| | December 202219assumptions increases greatly beyond a 5-year forecast window. After this, it becomes very difficult to predict the exact location and size of future projects, as well as where, when, and for how long transmission outages will occur. Even natural gas prices, which have been relatively stable for many years until unprecedented events like the COVID-19 pandemic and invasion of Ukraine, have resulted in extreme price volatility that could persist for several years. As an example of how unpredictable and extreme basis risk can suddenly become, we present below a chart of annual average system wind-weighted basis from MISO West generators to Minnesota Hub versus annual average wind penetration in MISO. The chart below shows that the MISO West grid reached a "tipping point" in 2020 when wind-weighted basis began to increase dramatically as wind penetration levels also increased. While MISO recently approved a Long-Range Transmission Plan consisting in $10 billion of new 345kv lines that will significantly increase the transmission capacity in MISO West, those upgrades are not expected to be completed until around 2030.Average wind-weighted basis of all MISO West generator nodes to Minnesota Hub vs wind penetration over time (MISO West zones are defined as ALTW, DPC, GRE, MDU, MEC, MP, MPW, NSP, OTM, SMP)A similar tipping point is observed in SPP, where annual average system wind-weighted basis from SPP generators to SPP South Hub has continued to trend negative starting in 2020.Average wind-weighted basis of all generator nodes to SPP South Hub vs wind penetration over time (2022 is year-to-date through 8/9/22)To further illustrate how quickly basis expectations can deteriorate in a market, comparing project-specific basis projections from 2017-2018 to actual basis levels today, shows a general under-estimation of basis risk by multiple dollars per MWh for many regions. · For example, a 2017 third-party basis study for aMinnesota wind project forecast ($2.00-4.50)/MWh in basis to Minnesota Hub through 2021. By 2019, third-party Minnesota Hub basis projections for an Iowa wind project had increased to ($6.00-9.00)/MWh. While the 2019 study captured more congestion than the 2017 study with more wind on the system, both estimates have proven to be far short of the ($20.00-30.00)/MWh realized basis seen by many wind projects in MISO West today. · ERCOT is another market where basis expectationsfor many existing projects were generally low outside known overbuild pockets (e.g., Texas Panhandle). For many ERCOT wind projects, industry basis cost projections for 2018-2020 were in the ($1.00-4.00)/MWh range. Stability-driven Generic Transmission Constraints (GTCs) now result in realized basis levels over ($10.00)/MWh annually for many ERCOT wind projects, with some of these GTCs were implemented with little to no notice to market participants. While these observations point to specific generator examples, current realized basis is several times higher than what was reasonably expected only a few years ago across wide areas. This can become especially detrimental for a project when these basis costs are higher than the fixed price a project receives in its offtake contract. Across many regions with high congestion today, comparison of actualversus PIC 1With focused efforts at the FERC and RTO levels for more robust and comprehensive planning of the grid of the future, the transmission system will be more able to integrate large-scale renewablesEmma Romack
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