GCSI-Natsource LLC

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Diversifying the Mix A Workshop on Alternatives
to Conventional Generation Technology   Westin
Hotel Ottawa, Ontario November 25 2002
Session 2 Economic Fundamentals
Michael Margolick, Senior Associate
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Outline

• A scenario
• Transmission
• Kyoto and green tags
• Reliability and storage
• Incentives and programs
• Public attitudes and the market

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A scenario

• natural gas prices up 2 years
• air quality/climate change 2 5 years
• hydrogen technology 5 10 years
• mass production and energy infrastructure 10
  20 years
• capital stock is energy-efficient 5 100 years

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Transmission

• Independent transmission decisions essential to
• Decide on connection, yes or no
• Build the connection
• Define the point of interconnection
• Allocate costs
• Set terms of operation
• Utility-scale connections for utility-scale
  plants

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Kyoto and green tags

• Benefits must be monetized optics and voluntary
  green purchases limited
• GHG survey US10/tonne CO2 in 2010
• Effect of DET on renewables depends on market
  structure avg vs marginal cost pricing

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Reliability and storage

• Run-of-river and wind generation system impacts
  small if transmission adequate
• Storage hydro great advantage
• Contribution to load serving should be treated
  statistically
• Offshore wind will drive hydrogen technology

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Incentives and programs

• Canada is well behind US and EU
• Programs atomized and restrictive
• Tax-linked incentives
• side-effects
• lag technological change
• high transaction costs
• uncertain outcomes
• Technology, not Canadian technology
• Key role to buy down risk industry is
  conservative

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Public attitudes
People do not understand relative magnitudes
Green energy is good in the abstract a small
business concept tainted if built by big oil and
utilities
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A definition of success nothing special
The industry will be successful when alternate
energy becomes just another source of
undifferentiated wholesale electricity commodity