicators for S5, and it does not appear on a scenario matrix as do the other scenarios, we can look at events and trends pointing towards or away from S5. S5 Trends

President Trump and the Paris Agreement: As he promised during his campaign, on June 1st, President Trump announced he was withdrawing the US from the Paris Agreement, triggering a multi-step 4-year legal process, and halting all voluntary actions under the agreement. This event came too late for this report to allow for any in-depth review and analysis. Under the terms of the agreement, the United States cannot exit the agreement until Nov. 4, 2020 - the day after the next presidential election. That could make climate change a future campaign issue, as a new president could choose to rejoin the agreement.

Other countries immediately announced continued commitments of staying with the agreement. US states, cities, and corporations announced intentions of continuing efforts towards addressing global warming, and the EU and China announced a joint commitment to the agreement. It is too early to understand the full impacts of the withdrawal on S5; we will have more to say on this event in our June report.

The Unanticipated Real Costs of Extreme Weather: California's five-year drought increased electricity bills statewide by $2.45 billion while boosting levels of smog and greenhouse gases.13 The primary cause of the increases in electricity costs, smog, and greenhouse gas levels was the reduction in hydroelectric power produced in California, while natural gas-fired plants, which are more expensive to run and emit more carbon dioxide, took up the slack.

From 1983 to 2013, an average of 18 percent of California’s in-state electricity generation came from hydroelectric power. But during the drought, from 2012 to 2016, that fell nearly in half, to 10.5 percent. In the driest year, 2015, hydroelectric power made up just 7 percent of the electricity generated in California. "The drought has cost us in ways we didn’t necessarily anticipate or think about. It cost us economically and environmentally,” said Peter Gleick, co-founder of the Pacific Institute.

The extra natural gas burned during the drought increased greenhouse gas emissions from power plants in California by about 10 percent, or 24.1 million metric tons of carbon dioxide between 2012 and 2016 - That’s the same amount of heat-trapping pollution as

13 EPS: Unanticipated Real Costs of Extreme Weather, The San Jose Mercury News, April 26, 2017





https://www.nytimes.com/2017/06/01/climate/us-paris-accord-what-happens-next.html

https://www.nytimes.com/2017/06/01/climate/paris-climate-change-guide.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=a-lede-package-region&region=top-news&WT.nav=top-news

https://www.nytimes.com/2017/06/01/climate/paris-climate-change-guide.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=a-lede-package-region&region=top-news&WT.nav=top-news




adding 2.2 million more cars to the road over that time. The high rainfall and snowpack during the winter of 2016-17 may mitigate these effects to some degree.

Global Warming Has NOT Leveled Off: Despite repeated statements by EPA chief Scott Pruitt and others that “over the past two decades satellite data indicates there has been a leveling off of warming”14, a review of data since 1978 (known as the satellite record period) shows consistent and unprecedented warming increases over that period. The review and analyses use newer and more reliable datasets for the period than datasets used by those promoting the “leveling” of warming argument. The selective use of scientific data on different sides of issues subject to political conflicts has been a part of the governing process in the U.S. for a very long time, and will no doubt continue.

The Greening of Antarctica: Researchers at the University of Exeter in England say that the Antarctic Peninsula is one of the more rapidly warming areas in the world, with temperatures increasing by about 1/2 degree Celsius each decade since the 1950's.15 Observers note that moss banks in the area are growing more rapidly than in the past. Ice cores analyzed indicate increased biological activity over the past 50 years as the Peninsula warmed and show fundamental, widespread and "striking" changes indicative of increasing warming - The researchers note that the changes are directly caused by global warming.

India, Pakistan, and Coal: As many countries are attempting to reduce coal-fired power plants, India is shirking emissions targets and Pakistan is building more coal plants.16 For both, the issues are increasing jobs, not being able to meet electricity demand with other forms of generation, and promoting economic growth. Both countries cite the recent US example of the Trump Administration for continuing and expanding coal production.

• Pakistan: As part of a large investment project with China, Pakistan is committed to spending $15 billion on as many as 12 new coal power plants over the next 15 years. Reuters reports17 that the figure is almost half of the $33 billion being invested into energy projects as part of the initiative and that around 75 percent of the extra generation capacity will come from new coal plants. And the country has 175 billion tonnes of coal reserves.

• India: India’s struggle to clean up its energy act is well-known18, however, it’s currently unable to meet its own power demands, so it’s not really that practical to shut down plants—and given that no penalties will be imposed for failing to reduce emissions, there’s little incentive to do so.

14 EPS: Scientific assessment shows climate change is NOT leveling off, Nature Scientific Reports, May 24, 2017 15 EPS: One of the Coldest Places on Earth is Getting Greener, Voice of America News, May 19, 2017 16 EPS: India and Pakistan Continue Building Coal Generation, MIT Technology Review, May 3, 2017 17 Reuters, Pakistan ramps up coal power with Chinese-backed plants, May 2, 2017 18 MIT Technology Review, India’s Energy Crisis, October 7, 2015




http://www.reuters.com/article/us-pakistan-energy-coal-idUSKBN17Z019

https://www.technologyreview.com/s/542091/indias-energy-crisis/



Carbon Intensity is Falling in US Power Sectors: Recent numbers from the EIA19 show continued progress in decreasing carbon intensity across the US economy in five primary energy consuming sectors: transportation, commercial and residential usage, electric power generation and industrial usage. In 1975 through 2016, the good news is that electric power and industrial sectors are now the two least carbon-intensive sectors. Commercial and residential usage continues along a slow decline in intensity. The use of increasing amounts of nuclear, wind, hydroelectric, and solar power used by the grid, which produce no CO2 emissions, is driving the electric power sector reductions.

The carbon intensity of the transportation sector has declined only a little since 1975, and it still remains the most polluting of all studied sectors of the US economy per unit of energy used. Although electric cars and buses have a dedicated contingent, they’ve yet to break through enough to put a major dent in the carbon intensity of that sector. These trends continue to affect Scenario 5:

• Lack of clarity of just what effects the Trump Administration’s actions to unravel the environmental and energy policies of the Obama Administration will have on the country’s broader efforts to address global warming, especially now given the announced intent to begin the 4-year long process of leaving the Paris Agreement

• Yet-to-be-understood impacts from the now triggered BREXIT could negatively impact Europe’s commitments under the Paris Agreement

• Improved cybersecurity is critical in maintaining a country’s ability to manage their electric grids and other infrastructure that could be affected by climate change/global warming and those technologies designed to prevent or mitigate impacts of climate change

• Global warming continues at a record pace S5 Movement

NO CHANGE from our last report: Year to date events continue to indicate that the trajectory trend towards the 3 degrees F global average temperature rise - the basis for this scenario - has not eased, and in fact may be accelerating. Despite best intentions global efforts to address global warming have yet to be broadly implemented.

Current indicators continue to accelerate and point towards S5.

QPG continues to support WECC’s decision to complete the metrics and modeling of S5 with the Long Term Planning Tool.

19 EPS: Carbon Intensity Falling in Industrial & Electric Power Sectors, Ars Technica, May, 2017

https://www.eia.gov/todayinenergy/detail.php?id=31012&src=email




EPS EVENTS WITHOUT EARLY INDICATORS

There are a number of EPS events each month without EIs flagged due to the structure of the EIs in each scenario and yet are seen as significantly affecting the scenarios through their impacts on Key Drivers. These EPS - in addition to the EPS with EIs - were considered in our analysis of the Scenario Trends and Movements in this report. Significant EPS Affecting Key Drivers not flagged as EIs

Related scenarios and EPS, newest first: Scenarios EPS Key Drivers 1,2,3,4,5 2016 State and Provincial GDP Numbers Out* Economic Growth in the WECC Region;


1 Southern California Edison rate case generates debate on distributed power

Innovation in Electric Supply and Distribution; Changes in Regulation of Electric Power Systems in the WECC Region

NONE Nuclear powered generation forecast to decline

Evolution of Electric Supply in the WECC Region

5 Scientific assessment shows climate change is not leveling off

Changes in Society’s Preferences for Sustaining Environment and Natural Resources

1,2,3,4,5 Lack of Workers Holding Back US Economy* Economic Growth in the WECC Region










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