wecc scenarios: early indicator, trends and scenario ... trends... · quantum planning group august...

Quantum Planning Group August 7 2016

QPG of 14

WECC Scenarios: Early Indicator, Trends and

Scenario Movement Analysis

The 10th Monthly Report to WECC and the SPSG

For July 2016

The Quantum Planning Group

August 7, 2016


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INTRODUCTION

This is the 10th of the monthly reports by the Quantum Planning Group to WECC and the 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

2. Significant Uncertainties and Major Trends within the EPS and Early Indicators

3. Movement / progress indicated by the trends towards one or more of the WECC

scenarios

These reports include Scenario 5: Energy/Water/Climate Change since Event EPS’ can be

related to this scenario even though there are no specific Early Indicators for this scenario.

While this monthly report details EPS submittals for the period of July 1-31 2016 inclusively, our

analysis considers and builds on learnings from the last 9 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 - June 2016 reports for additional

information.

The links to the event EPS’ below are “hot” and when clicked on will take the reader directly to

the EPS in the SPSG pages on the WECC website.

For July there were:

12 new EPS with significant events added

7 EPS (58%) with one or more EIs flagged for a total of

10 EIs flagged

For the period September 2015 – July 2016 there were:

227 Total EPS with significant events added

109 EPS (48%) with one or more EIs flagged for a total of

191 EIs flagged

July’s report includes the following sections:

Significant Uncertainties, Recent Trends & Wild Cards…… Page 3 Scenario Axis Trends………………………………………….. Page 5 EPS Events with EIs and Scenario Movement Analysis….. Page 8

Scenario 1

Scenario 2

Scenario 3

Scenario 4 Scenario 5

EPS Events without EIs Flagged…………………………….. Page 14


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SIGNIFICANT UNCERTAINTIES FOR CONSIDERATION

Activity and investments in information and communications systems to integrate

distributed energy resources (DER)

The integration of distributed energy resources1 not owned and directly controlled by the load

serving entity (usually the utility) which owns and controls local distribution) has been an issue

percolating for several years. There is a wide range of issues involved starting with the pure

technical and safety related issues in the power system on through to standards, cost recovery

and the impact on the business model and earnings of the utility. During Quantum Planning

Group’s (QPG) interviews with SPSG members over the past two months the issue and its

various underlying factors was mentioned often. (We have several EPS submittals that touch on

this issue over the last several months, and some are included below).

However, now we see this issue deserving special attention going forward because the entry of

regulators (at both State and Federal levels) is signaling the serious beginning of setting rules

that will impact the shape and operations of the future power system.

The evolution of this issue will likely shape the power industry of the future in ways that

significantly depart from historical patterns. The longstanding model of building centralized

generation and shipping power out to customers via centrally controlled and owned

transmission and distribution systems may be on the verge of a historical shift aided by IT and

communication systems. Top down may shift to bottom up in terms of the fundamental

operations of the power system. Who owns, controls, operates, upgrades, manages cyber-

security issues and pays for these systems is unclear, and there are no past precedents to point

to.

This issue may be challenging for WECC as well because there may be no or limited variables

in WECC models that can capture the impact of these shifts. Many of the shifts may be

imbedded too deeply within the distribution system and their application may vary widely within

specific load serving entities in the Western Interconnection. The SPSG could well serve WECC

and policy makers by creating a qualitative narrative scenario(s) on this issue with suggestions

for policy options in such areas as standards development, cost recovery and transmission

planning. We recommend the following additional EPS submission for your review: FERC asks power industry for more on addressing cyber security risks RMI assesses value of EVs in power the power grid* FERC support EIM development FERC Gives CAISO Unique DER Approval* Overhaul and Changes Coming to CA PUC*

1 Utilities look seriously at IT systems for DER integration, Utility Dive, July 5 and 29 2016

https://www.wecc.biz/SystemAdequacyPlanning/_layouts/15/listform.aspx?PageType=4&ListId=%7BA675FE69%2D4008%2D4C1C%2DACDF%2DBAE648103A42%7D&ID=1229&ContentTypeID=0x0100728BBD353EAC38499FA7F4990EDE8A54








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RECENT TRENDS (from July EPS submissions)

Canada’s Trudeau Commits to National Carbon Price

Canada’s Prime Minister Justin Trudeau has committed to set a national carbon price2 if the

nation’s provincial premiers do not address the issue in their summer meeting of July 21-22

2016. The premiers fell short of a commitment to set a price earlier this year, and a quick check

of the results of this year’s meeting shows the premiers did not set a carbon price at this

meeting, leaving it now up to the Prime Minister to follow through on his pledge. The intent is to

have a “base carbon price” for the country while allowing each province to have a price higher

than the base if they choose. While some provinces oppose such a plan, indications are that the

federal government will set a price this year if the provinces cannot reach agreement on a plan

"...by the fall of 2016...”

In the Western Interconnection, British Columbia already has a carbon price of C$30 per tonne,

with an effective rate of C$21/tonne (BC’s tax only covers 70% of its economy), and Alberta’s

new plan will be about C$23.40/tonne by 2020 as it phases in (Alberta’s tax will cover about

78% of its economy). The national price proposed by Trudeau could be higher than that of either

province.

Carbon prices in Canada, whether set provincially or federally, will affect the Western

Interconnection not only economically as goods produced in the provinces carry that burden as

they move south across the border, but may also change the mix of power generation, capital

and operating costs and electricity prices.

WILD CARDS

Last month we added the United Kingdom’s referendum on leaving the EU (BREXIT) to our wild

card list.

This month we are adding the wild card of cyber-security back to our wildcards as FERC3

moved to encourage power system owners and operators to step up investments and activity to

address cyber security risks, but with encouragement to try different solutions. The current lack

of standards and the path to getting them is a continuing and increasing problem for the industry

as recent events have demonstrated.

The 2016 US Elections continue to be a wild card for all 5 scenarios as the results could either

continue or completely reverse the US’s efforts to address climate change.

We will continue to monitor and consider implications for WECC as developments in all three

wild cards unfold.

2 Canada's Trudeau Commits to Carbon Tax, Calgary Herald & The Globe and Mail, July 21 2016 3 FERC asks power industry for more on addressing cyber security risks, FERC, July 21 2016






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SCENARIO AXIS TRENDS

Economic Growth in the Western Interconnection

US job growth numbers for June were reported in July4, and the economy added 287,000 jobs

in June 2016, a significant increase over May's reports. At the same time, official unemployment

did rise to 4.9%, caused by more workers joining the job force, and hourly wages ticked up

again, bring the year to date rise in hourly wages to 2.6%.

While the jobs report was welcomed, the economy is not where it needs to be to support high

and widespread growth across the region. Many Americans, particularly those with fewer skills

and less education, have yet to enjoy the recovery’s rewards.

Of special concern is Alberta, which is in the midst of its worst recession on record. A study by

Toronto-Dominion Bank notes this recession - driven by a prolonged decline in oil and gas

prices and the Fort McMurray wildfires - could create an annual GDP decline of around 6.5%.

Calgary’s unemployment insurance benefits payments jumped by 7% in May, while the province

as a whole jumped 12.1%.5

And in the US, Montana, Wyoming and New Mexico are all experiencing negative GDP growth

in 2016 due to continued downward pressures on coal and oil and gas coal prices.

The Economic Growth axis is a primary key driver for the WECC scenarios and has significant

influence on all other drivers. This month we are including tables covering GDP growth and

unemployment for the Western Interconnection from 2012 through 1Q16.

Table 1: Real GDP Growth by State/Province6

State/ Province

2012 2013 2014 2015 2016 *

AB 3.9 3.9 4.8 -1.8 -2.5

BC 2.1 2.0 2.6 2.8 2.5

AZ 2.6 1.1 1.4 2.3 2.6

CA 3.5 2.0 2.8 2.7 2.0

CO 2.1 3.8 4.7 2.8 3.0

ID 0.4 4.1 2.7 2.1 -0.2

MT 2.1 3.0 1.8 -1.0 -0.9

NM 0.2 1.5 1.0 -1.1 -0.6

NV 1.5 1.0 1.0 0.1 0.0

OR 3.9 2.7 3.6 0.1 3.9

UT 3.4 3.8 3.1 2.8 2.4

4 US Jobs Report for June Look More Robust, New York Times, July 8 2016 5 Alberta in Midst of Worse Recession on Record, Calgary Herald & The Globe and Mail, July 18 2016 6 The main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.

Economist’s general agreement on GDP:

2.3% growth is a consensus threshold for "high growth"

- this is just above "stall level"

Growth below 2.3% in RED

2.5% growth means enough new jobs are being created

to absorb both unemployed and new workforce

entrants

2.5% - 3.0% growth generally is considered "balanced"

Data for 2016:

1Q16 for the US

2016 Forecasts for AB/BC

Sources:

US Bureau of Economic Analysis

AB/BC Forecasts






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WA 3.6 2.7 3.0 1.3 3.9

WY 2.1 7.6 5.1 -3.4 -4.9

Graphic 1: Real GDP Growth by State/Province

The growth in the region since 2012 has been uneven with a lack of high and widespread

growth. Indeed, the only state that has seen consistent high growth in each year since 2012 is

Utah. New Mexico and Nevada both have experienced significantly low growth each year since

2012. The balance of the region has shown a mixed bag of high and low growth during the

period.

A look at unemployment in the region tells the same story.

Table 2: Unemployment in the Western Interconnection

State/ Province

2012 2013 2014 2015 2016*

AB 4.6 4.6 4.7 7.0 7.9

BC 6.8 6.6 6.1 6.7 5.9

AZ 8.3 8.0 6.9 6.1 5.8

CA 10.4 8.9 7.5 6.2 5.4

CO 7.8 6.8 5.0 3.9 3.7

ID 7.3 6.2 4.8 4.1 3.7

MT 6.0 5.6 4.7 4.1 4.2

NM 7.1 6.9 6.5 6.6 6.2

NV 11.5 9.8 7.8 6.7 6.4

OR 8.8 7.7 6.9 5.7 4.8

UT 4.9 4.7 3.8 3.5 4.0

WA 8.1 7.0 6.3 5.7 5.8

Economists generally agree that 3.5% to 5.5% is a

range of consensus estimates of "full natural

unemployment"

Unemployment above 5.5% in RED

*Data for 2016: June 2016

Sources:

US Bureau of Labor Statistics

AB/BC Govt. Statistics


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WY 4.6 5.4 4.3 4.2 5.7

Graphic 2: Unemployment in the Western Interconnection (*Data for 2016: June 2016)

As with GDP growth, Utah is the only state with less than 5.5% unemployment in each year of

the period. However, when we look at unemployment above 5.5%, Washington, Nevada, New

Mexico, Arizona, and British Columbia all have had 5.5% or greater unemployment each year.

The rest of the region has had mixed results.

Overall there is not a consistent level of “full” employment across the region, indeed

unemployment, even in areas of “high” growth, remains a serious problem for the region: The

numbers above are averages, and there continue to be pockets of deep unemployment in all

states and provinces.

Considering continued slow and uneven growth in the Western Interconnection and continued

high rates of unemployment, economic indicators point away from scenarios 1 and 2, and

towards scenarios 3 and 4.

Technology Innovation in Electricity Supply and Distribution

Progress along this axis has not changed since our last report(s). We continue to not see any

true breakthroughs in this technology area, although there continue to be continuous

improvements in renewables, storage efficiencies and production costs. The continuing

incremental and continuous improvement within electricity supply and distribution technology

innovation remains pointing to scenarios 1 and 3.


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EPS EVENTS WITH EARLY INDICATORS

Scenario 1: Focus on Economic Recovery (S1)

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

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

RMI assesses value of EVs in power the power grid*

Innovation in Electric Supply and Distribution 1.4

CAISO Releases Regional Power Market Planning Study*

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

NONE

Europe Builds a Network for Internet of Things*

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

NONE

US Jobs Report for June Look More Robust*

Economic Growth in the WECC Region NONE

S1 Trends

Economic Growth: Current events and trends continue to paint mixed signals and unclear

understanding for economic growth globally, although recently analysts have been dropping

global growth forecasts for 2016 below 2.3%. Also, the two Wild Cards of the 2016 elections

and BREXIT are still unknowns as to how they will affect the economy.

However, considering the section above on regional growth and unemployment trends, we can

make a strong case that economic trends are pointing away from scenario 1.

Technology Innovation: Current trends continue to indicate continued incremental improvements

in electricity supply and distribution technology – pointing towards the S1 technology quadrant.

Other indicators: The 2016 US elections and BREXIT impacts remain as Wild Cards for S1.

S1 Movement

NO CHANGE: Year to date and July events indicate continued conflicting movement around S1.

Scenario 2: Focus on Clean Energy (S2)


EPS Events Noting Flagged Early Indicators:

EPS Key Drivers EIs Flagged

RMI assesses value of EVs in power the power grid*













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Big investment in utility scale storage with Lithium system*




2.4

Canada's Trudeau Commits to Carbon Tax*

Economic Growth in the WECC Region; Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region; Changes in Regulation of Electric Power Systems in the WECC Region; Changes in Federal Regulation of Electric Power Systems 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

2.2, 2.3

More Federal support for EV charging stations*

Evolution of Electric Demand in the WECC Region NONE

Utilities look seriously at IT systems for DER integration

Innovation in Electric Supply and Distribution NONE



NONE

Despite Pledges, China Continues to Plan and Build Coal Fired Power Plants*

Shifts in Availability and Prices of Fuels used in Electricity Sector

NONE

US Jobs Report for June Look More Robust *


Numbers Don't Add up for Paris Agreement*

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; Shifts in Availability and Prices of Fuels used in Electricity Sector; Shifts in national and global financial markets

NONE

S2 Trends

Economic Growth: Current events and trends continue to point away from movement towards

S2.

Technology Innovation: We are still not seeing the breakthrough or paradigm changing

electricity supply and distribution technology innovations presumed in this scenario.





















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S2 Movement

NO CHANGE: Year to date and July events show no clear movement towards S2 from either axis

or other indicators.

Scenario 3: Focus on Short-Term Consumer Costs (S3)




Alberta in Midst of Worse Recession on Record*

Economic Growth in the WECC Region; Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region; Shifts in Availability and Prices of Fuels used in Electricity Sector; Shifts in national and global financial markets

3.3


Economic Growth in the WECC Region 3.3



NONE



NONE

S3 Trends

Economic Growth: Current events and trends continue to paint mixed signals and unclear

understanding for economic growth globally, although recently analysts have been dropping

global growth forecasts for 2016 below 2.3%. Also, the two Wild Cards of the 2016 elections

and BREXIT are still unknowns as to how they will affect the economy.

However, considering the section above on regional growth and unemployment trends, we can

make a strong case that economic trends are pointing towards scenario 3 (and 4).


in electricity supply and distribution technology – pointing towards the S3 technology quadrant.


S3 Movement

NO CHANGE from our last report: there is clear movement towards S3 in both economic and

technology indicators.

Scenario 4: Focus on Long –Term Societal Costs (S4)












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More Federal support for EV charging stations*

Evolution of Electric Demand in the WECC Region 4.2

Big investment in utility scale storage with Lithium system*




4.2, 4.4


Economic Growth in the WECC Region; Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region; Changes in Regulation of Electric Power Systems in the WECC Region; Changes in Federal Regulation of Electric Power Systems 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

4.1, 4.3


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; Shifts in Availability and Prices of Fuels used in Electricity Sector; Shifts in national and global financial markets

4.3



NONE

Alberta in Midst of Worse Recession on Record*

Economic Growth in the WECC Region; Evolution of Electric Demand in the WECC Region; Evolution of Electric Supply in the WECC Region; Shifts in Availability and Prices of Fuels used in Electricity Sector; Shifts in national and global financial markets

NONE



NONE



S4 Trends

Economic Growth: As described above in scenario 3, considering the section above on regional

growth and unemployment trends, we can make a strong case that economic trends are

pointing towards scenario 4.




















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in electricity supply and distribution technology – pointing away from the S4 technology

quadrant.

Other indicators: The 2016 US elections and BREXIT remain as Wild Cards for S4.

S4 Movement

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

movement to S4.

Scenario 5: Energy-Water-Climate Change (S5)


S5 assumes a 3 degree F rise in global temperatures 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 12 EPS reported in

July, 6 have some effect on S5, some with significant effects:







Even though there are no specific Early Indicators for S5, and there are no two key drivers that

make up a scenario matrix, we can look at events and trends pointing towards or away from S5.

S5 Trends

There were no significant events that would indicate that global warming is easing. Indeed, two

events indicate just the opposite:

A new report shows that although China has pledged to reduce coal fired power, plants

are still being built 7 and a number are in planning that only require provincial approval.

A new study 8 by Austria’s International Institute for Applied Systems Analysis (IIASA)

has published a close look at the actual emissions pledges of each country in the

Paris Climate Agreement to see just what they will do - or not do. So here’s the damage

in each of 3 scenarios:

In a pedal-to-the-metal no-policy world, we’re looking at more than 4 degrees Celsius

(7.2 degrees Fahrenheit) above pre-industrial levels by the year 2100

Current policies (also extrapolated into the future) reduce that number to around 3.2

degrees Celsius (5.8 degrees Fahrenheit)

7 Despite Pledges, China Continues to Plan and Build Coal Fired Power Plants, New York Times, July 16 2016

8 Numbers Don't Add up for Paris Agreement. Ars Technica, Nature and others June 29 2016













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The Paris Agreement reduces it further to about 2.5-3.1 degrees Celsius (4.5-5.6

degrees Fahrenheit). That’s certainly quite preferable to >4 degrees Celsius, but it’s

also much higher than the 2 degrees Celsius (3.6 degrees Fahrenheit) limit that the

Paris agreement was supposed to implement”…" (and even more higher than the 1.5

degree C (2.7 degrees Fahrenheit) target)

The implications for the WECC scenarios of the IIASA study and China’s continuing coal fired

power build are indicators that we are well on the track to meet or exceed the assumption of a 3

degrees F increase by 2034 in the Energy Water Climate Change scenario.

Other indicators: The 2016 US elections remains a Wild Card for S5 as the results could

completely reverse the US efforts to address climate change, and impacts from the BREXIT

vote could negatively impact Europe’s commitments under the Paris Agreement.

S5 Movement

NO CHANGE from our last report: Year to date and July events continue the trend that the

trajectory towards the 3 degree temperature rise that is the basis for this scenario has not

eased, and in fact may be accelerating - Current indicators continue to accelerate and point

towards S5.

We continue to strongly recommend that the SPSG and WECC complete the work needed for

the Energy, Water and Climate Change scenario


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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 Note: Items with * indicate EPS affecting more than one scenario Related scenarios and EPS, newest first:

Scenarios EPS Key Drivers

2 Utilities look seriously at IT systems for DER integration

Innovation in Electric Supply and Distribution

WILD CARD

FERC asks power industry for more on addressing cyber security risks

Innovation in Electric Supply and Distribution

1,2,3,4,5 CAISO Releases Regional Power Market Planning Study*


2,4,5 Despite Pledges, China Continues to Plan and Build Coal Fired Power Plants*


Appendix – We have not included an appendix in this month’s report









wecc scenarios: early indicator, trends and scenario ... trends... · quantum planning group august...

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