Climate portfolio optimization and risk evaluation
Defining carbon and environmental strategies for the uncertain carbon future
New and emerging carbon and environmental policies may both impose significant costs and provide new revenue opportunities for utilities — exactly what policy will happen when adds great uncertainty into already intricate utility strategic planning processes. KEMA’s portfolio approach to climate is providing utility decision makers solid ground for cost, investment and operations decisions within a complex and changeable regulatory environment.
KEMA is helping utilities address the operational- and cost-based risks associated with the uncertain carbon future. We are applying a new portfolio approach to carbon planning for a number of US utilities that integrates the utility’s own generation asset data with KEMA’s substantial insight into the costs of generation and direction in carbon policy development. The KEMA model enables utilities to perform comprehensive scenario analysis of variable policy decisions and generation options—securing a clear understanding of the costs and options in defining a carbon strategy and laying the foundation for developing a cleaner, sustainable generation investment plan.
KEMA’s Sustainable Integrated Energy Modeling initiative
Modern utility strategic planning requires a fully integrated portfolio management and optimization tool—one that helps the energy industry create a robust strategy set that will stand the tests imposed by constantly changing regulatory requirements, uncertain funding and rate recovery mechanisms, market dynamics, evolving environmental policies, and uncertain timing
KEMA is developing the Sustainable Integrated Energy Modeling (SIEM) initiative—a suite of quantitative energy and policy tools which can be used individually or together. While economy-wide analyses have become more common, few tools currently exist to guide individual firms about how to position themselves now for potential upcoming and future regulations. KEMA’s forward-looking, fully integrated portfolio management and optimization tool fills this gap
A recent addition to the SIEM toolkit is a powerful new climate portfolio optimization model. This climate portfolio optimization model provides a flexible quantitative modeling framework, which captures KEMA’s market knowledge and experience, to help business leaders and policy makers understand the options, trade-offs, risk profiles, and unintended consequences of different compliance strategies. Our model provides comparative analysis that explores the financial flows of various approaches—and the interactions between them—through a reference of core business metrics, namely the overall marginal balance sheet, income statement, and cash-flow outcomes.
Designed to flexibly incorporate the dynamics of any potential compliance strategy at any utility under different legislative scenarios, the climate portfolio optimization tool models alternatives, including:
Market mechanisms (e.g., open-market offset purchases, power purchase agreements, and/or RECs)
Modifying existing assets (e.g., biomass co-firing, carbon capture and sequestration, and/or retrofitting coal plants for natural gas)
New assets (e.g., wind, solar, energy efficiency, and/or offset project development).
Climate portfolio optimization case study
KEMA’s whitepaper, “Strategies for Compliance under Federal Climate Legislation,” present a case study demonstration of the climate portfolio optimization and risk evaluation in action. The paper applies the portfolio optimization model to a hypothetical mid-market coal-fired utility. It uses business goals and risk tolerances to define optimal compliance strategies under recently proposed federal climate legislation.
Download the KEMA whitepaper using the right-side link.
For an overview of our carbon and climate related services, please visit www.kema.com/carbon.