SOURCE: Global Energy Decisions

March 15, 2005 12:45 ET

$53 Billion in New Investment Required to Meet U.S. Renewable State Standards

52,000 MW New Renewable Capacity Needed During Next 15 Years Wind Power Will Fill Most of the Gap -- Transmission a Major Barrier

BOULDER, CO -- (MARKET WIRE) -- March 15, 2005 -- Improving economics, technology advances and increasingly favorable government policies are creating unprecedented opportunities for 52,000 MW of new capacity to meet the demand for renewable energy projects according to a new study, Renewable Energy: The Bottom Line, released today by Global Energy Decisions (Global Energy) with contributions from Palmer Bellevue and Bio Economic Research Associates.

"State Renewable Portfolio Standards (RPS) are reaching critical mass creating the most important development in U.S. renewable energy of the last 25 years. The economics of building new wind, which we estimate will supply more than 40,000 MW of the 52,000 MW required to meet state RPS, is happening at a time when wind power is increasingly competitive with building new gas fired power plants," said Ron McMahan, Global Energy Chairman and CEO. "This is triggering a new era in project finance that will drive as much as $53 billion in new investment."

Renewable Energy: The Bottom Line builds on the Global Energy Reference Case, a twenty-five year North American market clearing price forecast that covers 75 individual market areas and is accomplished by simulating hourly prices based on the physical characteristics and market behavior of the entire interconnected electricity system.

"This is the first time requirements for meeting state Renewable Portfolio Standards have been monetized. Also, this is the first look at how renewables can be economically integrated into the grid as mainstream market players serving load," said Gary L. Hunt, president of Global Energy Advisors. "By analyzing renewables based on market fundamentals, our study methodology included detailed assessments of individual plants, hourly wind data, transmission constraints and forecast customer demand across alternative scenarios within the modeled regions to identify which renewable technologies will produce attractive returns and which ones will remain out of the money."

Overall Study Findings

Renewable Energy: The Bottom Line measured the economic, technology and policy implications of renewable energy and state mandated RPS.

--  State RPS drives the need for 52,000 MW of new renewable energy
    projects in the next 15 years.
    
--  The 52,000 MW gap to meet the RPS will require $53.4 billion in new
    investment to build renewables projects.
    
--  25 utilities will be responsible for 63% of RPS, and 75 utilities will
    be responsible for 76% of RPS.
    
--  Wind will be the predominant renewable source, accounting for 40,000
    of the 52,000 MW of new renewables, up from today's 6,700 MW of wind.
    
Top 5 Energy Distribution Companies Most Impacted by State RPS
Company        State   % of Total State   Investment Necessary to
                       Retail Sales       Meet Standards in 2020
SCE             CA        22.1%               $3.6 billion
ComEd (Exelon)  IL        50.5%               $3.5 billion
PG&E            CA        20.3%               $3.3 billion
PECO (Exelon)   PA        23.8%               $1.9 billion
PPL             PA        23.8%               $1.9 billion
Source:  Global Energy Decisions, 2005
Opportunity Areas Identified

"The RPS standards already in place will create a significant demand for renewable generation and the renewable generation sector is likely to outgrow its current status as a niche market," said study co-author Gerald Keenan, Managing Director of Palmer Bellevue. "For renewable generation, this is truly a point of inflection, representing a confluence of events that has eluded the renewables sector until now."

--  In still-regulated states, many utilities will build, adding billions
    of dollars to their rate base, helping many return to healthier balance
    sheets.
    
--  Other utilities will buy the power from independent producers -
    creating billions in new market opportunities and adding a shot in the arm
    to the merchant energy sector battered by overbuilding and low wholesale
    prices for traditional generation.
    
--  Wind, Geothermal and Landfill Gas are the only renewable technologies
    that are economically viable as central generation, or grid-based
    technologies based on their fixed and financing costs.
    
--  Wind's all-in costs (including the federal Production Tax Credit) are
    now competitive to adding CCGT gas in most markets, especially on a risk
    adjusted basis.
    
--  A state-by-state analysis shows that California, Illinois, New York
    and Pennsylvania are leading the nation in mandates to develop economically
    viable, new renewable energy projects.
    
Key Conclusions

"Among the leading renewable technologies deployed today, wind energy provides the greatest growth potential and is truly ready for prime time as a market player," said Renewable Energy: The Bottom Line co-author Jim Newcomb, Managing Director of Bio Economic Research Associates.

--  Wind is the only scalable renewable technology today that can be
    counted on to fulfill mandates and carry its costs of construction on an
    NPV vs. cost basis.
    
--  Transmission is a key barrier to wind development, and new
    transmission capacity is required for new wind projects in RPS states and
    for wind rich states to export to other markets.
    
--  Because of today's gas-fired power plant overbuild, new wind can
    assure a return on equity while most gas cannot.
    
--  Wind is no longer an "exotic" technology, but a mainstream market
    player that is developing a track record among institutional investors and
    can become a meaningful part of America's generation fleet.
    
--  Wind's success requires the predictable continuation of Production Tax
    Credits (PTCs) and tradable Renewable Energy Credits (RECs).
    
--  Policy conflicts within states and between federal and state agencies
    need to be reconciled to exploit the full potential for renewable energy.
    The study report lays out options and suggestions.
    
--  Winners and losers -- this study provides the basis for answering the
    questions of who will pay and who will profit, on a state-by-state and
    company-by-company level.
    
In producing this study, Global Energy has also created an advanced platform for renewable energy analysis for its utility and investment clients combining its simulation software, expertise in market analytics and data including its geo-spatial mapping capabilities to offer a complete solution for utilities and investors who want to bring all this capability in-house. "Achieving the potential of renewable energy requires utilities and their regulators to focus on collaborative action steps to meet RPS standards," said Ron McMahan, Chairman of Global Energy Decisions, "so our study goes one step farther assembling the Renewable Energy software, data and tools to enable utilities and portfolio managers to turn their strategy into results."

Global Energy Decisions (www.globalenergy.com) is a leading provider of integrated energy market simulation software, energy markets data and advisory services solutions built around a common data model to enable energy professionals to make better, more fact based decisions. Global Energy's North American Reference Case is updated every six months across every region of North America. The service is used by FitchRatings and more than 100 energy companies, utilities and energy investors as a source of independent, transparent, consistent analysis of changing market conditions, wholesale expected prices and how they are formed.

Bio Economic Research Associates (www.bio-era.net) is an independent research and advisory services company providing insight into the emerging bio economy. The company's practice areas focus on renewable fuels, biomass and other bioenergy resources and technologies.

Palmer Bellevue LLC is a Chicago-based private investment and advisory firm that focuses on the electricity, natural gas and renewable energy sectors of the energy industry.

For an in-depth media summary of the study please contact Andy Bane at abane@globalenergy.com.

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