Citation
Risk Management for Utility Scale Solar Photovoltaic Power Plants in the State of Florida

Material Information

Title:
Risk Management for Utility Scale Solar Photovoltaic Power Plants in the State of Florida
Creator:
Nasri, Ehsan
Place of Publication:
[Gainesville, Fla.]
Publisher:
University of Florida
Publication Date:
Language:
english
Physical Description:
1 online resource (167 p.)

Thesis/Dissertation Information

Degree:
Doctorate ( Ph.D.)
Degree Grantor:
University of Florida
Degree Disciplines:
Design, Construction, and Planning
Design, Construction and Planning
Committee Chair:
Chini, Abdol Reza
Committee Co-Chair:
Ries, Robert
Committee Members:
Kibert, Charles Joseph
Flood, Ian
Brown, David T
Graduation Date:
5/4/2013

Subjects

Subjects / Keywords:
Electric power plants ( jstor )
Electricity ( jstor )
Energy ( jstor )
Failure modes ( jstor )
Financial portfolios ( jstor )
Fuels ( jstor )
Investment risks ( jstor )
Investors ( jstor )
Plant operations ( jstor )
Renewable energy ( jstor )
Building Construction -- Dissertations, Academic -- UF
Design, Construction and Planning -- Dissertations, Academic -- UF
florida -- photovoltaic -- power -- risk
City of Tampa ( local )
Genre:
Electronic Thesis or Dissertation
bibliography ( marcgt )
theses ( marcgt )
government publication (state, provincial, terriorial, dependent) ( marcgt )
Design, Construction, and Planning thesis, Ph.D.

Notes

Abstract:
Thisstudy specifically aims to explore available opportunities for further development of large-scale photovoltaic power plants in the state of Florida considering uncertainties and associated risks. This dissertation determined different risks associated with generation of electricity at the utility company scale.This research further investigated the effects of addingsolar-photovoltaic-power plants on reducing the risks associated with the electricity-generation portfolio of Florida’s investor-owned electricity utilities. The four investor-owned utilities examined were Florida Power &Light, Gulf Power, Progress Energy Florida and Tampa Electric. These four investor-owned utilities serve all counties of the State of Florida and in total their generation capacity is almost 77% (44 GW) of the total generation capacity of all Florida utilities. To understand the associated risks with developing PV power plants, top five investor-owned utilities that produce 93% of utility-scale solar electricity in the United States were selected. The financial reports that have been submitted by them to the Securities and Exchange Commission were studied in detail. Once the risks of the utility companies were determined, the effect of adding up to 20% photovoltaic-generation facilities was studied through a Failure Mode andEffect Analysis (FMEA). Adding solar photovoltaic facilities to the portfolio of investor-owned utilities has different result on individual risks associated with the portfolio. It is estimated that adding solar PVs to the portfolio of autility’s energy generating assets could reduce the associated average RiskPriority Numbers. However, adding solar PVs can worsen the effect of two risks:power-generation-new-technology risk and risks associated with vandalism andtheft. Adding 20% of solar PVs to each energy-generating portfolio could reducethe overall average risk RPN of utility by almost 12%. Among all four investor-owned utilities in Florida, Gulf Power has the highest overall average RPN, followed by Tampa Electric and Progress Energy Florida. Florida Power & Light has the lowest overall risk RPN which means the company is bearing less risk than the other three utilities. ( en )
General Note:
In the series University of Florida Digital Collections.
General Note:
Includes vita.
Bibliography:
Includes bibliographical references.
General Note:
Description based on online resource; title from PDF title page.
General Note:
This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Thesis:
Thesis (Ph.D.)--University of Florida, 2013.
General Note:
Adviser: Chini, Abdol Reza.
General Note:
Co-adviser: Ries, Robert.
General Note:
RESTRICTED TO UF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE UNTIL 2015-05-31
Statement of Responsibility:
by Ehsan Nasri.

Record Information

Source Institution:
UFRGP
Rights Management:
Applicable rights reserved.
Embargo Date:
5/31/2015
Resource Identifier:
885020985 ( OCLC )
Classification:
LD1780 2013 ( lcc )

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1 RISK MANAGEMENT FOR UTILITY SCALE SOLAR PHOTOVOLTAIC POWER PLAN TS IN THE STATE OF FLORIDA By EHSAN NASRI A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY UNIVERSITY OF FLORIDA 201 3

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2 201 3 Ehsan Nasri

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3 To my wonderful parents and my dear grandparents f or their love, endless support and encouragement.

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4 ACKNOWLEDGMENTS I am very privileged to have had a wonderful doctoral committee. My sincere appreciation goes to my advisor and mentor Dr. Abdol Chini for his constant encouragement, advice, patience and overall thoughtful attention to the development of this research. Dr. Robert Ries was the committee cochair, and his encouragement and inspiration have also sustained me throughout my studies. My thanks also go to members of my doctoral committee for their help in completing this dissertation. The college of Design, Construction and Planning has awarded me a research fellowship in order to pursue my doctoral degree at University of Florida. I greatly acknowledge the very generous financial support This funding provided me the opportunity to select my desired research topic and also to pursue a Master of Science degree in f inance which helped me gain an in depth knowledge of finance and risk management Special thanks to m y wonderful parents and grandparents who instilled in me a love for learning, the values of honesty, self respect and respect for others Special t hank s as well to the companion of my life, Nastaran for all of her love and support as I pursued my goal s. I al so want to thank all my friends you usually give me more credit than I deserve. Y our love, support, and friendship have been always invaluable to me.

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5 TABLE OF CONTENTS page ACKNOWLEDGMENTS .................................................................................................. 4 LIST OF TABLES .......................................................................................................... 10 LIST OF FIGURES ........................................................................................................ 12 ABSTRACT ................................................................................................................... 15 CHAPTER 1 INTRODUCTION .................................................................................................... 17 Background ............................................................................................................. 17 Research Setting .................................................................................................... 19 Research Aim ................................................................................................... 20 Research Objectives ........................................................................................ 21 Scope of Research ........................................................................................... 21 Research Problem ............................................................................................ 21 Importance of Research.......................................................................................... 23 2 LITE RATURE REVIEW .......................................................................................... 28 The Global Photovoltaic Industry ............................................................................ 28 Solar Energy in the United States ........................................................................... 29 Current Status of Utility Scale Solar Projects in the United States .......................... 30 Solar Potential for Florida ....................................................................................... 31 The Desoto Next Generation Solar Energy Center .......................................... 33 The Martin Next Generation Solar Energy Center ............................................ 34 The Space Coast Next Generation Solar Energy Center ................................. 34 What Really Drives Renewable Energy Development? .......................................... 35 Incentives at the National and State Levels ............................................................ 35 Renewable Portfolio Standards (RPS) ............................................................. 35 FeedIn Tariffs (FIT) ......................................................................................... 37 Stimulus Money in the United States ................................................................ 37 Structure of Project Finance and Stakeholders ....................................................... 38 Stakeholders of Renewable Energy Development .................................................. 40 The Developer of Solar Energy Technology ..................................................... 42 The Manufacturer of Solar Energy Technology ................................................ 43 The Provider of Competing RenewableEnergy Technology ............................ 43 The Developer of the Solar Energy Power Plant .............................................. 43 The Developer of Other (NonSolar) Power Plants .......................................... 44 Energy Traders ................................................................................................. 44 The Companies That Transport, Distribute and Store Natural Gas, Coal and Oil .................................................................................................................. 44

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6 The Producer of Wind, HydroElectric, and other Renewable Energy .............. 44 The Energy Holding Company ......................................................................... 45 The Design, Construction and Maintenance Firm ............................................ 45 The Electric Utility ............................................................................................. 45 The Large Scale Generation Owner ................................................................ 46 The Independent System Operator (ISO) or Regional Transmission Organization (RTO) ....................................................................................... 46 The Producer o f the Electricity Transmission Lines and the Distribution Network ......................................................................................................... 46 The Electricity Retailer ...................................................................................... 47 The Insurance Provider .................................................................................... 47 The Equity Investor and the Bank .................................................................... 47 The Government, the Regulatory Body ............................................................ 47 The General Public ........................................................................................... 48 Stand Alone Renewables and Energy Generation Portfolios .................................. 48 Risk Assessment Using Failure Mode and Effect Analysis (FMEA) ........................ 49 Failure Mode and Effect Analysis ..................................................................... 50 Pitfalls and Limitations of FMEA ....................................................................... 52 Fuzzy Logic ...................................................................................................... 53 Fuzzy Numbers ................................................................................................ 54 Linguistic variables ........................................................................................... 55 Defuzzification .................................................................................................. 56 3 RESEARCH METHODOLOGY ............................................................................... 67 Research Setting: Required Data and the Methodology Overview ......................... 67 Collecting Data ....................................................................................................... 68 Analyzing the Generation Portfolio of Investor Owned Electricity Purchasers in Florida ....................................................................................................... 68 Identification of Stakeholders of Electricity Purchasers (Utility Companies) ..... 69 Identification of Possible Failures, Their Causes, and Their Consequences .... 69 Determining the Occurrence, Detection and Severity Ratings for the Failure Modes ........................................................................................................... 70 Proposed Model, Data Analysis and Research Outcomes ..................................... 71 Using the FMEA Form Methodology to Determine Risk Priority Numbers (RPN) ............................................................................................................ 71 Integration of Solar Photovoltaic Resources in Each Utilitys Generation Portfolio ......................................................................................................... 72 Scenario Analysis ................................................................................................... 74 4 CASE STUDIES AND DATA COLLECTION ........................................................... 76 Energy Industry in the State of Florida .................................................................... 76 Fuel Diversity .................................................................................................... 77 Existing Renewable Energy Resources ........................................................... 78 Planned Renewable Additions .......................................................................... 79 Fuel Price Forecasts ........................................................................................ 79

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7 Diversit y of Fuel and Power Generation Technology in the Portfolio of Investor Owned Electricity Purchasers in Florida .......................................... 80 Florida Power & Light Company (FPL) ...................................................... 80 Progress Energy Florida, Inc. (PEF) .......................................................... 80 Tampa Electric Company (TECO) ............................................................. 81 Gulf Power Company (GULF) .................................................................... 81 Identification of Possible Failures and Risks faced by Power Generation Facilities and Utility Com panies ........................................................................... 81 Effect of Fuel Supply Volatility on Power Plant Operation ................................ 83 Effect of Fuel Price Volatility on Power Plant Operation .................................. 84 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital ........................... 84 Power Generation New Technology Risk ......................................................... 84 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility ...................................................................................................... 85 Power Plant Construction Risk ......................................................................... 86 Power Plant LandPrice Risk ............................................................................ 86 Effect of Fuel Transportation Risks on Power Plant and Utilitys Operation ..... 87 Effect of Human Error on Power Plant Operation the Human Factor ............ 87 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation ...................................................................................................... 88 Effect of Fires, Explosions, and Similar Accidents on Power Plant Operation .. 88 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation ...................................................................................................... 88 Power Plant Outages due to Planned Maintenance ......................................... 89 Effect of Natural Hazards (Hurricanes, Storms, Tornados and Floods) on Power Plant Operation .................................................................................. 89 Effect of Natural Hazard (Climate Change) on Power Plant Operation ............ 89 Effect of Such Natural Hazards as Earthquakes and Tsunamis on Power Plant Operations ........................................................................................... 90 Effect of Such Natural Hazards as Solar and Electromagnetic Events on Power Plant Operations ................................................................................ 91 Ef fect of Vandalism and Theft on Power Plant Operation ................................ 91 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Sa fety ............................................................................................................ 92 The Safety Risks faced by Power Plant Employees ......................................... 92 Power Plant Operation and Decommissioning: Environmental Safety Risks ... 93 Effect of Power Plant Development on Endangered Species ........................... 93 5 RESULTS AND DISCUSSIONS ........................................................................... 104 Survey Respondents Profile ................................................................................. 104 Fuel Diversity of Floridas Investor Owned Utilities ............................................... 105 Fuzzy Sets Used in This Research ....................................................................... 105 Results: Effect of Integrating Photovoltaic Projects on Individual Risks of Utilities ............................................................................................................... 106 Effect of Fuel Supply Volatility o n Power Plant Operation .............................. 106

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8 Effect of Fuel Price Volatility on Power Plant Operation ................................ 107 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital ........................ 107 Power Generation New Technology Risk ....................................................... 107 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility .................................................................................................... 108 Power Plant Construction Risk ....................................................................... 108 Power Plant LandPrice Risk .......................................................................... 108 Effect of Fuel Transportation Risks on the Power Plant and Utilitys Operation .................................................................................................... 108 Effect o f Human Error on Power Plant Operation ........................................... 109 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operations ................................................................................................... 109 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 109 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation .................................................................................................... 110 Power Plant Outages due to Planned Maintenance ....................................... 110 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation ................................................................................ 110 Effect of Natural Hazard (Climate Change) on Power Plant Operation .......... 110 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation .................................................................................................... 110 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation ........................................................................................... 111 Effect of Vandalism and Theft on Power Plant Operation .............................. 111 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety .......................................................................................................... 111 Power Plant Employees Safety Risks ........................................................... 111 Power Plant Operation and Decommissioning: Environmental Safety Risks 111 Effect of Power Plant Development on Endangered Species ......................... 112 Results: Effect of Integrating PV Projects on Overall Risks of Utilities .................. 112 6 CONCLUSIONS AND RECOMMENDATIONS ..................................................... 123 Summary .............................................................................................................. 123 Conclusions .......................................................................................................... 124 Implications for Utility Scale Risk Analysis of Photovoltaic Power Plants ............. 125 Limitations of the Research and Suggestions for Further Study ........................... 125 Recommendations ................................................................................................ 127 APPENDIX A STATUS OF ENERGY INDUSTRY IN THE STATE OF FLORIDA ....................... 131 B RISK PRIORITY NUMBER (RPN) VS. DIFFERENT PV SHARES FOR DIFFERENT UTILITIES ........................................................................................ 135

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9 C INDIVIDUAL AND TOTAL RISK PRIORITY NUMBER (RPN) FOR DIFFERENT PV SHARES AND DIFFERENT UTILITIES .......................................................... 147 D INDIVIDUAL AND TOTAL PERCENTILE RISK PRIORITY NUMBERS (%RPN) FOR DIFFERENT PV SHARES AND DIFFERENT UTILITIES ............................ 152 E SURVEY QUESTIONNAIRE ................................................................................ 157 LIST OF REFERENCES ............................................................................................. 160 BIOGRAPHICAL SKETCH .......................................................................................... 167

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10 LIST OF TABLES Table page 1 1 Solar photovoltaic facilities in the state of Florida ............................................... 25 2 1 Top five U.S. utilities with highest PV generation/resale (in operation or under construction) ....................................................................................................... 58 2 2 Investor owned utilities in the state of Florida ..................................................... 58 2 3 The s takeholders, their roles and their interests ................................................. 59 2 4 Past studies on eliciting applicability of F MEA in risk assessment ..................... 64 2 5 Linguistic variables for rating the failure modes or weight of risk factors ............ 66 3 1 List of failures and potential hazards for the purpose of conducting surveys ...... 75 3 2 The spreadsheet model that will be used for the risk analysis ............................ 75 4 1 List of failure modes for the purpose of conducting surveys ............................... 99 5 1 Share of different fuels in the generated energy of Floridas investor owned utilities .............................................................................................................. 118 5 2 Share of different fuels in nonrenewable energy generation assets of Floridas investor owned utilities ....................................................................... 119 5 3 Linguistic variables used for weighing of Severity and Occurrence ratings ...... 119 5 4 Linguistic variables used for weighing of Detection r atings .............................. 119 5 5 RPNs for different sources of energy generation in the state of Florida ........... 120 5 6 Reduction of average RPN, as a result of adding more PV to the portfolio of i nvestor owned utilities in the s tate of Florida ................................................... 122 6 1 Percentage reduction of RPN as a result of adding more PV to the portfolio of Floridas investor owned utilities ....................................................................... 130 A 1 Diversity of fuel and generation technology in Florida Power & Light portfolio 132 A 2 Diversity of fuel and generation technology in Progress Energy Florida portfolio ............................................................................................................. 133 A 3 Diversity of fuel and generation technology in Tampa Electric Company portfolio ............................................................................................................. 133

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11 A 4 Diversity of fuel and generation technology in Gul f Power company portfolio .. 134 C 1 Florida Power and Light weighted RPNs .......................................................... 148 C 2 Golf Power weighted RPNs .............................................................................. 149 C 3 Progress Energy Florida weighted RPNs ......................................................... 150 C 4 Tampa Electric weighted RPNs ........................................................................ 151 D 1 Florida Power and Light weighted RPNs as percentage of total RPNs ............ 153 D 2 Gulf Power weighted RPNs as percentage of total RPNs ................................ 154 D 3 Progress Energy Florida weighted RPNs as percentage of total RPNs ............ 155 D 4 Tampa Electric weighted RPNs as percentage of total RPN s .......................... 156

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12 LIST OF FIG URES F ig ure page 1 1 Floridas investor owned electric utilities plant locations and their serving area .................................................................................................................... 26 1 2 Floridas municipal electric utilities plant locations .............................................. 26 1 3 Floridas rural electric cooperatives serving area................................................ 27 1 4 Florida sources of electricity by type of ownership ............................................. 27 2 1 Utility scale solar projects in the U. S. in 2011..................................................... 57 2 2 Solar electricity off takers of utility scale solar power plants ............................... 57 2 3 Drivers behind renewable energy development in the United States ................. 57 4 1 Energy generation in the state of Florida by fuel type ......................................... 94 4 2 W eighted average fuel prices forecast for reporting utilities in the state of Florida ................................................................................................................ 94 4 3 FPL: energy generation by fuel type ................................................................... 95 4 4 Technology diversity in the power generation capacity of Florida Power & Light company .................................................................................................... 95 4 5 PEF: energy generation by fuel type .................................................................. 96 4 6 Technology diversity in the power generation portfolio of Progress Energy Florida ................................................................................................................ 96 4 7 TECO: energy generation by fuel type ............................................................... 97 4 8 Technology diversity in the power generation capacity of Tampa Electric Company ............................................................................................................ 97 4 9 GULF : energy generation by fuel type ................................................................ 98 4 10 Technology diversity in the power generation capacity of gulf power company 98 5 1 Survey respondents profile ............................................................................... 113 5 2 Base, intermediate and peak energy generators .............................................. 113 5 3 Effect of adding PV generation on individual risk RPNs Florida Power & Light companys portfolio .................................................................................. 114

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13 5 4 Effect of adding PV generation on individual risk RPNs Gulf Power companys portfolio ........................................................................................... 115 5 5 Effects of adding PV generation on individual risk RPNs Progress Energy Floridas portfolio .............................................................................................. 116 5 6 Effect of adding PV generation on individual risk RPNs Tampa Electric companys portfolio ........................................................................................... 117 5 7 Reduction of average RPN as a result of adding more PV to the portfolio of Floridas investor owned utilities ....................................................................... 118 6 1 Reduction of total percentile RPN (%) as a result of adding more PV to the portfolio of investor owned utilities in the State of Florida ................................. 128 6 2 Average Risk RPNs for different sources of energy generation in the state of Florida .............................................................................................................. 128 6 3 Share of different Risk RPNs in total RPN of different sources of energy generation ........................................................................................................ 129 B 1 Effect of fuel supply volatility on power plant operation .................................... 136 B 2 Effect of fuel price volatility on power plant operation ...................................... 136 B 3 Effect of change in customer demand and/or loss of electricity customers on power plant operation and return on invested capital ....................................... 137 B 4 Power generation new technology risk ............................................................. 137 B 5 Effect of availability of capital resources on power plant operation and feasibility ........................................................................................................... 138 B 6 Power plant construction risk ........................................................................... 138 B 7 Power plant land price risk ............................................................................... 139 B 8 Effect of fuel transportation risks on power plant operation .............................. 139 B 9 Effect of human error on power plant operation ............................................... 140 B 10 Effect of labor disruptions or other potential crises on power plant operation .. 140 B 11 Effect of explosions, fires and similar accidents on power plant operation ....... 141 B 12 Effect of mechanical breakdowns and equipment failures on power plant operation .......................................................................................................... 141 B 13 Power plant outages due to planned maintenance ........................................... 142

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14 B 14 Effect of natural hazards (hurricane, storms, tornados and floods) on power plant operation .................................................................................................. 142 B 15 Effect of natural hazard (climate change) on power plant operatio n ................. 143 B 16 Effect of natural hazards (earthquakes or tsunamis) on power plant operation 143 B 17 Effect of natural hazards (solar events, electromagnetic events) on power plant operation .................................................................................................. 144 B 18 Effect of vandalism and theft on power plant operation .................................... 144 B 19 Effect of cyber attacks, terrorism and war on power plant operation and safety ................................................................................................................ 145 B 20 Power plant employeesafety risks ................................................................... 145 B 21 Power plant operation and decommissioning ................................................... 146 B 22 Effect of power plant development on endangered species ............................. 146

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15 Abstract of Dissertation Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy RISK MANAGEMENT FOR UTILITY SCALE SOLAR PHOTOVOLTAIC POWER PLAN TS IN THE STATE OF FLORIDA By Ehsan Nasri May 2013 Chair: Abdol Chini Cochair: Robert J. Ries Major: Design, Construction and Planning This study specifically aims to explore available opportunities for further development of largescale photovoltaic power plants in the state of Florida considering uncert ainties and associated risks. This dissertation determined different risks associated with generation of electricity at the utility company scale. This research further investigated the effects of adding solar photovoltaic power plants on reducing the risks associated with the electricity generation portfolio of Floridas investor owned electricity utilities. The four investor owned utilities examined were Florida Power & Light, Gulf Power, Progress Energ y Florida and Tampa Electric. These four investor owned utilities serve all counties of the State of Florida and in total their generation capacity is almost 77% (44 GW) of the total generation capacity of all Florida utilities. To understand the associated risks with developing PV power plants, top five investor owned utilities that produce 93% of utility scale solar electricity in the United States were selected. The financial reports that have been submitted by them to the Securities and Exchange Commiss ion were studied in detail. Once the risks of the utility companies were determined, the effect of adding up to 20% photovoltaic generation

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16 facilities was studied through a Failure Mode and Effect Analysis (FMEA). Adding solar photovoltaic facilities to th e portfolio of investor owned utilities has different result on individual risks associated with the portfolio. It is estimated that adding solar PVs to the portfolio of a utilitys energy generating assets could reduce the associated average Risk Priority Numbers. However, adding solar PVs can worsen the effect of two risks: power generationnew technology risk and risks associated with vandalism and theft. A dding 20% of solar PVs to each energy generating portfolio could reduce the overall average risk RP N of utility by almost 12%. Among all four investor owned utilities in Florida, Gulf Power has the highest overall average RPN, followed by Tampa Electric and Progress Energy Florida. Florida Power & Light has the lowest overall risk RPN which means the co mpany is bearing less risk than the other three utilities.

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17 CHAPTER 1 INTRODUCTION Background Energy is one of the largest industry on earth. Electricity productions share of renewables is approximately 4% worldwide. In 2008, capital spending in such renewable energy creation projects as wind, solar, biofuels and the like, grew by 13%, reaching US$117 billion (Greenwood et al. 2009) In 2009, capital spending in wind, solar, and biofuels grew by 15.8% reaching US$144.5 billion (Pernick et al. 2010) while new i nstallations increased sevenfold from five years earlier, to 7 GW worldwide. Solar photovoltaics (including modules, system components and installations) grew to be a US$36.1 billion industry. In 2010, capital spending in renewable energy grew by 32%, reac hing US$211 billion (McCrone et al. 2011) By 2019, capital spending in solar photovoltaics is expected to grow to $116.5 billion (Pernick et al. 2010) In Europe, almost 16% of new generation capacity that has been added to the system in 2010 comes from solar photovoltaics (McCrone et al. 2011) In 2009, the solar industry invested about US$3 billion in research and development. The price of solar PVs has declined in the last few y ears due to enhancements in technology and more recently due to a swing from excess demand to excess supply. Bloomberg New Energy Finance estimates that since the summer of 2008, the price of PV modules per MW has fallen by 60% (McCrone et al. 2011) As a result of fal ling costs of PV modules, more W atts of photovoltaic power generation can be installed for a certain investment, resulting in enhancing the economic viability of solar PV projects (McCrone et al. 2011) This is in response to a num ber of global challenges and concerns, including increasing energy demand, global warming and energy security (Greenwood et al. 2009)

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18 The implementation of the technologies associated with the generation of renewable energy (e.g. solar panels, wind turbines, etc) increases security and reliability and reduces operating costs (e.g. fuel, etc). More important, it is economically beneficia l to both the users and the utility companies. However, the deployment process is complex with respect to the newness of these technologies, existing future uncertainty, substantial initial investment and their lifecycle value (Miller 2007) In the United States, the conventional vertically integrated energy industry is gradually transforming into a competitive market environment. Market participants are now placing greater emphasis on profit maximization, as apparently returns on investment are no longer guaranteed due to implementation of new alternative technologies and environmental rules. Technologies associated with the generation and the transmission of sustainable energy, evolve over time and therefore in their diversity, effectiveness and workability, more attention must be paid to the significant risks associated with future uncertainty. Engaging innovative approaches in risk management and capital budgeting, thus, can play a critical role in planning for large scale renewable energy systems. In the United States, in 2011, a total of 409 MW utility scale solar power capacity1 was built by solar PV facilities. The total generating capacity is 924 MW2 a nd that includes concentrated solar power (CSP) facilit ies. Presently, in the United States, a total of 2.4 GW solar PV projects are under construction and 19 GW projects are under development. PV has also been utilized for residential and nonresidential 1 Capacity is the maximum electric output a generator can produce under specific conditions. 2 This includes groundmounted utility scale solar power plants larger than 1 MW that directly feed into the transmission grid.

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19 (commercial, nonprofit and government) applications, w ith total current installations of 765 MW and 1,458 MW, respectively. As Florida receives a great amount of solar radiation, it is an appropriate place for the development of solar PV projects. In 2011, Florida built 127 MW of solar PV electricity. In Florida, there are 10 MW residential and 622 MW nonresidential solar PV facilities under construction or development. Also in Florida, in recent years, five solar energy projects with a total capacity of 127 megawatts have been built. Eight other PV projects with total capacity of 632 MW are likely to come online in the next year ( Table 1 1 ) (SEIA 2011) There is a huge demand for electricity in Florida i t ranks third among all states for energy demand. In energy consumption, Florida rank s higher than New York but lower than California and Texas. In 2009, Floridas total annual energy consumption was 4295.2 Trillion BTU. In the same year, despite its heavy reliance upon air conditioners and pool pumps, Florida had the 44th highest total en ergy consumption per capita of any state. California ranked 47th and New York ranked last (D OE 2011) Florida's nickname is the "Sunshine State," reflecting its excellent potential for development of solar PV power plants. On the other hand, severe weather and natural disasters like hurricane, tornados and lightening frequently occur in Flori da. Florida has the highest precipitation of all the states and thunderstorms are frequent during spring and summer. In fact, Central Florida is labeled the lightning capital of the United States (Hodanish et al. 1997) Research Setting This research aims to study t he risks associated with utilities and to determine the value of adding photovoltaic power plants to the energy generation portfolio of investor owned utilities. It specifically helps investors understand the risk associated

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20 with solar PV projects. In order to be successful, these renewable energy projects must be viable. This challenge will be addressed from the perspective of the utility companies (electricity purchasers ), which are generally investor s of these projects in a regulated state like Florida In order to maximize their profit and reduce the risks associated with their investments, utilities are looking for U.S. targeted opportunities that are driven by Renewable Portfolio Standards, or the available incentives (i.e. Feed in Tariff s or the Renewable Energy Act). Research Aim The aim of the study is to examine the risks that affect the financial health and survival of utility companies and to study the effect that adding PV power plants (with a different risk profile) can have on mi nimizing those risks through diversification in the generation portfolio of Floridas large investor owned utilities. As one of the main stakeholders in the energy industry, utilities3 are facing risks that can be reduced or mitigated through diversificati on of their energy generation portfolio. There are also specific risks associated with individual power plants and energy generation types (natural gas, nuclear, solar, etc.) within a portfolio of energy generation assets. The generation portfolio and risk s of the top five utilities in the United States (ranked based on their solar PV capacity) and four investor owned utilities in Florida will be studied in detail to determine the two sets of risks. These two sets are the risks that utilities are facing in general and the uncertainties that are associated with largescale solar power plant developments. 3 Please note that the term utility could be used both as referring to an organization that maintains the infrastructure for a public service or to the service itself (electricity for example). In this research, this term utility is used only to refer to an organization.

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21 Research Objectives In Florida, there is a great potential to generate clean energy by building and maintaining new solar power plants. Identifying and understanding the risks associated with this work and developing a comprehensive model for risk analysis will play a critical role in strategic planning for the expansion of renewable energy facilities in Florida. Therefore, the main objective of this research is to develop a risk analysis model for the development of utility scale solar power plants within the energy generation portfolio of investor owned utilities in Florida. The specific objectives are the followings: To identify the main parameters which incorporate internal and external risks in constructing largescale solar photovoltaic power plants and the risks that large investor owned utilities generally are facing in general. This will be accomplished through an extensive analysis of case st udies and other relevant literature. To create a risk analysis model that enables one to study the effect of adding large scale solar power plants to the current generation portfolio of large investor owned utilities. To apply the model to measure the succ ess of adding PV power plants into the generation resources of Floridas investor owned utilities. Scope of Research The scope of this research is limited to the development of a risk analysis model to formulate strategies in the context of developing larg e scale solar PV power plants as a part of generation portfolio of Floridas investor owned utilities. The model developed in this study should enhance the effectiveness of these projects and assist managers and decisionmakers to construct new solar power plants in Florida to generate green energy, reduce emissions and fight global warming Research Problem In Florida, over the past years, there has been a growing interest in developing renewable energy generation facilities and specifically solar power plants. A study that

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22 was carried out by the Solar Energy Industries Association (SEIA 2011) shows that less than 5% of the solar electricity in the U.S. is being produced or purchased by privately owned utilities. Consequently, studying the risks associated with the operation a nd financial health of public utilities and the risk associated with solar photovoltaic power plants can result in the creation of a risk analysis model that determines the value of adding PV power plants to the generation portfolio of utilities. The utili ties generally support a mix of power plants that produce electricity from different sources (coal, natural gas, nuclear, renewable, etc.). The result of this research can be used by the utilities as major investors in largescale PV power plants. This res earch specifically seeks to develop two separate risk profiles that are associated with investor owned utility companies and largescale solar power plants. Subsequently, the outcome of adding solar photovoltaic power plants to the generation portfolio of Floridas big investor owned utilities will be studied to see if this addition will result in a better performance of those companies. The following is the list of the investor owned utilities ranked by their generation capacity: I. Florida Power and Light Co mpany (generation capacity of 25 GW) II. Progress Energy Florida (generation capacity of 3 GW) III. Tampa Electric Company (generation capacity of 11 GW) IV. Gulf Power Company (generation capacity of 5 GW) These four investor owned utilities serve all of Floridas counties4. Their total generation capacity is almost 77% (44 GW) of the total generation capacity of all Florida utilities. The serving areas of the utilities are shown in Figure 11. The other 23% (57 GW) of electricity capacity belongs to smaller scale m unicipal electric utilities, rural 4 Except some parts of Calhoun County (Northwest Florida), Jackson County (Northwest Florida) and Nassau County (Northeast Florida) which are being served by the Florida Public Utilities Corporation (Fig. 1).

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23 electric cooperatives, state projects, and public power districts ( F ig ures 1 2 and Figure 1 3 ). Florida sources of electricity by type of ownership is shown in Fig ure 1 4 (FPSC 2011b) Florid a also imports electricity from Georgia, Alabama and Mississippi ( Figure 1 4 ) (FPSC 2011b) The most recent financial statements and financial reports of these utilities that have been submitted to the Securities and Exchange Commission (SEC) have been studied to determine the risks that are affecting these utilities performance (FPLCO 2012a; GPCO 2012; PEFCO 2012b; TECO 2012) To better understand the risk associated with developing PV power plants, the top five investor owned utilities that produce 93% of utility scale solar electricity in the United States have been selected. The financial reports they submitted to the Securities and Exchange Commission (APSCO 2012; FPLCO 2012a; PGECO 2012; SCECO 2012; XEINCO 2012) have been studied in detail, to determine the risk that utilities in general are facing and the risk associated with PV power plants. Among all four big investor owned utilities in Florida, Florida Power and Light is the only one on the list with a PV electricity capacity share of about 1% of the total solar PV electricity produced in the United States. The following is the list of the top five United States investor owned utilities (PEFCO 2012a; SCECO 2012; XEINCO 2012) r anked by their PV generation capacity and their generation share in nationwide PV electricity production (SEIA 2011) : I. Pacific Gas & Electric (1,612 MW, 63%) II. Southern California Edison (574 MW, 22%) III. Xcel Energy (111 MW, 4%) IV. Arizona Public Service (52 MW, 2%) V. Florida Power & Light Co. (35 MW, 1%) Importance of Research As it invests more in solar energy, Florida will become a center of solar energy production, will gain energy independence, increase hightech and construction jobs,

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24 provide emissions free electricity, and grow its economy. Considering the high energy demands and risks associated with Floridas unique climate and uncertainties in t he photovoltaic market, this research seeks to contribute to the renewable energy industry by establishing a risk analysis model. The model evaluates the specific risks associated with utility scale solar power plants and determines the value of adding lar ge scale PV power plants to the generation portfolio of investor owned utilities in Florida to mitigate their current risks.

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25 Table 1 1 Solar p hotovoltaic facilities in the state of Florida Developer Project Name Electricity Purchaser City / County PV / CSP Technology Land Type Online Date Capacity (MW) Operating Florida Power & Light Co. Martin Next Generation Solar Energy Center Florida Power & Light Co. Martin County CSP Trough Private 2010 75 Florida Power & Light Co. DeSoto Next Generation Solar Energy Center Florida Power & Light Co. Arcadia PV PV Private 2009 25 Florida Power & Light Co. Space Coast Next Generation Solar Energy Center Florida Power & Light Co. Kennedy Space Center PV PV Private 2010 10 Juwi solar Inc. Jacksonville Solar Jacksonville Electric Authority Jacksonvil le PV PV Private 2010 15 Sybac Solar Gainesville Regional Utilities Gainesvill e PV PV Private 2011 2 Under Construction BlueChip Energy Rinehart Solar Farm Progress Energy Florida Lake Mary PV PV Private 10 BlueChip Energy Sorrento Eagle Dunes Solar Farm Progress Energy Florida Orlando PV PV Private 40 Energy 5.0 Florida Solar 1 Tampa Electric Polk County PV PV Private 25 Energy Farm Inc. Freeport PV PV Private 74 Florida Power & Light Co. Babcock Ranch Florida Power & Light Co. Babcock Ranch PV PV Private 75 National Solar Power Gadsden Solar Farm Progress Energy Florida Gadsden County PV PV Private 400 SunEdison Lakeland Electric Lakeland PV PV Private 6 SunWorks Solar Systems Central Fla. PV PV 2

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26 Figure 1 1 Floridas investor owned electric utilities plant locations and their serving area (FP SC 2011b) Figure 1 2 Floridas municipal electric utilities plant locations (FPSC 2011b)

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27 Figure 1 3 Floridas rural electric cooperatives serving area (FPSC 2011b) Figure 1 4 Florida sources of electricity by type of ownership (FPSC 2011b)

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28 CHAPTER 2 LITERATURE REVIEW The Global Photovoltaic Industry The energy sector is a major contributor to the development of every country. Nowadays, the devel opment of renewable energy generation facilities has created a unique setting, and one of the best environments, for investment in the energy sector. Generation of electric power is mostly done by largescale generation owners and utility companies. Almost 15% of the energy generated in the United States comes from renewable energy resources. From wind to solar, the United States has great renewable energy resources that can provide enough energy to meet a significant share of nationwide energy consumption. The current support by the Obama administration plays a major role in the development of solar and clean energy facilities that can generate clean power, create jobs, and help improve the US economy and its competitiveness in the world. Solar energy has a great potential to meet the rising global demand for energy. The IEA further predicts that by 2100, over 60% of the worlds energy will come from solar electricity (ISPRE 2009) Several decades ago, in the early stages of photovoltaics, the energy needed to produce a photovoltaic panel was more than the energy panel was able to produce over its lifetime. However technological advances in recent years have resulted in increasing the efficiency of panels and methods of production. This has resulted in a reduction of payback time, of from three to five years, depending on the location of the facility (solar radiation). The cost of installing solar panels has been reduced to US$2.5 per W att (Dincer 2011) The general target is to reduce this cost to about US$1 US/W peak by 2020 (Kalogirou 2009)

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2 9 There are generally six ways to reduce the cost of PV panels. The cost of PV panels can be reduced by (1) achieving innovations in their manufacture; (2) using materials that are less expensive; (3) achieving a higher conversion efficiency; (4) increasing efficiencies through mass production; (5) optimizing system technology; and (6) lowering the amount of consumption of materials used (Dincer 2011) Solar Energy in the United States I ndustrial countries such as the United States, Japan and Germany, are trying to become competitive in the world PV market by promoting the use of PV, which certainly will result in improvements for module manufacturing an d cost reductions (Bahaj 2002; ISPRE 2009) .. After Germany and Spain, the United States is the third largest photovoltaic market in the world (ISPRE 2009) Among these countries, the United States has the most potential to greatly benefit from sustainable growth of renewable energy development. The United States ample land for PV development, coupled with its electricity demand which is the largest, will greatly benefit from the long term opportunities for growth presented by PV service providers including developers, installers and investors (Dincer 2011) The goal of the photovoltaic industry is to boost PV electricity generation to meet 10% of the United States peak electricity generation capacity by 2030 (Dincer 2011) Therefore, government supp ort of the energy sector, particularly of the solar PVs, is essential. To reach the goals shown in the PV industry roadmap, the United States government has determined it will make reasonable investments in the nation's intellectual and research organizati ons, universities and national laboratories. This investment is considered crucial to the continued economic growth, increase in production and domestic consumption of PV industry products, by improving existing

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30 technologies and developing new and better t echnologies. These next generation photovoltaic devices and products are crucial for meeting future energy needs and restoring United States leadership in the global clean energy race. Current Status of Utility Scale Solar Projects in the United States Cur rently, a total of 26 utility scale solar power plants are located in the United States. This includes 11 concentrating solar power (CSP) and 18 photovoltaic (PV) power plants. Nine facilities were built between 1985 and 1991, while others are less than s ix years old. No PV facility was built before 2007. According to the Solar Energy Industries Association, in 2011, the utility scale PV grew significantly, with more than 22,029 MW of announced projects in the pipeline, while 409 MW of PVs are already in o peration, and 2459 MW were under construction in 2011. The United States also has 514 MW of operational CSP plants in commercial production. A total of 7,756 MW of CSP were under development in 2011. In total there were 42 solar power plants under construc tion and 198 projects under development at the end of 2011. Many of the facilities are located in California while most of the rest of them are located in Arizona, Nevada, New Jersey and Florida. Figure 2 1 shows the statistics of utility scale solar projects in the United States (SEIA 2011) Findings of a recent Solar Energy Industries Association study indicate that less than 5% of the solar energy produced in the United States is being produced or purchased by private utilities. The overwhelming majority the remaining 95% -is produced or purchased either by investor owned utilities or unidenti fied entities ( Figure 2 2 ) (SEIA 2011) In Table 2 1, the public purchasers of solar PV electricity have been ranked based on their purchasing or generation capacity. In the United States, the publicly -

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31 traded firms have to submit an annual report (Form 10k) to the Securities and Exchange Commission (SEC) every year. The 10k report includes an all inclusive summary of the companys performance. This summary includes the financial statements, the market, the consolidated financial data and the risk factors. Under risk factor s, investors and possible investors must be warned of all the known possible risk factors including, but not limited to, possible inability to meet future obligations and likely external effects. We will study the form 10k of the top five investor owned utilities ( Table 2 1) that produce 93% of the utility scale solar electricity in the United States, to determine the risks of developing PV power plants and the effects of doing so upon the utilities performance. Solar Potential for Florida Solar energy provides a viable source of emissionfree electricity in Florida. Floridas unique climate makes it particularly suited for the kind of economic growth that solar energy production can create. Not only can it power homes, businesses and schools, it also c harges an economy. It is capable of creating both highand low tech jobs and will boost new construction. Investing in solar power will simultaneously promote Floridas energy production while securing its energy independence in the future. In essence, Fl orida is capable of becoming a hub of solar energy. Annual average solar radiation for the United States shows Florida with 14 MJ/m2 (million joules per square meter) while by comparison, it is as high as 28 MJ/m2 in some other areas of the country. This i ndicates that while it has a great potential for benefiting the solar radiation industry, Florida is not the best place for solar energy project development (Kibert et al. 2010)

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32 A comprehensive report by Navigant Consulting indicates that solar PV and solar hot water technologies could be most feasible for Florida (NavigantConsulting 2008) The Navigant Consulting report, which was prepared for the Public Service Commission, helps regulators and legislators make decisions for the type and energy production capacity of required renewable energy facilities in the state, in order to reduce emissions and greenhouse gasses and to deal with global warming. Navigants report estimates that more than 200,000 GW of PV power can be produced by the year 2020 by developing PV fields on residential and commercial building roof tops and on large ground fields in Florida. Navigant estimates that by 2010, the State of Florida can expect to generate 6% to 27% of its retail electric sales from renewable energy sources (NavigantConsulting 2008) Solar energy installations are expanding rapidly in Florida. The best example of this is demonstrated by three largescale Florida Power & Light (FPL) solar power plants. FPL recently constructed three solar energy projects: a 25 MW plant in DeSoto County -the largest photovoltaic facility in the country, a 10MW photovoltaic facility at the Kennedy Space Center, and the 75MW Martin Next Generation Solar Energy Center hybrid trough in Martin County, Florida which came online in 2010 ( SEIA 2010) Table 2 2 shows Floridas investor owned utilities ranked by their generation capacity. These four investor o wned utilities cover Florida in its entirety with a combined total generation capacity of approximately 77% (44 GW) of the total generation capacity of all Florida utilities (FPSC 2011b) Figure 1 1 displays the serving areas of these utilities. Smaller scale municipal electric utilities, rural electric cooperatives, state projects and public power districts make up the remaining 23% (13 GW) of the total

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33 electricity generation capacity in Florida. In addition, Florida is an i mporter of electricity, purchasing from states such as Georgia, Alabama and Mississippi ( FPSC 2011a; FPSC 2011b) The Desoto Next Generation Solar Energy Center As of 2009, the largest solar photovoltaic facility in the United States is Florida Power & Lights Next G eneration cen ter $150 million, 25 MW plant in Arcadia, DeSoto County, Florida -the Desoto Next Generation Solar Energy Center. It consists of 90,000 SunPower solar panels on 180 acres with an installed efficiency rating of 18.7% This installat ion is able to captu re up to 30% more energy per panel because of the ability to track the sun to maximize sunlight. When completed, the facility will produce yearly, an estimated 42,000 megawatt hours (MWh) of electricity (an average of about 4.8 MW). Although construction only began during the fourth quarter of 2008, using approximately 400 construction workers, it was able to begin producing electricity in October 2009. The Desoto plant supplies 3,000 homes and businesses with power. This is only a small fraction of Flori da Power & Light (FPL)s accounts. FPL is Floridas largest electric utility and serves over four million accounts. Estimating over the expected 30year lifetime of the Desoto project, each FPL clients utility bill will be billed 6 cents per month for it s $150 million cost. Florida Power & Light is hoping to expand the DeSoto installation, with a projected 30year lifetime center, that will produce up to 300 MW and that will have an ability to reduce greenhouse gas emissions by some 575,000 million tons the equivalent of yearly removing 4,500 cars from the road. Florida Power & Light is presently seeking the necessary approvals for this expansion (FPLCO 2012b)

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34 The Martin Next Generation Solar Energy Center The second largest solar photovoltaic facility in the United States is Florida Power & Lights next generation, projected 155,000 MWh solar photovoltaic plant, in Indiantown, Martin County, Florida -the Martin Next Generation Solar Energy Center. Not only is it the second largest solar facility in the w orld it is the largest solar thermal plant of any kind outside of the state of California. It is, as well, the first hybrid solar facility in the world to connect to an existing combinedcycle power plant. Its innovative design directly displaces fossil fuel usage to provide 75 megawatts of solar thermal capacity. It consists of approximately 180,000 parabolic mirrors over 500 acres of land adjacent to Florida Power & Lights Martin facility. It was built between December 2, 2008 and the end of 2010, using approximately 1000 construction workers. The Martin Next Generation plant supplies some 11,000 homes with power. It is estimated that over the 30year lifetime of the project, it will reduce greenhouse gas emissions by some 2.75 million tons the ye arly equivalent of yearly removing 18,700 cars from the road (FPLCO 2012b) T he Space Coast Next Generation Solar Energy Center A third Florida Power & Light project, this one completed in 2010, produced electricity under a pioneering public private partnershi p with the National Aeronautics and Space Administration (NASA). This is FP&Ls Space Coast Next Generation Solar Energy Center, located at the Kennedy Space Center in Titusville, Brevard County, Florida. It consists of 35,000 solar PV panels over 60 acr es. This 10 MW facility produces 16,000 MWh yearly. Construction began in June, 2009 and was completed during the first quarter of 2010, using approximately 100 construction workers. The Space Coast plant supplies electricity to approximately 1,100 homes With a projected

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35 30year lifetime, it is estimated that the Space Coast plant will reduce greenhouse gas emissions by some 227,000 tons the equivalent of yearly removing 1,800 cars from the road (FPLCO 2012b) What Really Drives Renewable Energy Developmen t? Some years ago, there were not many Americans willing to pay a small percentage more to their electricity provider in exchange for receiving their electricity from a renewable energy source. But with a greater public awareness and a competitive market o f renewables in todays American energy industry, a market which is both economically and environmentally driven, many more individuals, entities and companies have a commitment to being green, creating more jobs, reducing dependence on foreign oil and generating electricity from a more reliable source ( Figure 2 3 ). In Florida, there are also tourism benefits that come with developing renewables. If Floridians can advertise themselves as being green, then both politically and from a tourism perspective they can probably attract more capital to their state. The market drivers for development of renewable energy projects and the major regulatory and policy frameworks that are in place in the United States are discussed in this section. Incentives at the Nation al and State Levels Renewable Portfolio Standards (RPS) In the United States, renewable energy development is primarily driven by Renewable Portfolio Standards (RPS). RPS are state requirements to produce a certain percentage of electricity from renewable resources. The RPS targets have been adopted by 29 different states and are a substantial driver of renewable energy development in the United States. From a legislative perspective, there are other tools

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36 used in the U.S. in order to promote renewable en ergy projects, such as Feedi n Tariffs and specific carve out s for different technologies. Florida and its neighboring states have not adopted RPS yet. In February 2009, the Florida Public Service Commission agreed to require the ut ilities to generate at least 20% of their power from renewable resources by 2020. Although this requirement becomes a law only after the legislature approves it, this will significantly change the opportunities for renewable energy developments within a state that currently generates less than 3% of its power from renewable energy sources. Based on this requirement, seven percent of generated electricity must be from renewable energ y resources by January 2013, 12% by 2016, 18% b y 2019 and 20% by the end of 2020. However, the nonexistence of RPS does not mean that there are no renewable energy projects under development in Florida. There are some technologies that can be deployed in the states with no RPS in place that are actually cost effective. The other big driver behind renew able energy development is risk management, or what if scenarios, which is a major issue associated with developing the projects in states without RPS. In states like California, which particularly has a very aggressive Renewable Portfolio Standard, util ity companies are allowed to simply buy Renewable Energy Credits (RECs) and satisfy their RPS this way for now because of transmission or other physical constraints. With respect to the increasing number of projects that are being developed in the United S tates, the regulatory process to get the required transmission built will be very long. The developer also has to overcome rights of way issues, which is a nightmare from a developers perspective. The production of

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37 renewable energy to satisfy RPS probably depends on whether or not a developer can use RECs to satisfy the RPS requirement. Feed In Tariffs (FIT) FeedIn Tariffs are a powerful policy mechanism meant to encourage renewable project development by providing guaranteed grid access and long term co ntracts to purchase power product, based on cost of generation. FIT provide a guaranteed connection to the grid and a fixed price for a long term offtake contract, and the price is, at least in theory, based on the cost of generation. Gainesville Regional Utilities (GRU) has one of the few FIT programs in the country. In Gainesville, FIT encourage the development of Distributed Generation (DG) solar facilities. GRU has 4 MW set aside every year for new capacity where residential or commercial property owners can sign a contract, build their own solar farm, connect it to the grid, and sell the electricity to GRU at a fixed price. GRUs feedin tariff was adopted in 2009 and provides $ 0.32 per kilowatt hour of electricity produced for 20 years for every distr ibuted generation unit that was developed by the end of 2009. Stimulus Money in the United States In addition to the cash flow that is normally associated with any project, renewable energy projects generate tax credits. Solar projects offer production tax credit, where a producer can get a tax credit for every megawatt hour (MWh) of energy that has been produced. Before the economic downturn in 2007, solar developers relied heavily on equity investors who had a good appetite for tax credits in the U.S. Those are the individuals and companies with large tax liabilities that could use the solar tax credits to offset their tax liability. With the 2007 economic downturn, the market for using tax credits to offset tax liabilities suddenly went away. Thus at that time, renewable

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38 energy development was sharply reduced because developers did not know how to secure funding when tax equity market no longer existed. As a result, the federal government then introduced a stimulus package. Instead of using ongoing basis tax cr edits, developers could take 30% up front in the form of a grant. The idea is mathematically sound for the federal government -as it will be losing this money out of the tax revenue in any case, it decided to meet its objectives by giving away the money in the form of a grant. The stimulus money has allowed developers to construct projects where they need lower off take prices to meet their investor return targets. As a result of stimulus money, projects were easier to sell in terms of lining up of f take prices than they would have been without using stimulus grant. From this perspective, stimulus money has enabled developers to meet the appropriate investor returns for some of the projects. To use the benefits of stimulus money, developers had to have begun construction of these projects by the end of 2010, so there was a rush to build things in the last months of 2010 to demonstrate substantial completion of a physical nature before the end of 2010. By the end of 2010, the grant program went away, but the hope is that the tax equity market will be revived sufficiently so as to then be able to attract investors back into the projects. The stimulus grant was never meant to be a permanent subsidy. It was meant to bridge the gap in transition toward renewable energy generation. z Structure of Project Finance and Stakeholders This research aims to evaluate a solar photovoltaic project as an investment opportunity for financial investors who have a major role as sponsors of a project finance initiative. Financial investors want to invest their capital in projects with high retur ns. Sponsors of the projects can select between two types of financing: corporate

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39 financing and project financing. In corporate financing, the new project is financed on the companys balance sheet, while in project financing, the new project is being fina nced off balance sheet through a newly created unit, the S pecial P urpose V ehicle (SPV) (Gatti 2008) In project financing, the lender does not rely upon the value of the projects assets, nor does it rely upon the projects historical financial data. Rather, in project financing, the lender relies upon the projects estimated future cash flows (Yescombe 2002) Debt financing is cheaper than equity financing, but the project finance debt holders have first call on the projects net operating cash flow (Gatti 2008) A project finance deal is a contractual framework that is structured in order to set up relations hips between project counterparties (stakeholders) and the SPV, which is a legally established unit that is being used for initiating and developing a given project. The SPV is the owner of the project cash flows and borrows money from the lenders. It is c ounterparty to contracts underpinning the initiative. A project financial deal is a contract grid that orbits the SPV. All of the interests of the involved parties (project stakeholders or counterparties) are satisfied simultaneously. The contracts between the SPV and different counterparties define the extent of the transferred risks and benefits of each counter party (Gatti 2008) There are not always distinct boundaries between the roles t hat participants can take in the project finance structure. A single project counter party can take a number of different roles at the same time. For e xample, the bank can be a sponsor of the project and also can lend money to the SPV. The contractor can play the role of builder and operator of the plant at the same time, in a joint venture with other parties, or alone. If project participants play different roles at the same time, they can gain from greater

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40 revenues and lower costs (e.g. if the project sponsor also purchases the electricity produced by the plant) (Gatti 2008) Yescombe categorized project risks in three different categories: commercial, financial and political. This categorization is done based on the suggested methods in project finance literature (Yescombe 2002) Stakeholders of Renewable Energy Deve lopment S takeholders, their relation to each other and their interests (positive or negative) in the solar power plant development is critical, as it permits one to better understand and then to remove or lessen the risks and uncertainties surrounding util ities and the development of solar PV projects. Stakeholders may play more than one role in the success or failure of the project. The renewable energy project must be of importance to each stakeholder in the customer chain and in the supply chain. The s takeholders in the customer chain include decisionmakers and direct and indirect users. Stakeholders in the supply chain include the technology developer, the partners who supply complementary services and systems, and the resellers and distributors. In addition to the interests of the stakeholders, the interests of certain other significant industry players must be taken into account. The energy project must be of importance to each significant industry player involved. Significant industry players inc lude the state and federal regulatory bodies, the public policy makers and their constituents, the system operators and the electricity distribution companies. The projects realization may be hampered without the explicit or the implicit support of a majority of these significant industry players. Table 2 3 column 1, lists the stakeholders in the development of solar PV projects. Table 2 3 column 2, lists the interests and needs of these stakeholders in relation to the new project. Table 2 3 column 3, l ists the role that each stakeholder may play in the development of new projects (Miller 2007)

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41 As the renewable energy project and the role of the stakeholders develop, these stakeholders activities and concerns interact in various ways. An example is that the decisions being made by potential clients will be affected by various types of supporters, proponents or enablers on one hand, and by various types of opponents on the other hand. The parties may act in mor e than one role. An example is that competing technology providers may be foes when selling to the same purchaser but may be allies when lobbying regulatory bodies. Another example is that the final residential or commercial consumer of green electricity m ay be a user of the product but may also fulfill the role of supporter or opponent in another situation, such as at a legislative hearing. Some parties role will be more important that others role but each ones actions will influence the success of the project. The following are the nine roles a stakeholder may perform ( Table 2 3 column 3) (Miller 2007) : The Role of Developer is performed by a company trying to develop and to provide renewable energy technology. The Role of Marketer is perfor med by the person or company (such as a reseller, developer, partner or distributor) that markets and sells the technology. The Role of DecisionMaker -the most directly serious role is performed by the facility with t he authority to make the final judgment and choice regarding the project. While the Decision Maker may consult with other stakeholders, the continuing viability of the project depends on the say so of the DecisionMaker. The Role of Direct User ano ther critical role is performed by the prime user of the project or of the product (green electricity). The performer of this role may help in making critical decisions regarding the project and may play the most significant role in providing positive or neg ative word of mouth. The Role of Indirect User is pe rformed by the ultimate residential or commercial user, the final consumer of the green electricity, who is affected by the development of a renewable energy facility. This performer may also play an imp ortant role in making decisions and may provide positive or negative word of mouth.

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42 The Role of Enabler is perform ed by an organization that has the ability to enable or support the development of renewable energy projects. A government body adopting legi slation that provides incentives for facilities to develop the project would be such an enabler, as it would be enabling the success of the project. The Role of Barrier is performed by an organization that has the ability to create or increase the barriers to the projects development. This performer could be a utility distribution company that causes unnecessary time and expense for the developer trying to connect the facility to the grid, thus posing a barrier to the success of the project. The Role of Pr oponent is perfor med by an organization or individual who expresses support for the projects development, though it is not perhaps in a direct position to develop the project. Through its support, this performer influences the decision maker, the users and the enablers and positively influences the development of the project. The Role of Opponent is perfor med by an organization or individual who expresses opposition to the adoption and development of the project or its technology, though it is not in a di rect position to halt the project. Through its opposition, this performer negatively influences the decisionmaker, users and enablers and negatively influences the development of the project (Miller 2007) When developing new renewableenergy generation facilities, it is important to look at which role is being performed by the stakeholders and at their diverging, converging, and at their at times --incompatible, interests. Table 2 3 columns 1 and 2, lists 19 categories of stakeholders, and their relevant interests and needs. The Developer of Solar Energy Technology The solar energy technology developer is a stakeholder who must understand the requirements and needs of each of the other important stakeholder s, and in particular, the requirements and needs of the manufacturers of technology. This solar energy technology developers primary goal is to develop a technology that (a) meets and exceeds the project adopters needs and (b) maximizes the technologys adoption (and so maximizes the revenues of the project and its feasibility as a commercial

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43 venture). This solar energy technology developer must be capable of overcoming doubts and criticisms, and not only the present ones, but also those that may come up in the future. The Manufacturer of Solar Energy Technology The solar energy technology manufacturer must be capable of motivating investors in investing in the solar energy project, and of encouraging and capitalizing on the adoption of the new technolog y. Thus, this stakeholder can fulfill an important position in the alternativeenergy market. The Provider of Competing Renewable Energy Technology The competing provider may be a partner if the technology of the new project being developed does not completely overlap the technology of this competing provider. Although this is a competing provider, in other aspects, its interests may be aligned with the technology provider of the project, as if the project is successful, there likely will be renewed interest in other renewableenergy technologies. For an example: The success or failure of other renewableenergy technology providers may influence the adoption of photovoltaic energy. The Developer of the Solar Energy Power Plant The solar energy project developer is a primary stakeholder in the project and in renewable energy markets. This firm will be a central figure in making a decision as to what type of technology the project will use. For the purpose of this research, the solar energy project developer is a firm whose goal is to be an independent power producer mostly in places with an established electric grid. Under a power purchase agreement, solar energy project developers of renewableenergy projects build, own and op erate their facilities.

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44 The Developer of Other (NonSolar) Power Plants Another stakeholder to be considered is the developer of the nonsolar power plant s. These companies are developers of such power generation as coal, natural gas, nuclear or other renewableenergy generation projects. While initially appearing as a competitor who would oppose the development of solar power projects, in practice, the solar project may not completely overlap these other developers projects leading to an opening of fres h ways to develop solar projects. Energy Traders This stakeholder is engaged in energy trading -the buying and selling of energy commodities, including natural gas, coal, crude oil, electrical power and renewable energy credits and certificates. This s takeholder also represents the administration of movement in energy markets and the evaluation and management of the risks associated with movement in energy markets. The Companies That Transport, Distribute and Store Natural Gas, Coal and Oil This stakeho lder usually a large convoy of vessels -is one who is found to transport, store and distribute natural gas, coal and crude oil, in all stages of the industry, including but not limited to, exploration and production, refining and distribution. This st akeholder not only seeks to discover new sources of natural gas and oil, but also develops routes to access these discoveries and moves gas, coal and oil consignments to the market. The Producer of Wind, HydroElectric, and other Renewable Energy This sta keholder is the renewable, nonsolar energy source.

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45 Hydroelectricity: This is a viable renewableenergy source ha s comparatively low cost and is flexible. Hydroelectricity plants can make quick changes to meet energy demands that are not constant. Win d: A large wind farm could be made up of hundreds of wind turbines linked to the electric power transmission grid. Wind power produces clean emissions, operates without emitting greenhouse gas, requires little land and is a viable alternative to fossil fue ls. In addition, wind power is distributed widely, is abundant and is renewable. Geothermal heat, rain, wind and tides: Other sources available to produce energy include geothermal heat, rain, wind and tides. The Energy Holding Company This stakeholder does not itself produce energy, but is an energy stockholding company. It holds the outstanding stock of energy companies. Its presence reduces the risk of owners, spreads the ownership and control of the energy company, and permits the holding of ownership and control of several companies. The Design, Construction and Maintenance Firm This stakeholder is the actual builder of the project. It designs, constructs, maintains and at times sells the project. It can choose to have a powerful influence on advocating for technologies. The Electric Utility This stakeholder is the electric utility itself, the electric power company that generates, transmits and distributes electricity for sale in a regulated environment. Because it has great power over the project it is important that all of the benefits of the project be made known and fully understood by the electric utility. It may be a public

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46 utility. It could be publicly owned, investor owned, an entity that is government owned or it could be a cooperative. The Large Scale Generation Owner This stakeholder, the largescale generation owner, is expected to oppose the creation of renewableenergy projects. An example of a largescale generation owner is an owner of a coal fired plant working in a dereg ulated environment. To overcome large scale generation owners from viewing potential renewable energy projects as competitors, the renewableenergy developer looks for benefits it can provide to the large scale generation owner, which then may become an advocate rather than an opponent. The Independent System Operator (ISO) or Regional Transmission Organization (RTO) This stakeholder provides reliable and stable operations in the bulk transferring of powe r generation and transmission. This independent syst em operator (ISO) or regional transmission organization (RTO) will be a proponent of any design or project that increases the stability and reliability of transmission of electricity, and it will oppose any design or project that will decrease the stabilit y and reliability of transmission of electricity. The Producer of the Electricity Transmission Lines and the Distribution Network This stakeholder transmits and distributes green electricity over long distances. Electric power transmission involves the bul k transfer of electrical energy, the moving it from its source, the generating power plant, to a highvoltage electrical substation close to the demandfor electricity center. Then in the next portion of the move, the power is transmitted from the highvol tage electrical substation to the customer, using

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47 transmission lines -local wiring -between the highvoltage substation and the customer. A distribution transmission network consists of interconnected transmission lines. In addition to electricity dist ribution, this stakeholder is involved in obtaining parties to invest in the transmission and distribution of green electricity. The Electricity Retailer This stakeholder is the company that sells electricity at a flat rate directly to the final consumer, and usually provides the final consumer the option of buying only green electricity. This stakeholder may not own any projects, facilities or distribution systems, but purchases at a wholesale price from electricity pools and spot markets and sells at a fl at rate retail price to the final electricity consumer. There is a risk in selling at a flat rate price, and the electricity retailer assumes and manages that risk. The Insurance Provider This stakeholder, an insurance company, plays a major part in the d eveloping of renewable energy projects because if it is uninterested in the project, it acts as an opponent or barrier. But if it is interested and involved in the progress and growth of the project and the project assists it in increasing its revenue or it lessens its chance of loss of revenue, it can be a positive proponent, enabler and marketer. The Equity Investor and the Bank This stakeholder, a bank or an investor in private equity, seeks to increase profits and decrease losses in its investment portfolio. It can act as a positive or a negative force in relation to the development of the renewable energy project. The Government, the Regulatory Body This stakeholder a government or a regulatory body -can have a momentous influence on the devel opment of the renewableenergy facility, as there are numerous

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48 policy issues, landuse and siting issues and legal and financial issues, involved in the development, implementation and sale of renewable energy projects. The General Public The final stakeholder is the general public. While not directly involved in the project, the opinion of the general public on government and other parties can heavily influence the success and development of the renewableenergy facility. Stand Alone Renewables and Energy Generation Portfolios To be adopted on a large scale, the risks and opportunities associated with the development of renewables should be appropriately studied and measured. To reach this goal in a realistic way even if it takes a little longer require s implementing the new sustainable energy systems with the existing ones. Masini (Masini and Menichetti 2010) addressed issues related to diversifying technological portfolios. Awerbuch submits that an evaluation of renewable energy technologies should be based on portfolio cost, rather than on standalone cost (Awerbuch 2000) In evaluating how renewable energy sources can contribute to risk reduction in a mixed portfolio, Awerbuch and Berger (Awerbuch and Berger 2003) propose that in a portfolio of conventional generating assets, while the standalone generating costs of renewables may be higher, adding such fixedcost renewables as wind, photovoltaics and other fixed cost renewables to the portfolio leads to decreased overall portfolio cost and risk. Based on Masini (Masini and Menichet ti 2010) if these risks are properly handled, a portfolio with a high share of renewables should outperform a portfolio with a low share of renewables, inducing investors to further invest in these technologies. Masini (Masini and Menichetti 2010) examined the impact of these factors using three categories of variables: i) the overall degree of Renewable Energy (RE) share in the

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49 investment portfolio; ii) the degree of technological diversification of the portfolio resulting from the investment decisions and iii) the share of each specific technology in the investment portfolio. Masini and Menichetti compared investors who have an enthusiasm for technological risk with investors who have less interest in innovative options (Masini and Menichetti 2010) While most portfolios are likely to have well known renewable energy technologies, the former investors will balance their investment in new technologi es with a higher share of conventional technologies as a hedge, while in comparison the latter investors will be satisfied with a lower share of conventional technologies. The riskiness of different renewable energy alternatives in a portfolio of energy ge nerating assets may have negative or positive effects on the return of the whole portfolio based on the negative or positive correlations between price volatility of renewables and traditional energy sources. Risk Assessment Using Failure Mode and Effect A nalysis (FMEA) Failure mode and effects analysis (FMEA) is a method of risk assessment and failure analysis that was originally developed in the 1940s by the United States military and was used by the National Aeronautics and Space Administration (NASA), i n the 1960s (Bowles and Pelaiez 1995) Over the past few decades, FMEA has been extensively used in product development, system engineering, quality management and risk analysis in many industries including but not limited to energy, chemical and mechanical ( ArabianHoseynabadi et al. 2010; Chang and Cheng 2011; Chin et al. 2009a; Chin et al. 2009b; Liu et al. 2011; Liu et al. 2012b; Narayanagounder and Gurusami 2009; Segismundo and Miguel 2008; Sharma et al. 2005) FMEA assists users in studying the failure modes and risks that are associated with projects and

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50 systems, based on the available historical data, past experiences, expert opinions and common sense logic. FMEA has proven to be a powerful method to sort and analyze the failure modes or risks based on severity, occurrence and detectability of each mode and to prevent them from occurring (Sankar and Prabhu 2001; Stamatis 1995) A team of specialists fro m various areas of product development and project management of the company should serve on the FMEA team to systematically and accurately determine and quantify the failure modes, causes, and risks and recommend actions (Chin et al. 2008) Risk management typically includes risk avoidance, risk transfer to another party or the reducing of negative outcomes or probability of the occurrence of failure. If the actual consequences of a particular risk are negligible, the risk management team may decide to accept the risk and its consequences. The result of FMEA is a series of actions to prevent or reduce the likelihood of each risk and/or of its severity, beginning with the failure modes that have the highest priority. A brief summary of applications of System FMEA in risk management is shown in Table 2 4. Failure Mode and Effect Analysis Failure mode and effects analysis (FMEA) is based on generating risk priority numbers (RPN) for ea ch failure mode. The higher the RPN number, the more serious could be the failure and its consequences. The risk priority numbers are a product of three risk components for each failure mode: occurrence, severity, and detection. The basic FMEA terms has been defined by (Ayyub 2003; Ericson 2005; Makajic Nikolic et al. 2011) : Occurrence rating: The fact or frequency of happening for a specific risk or particular failure mode. It refers to the regular probability or likelihood that a particular risk being analyzed will occur.

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51 Dete ction rating: The detection rating indicates the likelihood of detecting the risk or failure mode before causing effect. Severity rating: The severity rating is the importance of the risk on the outcomes of the project or product or performance of the sys tem under study. The severity rating should remain the same every time a particular risk happens. A crossfunctional team is required, which is composed of people with varied levels of skills needed in order to identify the failure modes and determine the occurrence ratings, severity ratings and detection ratings of the risk causes. The procedure for conducting a Failure Mode and Effect Analysis is usually composed of three main steps. First, all the potential failure modes and risks of the product or the s ystem should be identified. After identifying the risks and failure modes, a critical analysis should be performed to account for the three risk factors mentioned before: occurrence (O), severity (S), and detection (D). After determining the three risk fac tors (O, S, D), the risk priorities of failure modes will be determined through the risk priority number (RPN), which is the product of the O, S, and D of a failure. That is: ( 2 1) RPN = OSD Based on the 10 point scale rating scales, the three risk factors are evaluated and thus the RPN for a particular failure mode can be calculated. In general the higher the RPN the more attention should be directed toward eliminating the failure mode, minimizing the severity of the failure i f that happens, reducing the occurrence of the failure mode or improving the measurements in place to enhance detectability of the failure modes and their causes. Once the RPNs for different risks are calculated, the failure modes can be ranked and then pr oper actions will be taken preferentially on the highrisk failure modes.

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52 Pitfalls and Limitations of FMEA FMEA is one of the oldest methods developed for risk assessment and prevention. However, the crisp RPN method shows several pitfalls and shortcoming s (Ben Daya and Raouf 1996; Braglia et al. 2003a; Chang et al. 2001; Chin et al. 2009a; Chin et al. 2 009b; Gilchrist 1993; Liu et al. 2011; Liu et al. 2012b; Pillay and Wang 2003; Puente et al. 2002; Sankar and Prabhu 2001; SeyedHosseini et al. 2006; Sharma et al. 2005; Shen et al. 2010; Tay and Lim 2006; Wang et al. 2009; Yang et al. 2008; Zammori and G abbrielli 2011) Some of these shortcomings are listed here: Using the numerical evaluation for the determining the O, S, and D risk fac tors will usually result in inaccurate outcomes. The significance of risk factors are usually vague and cannot be defined with a certain numerical value while the linguistic terms can easily and accurately define the appropriate level of importance for eac h risk factor. Determining the O, S, and D risk factors with direct numerical evaluation could result in the same RPN numbers for different sets of factors associated with two different failure modes. This can mislead the management team while it is assign ing resources to prevent different risks. The occurrence (O), severity (S), and detection (D) could have different weights in the FMEA analysis. For studying real world problems, the traditional FMEA method should be modified in an appropriate way to take into account the relative significance of these risk factors. As a result, several techniques have been suggested by different researchers to improve the accuracy and accountability of FMEA analysis, including such as analytic hierarchy process (AHP) (Braglia 2000) grey theory (Chang et al. 2001; Chang et al. 1999) data envelopment analysis (DEA) (Chin et al. 2009a; Chin et al. 2009b; Garcia et al. 2005) decision making trial and evaluation laboratory (DEMATEL) (SeyedHosse ini et al. 2006) evidential reasoning approach (Chin et al. 2009a; Chin et al. 2009b) Technique for Ordering Preference by Similarity to Ideal Solution (TOPSIS) (Braglia et al. 2003a) expert system (Bowles and Pelaiez 1995; Braglia et al. 2003a; Puente et al.

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53 2002; Sankar and Prabhu 2001; Sharma et al. 2005; Tay and Lim 2006; Wirth et al. 1996; Xu et al. 2002; Yang et al. 2008) and hybrid approaches (Chang 2009; Chang and Cheng 2011; Chang and Wen 2010; Gargama and Chaturvedi 2011; Kutlu and Ekmekcioglu 2011; Liu et al. 2012a; Pi llay and Wang 2003; Zhang and Chu 2011) One of the major shortcomings of traditional FMEA that is important to the applicability of FMEA to this research, is the difficulty in obtaining accurate, direct numerical evaluation of the risk factors, such as occurrence (O), severity (S), and detection (D) (Braglia et al. 2003a; Br aglia et al. 2003b; Gargama and Chaturvedi 2011; Liu et al. 2011; Wang et al. 2009) The expert opinions and evaluation of historical data could result in such linguistic terms as likely, significant, moderat ely high, relatively low and so on (FMCO 1988; Xu et al. 2002) Fuzzy logic, or fuzzy set theory (Liu et al. 2011; Liu et al. 2012b; Shen et al. 2010; Wang et al. 2009; Zadeh 1965) was developed as a way of analyzing and handling the vagueness involved in the linguistic terms, to translate them to numerical quantities. In comparison to the numerical methods, using fuzzy logic in FMEA has several advantages (Bowles and Pelaiez 1995; Braglia et al. 2003a; Braglia et al. 2003b; Liu et al. 2012b; Sharma et al. 2005; Xu et al. 2002) Both quantitatively measured data and ambiguous linguistic term s can be used and managed for risk analysis. Fuzzy logic also enables the accurate evaluation of risks for all failure modes, using the imprecise data and linguistic variables. Linguistic variables can be used for rating the weights of risk factors (medium low, high, etc.) and the third shortcoming mentioned above is also simply avoidable. Fuzzy Logic Fuzzy logic was developed by Lotfi Zadeh (Zadeh 1965) Fuzzy sets were developed to solve many real world problems. It has been applied to many scientific and engineering

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54 fields, such as uncertain, imprecise, unspecific, and fuzzy situations from computing, control theory and telecommunications, to business intelligence and risk management. A fuzzy set is a group of elements in a domain of information where the boundaries of the elements and set are vague and ambiguous (Gargama and Chaturvedi 2011; Liu et al. 2011; Liu et al. 2012b; Wang et al. 2009) This section explains how fuzzy sets are defined and covers required information about linguistic variables and the method that will be used in chapter four for defuzzification of fuzzy numbers. Fuzzy Numbers Triangular and trapezoidal fuzzy numbers are the most commonly used fuzzy numbers both in theory and in practice. In fact, triangular fuzzy numbers are special cases of trapezoidal fuzzy numbers. When the two most promising values are the same number, the trapezoidal f uzzy number becomes a triangular fuzzy number. For the sake of simplicity and without the loss of generality, trapezoidal fuzzy numbers are preferred for representing the linguistic variables in this study. A positive trapezoidal fuzzy number A can be denoted as 1234a, a, a, a The membership function AX is defined as (Liu et al. 2012b) : 1 1 12 21 23 4 34 34 40, ,()1, 0,Axa xa axa aa x axa xa axa aa xa (2 2 ) where 23a, a is ca lled a mode interval of A and 1a 4a are called lower and upper limits of A respectively (Liu et al. 2012b) Give any two positive

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55 trapezoidal fuzzy numbers 1234a, a,a, a A 1234b, b,b, b B and a positive real number r the algebraic operations of the trapezoidal fuzzy numbers can be displayed as follows (Liu et al. 2012b) : 11223344ab, ab,ab, ab AB ( 2 3) 11223344a.b, a.b,a.b, a.b AB ( 2 4 ) 1234a.r, a.r,a.r, a.r Ar (2 5 ) The operations of (max) and (min) are defined as follow (Liu et al. 2012b) : 11223244ab, ab,ab, ab AB (2 6 ) 11223244ab, ab,ab, ab AB (2 7 ) Linguistic variables Linguistic variables are variables whose values are words or sentences. Linguistic variables are useful in complex, nonlinear situations, reducing the overall computation of an applica tion that is too complex or ill defined to be capable of description using traditional quantitative expressions (Zadeh 1975) They can also be denoted by fuzzy numbers (Liu et al. 2012b) In this research, each risk factor uses a linguistic variable to denote t he important weight of the risk factors and the fuzzy ratings of failure modes. As shown i n Table 2 5 the linguistic variables expressed in positive trapezoidal fuzzy numbers. The historical data and the detailed questionnaire answered by all domain experts are used to determine the membership functions of the linguistic variables (Liu et al. 2011)

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56 Defuzzification Defuzzification is the stage that transforms a fuzzy number into a real value or quantifiable result. There are multiple defuzzification techniques employed in fuzzy modeling and fuzzy multi criteria decisionmaking. The most common is the centroid defuzzification procedure. Also known as the center of gravity (COG) or center of area (COA) defuzzification, it can be stated by the following relation (Liu et al. 2012b) : 0() () ()A Axxdx xA xdx (2 8 ) where 0xA is the defuzzified value. For trapezoidal fuzzy number 1234a, a, a, a the centroidbased defuzzified value turns out to be (Ebrahimnejad et al. 2012) : 4312 01234 43121 () 3 ()() aaaa xAaaaa aaaa (2 9 )

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57 PV Project Pipeline CSP Project Pipeline Figure 2 1 Utility scale solar projects in the U.S. in 2011 (SEIA 2011) Figure 2 2 Solar electricity off takers of utility scale solar power plants (SEIA 2011) Figure 2 3 Drivers behind renewable energy development in the United States 13,678 MW, 44% 1,551 MW, 5% 16,131 MW, 51% Solar electricity purchased by publicly traded companies Solar electricity purchased by private companies Solar electricity purchased by unknown business entities (unknown companies based on SEIA Report) Energy Security Fuel availability and reliability Environmental Impact Being "green" Climate change Tourism benefits Economic Productivity Jobs Energy Reliability Energy Cost Energy Independance Reduce oil imports Under Construction, 1,059 MW In Operation, 514 MW Under Construction, 2,459 MW Under Development, 7,756 MW Under Development 19,162 MW In Operation, 409 MW

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58 Table 2 1 Top five U.S. utilities with highest PV generation/resale (in operation or under construction) (SEIA 2011) Electric ity Purchaser Purchaser and Developer? Capacity [ MW ] % of Total U.S. Utility Scale PV Capacity PV Thin film 1 Pacific Gas & Electric No 1,612 63.2% X X 2 Southern California Edison Yes 574 22.5% X X 3 Xcel Energy No 111 4.3% X 4 Arizona Public Service Yes 52 2.0% X X 5 Florida Power & Light Co. Yes 35 1.4% X Table 2 2 Investor owned utilities in the s tate of Florida (SEIA 2011) Investor Owned Utility Generation Capacity in Gigawatts (GW) Percentage of Total Capacity in Florida Florida Power and Light Company 25 GW 44% Tampa Electric Company 11 GW 19% Gulf Power Company 5 GW 9% Progress Energy Florida 3 GW 5% Total Generation Capacity: 44 GW 77%

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59 Table 2 3. The s takeholders, their roles and their interests (Miller 2007)5 Stakeholder Relevant Interests and Needs Role in Project Development Solar Energy Technology Developers Build profitable relationships with new and existing customers Have ease of use and maintenance Maximize adoption of new technologies Maximize system reliability Minimize system costs, enhance price stability Reduce complexity Developer Marketer Proponent Solar Energy Technology Manufacturers Attract investments Improve system reliability and security Maintain a stable financial position in the market Maintain higher profitability Maximize adoption of new technologies Maximize revenue from product sales Minimize direct competition Minimize environmental damage Enabler Marketer Proponent Competing RenewableEnergy Technology Providers Attract investments Build profitable relationships with new and existing customers Generate good return on investment Maximize revenue from product sales Minimize direct competition Minimize environmental damage Minimize expense Barrier Enabler Marketer Opponent Proponent Solar Energy Project Developers Attract investments Have ease of use and maintenance Enhance reputation and visibility Improve system reliability and security Maximize revenue from services Minimize expense Minimize risks to the facility Minimize system costs Minimize the financial risks Decision Maker Developer Direct User Enabler Proponent 5 This table originally appeared in Miller (2007) but has been significantly modified and information has been added to it by the author.

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60 Table 23. Continued Stakeholder Relevant Interests and Needs Role in Project Development Other Power Plant Developers Attract investments Be green Enhance reputation and visibility Expand business opportunities and offerings Maximize direct competition Meet and exceed customer needs Minimize environmental damage Barrier Decision Maker Marketer Opponent Proponent Energy Traders Build profitable relationships with new and existing customers Enhance reputation and visibility Expand business opportunities and offerings Maintain a stable financial position in the market Maintain higher profitability Minimize risk to their investments portfolios Minimizing the financial risks Barrier Direct User Enabler Marketer Opponent Proponent Companies for Transportation, Storage and Distribution of Oil, Coal and Natural Gas Build profitable relationships with new and existing customers Expand business opportunities and offerings Maintain a stable financial position in the market Maintain higher profitability Maximize revenue from services Meet and exceed customer needs Minimize environmental damage Minimize risk to distribution network Barrier Direct User Opponent Hydro Electric, Wind and other Renewable Energy Producers Attract investments Be green Enhance reputation and visibility Expand business opportunities and offerings Maximize direct competition Maximize revenue from product sales Meet and exceed customer needs Minimize environmental damage Have reliable power Barrier Enabler Opponent Energy Holding Companies Attract investments Be green Build profitable relationships with new and existing customers Expand business opportunities and offerings Maintain a stable financial position in the market Maintain higher profitability Minimizing the financial risks Barrier Enabler Marketer Opponent Proponent

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61 Table 23. Continued Stakeholder Relevant Interests and Needs Role in Project Development Design, Construction, and Maintenance Firms Build profitable relationships with new and existing customers Ease of use and maintenance Expand business opportunities and offerings Maximize adoption of new technologies Maximize overall welfare of producers and consumers Maximize revenue from services Maximize system reliability Meet and exceed customer needs Minimize environmental damage Minimize expense Minimize risks to the facility Decision Maker Enabler Marketer Proponent Utilities (Distribution and Purchasing Companies) Attract investments Be green Build profitable relationships with new and existing customers Generate good return on investment Improve system reliability and security Maintain a stable financial position in the market Maintain higher profitability Maximize overall welfare of producers and consumers Maximize revenue (or minimize loss of revenue) from distribution service Meet and exceed customer needs Minimize direct competition Minimize environmental damage Minimize retail power costs Minimize risk to distri bution network Minimize risk to their investments portfolios Minimize risks to the facility Minimize system costs Minimizing financial risks Reduce complexity Have reliable power Barrier Decision Maker Direct User Enabler Marketer Opponent Proponent

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62 Table 2-3. Continued Stakeholder Relevant Interests and Needs Role in Project Development LargeScale Generation Owners Attract investments Be green Build profitable relationships with new and existing customers Enhance reputation and visibility Maintain a stable financial position in the market Maximize revenue (or minimize loss of revenue) from generation Minimize environmental damage Minimize risk to distribution network Minimize risk to their investments portfolios Reduce complexity Have reliable power Barrier Decision Maker Direct User Enabler Opponent Proponent Independent System Operators (ISO) or Regional Transmission Organizations (RTO) Attract investments Build profitable relationships with new and existing customers Maximize and maintain system reliability Maximize revenue from services Meet and exceed customer needs Minimize environmental damage Minimize risks to the facility Have reliable power Direct User Enabler Marketer Opponent Proponent Producers of Electricity Transmission Lines and Distribution Network Attract investments Build profitable relationships with new and existing customers Maximize adoption of new technologies Maximize and maintain system reliability Maximize revenue from services Meet and exceed customer needs Minimize risk to distribution network Have reliable power Marketer Opponent Proponent Electricity Retailers Attract investments Be green Build profitable relationships with new and existing customers Expand business opportunities and offerings Maintain a stable financial position in the market Maintain higher profitability Maximize revenue from services Meet and exceed customer needs Minimize direct competition Minimize risk to their investments portfolios Minimizing the financial risks Direct User Marketer Opponent Proponent

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63 Table 23. Continued Stakeholder Relevant Interests and Needs Role in Project Development Insurance Providers Build profitable relationships with new and existing customers Enhance reputation and visibility Expand business opportunities and offerings Maintain higher profitability Maximize revenue from product sales Maximize revenue from services Meet and exceed customer needs Minimize financial risks Barrier Enabler Marketer Opponent Proponent Equity Investors and Banks Attract investments Build profitable relationships with new and existing customers Enhance reputation and visibility Expand business opportunities and offerings Generate good return on investment Maintain a stable financial position in the market Maintain higher profitability Barrier Enabler Marketer Opponent Proponent Government / Regulatory Bodies Be green Expand business opportunities and offerings Improve system reliability and security Maximize adoption of new technologies Maximize overall welfare of producers and consumers Minimize environmental damage Minimize risk to distribution network Minimize system costs, enhance price stability Minimize the financial risks Have reliable power Barrier Enabler Opponent Proponent General Public Be green Generate good return on investment Minimize environmental damage Minimize retail power costs Have reliable power Indirect User Marketer Opponent Proponent

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64 Table 2 4 Past studies on eliciting applicability of FMEA in risk assessment Technique Used / Source Aims / Objectives Failure Mode and Effects Analysis (FMEA), Fuzzy logic and VIKOR Method (Liu et al. 2012b) Suggests a fuzzy FMEA based on fuzzy set theory. VIKOR method is proposed for prioritization of failure modes specifically intended to address some limitations of the traditional FMEA. Failure mode and effects analysis (FMEA) (Zhang and Chu 2011) In this study, a fuzzy RPNs based method integrating weighted least square method, the method of imprecision and partial ranking method is proposed to generate more accurate fuzzy RPNs. failure mode effects and criticality analysis (FMECA); Analytic Network Process (ANP) (Zammori and Gabbrielli 2011) Integrates FMECA and Analytic Network Process, a multi criteria decision mak ing technique. Severity, Occurrence and Detectability are split into subcriteria and arranged in a hybrid decision structure that, at the lowest level, contains the causes of failure. Failure Mode and Effects Analysis (FMEA), Fuzzy Evidential Reasoning (Liu et al. 2011) Presents a FMEA using the fuzzy evidential reasoning (FER) approach and grey theory to solve the two problems and improve the effectiveness of the traditional FMEA. Failure Mode and Effects Analysis (FMEA) (Gargama and Chaturvedi 2011) Proposed two models, first model treats the three risk factors as fuzzy linguist ic variables, and employs alpha level sets to provide a fuzzy RPN. The second model considers the diversity and uncertainty in the opinions of FMEA team members, and converts the assessed information into a convex normalized fuzzy number. Failure modes a nd effects analysis (FMEA), Fuzzy Logic (Bradley and Guerrero 2011) Developed a new ranking method using a dataelicitation technique. Conduct an experimental study to evaluate that proposed method against the traditional method using fuzzy logic. Failure modes and effects analysis (FMEA), Linear Programming (Shen et al. 2010) Fuzzy linguistic variables were introduced into the analysis, and the three risk factors were given different weights, Each FRPNs of the failure modes were calculated by linear programming. Failure Mode, Effects, And Criticality Analysis (FMECA), Fuzzy Logic (Chang et al. 2010) Proposed a new a pproach that resolves some of the shortcomings of the traditional RPN method, and provides an evaluation of the redundancy place, which can assist the designer in making correct decisions to make a safer and more reliable product design. Failure Mode and Effects Analysis (FMEA), Fuzzy Logic, Linear Programming (Wang et al. 2009) As a result, fuzzy risk priority numbers (FRPNs) are proposed for prioritization of failure mod es. The FRPNs are defined as fuzzy weighted geometric means of the fuzzy ratings for O, S and D, and can be computed using alpha level sets and linear programming models.

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65 Table 24. Continued Technique Used / Source Aims / Objectives Failure mode and effects analysis (FMEA), Data Envelopment Analysis (DEA) (Chin et al. 2009b) Proposed an FMEA which uses data envelopment analysis (DEA), a wellknown performance measurement tool, to determine the r isk priorities of failure modes. The proposed FMEA measures the maximum and minimum risks of each failure mode. The risks are then geometrically averaged to measure the overall risks of failure modes. Failure mode and effects analysis (FMEA) (Chin et al. 2009a) Proposed an FMEA using the evidential reasoning (ER) approach, a methodology for multiple attribute decision analysis. The proposed FMEA can well capture FMEA team members' diversity opinions and prioritize failure modes under different types of uncertainties. Failure mode and effects analysis (FMEA), Ordered Weighted Geometric Averaging (OWGA) (Chang 2009) Proposed a more general RPN methodology, which combines the ordered weighted geometric averaging (OWGA) operator and the decisionmaking trial and evaluation laboratory (DEMATEL) approach for prioritization of failures in a product FMEA. Cost oriented Failure Mode and Effects Analysis (FMEA) (von Ahsen 2008) Developed an improved approach to prioritizing failures within the procedure of the FMEA to make right decisions in terms of a companys financial objectives. analytic hierarchy process (AHP), Failure mode effects analysis (FMEA) (Su and Chou 2008) An analytic hierarchy process (AHP) model is implemented to evaluate the benefits of Six Sigma projects and; a hierarchical FMEA is also developed to evaluate the risk of each project. Failure mode effects analysis (FMEA) (Segismundo and Miguel 2008) Proposed a systematization of technical risk managem ent through the use of FMEA to optimize the decision making process in new product development (NPD). Failure Mode And Effects Analysis, Fuzzy logic (Pillay and Wang 2003) Proposed a fuzzy rules base and grey relation theory t o perform risk analysis of marine systems. Failure mode, effects and criticality analysis (FMECA), Fuzzy logic (Braglia et al. 2003a) Proposed a tool for reliability and failure mode analysis based on an advanced version of the popular FMECA procedure and fuzzy logic technique. An actual application concerning a process plant in milling field for human consumption flour is showed in the paper. Failure Mode and Effects Analysis (FMEA), Fuzzy Logic (Puente et al. 2002) Proposed an alternative way of applying FMEA and fuz zy logic to a wide variety of problems. It presents a methodology based on a decision system supported by qualitative rules which provides a ranking of the risks of potential causes of production system failures. Failure Mode, Effects and Criticality Ana lysis (FMECA), fuzzy logic (Bowles and Pelaiez 1995) Proposed two fuzzy logic based approaches for assessing criticality. Once based on conventional Risk Priority Number (RPN) and the other one using fuzzy inputs. It also illustrates the direct use of the linguistic rankings defined for the RPN calculations.

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66 Table 2 5 Linguistic variables for rating the failure modes or weight of risk factors Fuzzy numbers Linguistic variables (8, 9, 10, 10) Very high (VH) (7, 8, 8, 9) High (H) (5, 6, 7, 8) Medium high (MH) (4, 5, 5, 6) Medium (M) (2, 3, 4, 5) Medium low (ML) (1, 2, 2, 3) Low (L) (0, 0, 1, 2) Very low (VL)

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67 CHAPTER 3 RESEARCH METHODOLOGY Research Setting: Required Data and the Methodology Overview This chapter presents the research methodology that will be used to ensure an appropriate risk assessment related to utility scale photovoltaic solar facilities. In particular, it will seek to evaluate the feasibility and resul t of adding components of large scale solar photovoltaic power plants to Floridas generating resources portfolio of investor owned utilities. Specifically, this research aims to evaluate the viability of developing solar photovoltaic projects and aims to assess what are the results of adding solar power plants to the generating portfolio of Floridas four large investor owned utilities (electricity purchasers) ( Table 2 2). This research will develop separate profiles to evaluate the risks associated with t he electricity generated by different sources (wind, solar, natural gas, nuclear, etc.) and then will study the effect of adding solar photovoltaic power plants to the generation portfolio of each utility, considering the unique generation portfolio of the utility. It is anticipated that the findings will indicate that the addition of photovoltaic power plants will lead to better performance for these companies. As discussed in the second chapter, the failure mode and effect analysis (FMEA) offers decision makers a semi quantitative analysis to evaluate or detect a systems potential failure modes or risks at the design level. Focusing on the failure modes with high risks and residual risk, results in minimizing or eliminating these risks, while still at the development level. The identified risks are given a Risk Priority Number (PRN) as a result of the Failure Mode and Effect A nalysis (FMEA). The PRN then provides a way to conduct a semi quantitative evaluation. A s a result of the FMEA

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68 analysis, different energy generation alternatives are given a Risk Priority Number (PRN) T he various energy generation alternatives can be compared, to evaluate the significance of different risk s of available alternatives It e nabl es the decision makers at the design and development level, to more economically eliminate or lessen out of the process, the failure modes with higher risk s. A FMEA generally may be conducted in 10 steps (Rnninger and Hertlein 2004) Once a team is established, the research steps for this research may differ slightly. For this research, the preparation of the necessary information, the structure of the proposed model and the procedure for data analysis, will be descr ibed in the next three sections Collecting Data The investor owned utilities are publicly traded companies that disclose their financial information as a comprehensive financial report (10k) to the Securities and Exchange Commission at the end of every y ear. The information contained in the financial reports includes the identity of the stakeholders of the utilities, their business relationships, the risk factors and uncertainties they face and the methods that utilities are using for risk management. A m ajority of the required data about the risks, failure modes, and the energy generation portfolio of the investor owned electricity purchasers in Florida will be extracted from the reports. Analyzing the Generation Portfolio of Investor Owned Electricity Pu rchasers in Florida Utilities use a mix of energy sources to generate electricity. They also purchase electricity from electricity producers based on power purchase agreements. Because each utilitys mix of energy portfolio is different, adding solar photovoltaic power plants

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69 to the portfolio of energy sources of different purchasers has different outcomes. This research focuses on Floridas investor owned utilities. Therefore the energy generation portfolio of these companies would have to be identified based on the information included in the 10k reports. Identification of Stakeholders of Electricity Purchasers (Utility Companies) Because the goal of this research is to better understand and thus overcome the risks associated with the development of sol ar photovoltaic (PV) projects within the energy generation portfolio of the purchasers, it is critical to know the identity of the primary stakeholders of these companies and how they relate to the project and to each other. Each stakeholder may play more than one role in the companys success (or failure). To be successful, a power plant must be of significant value to all stakeholders along both its customer chain and supply chain. The needs and interests of all stakeholders must also be taken into account. Stakeholders will be identified using the information provided by the companies in their annual 10k report. Identification of Possible Failures, Their Causes, and Their Consequences The most significant and laborious part of the failure mode and effect analysis (FMEA) is the identifying of the possible failure modes, their causes and their consequences. The main risks and failure modes which incorporate internal and external uncertainties into this type of projects will be identified through an extensiv e content analysis of annual 10k reports to the Securities and Exchange Commission (SEC) at the end of 2011, filed by the top five electricity utilities in the United States based on their solar photovoltaic capacity, and by the four investor owned utilit ies in the State of Florida to identify the risks associated with operation of utility companies (APSCO 2012; FPLCO 2012a; GPCO 2012; PEFCO 2012a; PGECO 2012; SCECO

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70 2012; TECO 2012; XEINCO 2012) A content analysis methodology will be used in order to systematically identify the risks in the 10k reports. Content analysis is an extensively used research technique to interpret meanings and extract data from the content of text data by counting and comparisons of several keywords in a large volume of written records, followed by the interpretation of the underlying context. Content analysis has been used to identify the credit risk and liability terms in 10k reports (Loughran and McDonald 2011) Accounting Adjustments and the Valuation of Financial Statement in 10K Filings (De Franco et al. 2011) and other researches related to extracting information from financial statements (Daugbjerg et al. 2009; Humpherys et al. 2011; Lehavy et al. 2011; Silverman 2011) Effectiv e and efficient risk management should begin with identifying three dimensions of uncertain events during the lifetime of the project: determining the possibility of the occurrence of an event (Occurrence), detecting a potential failure prior to its happening (Detection), and estimating the severity of negative effects or the extent of loss, once an uncertain event happens (Severity). Determining the Occurrence, Detection and Severity Ratings for the Failure Modes Once the potential failures are identified, a list of failures and potential hazards will be submitted ( Table 3 1) to the experts in the field of energy finance and risk management. To assist in the analyzing of system failure mode and effects, the group of specialists will be assembled from inter disciplinary members (e.g. such as from renewableenergy research institutions, utilities, and energy consultants). When prioritizing failures, a systematic organization and appropriate documentation of the failures and of their causes and consequences wil l increase the level of accuracy of the

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71 Occurrence, Detection and Severity ratios determined by FMEA team members. In reaching a risk prioritization, the three risk factors (O Occurrence, D Detection, and S Severity) must be assessed separately from one another because different factors may result in the same failure and the same failure may lead to different results. An example is the analyzing of the severity (S) of a failure. This must be analyzed separately from the probability of its occurrence (O) or its detection (D). Even if the severity of the failure is high (S = High), its ranking in severity may not be lowered solely because its occurrence (O) is only once yearly (Rnninger and Hertlein 2004) Proposed Model, Data Analysis and Research Outcomes In this phase, a detailed risk assessment model will be developed as the foundation for the analysis. This provides an opportunity to attain meaningful research outcomes bas ed on risk ratings (occurrence, detection and severity) that are inherent in the generation of energy with different sources (natural gas, oil, nuclear, etc.) and the effect of adding solar photovoltaic power plants to the generation portfolio of investor owned utilities. This phase will end with a risk assessment model which is an Excel spreadsheet based tool. The spreadsheets will calculate the average RPN factors derived from industry wide data previously collected through surveys from a selected group o f experts in the field of energy finance and risk management. Fuzzy logic will be used to transform the result of surveys into numerical values. Using the FMEA Form Methodology to Determine Risk Priority Numbers (RPN) In studying a process, at that stage when the failure is assessed, only one line in the FMEA form is analyzed at a time when doing the analysis that will produce the risk priority numbers (RPN). That one line could be, say, sever ity, or it could be probability of occurrence, or it could be detection. An example would be if there is failure, and if

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72 there exist several reasons for that one failure and these several reasons are listed in separate lines, then, those several causes for the failure will be assessed separately. By comparison, if t here is failure, and there exist several reasons for that one failure, but these reasons are summarized in one line of the form, then those several causes of the failure are assessed together. The three failure features (O = Occurrence, S = Severity and D = Detection) are given numerical values. The three numerical values are multiplied and the result of the calculation provides the risk priority number (RPN). RPNOSD (3 1 ) In this research to evaluate project risks, a modified FMEA will be used. In the modified FMEA, the three failure factors (O = Occurrence, S = Severity and D = Detection) are given nonnumerical linguistic weights, such as low, medium low or very high. Int egration of Solar Photovoltaic Resources in Each Utilitys Generation Portfolio This study looks at the energy generation portfolios of large utilities, adds solar power plants to these portfolios, and evaluates the results, with the goal of reducing risks. Once the surveys are completed, then the results are analyzed, the responses are averaged, and finally, the average risk priority numbers (PRN) are calculated. To reduce its consequences or probability, risks with high er RPN must be addressed, either by reducing it to a relatively lower level that is acceptable, or by making a decision to agree to accept its residual risks. However reducing the RPN of individual risks is not the covered in the scope of this research, but this research aims to create a ri skanalysis model that enables one to study the effect of adding largescale solar power plants to the current generation portfolio of large investor owned utilities to reduce the overall average RPN of the company

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73 For the purpose of this research, diff erent shares of solar PV generation (i.e. 5%, 10% and 20%) will be added to the portfolio of each utility and the impacts on the overall risk of the company will be studied through an spreadsheet based model ( Table 3 2). As solar PV facilities are added to the generation portfolio, the average risk priority number (RPN) is re evaluated, and the result of the reevaluation is known as the expected average potential RPN : InitialSolarPVRPN = expected average potential RPN (3 2 ) Average RPN ( RPN ) shows the overall risk associated with the overall business of the company. The average RPN is used to provide a direct comparison of the result of adding different shares of solar PV generation to evaluate the anticipated risks to the portfolio. 1 N iRPN RPN N (3 3 ) RPN : The average RPN (risk priority number) RPN : The sum of the individual RPNs N : The number of RPNs available or the number of failure modes The amoun t of risk by which the average Risk P riorit y N umber (PRN) is expected to be reduced after adding solar PV power plants to the portfolio of the company is called the overall potential. InitialSolarPV InitialRPNRPN RPN (3 4 ) RPN : The potential expected change in RPN as result of adding solar PV to the energy portfolio.

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74 InitialRPN : The average risk priority number (RPN) of the energy portfolio before addi ng solar PV to the energy portfolio) InitialSolarPVRPN : The average potential risk priority number (RPN) after adding solar power plants to the portfolio The failure mode and effect method of analysis (FMEA) provides a means of comparison of com paring risk levels rather than providing the absolute extent of the risk. Thus in evaluating the portfolios, it is more important to assess RPNs in relative terms than assess risk by looking at the actual number of the risk priority number (RPN). For e xample, i n two different FMEA stud ies scales are difficult to develop and so numbers of the studies are not as important as the relative risk s between different averagerisk priority numbers ( RPN ) in each study Scenario Analysis Scenario analysis will be conducted after developing the model. Scenario analysis will be utilized to measure the combined effects of uncertainties associated with different scenarios. The risk analysis model will be used to evaluate and measure the effect iveness of different scenarios. This includes adding different shares of solar PV generation to the energy portfolio of utilities for reducing the negative impact of traditional energy generation resources and for offsetting the risks associated with the i mplementation of solar PV technologies by currently operating traditional generation resources (natural gas, nuclear oil wind, etc.) in the generation portfolio of investor owned utilities.

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75 Table 3 1. List of failures and potential hazards for the purpose of conducting surveys FMEA Survey No. Natural Gas Nuclear Solar Etc Failure Mode No Type of Failure Failure Consequence Cause of Failure Occurrence (O) Severity (S) Detection (D) RPN Occurrence (O) Severity (S) Detection (D) RPN Occurrence (O) Severity (S) Detection (D) RPN Occurrence (O) Severity (S) Detection (D) RPN 1 2 3 N Table 3 2. The spreadsheet model that will be used for the risk analysis Investor Owned Utility No. ? /4 Share in the Utility's Energy Generation Portfolio Coal / Petroleum Coke 1S Oil / Gas 2S Solar PV nS Failure Mode No Type of Failure Average RPN Coal / Petroleum Average RPN Share in Portfolio Average RPN Oil / Gas Average RPN Share in Portfolio Average RPN Average RPN Share in Portfolio Average RPN Solar PV Average RPN Share in Portfolio 1 1FM / 1 CPRPN / 1 1 CPRPNS / 1 OGRPN / 1 2 OGRPNS 1 SolRPN 1 Sol nRPNS 2 2FM / 2 CPRPN / 2 1 CPRPNS / 2 OGRPN / 2 2 OGRPNS 2 SolRPN 2 Sol nRPNS 3 3FM / 3 CPRPN / 3 1 CPRPNS / 3 OGRPN / 3 2 OGRPNS 3 SolRPN 3 Sol nRPNS n nFM / CP nRPN / 1 CP nRPNS / OG nRPN / 2 OG nRPNS Sol nRPN Sol n nRPNS

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76 CHAPTER 4 CASE STUDIES AND DATA COLLECTION Energy Industry in the State of Florida Utilities are regulated companies that are engaged in the generation, procurement, and transmission of electricity. They generate electricity through several sources such as hydroelectric, geothermal, biomass, fossil fuel, nuclear, and solar. The utility c ompanies own and operate interconnected transmission lines and distribution lines. The investor owned utilities usually serve two million to five million residential, commercial, industrial and agricultural customers (PGECO 2012) Utilities are one of the main participants in the energy industry. They face risks related to their energy generation portfolio, but these risks can be reduced or mitigated by diversifying their energy generation portfolio. When studying the specific energy generation facilities in a portfolio of energy gene rating assets, the occurrence, severity and detection ratings are dissimilar for different type of assets. For example for a power station that runs on natural gas, fuel supply volatility and fuel price volatility have significant effect on the feasibility of the power plant, while for a solar or wind facility that does not use any kind of fuel for energy generation, this type of risk is somewhat irrelevant, however this could be analogous to weather variability for renewables. This study looks at the energy generation portfolio of utility companies, the risks they face, and how they can better survive by adding photovoltaic power plants with different risk profiles to their energy generation portfolio. By diversifying in this manner, they can minimize the risks that a utility faces. The scope of this study is limited to the State of Florida and to the large investor owned utilities that are operating within Florida. This chapter studies the generation portfolio of four Florida investor owned utilities and

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77 the five biggest utilities in the United States based on their PV capacity to identify the risks they face with regard to different sources of energy generation (Table 21 and Table 22). The latter will be analyzed to deter mine the important risks associated with solar PV electricity generation and to identify the key stakeholders and their interests (positive or negative) in the solar power plant development. Identifying these stakeholders permits one to better analyze the risks and uncertainties surrounding utilities and the major solar PV electricity generation power plants. In 2011, Florida State utilities submitted their TenYear Site Plans to the Florida Public Service Commission. Of the 9,000 MW of net capacity submit ted to the FPSC some 5,300 MW represent generation units to be installed in the future, while 3,700 MW consist of new units in the process of construction plus existing units being upgraded. The submissions reveal that Floridas total summer electricity generating capacity is 57,605 MW ( FPSC 2011a; FPSC 2011b) Fuel Diversity During the past several years, and on an ongoing basis, the Florida Public Service Commission has noted that Florida utilities lack fuel source diversity. Florida utilities have an ongoing heavy reliance upon natural gas fired generation, a reliance which is expected to continue in the future. Nat ural gas generates more than 50% of the electric power in Florida ( Figure 4 1 ), and because natural gas prices are predicted to remain low, it is expected that natural gas w ill generate over 55% of Floridas electric energy by the year 2020 (FPSC 2011b) Because of this imbalance and lack of diversity in its fuel sources, Florida does not have the same reliability, flexibility, or abi lity to deal with the result of unpredictable fluctuations in the prices of fuel. Florida utilities addressed this concern in previous TenYear Site Plans by including plans for

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78 multiple coal fired power plants. Unfortunately, in 2007 and 2008, because o f possible carbon emission regulations and the uncertainty surrounding fuel costs and the environmental results of using coal, some 4,000 MW of coal fired generation was cancelled. However, also in 2007 and 2008, the Florida Public Service Commission agreed to 5000 MW of new nuclear generation units. Currently, the construction of these units is delayed past the current ten year planning generation ( FPSC 2011a; FPSC 2011b) Existing Renewable Energy Resources Floridas generation capacity for 2011 was 57,605 MW. Of this, 2.3% or 1,300 MW is renewable generation. Renewable generation comes primarily from municipal solid waste (MSW) 31 % woody biomass 30%, waste heat 22% and a mixture of solar thermal generation, solar photovoltaic generation, landfill gas and hydroelectric generation 17% ( FPSC 2011a; FPSC 2011b) Among Florida renewableenergy facilities, firm capacity contracts (including municipal solid waste, landfill gas and biomass wood waste solids) represent almost 30% or 384 MW of renewable capacity. Nonfirm capacity contracts (including landfill gas, biomass gases other th an landfill gas, solar and hydro) represent 732 MW. Nonfirm capacity contracts cannot be relied upon by Floridas utilities because they are not always available. They are purchased solely on an as available bas is ( FPSC 2011a; FPSC 2011b) Most of Floridas renewable energ y facilities are nonfirm. These are not relied upon to provide reliable system capacity so much as to reduce fossil fuel consumption. The biggest solar generators in Florida are three facilities recently built by Fl orida Power & Light (FP&L), their DeSoto, Martin, and Space Coast generators (FPSC 2011b)

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79 Planned Renewable Additions Floridas next tenyear plan for energy generation includes the construction or purchase of 905.6 MW of ren ewable generation, with the major resources coming from solar and biomass Of the total planned renewable additions, as of January 2011, 48% are firm capacity contracts. Over the next ten years, the preponderance of the planned renewable firm capacity will be biomass and municipal solid waste purchas ed by investor owned utilities. M ost of the non firm capacity planned in Florida will be purchased by investor owned utilities. These additions are almost exclusively solar powered. ( FPSC 2011a; FPSC 2011b) Fuel Price Forecasts When an electric utility evaluates what type of generating units should be add ed cost plays the biggest role. As a rule, the cost of the fuel used to generate electricity from a unit, is inversely proportional to the capital c ost of the generating unit. B etwe en 2003 and 2005, Floridas electric utilities relied on natural gas units. During this time, natural gas prices were substantially higher than had been predicted by the electric utilities, leading to higher bills for consumers and a belief that these pri ces would continue to be higher. To deal with this situation, Florida electric utilities began to plan on relying on coal fired units, but after a high in 2008, natural gas prices returned to the lower prices encountered in the past ( Figure 4 2), continued to drop and are expected to increase at only a steady level during the next planning period ( FPSC 2011a; FPSC 2011b) There is a long lead time involved when using coal and in particular, with using nuclear generators. Thus the accuracy of Florida electric utilities attempts to obtain a balanced fuel system for new generation depends on its ability to forecast the price of

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80 obtaining fuel. When choosing technologies for new generation, Floridas electric utilities have to select such technologies that continue to i ncrease in price as natural gas resources, or the utilities may have to attempt to obtain approval for solid fuel resources that may have a negative near term rate impact (FPSC 2011b) Diversity of Fuel and Power Generation Te chnology in the Portfolio of Investor Owned Electricity Purchasers in Florida The main source of energy generation of Florida utilities is natural gas, and the least significant source is white oil. Floridas four investor owned utilities produce 77% of t he states electricity Florida Power & Light (FP&L) generates 20% of its electricity from nuclear units. The CR3, the nuclear unit of Progress Energy Florida (PEF), has been out of use since October 2009, and in 2011, Progress Energy Florida did not pr oduce any nuclear electricity Florida Power & Light Company (FPL) Florida Power & Light (FP&L) relies heavily upon the use of natural gas fired units ( Figure 4 3 and Figure 44 ). More than 58% of its energy was generated by gas fired units in 2010. Over the next planning period, it is predicted that more than 68% of its energy will be generated by gas fired units. Progress Energy Florida, Inc. (PEF) The system composition of Progress Energy Florida (PEF), unlike that of Florida Power & Light (FP&L), is not expected to materially change in the next 10year planning period ( Figure 4 5 and Figure 46 ). It is expected that by 2010, 17% of Progress Energy Florida (PEF)s energy generation will come from nuclear units. The Florida Public Service Commission approv ed two new nuclear generating units at Levy, which are expected to come into

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81 use in 2021 and 2022. These years are outside the current planning period so these two units are not included in Progress Energy Floridas Ten Year Site Plan. Cur rently, nuclear generation is 8% of Progress Energy Floridas energy generation. The CR3, Progress Energy Floridas nuclear unit, has been out of service since October 2009 and CR3 generated no energy in 2010. Tampa Electric Company (TECO) Presently, over 85% of Tampa El ectric Company (TECO)s energy comes from coal fired and natural gas fired units ( Figure 4 7 and Figure 48 ), 14.7% comes from renewable generation and electricity purchases, and the very small remaining percentage comes from oil fired units. During the t ime of the planning period, it is expected that the percentage of energy derived from the coal fired and natural gas fired units will increase, while the percentage of energy derived from renewable generation and electricity purchases will decrease. Gulf P ower Company (GULF) Gulf Power Company (GULF) generated and sold more energy than it purchased. This state of affairs is forecast to continue during the planning period. This produces negative values under the interchange/other category column and in fuel type totals greater than 100% (Figure 4 9 and Figure 410) Identification of Possible Failures and Risks faced by Power Generation Facilities and Utility Companies Generally, utilities provide electricity from several different sources, including from their own generation facilities, from third parties through power purchase contracts and from wholesale electricity market. The risk they assume is that they have no gu arantee that the prices they have contracted to pay will remain feasible. The utilities

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82 cash flows may be affected when prices may become unfeasible for a number of reasons, including but not limited to, the following. Cheaper, alternativeenergy technology may be invented or developed. Customers may choose to generate some or all of their own electricity. Customers may choose to change provider. Customers may affirmatively decrease their use of electricity for economic reasons. Unexpected temperature ch anges may lead to a substantial change in the expected demand of electricity. There may be a change in the price of the production of electricity. Costs of power plant development which were expected to be borne by the consumer may be disallowed by a stat e or federal regulatory body. This research studies the annual 10k reports to the Securities and Exchange Commission (SEC) at the end of 2011, filed by the top five electricity utilities in the United States based on their solar photovoltaic capacity, and by the four investor owned utilities in the State of Florida to identify the risks associated with operation of utility companies (APSCO 2012; FPLCO 2012a; GPCO 2012; PEFCO 2012a; PGECO 2012; SCECO 2012; TECO 2012; XEINCO 2012) A content analysis methodology has been used in order to systematically identify the risks in the 10k reports. Content analysis is a n extensively used res earch technique to interpret meanings and extract data from the content of text data by counting and comparisons of several keywords in a large volume of written records, followed by the interpretation of the underlying context. Content analysis has been used to identify the credit risk and liability terms in 10k reports (Loughran and McDonald 2011) Accounting Adjustments and the Valuation of Financial Statement in 10K Filings (De Franco et al. 2011) and o ther researches related to

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83 extracting information from financial statements (Daugbjerg et al. 2009; Humpherys et al. 2011; Lehavy et al. 2011; Silverman 2011) In this research, f ive steps have been taken in order to utilize the content analysis methodology to identify the risks associated with utility scale power generation: Define the purpose of content analysis: To identify the main parameters, which incorporate internal and external risks in constructing largescale solar photovoltaic power plants and the risks that large investor owned utilities are facing in general. Define the content for the analy sis : The fi nancial reports of Floridas investor owned utilities and top five investor owned utilities that produce 93% of utility scale solar electricity in the United States have been selected for the content analysis (APSCO 2012; FPLCO 2012a; GPCO 2012; PEFCO 2012b; PGECO 2012; SCECO 2012; TECO 2012; XEINCO 2012) Choose a time frame for the analysis: T he most recent annual 10 k financial reports that have been submitted to Securities and Exchange Commission in the first quarter of 2012. Decide what to search: In every 10k report, the Risk Factors (Item 1.A) and Quantitative and Qualitative Di sclosures a bout Market Risk (Item7.A) are the t wo major risk sections which have been thoroughly analyzed to identify the risks. S pecific risk related terms has been identified based on these two major sections These terms consist of: accident, attack, breakdown, capital, climate, construction, credit, crisis, damage, death, decommissioning, demand, disruption, earthquake, electromagnetic, endanger, environment, error, explosion, failure, fire, flood, harm, hazard, hurricane, injury, insurance, interest, interrupt, land, loss, migration, outage, price, r adioactive, risk, safety, solar storm supply, terrorism, theft, tornado, toxic, transportation, tsunami, vandalism, violate, volatility, and war How to use the keywords to extract information: These term s were highlighted in the other sections of 10k reports and then the researcher read the highlighted paragraphs and sentences to carefully determine other relevant information to the identified risk factors. The risk factors are categorized into 22 differ ent categories as mentioned below: Effect of Fuel Supply Volatility on Power Plant Operation To a certain extent, the utilities face the necessity of dealing with the relative unpredictability of the supply and the cost of the various fuel supplies upon which they

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84 depend, including volatility for different nuclear, coal or natural gas generation units. Solar and windpower plants can also face fuel supply volatility, as they can only provide power when the sun shines or the wind blows. Effect of Fuel Price Volatility on Power Plant Operation When commodity purchases are made for the utility's electricity generation portfolio, the portfolio is exposed to fuel price risk. This is the primary manner in which the utilitys electricity generation portfolio is e xposed to fuel price risk. The utility purchases derivative financial instruments when it purchases swaps and options to reduce the unpredictability of customer electricity rates. When doing so, it is hoped that this will reduce changes in cash flow that r esult from changing fossil or nuclear fuel prices. Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital There are many reasons for a change or loss in electricity customer demand. The customer may deal directly with alternative energy suppliers, there may be a population decline in the service area, the customer may consciously lower its use of electricity for economic reasons, especially when there is a less healthy economy, the customer may deal with another utility or governmental body. The change in customer demand or loss of customers could have negative effects on the utilitys ability to generate an adequate return on invested capital. Power Generation New Technology Risk D evelopers are looking for long term off take agreements that allow them to meet their investor return targets, so that these agreements could isolate them from the risks, that new technology could make the prices cheaper in the future. The electricity

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85 purc haser is required to take whatever the facility produces. However, even should the developers transfer the risk to the electricity purchaser; they are still exposed to credit risk from the buyer. The new technologies will be cheaper and more efficient in t he future. One can see this in the price of photov oltaic utility scale projects that has been decreased in the recent years Advancements in technology, different financing strategies and most important, price declines, are rapidly altering the solar lands cape (Pernick et al. 2010) With respect to the competitive technologies in the market, how can developers avoid or mitigate the risks associated with technology? Individual developers tr y to transfer the technology risks to the utilities (electricity purchasers) with a long term power purchase agreement. Effect of Availability of Capital Resources on Power Plant Operation and Feasibility Several factors affect a utilitys ability to obtain capital and maintain liquidity and financial viability. Credit Downgrading: If a utilitys credit rating were to be downgraded to such an extent that it is below investment grade, the utilitys ability to obtain financing would be seriously affected. I ts borrowing and investment attracting options would be limited, and when able to borrow, its borrowing costs would be higher than if it had a better credit rating. In addition, it might have to meet collateral posting requirements. Regulatory Bodies Req uirements: A simultaneous event is that the industrys regulatory bodies regulate the capital structure of a utility. The capital structure refers to the balance between the capital components -between preferred equity, common equity, and debt. The regulatory bodies also regulate the utilitys rate of return from each capital component. Changes in government regulations pertaining to utilities may also affect its ability to obtain capital. Other Factors: Instability in the price of natural gas or electri city,

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86 the state of the economy, the state of the electricity market and the state of the energy industry, all may affect a utilitys ability to obtain capital. Power Plant Construction Risk As the privately financed project development companies generally rely on the revenue from the sale of electric power of a project, any completion delay can jeopardize the project's coverage of current expenses, including interest payments and loan repayments. In the construction phase, the main risk is that the construction will not be completed as scheduled or that it simply will not be able to be completed. This can be the result of a variety of causes, including but not limited to, that the project may cost more than planned, that there may occur an expected act of God, or that the technology may fail. For example, with an average land requirement of six to ten acres per MW, solar projects are vulnerable to unforeseen environmental and archeological risks, resulting in construction delays. Archeological sites in par ticular, can cause significant construction delays of a few months or longer, amounting to considerable cost overruns. Therefore, the various risks associated with project construction and plant operation must be carefully assessed well in advance, must be covered by insurance policies to the greatest extent possible and must be economically feasible. Power Plant LandPrice Risk In general, utilities must occupy several hundred acres of land to provide enough area for their power plants. Land price accounts for a heavy proportion of the total cost of power plant development. As to solar photovoltaic facilities, in comparison to other power plants, solar PV facilities occupy much more land per MWh of produced electricity. If land prices decrease or increase heavily in the future, and the company must acquire land parcels at higher thanexpected prices, this could weigh on its gross

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87 profit margin and net margin, negatively affecting its earnings, and significantly affecting its cash flow position. Effect of Fu el Transportation Risks on Power Plant and Utilitys Operation Transporting fuel is dangerous. As to transportation related to natural gas, oil for gas or oil fired power plants, the two most serious accident possibilities involve the rupture or leaking o f pipelines. Pipeline and transportation accidents are costly they may reduce profit margins and threaten the very survival of the power plant. As well, electricity transporting accidents may result in substantial damage to the environment or public health, in property damage, in personal injuries and in fatalities. Whether installing a pipeline, maintaining a pipeline, or maintaining facilities that distribute electricity, there exist accepted industry practices that the utility is to follow to prevent accidents. Even if these are followed, there still may be unexpected accidents. As to transportation related to coal fired power plants, every method of coal transportation has public health and safety risks because coal dust may be released into the air and may affect the quality of the air and may result in dust being inhaled. The three methods of coal transportation are by railway, by truck and by water (barge). As to transportation related to wind, solar and other renewable energy, here there are no relevant health and safety issues. Effect of Human Error on Power Plant Operation the Human Factor The human factor and power generation, safety related incidents: While machines execute most of the tasks in such multifaceted and complex industrial fac ilities as power plants, employees do execute many of the maintenance and operation tasks. Though human involvement differs according to the type of generation

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88 used (solar, nuclear, wind, fossil fuel fired) humans are a substantial factor in causing safety related errors in power plants. Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation Though the level of human involvement in power plant operation differs in various generation facilities (solar, nuclear, wind, fossil fuel fired), a utility must be able to find, hire and retain qualified individuals to carry out its operations. If it is unable to do so, or if there exist disruptions in labor, the plants operations and its financial health will be negatively affected. Effect o f Fires, Explosions, and Similar Accidents on Power Plant Operation The chances of explosion in fossil fuel power plants are higher than in nuclear power plants. However, the environmental and economic damage is more severe for a nuclear facility. Such accidents as fires and explosions can have a crippling effect on the operation of the power plant and can have serious consequences. Such accidents can damage the utilitys information technology and systems and can result in the disruption of service, outages, and reduction of output. As a consequence, the utility may be fined, it may receive regulatory penalties and it may receive civil and criminal penalties. In addition, the utility may be sued for personal injury and it also may be sued for damages to injured third parties. Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation Plants can prevent or minimize mechanical breakdowns by developing and maintaining highquality training programs. When power plants electrical and mech anical equipment breaks down, this can result in revenue losses and insurance losses though while still not affecting the plants safety. Some breakdowns can cause

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89 such incidents as explosions and fires. The risks and losses faced by plants from mechanical equipment breakdowns differ according to the source of power generation, whether nuclear, solar, wind, or fossil fuel fired. Power Plant Outages due to Planned Maintenance Accidents may occur when power plant personnel is carrying out regular maintenance functions. These accidents can result in unplanned outages and reduced generating output. This, in turn, may require the plant to incur expense to replace power, and at times the plant may have to incur very great expense, ultimately affecting the util itys financial position. The magnitude of the potential risk differs according to the regular maintenance required, which depends on the type of power generation involved. Effect of Natural Hazards (Hurricanes, Storms, Tornados and Floods) on Power Plant Operation Hurricanerelated vulnerabilities are a serious hazard when evaluating project development in Florida. When developing solar photovoltaic power plants, it is essential to know what can happen to solar panels in a hurricane. Solar panels are usual ly surprisingly tough, but appropriate installation of the panels is the key to ensure that the solar panels withstand hurricanes in the State of Florida. The severity of damage would be completely different for different types of generating facilities (wi nd, solar, nuclear or fossil fuel fired facilities). Effect of Natural Hazard (Climate Change) on Power Plant Operation The climate may have a substantial effect on the cash flow, operation and financial health of the Florida utility. The weather affects different power generation plants differently. Floridas warm weather has many types of results on generating capacity. In one example: many power plants draw their cooling from water or do their

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90 conversion using water. In another example: as there is climate warming, there is less cool water from which to draw, and this problem may continue for generations. Climate change can affect the p otential precipitation which can causes r iver s flow to fall. Floridas nuclear and coal fired plants are affected by reduced river flows and may suffer power disruptions when warmer weather reduces river flows. As to Floridas steam ele ctric plants, these already are given a winter power rating and a summer power rating. Because they need to convert power using water, they also are affected by the warming of water caused by climate warming. In another example, when there are peak periods of very high temperature, there are peaks in electricity demand. Regular demands can be supported by regular supply and result in regular costs. By comparison, hot weather peaks require an energy supply that need be available only when there is a peak, so the utility will need certain generating stations only a relatively few hours per year, during the summer period, when the demand peaks. It is expensive for the utility to support such generating stations that are used only during peak electricity demand periods. The latter is a difficult problem to solve. One of the peak periods of the peak demand is the evening hour before sunset, when individuals come home from work and turn on their air conditioners and televisions. At that time, the sun is not br ight, so using solar photovoltaic generation is not the answer. Effect of Such Natural Hazards as Earthquakes and Tsunamis on Power Plant Operations Power plants are incurring expenditures as they are facing and will continue to face new regulations and l egislation to deal with such natural hazards as earthquakes and tsunamis. Presently, the Nuclear Regulatory Commission has appointed a task force to develop recommendations on how to improve the safety and protection of

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91 nuclear plants in the face of such natural hazards as earthquakes and tsunamis. The Commission is addressing the storage of spent nuclear fuel, cooling water intake, seismic design and the security and safety in general of plant operations. This increased attention to safety, is partly a res ult of the severe damage suffered by Japans nuclear facilities after the March, 2011 tsunami and earthquake. Effect of Such Natural Hazards as Solar and Electromagnetic Events on Power Plant Operations Power plants are expected to incur expenditures resul ting from damage to anything that requires electricity by such natural hazards as solar and electromagnetic events. Electromagnetic pulses consist of massive outbursts of atmospheric electricity which create intense magnetic fields. These intense magneti c fields generate ground currents so great that wherever they occur, they can burn out anything requiring electricity, including but not limited to, electrical equipment, power lines, power grids, power plants and solar panels. The most likely source of electromagnetic pulses is the sun, which has an elevenyear cycle of storms, currently hitting peak activity during 2012. During the peak activity period, massive solar storms increase in frequency. Effect of Vandalism and Theft on Power Plant Operation A s theft and vandalism at both traditional and renewableenergy facilities are increasing, both types of facilities are looking for ways to prevent theft and vandalism. A challenge is that often, the vandalism and theft are not immediately perceived becaus e the place where they occur may be out of the way. Most targeted are copper wiring, parts of transmission lines and solar panels. Such claims are frequent and can be timeconsuming and problematic to resolve. And though a small amount may be stolen, the repair may require a large replacement and be extremely expensive. An example is a

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92 recent theft, two anda half miles from a solar energy facility in California, which saw the removal of a highdensity polyethylene water pipe and a 300foot copper transmi ssion cable connected to Southern Californias Edison Whirlwind substation. The repair was expensive because it required the replacement of the entire cable, not only that relatively smaller portion stolen. Effect of Cyber Attacks, Terrorism and War on Pow er Plant Operation and Safety An attempt to damage a computer based system is called a cyber attack A utilitys operation and safety is vulnerable to such attacks, to acts of terrorism and to war, no matter what much it may work to lessen its vulnerabili ty to such occurrences. The vulnerability is different according to the type of energy generation. When such unexpected events occur, they may seriously impair the utilitys ability to serve its customers and provide regular service, which in turn may affect the utilitys cash flow and financial health. The Safety Risks faced by Power Plant Employees The power industry takes great care to provide its employees the safest possible environment, and continually works to improve itself, because the power industry is considered to be a relatively hazardous environment for the worker. The search for a less h azardous environment is part of the impetus toward developing the safer, renewableenergy facilities. Injuries and death are still relatively common, and most frequently are the result of boiler room equipment fires and explosions and direct contact with electricity, causing burns or shock and direct contact with hazardous chemicals, such as corrosives, solvents and oxidizers.

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93 Power Plant Operation and Decommissioning: Environmental Safety Risks The power industry poses a relatively hazardous environmen t, not only for the worker, but also for the environment, including water, the air and the soil. To protect the environment, the operation of a utility is subject to numerous laws at the local, state and federal levels. Infractions and negligence can lead to fines and civil and criminal penalties. These environmental protection laws deal with such as avoiding the release of contaminants in water, the air and the soil, the handling of hazardous waste, keeping track of carbon dioxide and other GHG emissions a nd having a system that alerts as soon as any dangerous levels are emitted. As to a utilitys nuclear generation, this area carries particular and significant risks for the utility, related to the health and safety of persons and the environment and relat ed to financial risks to the utility. The Nuclear Regulatory Commission requires that when a nuclear generation plants license expires, or when there is a nuclear accident, that there then occurs nuclear decommissioning and that the handling, disposition and storage of any residual radioactivity is safely carried out. To ensure the utmost available safety, protocol must be closely followed, before a property can then be released for other uses. At this time, there remain many uncertainties including safety, legal, technological and financial aspects after a nuclear plants license expires. Effect of Power Plant Development on Endangered Species Different types of land are needed for different types of energy generation, such as whether nuclear, wind, solar or fossil fuel is involved, and the type of energy generation involved may affect endangered species in different ways. Long before it begins construction, a utility must ascertain the projected new plants possible effect on the ecosystem. The utility must also examine where transportation of fuel and of

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94 humans will take place and this activitys possible effect on the ecosystem. The Endangered Species Act requires that if an ecosystem is unique, such that there is a threat of endangering or threatening a sensitive species listed in the Endangered Species Act, this must be considered and avoided. If such a threat exists, the plant should not be constructed there and neither energy nor people should be brought there. Figure 4 1. Energy generation in t he s tate of Florida by fuel type (percent of total) (FPSC 2011b) Figure 4 2. W eighted average fuel prices forecast for reporting utilities in the s tate of Florida ( FPSC 2011a; FPSC 2011b)

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95 Figure 4 3 FPL: e nergy generation by fuel type (MWh percent of total) ( FPSC 2011a; FPSC 2011b) Figure 4 4. Technology d iversity in the power g eneration capacity of Florida Power & Light c ompany (MW percent of total) ( FPSC 2011a; FPSC 2011b) Combined Cycle, 52.0% Steam Turbine, 26.7% Combustion Turbine, 9.1% Nuclear, 12.1% Solar PV, 0.1%

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96 Figure 4 5 PEF: e nergy generation by fuel type (MWh percent of total) ( FPSC 2011a; FPSC 2011b) Figure 4 6 Tec hnology diversity in the power g eneration portfolio of Progress Energy Florida (MW percent of total) ( FPSC 2011a; FPSC 2011b) Combined Cycle, 32.4% Steam Turbine, 34.3% Combustion Turbine, 24.7% Nuclear, 8.6% Solar PV, 0.0%

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97 Figure 4 7 TECO: e nergy generation by fuel type (MWh percent of total) ( FPSC 2011a; FPSC 2011b) Figure 4 8 Technology diversity in the power generation capacity of T ampa Electric Company (MW percent of total) ( FP SC 2011a; FPSC 2011b) Combined Cycle, 43% Steam Turbine, 36% Combustion Turbine, 21% Nuclear, 0% Solar PV, 0%

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98 Figure 4 9 GULF : energy generation by fuel t ype (MWh percent of total) ( FPSC 2011a; FPSC 2011b) Figure 4 10. Technology diversity in the power generation capacity of gulf power company (MW percent of total) ( FPSC 2011a; FPSC 2011b) Combined Cycle, 30.2% Steam Turbine, 42.0% Combustion Turbine, 27.7% Nuclear, 0.0% Solar PV, 0.0%

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99 Table 4 1 List of failure modes for the purpose of conducting surveys Failure Mode No Type of Failure Failure Consequence Cause of Failure 1 Effect of Fuel Supply Volatility on Power Plant Operation Electricity price increase; the companys financial performance is hindered Shortage of fuel supply 2 Effect of Fuel Price Volatility on Power Plant Operation Electricity price increase; the companys financial performance is hindered Crisis in energy markets 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital The companys financial performance is hindered Change in customer demand and/or loss of electricity customers 4 Power Generation New Technology Risk The failure of the facility to provide expected electricity; lower return on invested capital Utilization of a new energy generation technology 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility Lower financial health of the company as a result of higher borrowing costs, fewer financing options, etc. Credit rating downgrades or other changes; changes in the price of natural gas or electricity, lessening of the viability of the solar poweredenergy industry 6 Power Plant Construction Risk Jeopardizing of the project's coverage of current expenses, including interest payments and loan repayments Projects are not guaranteed completion; they may be slowed or halted for a number of reasons; the technology depended upon may fai l; the costs of the project may be much higher than anticipated; there may be an unexpected catastrophe, and so on.

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100 Table 41. Continued Failure Mode No Type of Failure Failure Consequence Cause of Failure 7 Power Plant LandPrice Risk Lower gross profit margin and net margin, negatively affect companys earnings, and significantly affect its cash flow position. Change in land prices. 8 Effect of Fuel Transportation Risks on Power Plant Operation Reduced profit margins and can threaten survival of power plants There may occur accidents in the power plant pipeline, accidents in the transportation of electricity, injuries or deaths, considerable costs and damage to people, the project, the environment 9 Effect of Human Errors on Power Plant Operation Power plant operations and companys financial performance lowered Human error 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation The utilitys operation is slowed or halted; the utilitys finances are damaged or crippled There may be an inability to attract replacement staff either because of lack of qualifications, lack of time or replacements desire not to cross labor lines 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation As a result of the unplanned electricity outages, the plants power generation is disturbed or interrupted and its service to the consumer is disturbed or interrupted. The severity of the environmental and economic damage is higher for a nuclear facility Explosions, fires, and similar accidents

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101 Table 41. Continued Failure Mode No Type of Failure Failure Consequence Cause of Failure 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation If the damage causes fires, explosions or similar accidents, there is major injury to the plants equipment such that it results in substantial damage to generating revenue and substantial insurance losses Mechanical equipment of power plants breaks down 13 Power Plant Outages due to Planned Maintenance May have to pay the extra cost of buying power to replace the loss of electrical power; a significant blow to the plants financial assets and operation; extraordinary expenses may have to be incurred Planned maintenance 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation Significant damage to power plants and the grid, resulting in substantial financial loss; may cause fires, explosions or similar accidents Hurricane, Storms, Tornados and Floods 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation Negative impact on plants financial condition, results of operations, and cash flow Climate change (Warmer water and reduced river flows, warm weather, less rainfall, etc.) 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation Significant damage to power plant and the grid, leading to a considerable loss of generating revenue; may cause fires, explosions or similar accidents; may result in environmental issues Earthquake and tsunami

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102 Table 41. Continued Failure Mode No Type of Failure Failure Consequence Cause of Failure 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation Unexpected loss of electric power, reducing electrical output; unplanned outages, reduced generating output and interrupting electrical service to the electrical utilitys customer; may h inder Power Plant Operation and lower companys financial performance Solar events, electromagnetic events 18 Effect of Vandalism and Theft on Power Plant Operation Significant damage to utilitys assets and operation; may have to incur extraordinary expenses; unplanned outages, reduced generating output and disruption of the utility's service to customers Vandalism and theft 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety If, as a result, the utility is unable to serve its customers, this could harm or cripple the utilitys cash flow and financial health Cyber attacks war and or terrorism 20 Power Plant Employees Safety Risks Could affect the electric utilitys procedures and finances; lower utilitys ability to retain experience and qualified workers Employee or other party coming into contact with hazardous chemicals, electricity, boiler room equipment, fires

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103 Table 41. Continued Failure Mode No Type of Failure Failure Consequence Cause of Failure 21 Power Plants Operation and Decommissioning: Environmental Safety Risks The utility could face significant government state or federal or both -penalties for violating the law; penalties could include fines, imprisonment, civil or criminal sanctions; could harm or cripple the utilitys operations and/or finances Accidents leading to hazardous materials, toxic substances, or radioactive materials being released in the air or in the water; problems with the disposal of unspent nuclear fuel 22 Effect of Power Plant Development on Endangered Species The utility could face significant government state or federal or both -penalties for violating the law; penalties could include fines, imprisonment, civil or criminal sanctions; could harm or cripple the utilitys operations and/or finances; could impact public opinion against the plant further causing it harm Development of power plants make the area uninhabitable for the endangered species

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104 CHAPTER 5 RESULTS AND DISCUSSIONS Survey Respondents Profile T he surveys conducted to determine the effect of adding PV power plants to the generation portfolio of Floridas investor owned utilities. Surveys were sent to professionals in the energy industry. These individuals are employees of investor owned utilities employees of consulting companies, energy investors and traders and energy risk management professionals in academia. In total there are approximately 80 surveys sent out and 17 completed surveys collected. 53% of respondents reported that they hold a risk analyst or risk manger title in an energy trading firm or a utility company. Twenty nine percent of respondents reported that they are corporatelevel energy attorneys or public officials who are legally authorized to work in the energy sector and deals with clients such as energy companies and government entities. Nineteen percent reported that they are researches actively involved in renewable energy research. The respondents hold a variety of titles including manager, quantitative analyst, risk analyst; risk manager and research associate (Figure 5 1) The survey respondents are between 28 and 65 years old and each has a minimum of three years of experience in the energy industry. The results of the surveys have been collected and imported to the s preadsheet model, and then defuzzified, using the fuzzy sets that were introduced in Chapter 3 Various energy generation sources has different share in the energy generation portfolios of investor owned utilities in Florida. Therefore, adding solar PV pow er plants could have a different effect on the overall risk of each utility company. The results of the study are grouped

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105 and graphed for different risks and different utilities versus different shares of PV generation in the port folio which varies from 0 to 20% It is assumed that up to 20% of total electricity consumption can be generated by solar PV facilities during peak times (Figure 5 2). Fuel Diversity of Floridas Investor Owned Utilities Table 5 1 shows the share of different energy generation sources for each of the four investor owned utilities in Florida. Florida Power & Light is the only generator of nuclear electricity in the State of Florida. Gulf Power Co m pany and Tampa Electric Company are the biggest consumers of coal. Natural gas has a s ignificant share in the generation portfolio of Florida Power & Light and Progress Energy Florida. Gulf Power Company and Tampa Electric Company have no or minimal oil burning facilities. To be able to study the effect of adding solar photovoltaic faciliti es as the only source or renewable energy generation in each portfolio, f or the purpose of this research, it was assumed that current share of renewables in the energy generation portfolio of investor owned utilities is Zero ( Table 5 2). It was also assumed that added PV generation facilities are replacing equally the current coal, oil, natural gas and nuclear facilities in each portfolio. Fuzzy Sets Used in This Research Table 5 3 and 5 4 show the fuzzy sets that are used to defuzzify the Severity, Occurrence and Detection ratings. As explained in Chapter 3 a linguistic variable is a variable whose values are expressed in linguistic terms. The linguistic variable has been used in the surveys to make the survey respondents more comfort able when selecting a rating for specific risks. Fuzzy numbers are higher for the risks with higher probability of

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106 occurrence or the higher severity ratings ( Table 5 3). However for the risks with a higher chance of detection, the fuzzy numbers are lower ( Table 5 4). Results: Effect of Integrating Photovoltaic Projects on Individual Risks of Utilities Adding solar photovoltaic facilities to the portfolio of investor owned utilities has different results on individual risks associated with the portfolio. Th e average RPN for each risk factor and each source of energy generation calculated and shown in Table 5.5 The significance of each risk among all the risks that affect the portfolio is show in Figure 5 3 to 5 6 The results of FMEA Analysis for individual risks are shown in figures in Appendix B which show the respective Risk Priority Number (RPN) for each of the four utilities and different share of PVs. Base on the FEMA analysis as shown in the figures, the following results can be derived: Effect of Fu el Supply Volatility on Power Plant Operation6 The bar chart in Figure B 1 (in Appendix B) shows the reduction in individual RPNs of each utility as a result of increasing the share of photovoltaic in each corresponding portfolio. As shown, it is estimated that adding photovoltaic facilities reduces the fuel supply risks of the portfolio. Gulf P owers fuel supply risk RPN is 239. Florida Power & Lights 188 fuel supply risk is the minimum among all four utilities (Appendix C ). Gulf Powers fuel supply RPN is anticipated to decline steadily from 239 to 197 as a result of generating 20% of its pow er using photovoltaic in its portfolio. 6 Amount of insulation was defined as fuel for the solar energy source.

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107 Effect of Fuel Price Volatility on Power Plant Operation7 Figure B 2 shows the predicted decline in sales of fuel price RPNs for the utilities, as a result of adding photovoltaic to the portfolio. As Florida Power & Light produces 20% of its power, using nuclear facilities, it has less fuel supply risk RPNs than the other three utilities. The fuel RPN for Gulf Power, Progress Energy Florida and Tampa Electric, are in the same ranges. It is anticipated that adding PV facilities to the portfolio of the utilities will reduce the fuel supply risk RPN of Florida Power & Light from 238 to 192 Gulf Power from 266 to 215 P rogress Energy Florida from 265 to 215 and Tampa Electric from 268 t o 216 respectively (Appendix C ). Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital Figure B 3 shows the estimated reduction of customer demand or loss (migration risk) for different utilities. For all of the c ompanies, the migrationrisk RPN fell, as a result of adding photovoltaic facilities to the portfolio. This is most noticeable for Gulf Power, as it faces higher competition and larger RPNs. Power Generation New Technology Risk Figure B 4 shows the increas e in relevant new technology risk RPNs of each of the four investor owned utilities. Florida Power & Light faces more technology risk compared to the other four investor owned utilities while the other three utilities are facing almost the same amount of technology risk. Adding 20% photovoltaic facilities to the Florida Power & Light Portfolio can increase this risks RPN from 87 to 117 7 There is no fuel price volatility for solar. Therefore survey respondents selected low or very low for Severity or Occurrence rating and High or Very High for Detection rating of solar.

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108 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility Among all the different utilities, Florida Power & Light requires more capital resources for its daily operations while Gulf Power can survive longer with limited capital resources ( Figure B 5 ) Photovoltaic projects are relatively capital intensive, which means that they need almost all o f the required capital during the development and construction phase of the project and then that they require minimal capital resources during the projects operation. Adding photovoltaic facilities to the portfolio could reduce the need for capital requi rement significantly. Power Plant Construction Risk Figure B 6 shows that development of photovoltaic facilities has less construction risk than other types of energy generating facilities. Power Plant LandPrice Risk The total footprint for photovoltaic projects is bigger, in comparison to other types of power generating facilities. Photovoltaic projects need more land. The overall life of a solar project is about 25 to 30 years. Therefore, if the utility makes reasonable measurements when it buys the land required for the solar project, then at the end of the projects life, the solar project can easily be decommissioned and land can be used for other purposes. Figure B 7 shows that adding photovoltaic facilities to the energy generating portfolio can reduce landprice risk RPNs. Effect of Fuel Transportation Risks on the Power Plant and Utilitys Operation As explained in Chapter 4, there are significant risks associated with transporting the required fuels for different power plants. Nuclear power is 20% of the produced power by Florida Power & Light. As shown in the graph, survey respondents think that

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109 transporting nuclear fuel is less risky that transporting natural gas or oil. It has been also observed from the graph, that adding solar photovoltaic power plants to all different utilities portfolio could significantly reduce the fuel transportationrisk RPNs (Figure B 8) Effect of Human Error on Power Plant Operation In comparison to other types of energy generat ing assets, PV power plants require less human supervision to operate. Figure B 9 shows significant reduction in humanerrorrisk RPNs as a result of adding solar power plants to the portfolio of utilities. Effect of Labor Disruptions or Other Potential C rises on Power Plant Operations The operation of nuclear power plants requires highly skilled personnel. Therefore, adding solar photovoltaic power plants to the generation portfolio of Florida Power & Light has more effect on reducing the risk RPN of the utilitys portfolio. Adding solar power photovoltaic power plants to the generation portfolio of the other three utilities has a minimal effect on reducing the associated risks ( Figure B 10). Effect of Explosions, Fires and Similar Accidents on Power Plant Operation With regard to explosions, fires and similar accidents, photovoltaic facilities are relatively safer than other types of energy generation assets, while nuclear facilities are among the riskiest. The relevant Florida Power & Lights RPN associat ed to this risk, is comparatively higher, that the other three portfolios, as Florida Power & Light generates 20% of its power using nuclear power plants. The bar chart shown in Figure B 11 shows the reduction of risk RPNs as a result of adding PV power pl ants to this portfolio.

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110 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation According to the graph show n in Figure B 12, adding PV power plants to the generation portfolio of utilities could result in a significant reduction of associatedrisk RPNs, due to mechanical breakdowns and equipment failures. Power Plant Outages due to Planned Maintenance Figure B 13 shows the positive effect of adding solar PV power plants to the reduction of the power plant outage risk RPNs of the gen erating facilities. Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation Figure B 14 shows that adding solar PV power plants increases the natural hazards risk (hurricane, storms, tornados and floods) on different ut ilities generating portfolio. Adding 20% photovoltaic facilities to the Florida Power & Light Portfolio can increase this risks RPN from 160 to 166 Effect of Natural Hazard (Climate Change) on Power Plant Operation With regard to climate change, adding solar PV power plants to the energy generating portfolio could reduce the risks of the energy portfolio ( Figure B 15). As shown in the chart, Florida Power & Light has the highest sensitivity to climate change. It could be related to the significant share of nuclear facilities in the utilitys energy generation portfolio. Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation Nuclear facilities are the riskiest facilities when it comes to earthquakes or tsunamis. As shown in Figure B 16, Florida Power & Light has the highest risk earthquake or tsunami RPN of the four utilities. It is estimated that adding solar -

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111 photovoltaic power plants to the energy generating portfolio can significantly reduce the risks associated with earthquakes or tsunamis in the portfolio. Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation The bar chart of Figure B 17 shows that adding solar photovoltaic power plants will reduce the risk RPNs associated with solar events and electromagnetic events on power plant operation. Effect of Vandalism and Theft on Power Plant Operation The result of the survey shows that solar photovoltaic power plants are the most prone to risks associated with theft and vandalism. Figure B 18 shows that adding solar PV power plants to the portfolio of generation assets can increase the portfolios theft and vandalism risk RPN. Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety Figure B 19 shows that adding solar PV power plants to a generating portfolio could reduce the relative risk RPN by almost 15% for each of the four utilities. Power Plant Employees Safety Ri sks Generally speaking, Progress Energys employees are working in a riskier environment than employees of the other three utilities. Figure B 20 shows a significant reduction in the overall safety risks of the energy generating portfolio, as a result of adding photovoltaic power plants to the generation portfolio of selected companies. Power Plant Operation and Decommissioning: Environmental Safe ty Risks Fewer environmental safety risks are associated with solar photovoltaic power plants. The histogram shown in Figure B 21 shows that adding solar photovoltaic power

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112 plants to the portfolio can significantly reduce the environmental risks of the overall portfolio. Effect of Power Plant Development on Endangered Species Survey respondents think that adding solar PV power plants to the generation portfolio of utilities can significantly reduce the risk of endangered species becoming extinct. At least 9 5% of the power generated by Gulf Power, Progress Energy Florida and Tampa Electric comes from fossil fuels. As shown in Figure B 22 these three utilities have relatively higher endangeredspecies risk RPNs, in comparison to Florida Power & Light. Adding solar PV power plants could reduce the endangered species risk RPN by almost 10%. Results: Effect of Integrating PV Projects on Overall Risks of Utilities Table 5 6 shows the anticipated reduction of overall average RPN for different utility portfolios as a result of adding different shares of solar PV projects. As shown in Table 5 6 or Figure 5 7 adding 20% of solar PVs to each energy generating portfolio could reduce the overall average risk RPN of utility by almost 12%. Among all four investor owned uti lities in Florida, Gulf Power has the highest overall average RPN, followed by Tampa Electric and Progress Energy Florida. Florida Power & Light has the lowest overall risk RPN which means the company is bearing less risk than the other three utilities.

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113 Figure 51. Survey r espondents p rofile Figure 52 Base, intermediate and p eak energy generators 53% 29% 18% 0% 10% 20% 30% 40% 50% 60% Risk Managers, Risk Analytics and Market Risk Analysts Energy Attorneys, Electric Utility Regulators and Legal Academic Research Associates 0 2 4 6 8 10 12 0 2 4 6 8 10 12 14 16 18 20 22 24 Peak Demand (Solar) Intermediate Demand (Hydro/Natural Gas/Wind) Base Demand (Nuclear/Coal) Hours MW

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114 Figure 5 3 Effect of adding PV generation on individual ris k RPNs Florida Power & Light c ompanys portfolio 0 50 100 150 200 250Effect of Fuel Supply Volatility on Power Plant Operation Effect of Fuel Price Volatility on Power Plant Operation Effect of Change in Customer Demand and/or Loss of Electricity Power Generation New Technology Risk Effect of Availability of Capital Resources on Power Plant Power Plant Construction Risk Power Plant Land Price Risk Effect of Fuel Transportation Risks on Power Plant Operation Effect of Human Errors on Power Plant Operation Effect of Labor Disruptions or Other Potential Crises on Power Effect of Explosions, Fires and Similar Accidents on Power Plant Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Outages due to Planned Maintenance Effect of Natural Hazards (Hurricane, Storms, Tornados and Effect of Natural Hazard (Climate Change) on Power Plant Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Effect of Natural Hazards (Solar Events, Electromagnetic Event) Effect of Vandalism and Theft on Power Plant Operation Effect of Cyber Attacks, Terrorism and War on Power Plant Power Plant Employees Safety Risks Power Plants Operation and Decommissioning: Environmental Effect of Power Plant Development on Endangered Species1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22RPN Risk Factor 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%

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115 Figure 5 4 Effect of adding PV generation on individual risk RPNs Gulf Power companys portfolio 0 50 100 150 200 250 300Effect of Fuel Supply Volatility on Power Plant Operation Effect of Fuel Price Volatility on Power Plant Operation Effect of Change in Customer Demand and/or Loss of Electricity Power Generation New Technology Risk Effect of Availability of Capital Resources on Power Plant Power Plant Construction Risk Power Plant Land Price Risk Effect of Fuel Transportation Risks on Power Plant Operation Effect of Human Errors on Power Plant Operation Effect of Labor Disruptions or Other Potential Crises on Power Effect of Explosions, Fires and Similar Accidents on Power Plant Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Outages due to Planned Maintenance Effect of Natural Hazards (Hurricane, Storms, Tornados and Effect of Natural Hazard (Climate Change) on Power Plant Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Effect of Natural Hazards (Solar Events, Electromagnetic Event) Effect of Vandalism and Theft on Power Plant Operation Effect of Cyber Attacks, Terrorism and War on Power Plant Power Plant Employees Safety Risks Power Plants Operation and Decommissioning: Environmental Effect of Power Plant Development on Endangered Species1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22RPN Risk Factor 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%

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116 Figure 5 5 Effects of adding PV generation on individual risk RPNs Progress Energy Floridas portfolio 0 50 100 150 200 250 300Effect of Fuel Supply Volatility on Power Plant Operation Effect of Fuel Price Volatility on Power Plant Operation Effect of Change in Customer Demand and/or Loss of Electricity Power Generation New Technology Risk Effect of Availability of Capital Resources on Power Plant Power Plant Construction Risk Power Plant Land Price Risk Effect of Fuel Transportation Risks on Power Plant Operation Effect of Human Errors on Power Plant Operation Effect of Labor Disruptions or Other Potential Crises on Power Effect of Explosions, Fires and Similar Accidents on Power Plant Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Outages due to Planned Maintenance Effect of Natural Hazards (Hurricane, Storms, Tornados and Effect of Natural Hazard (Climate Change) on Power Plant Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Effect of Natural Hazards (Solar Events, Electromagnetic Event) Effect of Vandalism and Theft on Power Plant Operation Effect of Cyber Attacks, Terrorism and War on Power Plant Power Plant Employees Safety Risks Power Plants Operation and Decommissioning: Environmental Effect of Power Plant Development on Endangered Species1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22RPN Risk Factor 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%

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117 Figure 5 6 Effect of adding PV generation on individu al risk RPNs Tampa Electric companys portfolio 0 50 100 150 200 250 300Effect of Fuel Supply Volatility on Power Plant Operation Effect of Fuel Price Volatility on Power Plant Operation Effect of Change in Customer Demand and/or Loss of Electricity Power Generation New Technology Risk Effect of Availability of Capital Resources on Power Plant Power Plant Construction Risk Power Plant Land Price Risk Effect of Fuel Transportation Risks on Power Plant Operation Effect of Human Errors on Power Plant Operation Effect of Labor Disruptions or Other Potential Crises on Power Effect of Explosions, Fires and Similar Accidents on Power Plant Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Outages due to Planned Maintenance Effect of Natural Hazards (Hurricane, Storms, Tornados and Effect of Natural Hazard (Climate Change) on Power Plant Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Effect of Natural Hazards (Solar Events, Electromagnetic Event) Effect of Vandalism and Theft on Power Plant Operation Effect of Cyber Attacks, Terrorism and War on Power Plant Power Plant Employees Safety Risks Power Plants Operation and Decommissioning: Environmental Effect of Power Plant Development on Endangered Species1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22RPN Risk Factor 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%

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118 Figure 5 7 Reduction of average RPN as a result of adding more PV to the portfolio of Floridas investor owned utilities Table 5 1. Share of different fuels in the generated energy of Floridas invest or owned utilities (2010 MWh percent of total) (FPSC 2011b) Florida Power & Light (%) Progress Energy Florida (%) Tampa Electric (%) Gulf Power (%) Non renewables Nuclear 20.00% Coal 5.00% 26.20% 44.80% 84.10% Natural Gas 58.40% 51.30% 40.50% 38.40% Oil 3.80% 2.30% 0.20% Renewables, etc Interchange, NUT, Renewables, Other 12.90% 20.10% 14.40% 22.50% Total 100% 100% 100% 100% 120 125 130 135 140 145 150 155 160 165 Florida Power and Light Gulf Power Progress Energy Florida Tampa ElectricRPN Investor Owned Utility 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%

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119 Table 5 2. Share of different fuels in nonrenewable energy generation assets of Floridas investor owned utilities (2010 MWh percent of total) Florida Power and & Light (%) Progress Energy Florida (%) Tampa Electric (%) Gulf Power (%) Nuclear 22.9% 0.0% 0.0% 0.0% Coal 5.7% 32.8% 52.4% 68.7% Natural Gas 67.0% 64.3% 47.4% 31.3% Oil 4.4% 2.9% 0.2% 0.0% Total non renewables 100.00% 100.00% 100.00% 100.00% Table 5 3. Linguistic variables used for weighing of Severity and Occurrence ratings Linguistic variables Fuzzy Numbers Very High (VH) 8 9 10 1 0 High (H) 7 8 8 9 Medium High (MH) 5 6 7 8 Medium (M) 4 5 5 6 Medium Low (ML) 2 3 4 5 Low (L) 1 2 2 3 Very Low (VL) 0 0 1 2 Table 5 4. Linguistic variables used for weighing of Detection Ratings Linguistic variables Fuzzy Numbers Very Low (VL) 8 9 10 1 0 Low (L) 7 8 8 9 Medium Low (ML) 5 6 7 8 Medium (M) 4 5 5 6 Medium High (MH) 2 3 4 5 High (H) 1 2 2 3 Very High (VH) 0 0 1 2

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120 Table 5 5 RPNs for different sources of energy generation in the state of Florida Failure Mode # Type of Failure Nuclear Coal Natural Gas Oil Solar PV 1 Effect of Fuel Supply Volatility on Power Plant Operation 146 257 200 142 28 2 Effect of Fuel Price Volatility on Power Plant Operation 149 263 273 119 11 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 146 159 129 161 60 4 Power Generation New Technology Risk 118 68 76 102 240 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 205 171 201 113 20 6 Power Plant Construction Risk 141 141 183 114 41 7 Power Plant Land Price Risk 65 61 58 50 31 8 Effect of Fuel Transportation Risks on Power Plant Operation 112 271 241 138 11 9 Effect of Human Errors on Power Plant Operation 79 150 94 72 30 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 185 141 178 218 132 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 98 90 80 111 40 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 165 254 165 145 46 13 Power Plant Outages due to Planned Maintenance 150 208 195 226 31 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 123 185 170 179 189 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 203 118 119 116 44

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121 Failure Mode # Type of Failure Nuclear Coal Natural Gas Oil Solar PV 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 276 139 144 110 35 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 144 103 110 93 72 18 Effect of Vandalism and Theft on Power Plant Operation 121 232 190 247 283 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 178 158 129 97 36 20 Power Plant Employees Safety Risks 165 180 140 114 31 21 Power Plants Operation and Decommissioning: Environmental Safety Risks 246 116 81 147 10 22 Effect of Power Plant Development on Endangered Species 95 172 210 173 71 Average RPN: 151 165 153 136 68

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122 Table 5 6 Reduction of average RPN, as a result of adding more PV to the portfolio of investor owned utilities in the State of Florida PV share in the company portfolio Company: 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5% 20% Florida Power & Light 39.7 39.1 38.5 37.9 37.3 36.7 36.1 35.6 35.0 Gulf Power 42.0 41.3 40.7 40.0 39.4 38.8 38.1 37.5 36.8 Progress Energy Florida 41.2 40.5 39.9 39.3 38.7 38.0 37.4 36.8 36.2 Tampa Electric 41.6 41.0 40.4 39.7 39.1 38.4 37.8 37.2 36.5

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123 CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS Summary This research investigated the effects of adding solar photovoltaic power plants on reducing the risks associated with the electricity generation portfolio of Floridas investor owned electricity utilities. The four investor owned utilities examined were Florida Power & Light, Gulf Power, Progress Energy Florida and Tampa Electric. These four investor owned utilities serve all counties of the State of Florida and in total their generation capacity is almost 77% (44 GW ) of the total generation capacity of all Florida utilities.. To understand the associated risks with developing PV power plants, top five investor owned utilities that produce 93% of utility scale solar electricity in the United States were selected. The most recent financial statements and financial reports of these companies that have been submitted to the Securities and Exchange Commi ssion (SEC) have been analyzed using a comprehensive content analysis methodology to determine the risks that are affecti ng the performance of these utilities Among all four big investor owned utilities in Florida, Florida Power & Light Company is the only Florida utility in the list of the top five utilities, with the largest PV capacity share. Florida Power & Light produc es almost 1% of the total solar PV electricity produced in the U.S. Once the content analysis of the 10k reports has completed and the risks of the utility companies were determined, the effect of adding up to 20% photovoltaic generation facilities was st udied through a Failure Mode and Effect Analysis ( FMEA ). Linguistic evaluation of Severity, Occurrence and Detection ratings were conducted through a survey program. Fuzzy sets were used to defuzzify the linguistic risk ratings (O, S and D). The defuzzifie d risk ratings were multiplied by each other to calculate the

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124 Risk Priority Number (RPN). The RPN of individual risks was multiplied by different weights of each energy source in each utilitys portfolio, to calculate the weighted RPN for different sources of energy generation (coal, oil, solar PV, etc.) for each investor owned utility. Weighted RPNs summed and averaged together and different shares of PVs (0% to 20%) were multiplied by the risk RPNS, and thus, was calculated the effect of integrating solar PVs to each utilitys portfolio. Higher RPNs indicate a greater importance of the risk for the energy portfolio. Conclusions Figure 6 1 and Table 6 1 show a summary of the effect of adding photovoltaic generation facilities to the portfolio of investor o wned utilities in Florida. A detailed summary of the results of the research is shown in Chapter 5 and in Appendix B, C and D Comparing the different shares of energy sources (nuclear, oil, gas, etc.) in each utilitys portfolio and the different amount o f addition of solar photovoltaic, the following conclusions were observed: Adding solar photovoltaic facilities to the portfolio of investor owned utilities has different result on individual risks associated with the portfolio. It is estimated that adding solar PVs to the portfolio of a utilitys energy generating assets could reduce the associated average Risk Priority Numbers. However, adding solar PVs can worsen the effect of three risks: power generationnew technology risk, risks associated with n atur al h azards (hurricane, storms, tornados and floods) on power plant operation and risks asso ciated with vandalism and theft Among all five types of energy generation, coal has the highest overall average RPN (165) followed by natural gas (153) nuclear (151) and oil (136) Solar Photovoltaic has the lowest overall risk RPN (68) which means solar PV power plants are contributing relatively less risk t o the energy generation portfolios Figure 62 shows average RPNs for different sources of energy generati on. It seems that e ffect of adding solar energy is different for each utility depending on their portfolio. Table 6 1 and Figure 6 1 show the anticipated reduction of overall average RPN for different utility portfolios as a result of adding different shar es of solar PV projects. There was a decrease in overall Risk Priority Numbers (RPNs) of

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125 investor owned utilities as a result of adding solar photovoltaic to the portfolio. This reduction was about 12% for 20% share of photovoltaic. Among all four investor owned utilities in Florida, Gulf Power has the highest share of coal and highest overall average RPN (161) followed by Tampa Electric which generates large amount of coal and natural gas electricity (159) and Progress Energy Florida (157) Florida Power & Light has the lowest overall risk RPN (150) which is due to minimal use of coal in energy generation and share of nuclear in it s portfolio. Florida Power and Light is bearing relatively less risk than the other three utilities. The utility companies analy zed in this study were large with a fairly diverse energy generation portfolio. Due to this diversity, adding solar photovoltaic to the portfolios has reduced the overall RPN for different utilities by the same rate ( Figure 6 1 ). Even without adding solar photovoltaic, holding a diverse portfolio already helps the utilities to reduce their overall average RPN. Implications for Utility Scale Risk Analysis of Photovoltaic Power Plants The Failure Mode and Effect Analysis model of this research can be used by electric utility industry executives to better evaluate the effect of adding solar photovoltaic power plants to reduce the overall risks of their energy generation portfolio and enables them to make better investment decisions Limitations of the Research and Suggestions for Further Study Although this research has reached its objectives, there were some unavoidable limitations. These include: In order to make the survey results consistent and clear for the Fai lure Mode and Ef fect Analysis, surveys that were sent to the respondents did not have an option for adding a risk item that is not captured. The model does not take into account the high severity low occurrence risks (e.g. explosion of nuclear power plants) M ultiple failure modes are often correlated, they can depend on the same uncertain variables or occurrence of one failure mode can result in occurrence of the other risks (domino effect or chain reaction). The model did not consider the possible correlations between di fferent failure modes. Public Utility Research Center has been contacted and websites of two independent, nonprofit Regional Transmission Organizations (ISO New England and Midwest ISO) has searched. There are grid limitations when we add

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126 distributed small scale renewable energy facilities to the grid, however for the utility scale solar power plants (like every other energy generation facility) this grid limitations are minimal and can be eliminated by improving or increasing the capacity of transmission lines. Transmission limitations and risks can also be a decisive factor when utilities plan to develop a new generation facility. The utility companies studied in this study were large with a fairly diverse energy generation portfolio. The result of adding solar photovoltaic facilities to the generation portfolio of smaller utilities would have to be studied to understand the effect of adding solar photovoltaic power plants on their generation portfolio. The scope of this study was limited to the State of Florida. For different geographical locations, climate conditions, and in the deregulated electricity market the method may produce different results for the se specific risks: Risk No. 1: Effect of Fuel Supply Volatility on Power Plant Operation Risk No. 2: Effect of Fuel Price Volatility on Power Plant Operation Risk No. 3: Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital Risk No. 5 : Effect of Availability o f Capital Resources on Power Plant Operation and Feasibility Risk No. 7 : Power Plant Land Price Risk Risk No. 14: Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation Risk No. 15: Effect of Natural Hazard (Climate Cha nge) on Power Plant Operation Risk No. 16: Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation Risk No. 17: Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation Risk No. 22: Effect of Power Plant Development on Endangered Species Occurrence, Severity and Detection for some of the risks can be obtained using time series analysis of available historical data i nstead of conducting surveys (e.g. price volatility risk, supply volatility risk, etc.).

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127 Re commendations FMEA has been used widely to assess risk and to discover potential failures in processes, systems and services. It is a unique method of assessment for reliability and safety analysis. When combined with fuzzy logic, FMEA can be used efficiently and precisely to translate the expert opinions and evaluations which are very often expressed in linguistic values, into numerical values. The combination of FMEA approach and fuzzy logic was the most fitting methodology to explore different dimensions of this research to semi quantitatively evaluate the failure modes, risks and effectiveness of the suggested solutions. The general objective of this dissertation was to identify and understand the risks associated with utility companies and to develop a comprehensive model for risk analysis of solar photovoltaic power plants. The result of this study can play a critical role in strategic planning for the expansion of renewable energy facilities in the State of Florida, where there is great potential to generate clean energy by building and maintaining new solar power plants. These specific objectives have been met by this research: 1) R isks associated with utility scale power generation was identified and documented 2) A risk analysis model that enables studying the effect of adding largescale solar power plants to the current generation portfolio of large investor owned utilities has been developed. 3) Effect of integrating up to 20% PV capacity into the generation portfolio of Floridas investor owned utilities was determined. Based on the findings of this dissertation, it is recommended that due to the regulated nature of the electricity market in Florida, the development and construction of solar photovoltaic power plants can reduce the overall risks RPNs of the utilities, which can result in a more efficient and reliable electricity market

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128 Figure 6 1 Reduction of total percentile RPN (%) as a result of adding more PV to the portfolio of investor owned utilities in the State of Florida Figure 6 2 Average Risk RPNs for different sources of energy generation in the state of Florida -13% -12% -11% -10% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%Decrease in RPN (%) PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 20 40 60 80 100 120 140 160 180 Nuclear Coal Natural Gas Oil Solar PV Average RPN

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129 Figure 6 3 Share of different Risk RPNs in total RPN of different sources of energy generation 4% 7% 6% 5% 2% 5% 7% 8% 4% 1% 4% 4% 4% 5% 4% 4% 2% 2% 3% 16% 6% 5% 6% 4% 1% 4% 4% 5% 4% 3% 2% 2% 2% 2% 2% 3% 7% 7% 5% 1% 2% 4% 3% 2% 2% 6% 4% 5% 7% 9% 3% 2% 2% 4% 3% 5% 7% 5% 5% 3% 5% 6% 6% 8% 2% 4% 5% 5% 6% 13% 6% 3% 4% 4% 3% 8% 4% 4% 4% 2% 4% 3% 3% 3% 5% 4% 6% 6% 8% 19% 5% 4% 4% 3% 2% 5% 5% 4% 4% 2% 7% 3% 2% 5% 1% 3% 5% 6% 6% 5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Nuclear Coal Natural Gas Oil Solar PV 22 Effect of Power Plant Development on Endangered Species 21 Power Plants Operation and Decommissioning: Environmental Safety Risks 20 Power Plant Employees Safety Risks 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 18 Effect of Vandalism and Theft on Power Plant Operation 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 13 Power Plant Outages due to Planned Maintenance 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 9 Effect of Human Errors on Power Plant Operation 8 Effect of Fuel Transportation Risks on Power Plant Operation 7 Power Plant Land Price Risk 6 Power Plant Construction Risk 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 4 Power Generation New Technology Risk 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 2 Effect of Fuel Price Volatility on Power Plant Operation 1 Effect of Fuel Supply Volatility on Power Plant Operation

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130 Table 6 1. Percentage reduction of RPN as a result of adding more PV to the portfolio of Floridas investor owned utilities PV sh are in the company portfolio Florida Power & Light Gulf Power Progress Energy Florida Tampa Electric 0% 2.5% 1.4% 1.4% 1.4% 1.4% 5% 2.8% 2.9% 2.8% 2.9% 7.5% 4.2% 4.3% 4.2% 4.3% 10% 5.5% 5.8% 5.7% 5.7% 12.5% 6.9% 7.2% 7.1% 7.2% 15% 8.3% 8.7% 8.5% 8.6% 17.5% 9.7% 10.1% 9.9% 10.1% 20% 11.1% 11.6% 11.3% 11.5%

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131 APPENDIX A STATUS OF ENERGY INDUSTRY IN THE STATE OF FLORIDA

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132 Table A 1 Diversity of fuel and generation technology in Florida Power & Light portfolio (2010) (FPSC 2011b) Facility Location Fuel Generation Technology Summer Net Capability (a) (in MW) 1 Fort Myers Fort Myers, FL Gas Combined Cycle 1,432 2 Lauderdale Dania, FL Gas /O il Combined Cycle 884 3 Manatee Parrish, FL Gas Combined Cycle 1,111 4 Martin Indiantown, FL Gas /O il/So lar T herm a l Combined Cycle 1,132 5 Martin Indiantown, FL Gas Combined Cycle 938 6 Putnam Palatka, FL Gas /O il Combined Cycle 498 7 Sanford Lake Monroe, FL G a s Combined Cycle 1,912 8 Turkey Point Florida City, FL G a s /O il Combined Cycle 1,148 9 West County West Palm Beach, FL G a s /O il Combined Cycle 3,657 10 Cutler Miami, FL G a s Steam Turbine 205 11 Manatee Parrish, FL Gas/Oil Steam Turbine 1,624 12 Martin Indiantown, FL Gas/Oil Steam Turbine 1,652 13 Port Everglades Port Everglades, FL Gas/Oil Steam Turbine 1,187 14 St. Johns River Power Park Jacksonville, FL Coal / Pet ro leum C o ke Steam Turbine 254 15 Sanford Lake Monroe, FL Gas/Oil Steam Turbine 138 16 Scherer Monroe County, GA Coal Steam Turbine 672 17 Turkey Point Florida City, FL Gas/Oil Steam Turbine 788 18 Fort Myers Fort Myers, FL G a s /O il Combustion Turbine 315 19 Fort Myers Fort Myers, FL Oil Combustion Turbine 648 20 Lauderdale Dania, FL Gas/Oil Combustion Turbine 840 21 Port Everglades Port Everglades, FL Gas/Oil Combustion Turbine 420 22 St. Lucie Hutchinson Island, FL Nucle ar Nuclear 1,584 23 Turkey Point Florida City, FL Nucle a r Nuclear 1,386 24 DeSoto Arcadia, FL Solar PV Solar PV 25 25 Space Coast Cocoa, FL Solar PV Solar PV 10 Total 24460 (a ) R e p resents utility's ne t own er sh ip in ter e st i n p la n t c a pab il i t y. (b) The megawatts generated by the 75 mw solar thermal facility replace steam produced by this unit and therefore are not incremental

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133 Table A 2 Diversity of fuel and generation technology in Progress Energy Florida portfolio (2010) (FPSC 2011b) Facility Location Fuel Generation Technology Summer Net Capability (a) (in MW) 1 Anclote Holiday, Fla. Gas/Oil Steam Turbine 1,011 2 Crystal River Crystal River, Fla. Coal Steam Turbine 2,295 3 Suwannee River Live Oak, Fla. Gas/Oil Steam Turbine 129 4 Bartow St. Petersburg, Fla. Gas/Oil Combined Cycle 1133 5 Hines Bartow, Fla. Gas/Oil Combined Cycle 1,912 6 Tiger Bay Fort Meade, Fla. Gas Combined Cycle 205 7 Avon Park Avon Park, Fla. Gas/Oil Combustion Turbine 48 8 Bartow St. Petersburg, Fla. Gas/Oil Combustion Turbine 177 9 Bayboro St. Petersburg, Fla. Oil Combustion Turbine 174 10 DeBary DeBary, Fla. Gas/Oil Combustion Turbine 638 11 Higgins Oldsmar, Fla. Gas/Oil Combustion Turbine 105 12 Intercession City Intercession City, Fla. Gas/Oil Combustion Turbine 982 13 Rio Pinar Rio Pinar, Fla. Oil Combustion Turbine 12 14 Suwannee River Live Oak, Fla. Gas/Oil Combustion Turbine 155 15 Turner Enterprise, Fla. Oil Combustion Turbine 137 16 University of Florida Cogeneration Gainesville, Fla. Gas Combustion Turbine 46 17 Crystal River Crystal River, Fla. Nuclear Nuclear 860 Total 10,019 (a ) R e p resents utility's ne t own er sh ip in ter e st i n p la n t c a pab il i t y. Table A 3 Diversity of fuel and generation technology in Tampa Electric Company portfolio (2010) (FPSC 2011b) Facility Location Fuel Generation Technology Summer Net Capability (a) (in MW) 1 Big Bend Power Station Tampa, Fla. Coal Combustion Turbine 1,643 2 Bayside Power Station Tampa bay, Fla. Natural gas Combustion Turbine 2,083 3 Polk Power Station Polk County, Florida Coal Combined Cycle 952 4 Howard Current Advanced Waste Water Treatment Plant Tampa, Fla. Biogas 6 Total 4,684 (a ) R e p resents utility's ne t own er sh ip in ter e st i n p la n t c a pab il i t y.

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134 Table A 4 Diversity of fuel and generation technology in Gulf Power company portfolio (2010) (FPSC 2011b) Facility Location Fuel Generation Technology Summer Net Capability (a) (in MW) 1 Crist Pensacola, FL Coal Steam Turbine 970 2 Lansing Smith Panama City, FL Coal, natural gas, fuel oil Steam Turbine 305 3 Scholz Chattahoochee, FL Coal Steam Turbine 80 4 Intercession City Intercession City, FL Oil Combustion Turbine 48 5 Lansing Smith Unit A Panama City, FL Coal Combustion Turbine 39 6 Pea Ridge Units 13 Pea Ridge, FL Natural gas Combustion Turbine 15 7 Oleander Cocoa, FL Natural gas Combustion Turbine 791 8 Smith Lynn Haven, FL Natural gas Combined Cycle 546 9 Stanton Unit A Orlando, FL Natural gas Combined Cycle 429 10 Perdido Escarnbia County, FL landfill methane gas Landfill Gas Facility 3 Total 3,226 (a ) R e p resents utility's ne t own er sh ip in ter e st i n p la n t c a pab il i t y.

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135 APPENDIX B RISK PRIORITY NUMBER ( RPN) VS. DIFFERENT PV SHARES FOR DIFFERENT UTILITIES

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136 Figure B 1 Effect of fuel supply volatility on power plant operation Figure B 2 Effect of fuel price volatility on power plant operation 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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137 Figure B 3 Effect of change in customer demand and/or loss of electricity customers on power plant operation and return on invested capital Figure B 4 Power generation new technology risk 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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1 38 Figure B 5 Effect of availability of capital resources on power plant operation and feasibility Figure B 6 Power plant construction risk 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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139 Figure B 7 P ower plant land price risk Figure B 8 Effect of fuel transportation risks on power plant operation 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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140 Figure B 9 Effect of human error on power plant operation Figure B 10. Effect of labor disruptions or other potential crises on power plant operation 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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141 Figure B 11. Effect of explosions, fires and similar accidents on power plant operation Figure B 12. Effect of mechanical breakdowns and equipment failures on power plant operation 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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142 Figure B 13. Power plant outages due to planned maintenance Figure B 14. Effect of natural hazards (hurricane, storms, tornados and floods) on power plant operation 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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143 Figure B 15. E ffect of natural hazard (climate change) on power plant operation Figure B 16. Effect of natural hazards (earthquakes or tsunamis) on power plant operation 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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144 Figure B 17. E ffect of natural hazards (solar events, electromagnetic events) on power plant operation Figure B 18. E ffect of vandalism and theft on power plant operation 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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145 Figure B 19. Effect of cyber attacks, terrorism and war on power plant operation and safety Figure B 20. Power plant employeesafety risks 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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146 Figure B 2 1 Power plant operation and decommissioning Figure B 22. Effect of power plant development on endangered species 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric 0 50 100 150 200 250 300 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0%RPN PV Share (%) Florida Power and Light Gulf Power Progress Energy Florida Tampa Electric

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147 APPENDIX C INDIVIDUAL AND TOTAL RISK PRIORITY NUMBER (RPN) FOR DIFFERENT PV SHARES AND DIFFERENT UTILITIES

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148 Company: Florida Power & Light PV Share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5% 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 188 184 180 176 172 168 164 160 156 2 Effect of Fuel Price Volatility on Power Plant Operation 238 232 226 221 215 209 204 198 192 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 136 134 132 130 128 126 124 122 121 4 Power Generation New Technology Risk 87 90 94 98 102 106 110 113 117 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 196 192 188 183 179 174 170 165 161 6 Power Plant Construction Risk 168 165 161 158 155 152 149 146 142 7 Power Plant LandPrice Risk 59 58 58 57 56 56 55 54 53 8 Effect of Fuel Transportation Risks on Power Plant Operation 208 203 199 194 189 184 179 174 169 9 Effect of Human Error on Power Plant Operation 93 91 90 88 86 85 83 82 80 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 179 178 177 176 175 173 172 171 170 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 86 85 84 83 81 80 79 78 77 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 170 166 163 160 157 154 151 148 145 13 Power Plant Outages due to Planned Maintenance 187 183 179 175 171 167 164 160 156 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 160 161 162 162 163 164 164 165 166 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 138 136 133 131 129 126 124 121 119 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 173 169 166 162 159 155 152 149 145 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 117 116 115 114 112 111 110 109 108 18 Effect of Vandalism and Theft on Power Plant Operation 179 182 184 187 190 192 195 197 200 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 140 138 135 132 130 127 125 122 119 20 Power Plant EmployeeSafety Risks 147 144 141 138 136 133 130 127 124 21 Power Plant Operation and Decommissioning: Environmental Safety Risks 124 121 118 115 113 110 107 104 101 22 Effect of Power Plant Development on Endangered Species 180 177 175 172 169 167 164 161 158 Average RPN : 152 150 148 146 144 142 140 138 135 Table C 1 Florida Power and Light weighted RPNs

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149 Company: Gulf Power PV Share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5% 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 239 234 229 223 218 213 208 202 197 2 Effect of Fuel Price Volatility on Power Plant Operation 266 260 254 247 241 234 228 222 215 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 150 147 145 143 141 138 136 134 132 4 Power Generation New Technology Risk 71 75 79 84 88 92 96 100 105 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 180 176 172 168 164 160 156 152 148 6 Power Plant Construction Risk 154 151 148 145 143 140 137 134 131 7 Power Plant LandPrice Risk 60 59 58 58 57 56 56 55 54 8 Effect of Fuel Transportation Risks on Power Plant Operation 261 255 249 242 236 230 224 217 211 9 Effect of Human Error on Power Plant Operation 132 130 127 124 122 119 117 114 112 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 153 152 152 151 151 150 150 149 149 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 87 86 85 84 82 81 80 79 78 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 226 222 217 213 208 204 199 195 190 13 Power Plant Outages due to Planned Maintenance 204 200 195 191 187 182 178 174 169 14 Effect of Natural Hazards (Hurricanes, Storms, Tornados and Floods) on Power Plant Operation 180 180 180 181 181 181 181 181 182 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 118 116 115 113 111 109 107 105 104 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 141 138 135 133 130 127 125 122 119 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 105 104 104 103 102 101 100 99 99 18 Effect of Vandalism and Theft on Power Plant Operation 219 220 222 223 225 227 228 230 232 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 149 146 143 140 137 134 132 129 126 20 Power Plant EmployeeSafety Risks 167 164 161 157 154 150 147 144 140 21 Power Plant Operation and Decommissioning: Environmental Safety Risks 105 103 100 98 96 93 91 89 86 22 Effect of Power Plant Development on Endangered Species 184 181 178 175 173 170 167 164 161 Average RPN: 161 159 157 154 152 150 147 145 140 Table C 2 Golf Power weighted RPNs

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150 Company: Progress Energy Florida PV share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5% 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 217 212 207 203 198 193 189 184 179 2 Effect of Fuel Price Volatility on Power Plant Operation 265 259 253 246 240 234 227 221 215 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 140 138 136 134 132 130 128 126 124 4 Power Generation New Technology Risk 74 79 83 87 91 95 99 103 108 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 189 184 180 176 172 167 163 159 155 6 Power Plant Construction Risk 167 164 161 157 154 151 148 145 142 7 Power Plant LandPrice Risk 59 58 57 56 56 55 54 54 53 8 Effect of Fuel Transportation Risks on Power Plant Operation 247 242 236 230 224 218 212 206 200 9 Effect of Human Error on Power Plant Operation 112 110 107 105 103 101 99 97 95 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 167 166 165 165 164 163 162 161 160 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 84 83 82 81 80 79 78 77 75 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 194 190 187 183 179 175 172 168 164 13 Power Plant Outages due to Planned Maintenance 200 196 192 187 183 179 175 171 166 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 175 175 176 176 176 177 177 177 178 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 118 117 115 113 111 109 107 105 104 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 142 139 136 134 131 128 126 123 120 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 107 106 106 105 104 103 102 101 100 18 Effect of Vandalism and Theft on Power Plant Operation 205 207 209 211 213 215 217 219 221 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 137 135 132 130 127 125 122 120 117 20 Power Plant EmployeeSafety Risks 153 150 147 144 140 137 134 131 128 21 Power Plant Operation and Decommissioning: Environmental Safety Risks 95 93 90 88 86 84 82 80 78 22 Effect of Power Plant Development on Endangered Species 197 193 190 187 184 181 178 175 172 Average RPN: 157 154 152 150 148 145 143 141 139 Table C 3 Progress Energy Florida weighted RPNs

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151 Company: Tampa Electric PV Share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5% 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 230 225 220 215 210 205 200 194 189 2 Effect of Fuel Price Volatility on Power Plant Operation 268 261 255 248 242 236 229 223 216 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 145 143 140 138 136 134 132 130 128 4 Power Generation New Technology Risk 72 76 81 85 89 93 97 102 106 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 185 181 177 173 168 164 160 156 152 6 Power Plant Construction Risk 160 157 155 152 149 146 143 140 137 7 Power Plant LandPrice Risk 59 59 58 57 57 56 55 54 54 8 Effect of Fuel Transportation Risks on Power Plant Operation 256 250 244 238 232 225 219 213 207 9 Effect of Human Error on Power Plant Operation 123 121 118 116 114 111 109 107 104 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 159 158 158 157 156 156 155 154 154 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 86 84 83 82 81 80 79 78 76 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 212 208 204 199 195 191 187 183 179 13 Power Plant Outages due to Planned Maintenance 202 198 193 189 185 181 176 172 168 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 177 178 178 178 179 179 179 179 180 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 118 117 115 113 111 109 107 105 104 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 141 139 136 133 131 128 125 123 120 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 106 105 105 104 103 102 101 100 99 18 Effect of Vandalism and Theft on Power Plant Operation 212 214 216 217 219 221 223 224 226 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 144 141 138 136 133 130 128 125 122 20 Power Plant EmployeeSafety Risks 161 158 155 151 148 145 142 138 135 21 Power Plant Operation and Decommissioning: Environmental Safety Risks 100 97 95 93 91 89 86 84 82 22 Effect of Power Plant Development on Endangered Species 190 187 184 181 178 175 172 169 166 Average RPN: 159 157 155 153 150 148 146 143 141 Table C 4 Tampa Electric weighted RPNs

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152 APPENDIX D INDIVIDUAL AND TOTAL PERCENTILE RISK PRIORITY NUMBERS (%RPN) FOR DIFFERENT PV SHARES AND DIFFERENT UTILITIES

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153 Company: Florida Power & Light PV Share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 5.6% 5.6% 5.5% 5.5% 5.4% 5.4% 5.3% 5.3% 5.2% 2 Effect of Fuel Price Volatility on Power Plant Operation 7.1% 7.0% 6.9% 6.9% 6.8% 6.7% 6.6% 6.5% 6.4% 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4 Power Generation New Technology Risk 2.6% 2.7% 2.9% 3.1% 3.2% 3.4% 3.6% 3.7% 3.9% 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 5.9% 5.8% 5.8% 5.7% 5.6% 5.6% 5.5% 5.5% 5.4% 6 Power Plant Construction Risk 5.0% 5.0% 5.0% 4.9% 4.9% 4.9% 4.8% 4.8% 4.8% 7 Power Plant LandPrice Risk 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 8 Effect of Fuel Transportation Risks on Power Plant Operation 6.2% 6.2% 6.1% 6.0% 6.0% 5.9% 5.8% 5.7% 5.7% 9 Effect of Human Error on Power Plant Operation 2.8% 2.8% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 5.3% 5.4% 5.4% 5.5% 5.5% 5.6% 5.6% 5.6% 5.7% 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 5.1% 5.0% 5.0% 5.0% 5.0% 4.9% 4.9% 4.9% 4.9% 13 Power Plant Outages due to Planned Maintenance 5.6% 5.5% 5.5% 5.5% 5.4% 5.4% 5.3% 5.3% 5.2% 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 4.8% 4.9% 5.0% 5.1% 5.1% 5.2% 5.4% 5.5% 5.6% 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 4.1% 4.1% 4.1% 4.1% 4.1% 4.0% 4.0% 4.0% 4.0% 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 5.1% 5.1% 5.1% 5.1% 5.0% 5.0% 4.9% 4.9% 4.9% 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 3.5% 3.5% 3.5% 3.5% 3.6% 3.6% 3.6% 3.6% 3.6% 18 Effect of Vandalism and Theft on Power Plant Operation 5.3% 5.5% 5.7% 5.8% 6.0% 6.2% 6.3% 6.5% 6.7% 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 4.2% 4.2% 4.1% 4.1% 4.1% 4.1% 4.1% 4.0% 4.0% 20 Power Plant EmployeeSafety Risks 4.4% 4.4% 4.3% 4.3% 4.3% 4.3% 4.2% 4.2% 4.2% 21 Power Plant Operation and Decommissioning: Environmental Safety 3.7% 3.7% 3.6% 3.6% 3.6% 3.5% 3.5% 3.4% 3.4% 22 Effect of Power Plant Development on Endangered Species 5.4% 5.4% 5.4% 5.4% 5.3% 5.3% 5.3% 5.3% 5.3% Grand Total: 100% 100% 100% 100% 100% 100% 100% 100% 100% Table D 1 Florida Power and Light weighted RPNs as percentage of total RPNs

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154 Company: Gulf Power PV Share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 6.7% 6.7% 6.6% 6.6% 6.5% 6.5% 6.4% 6.3% 6.3% 2 Effect of Fuel Price Volatility on Power Plant Operation 7.5% 7.4% 7.4% 7.3% 7.2% 7.1% 7.0% 6.9% 6.9% 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4 Power Generation New Technology Risk 2.0% 2.1% 2.3% 2.5% 2.6% 2.8% 3.0% 3.1% 3.3% 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 5.1% 5.0% 5.0% 5.0% 4.9% 4.9% 4.8% 4.8% 4.7% 6 Power Plant Construction Risk 4.3% 4.3% 4.3% 4.3% 4.3% 4.2% 4.2% 4.2% 4.2% 7 Power Plant LandPrice Risk 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 8 Effect of Fuel Transportation Risks on Power Plant Operation 7.4% 7.3% 7.2% 7.1% 7.1% 7.0% 6.9% 6.8% 6.7% 9 Effect of Human Error on Power Plant Operation 3.7% 3.7% 3.7% 3.7% 3.6% 3.6% 3.6% 3.6% 3.6% 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 4.3% 4.4% 4.4% 4.5% 4.5% 4.6% 4.6% 4.7% 4.7% 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 6.4% 6.3% 6.3% 6.3% 6.2% 6.2% 6.1% 6.1% 6.1% 13 Power Plant Outages due to Planned Maintenance 5.7% 5.7% 5.7% 5.6% 5.6% 5.5% 5.5% 5.4% 5.4% 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 5.1% 5.1% 5.2% 5.3% 5.4% 5.5% 5.6% 5.7% 5.8% 15 Effect of Natural Hazards (Climate Change) on Power Plant Operation 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 4.0% 3.9% 3.9% 3.9% 3.9% 3.9% 3.8% 3.8% 3.8% 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 3.0% 3.0% 3.0% 3.0% 3.0% 3.1% 3.1% 3.1% 3.1% 18 Effect of Vandalism and Theft on Power Plant Operation 6.2% 6.3% 6.4% 6.6% 6.7% 6.9% 7.0% 7.2% 7.4% 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 4.2% 4.2% 4.1% 4.1% 4.1% 4.1% 4.1% 4.0% 4.0% 20 Power Plant EmployeeSafety Risks 4.7% 4.7% 4.7% 4.6% 4.6% 4.6% 4.5% 4.5% 4.5% 21 Power Plant Operation and Decommissioning: Environmental Safety 3.0% 2.9% 2.9% 2.9% 2.9% 2.8% 2.8% 2.8% 2.7% 22 Effect of Power Plant Development on Endangered Species 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.1% 5.1% 5.1% Grand Total: 100% 100% 100% 100% 100% 100% 100% 100% 100% Table D 2 Gulf Power weighted RPNs as percentage of total RPNs

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155 Company: Progress Energy Florida PV share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 6.3% 6.3% 6.2% 6.1% 6.1% 6.0% 6.0% 5.9% 5.9% 2 Effect of Fuel Price Volatility on Power Plant Operation 7.7% 7.6% 7.6% 7.5% 7.4% 7.3% 7.2% 7.1% 7.0% 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4.0% 4.0% 4 Power Generation New Technology Risk 2.2% 2.3% 2.5% 2.6% 2.8% 3.0% 3.1% 3.3% 3.5% 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 5.5% 5.4% 5.4% 5.3% 5.3% 5.2% 5.2% 5.1% 5.1% 6 Power Plant Construction Risk 4.8% 4.8% 4.8% 4.8% 4.7% 4.7% 4.7% 4.7% 4.6% 7 Power Plant LandPrice Risk 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 8 Effect of Fuel Transportation Risks on Power Plant Operation 7.2% 7.1% 7.0% 7.0% 6.9% 6.8% 6.7% 6.6% 6.6% 9 Effect of Human Error on Power Plant Operation 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% 3.1% 3.1% 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 4.9% 4.9% 4.9% 5.0% 5.0% 5.1% 5.1% 5.2% 5.2% 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 2.4% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 5.6% 5.6% 5.6% 5.5% 5.5% 5.5% 5.4% 5.4% 5.4% 13 Power Plant Outages due to Planned Maintenance 5.8% 5.8% 5.7% 5.7% 5.6% 5.6% 5.5% 5.5% 5.4% 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 5.1% 5.2% 5.2% 5.3% 5.4% 5.5% 5.6% 5.7% 5.8% 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 4.1% 4.1% 4.1% 4.1% 4.0% 4.0% 4.0% 4.0% 3.9% 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 3.1% 3.1% 3.2% 3.2% 3.2% 3.2% 3.2% 3.3% 3.3% 18 Effect of Vandalism and Theft on Power Plant Operation 6.0% 6.1% 6.3% 6.4% 6.6% 6.7% 6.9% 7.1% 7.2% 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 4.0% 4.0% 4.0% 3.9% 3.9% 3.9% 3.9% 3.9% 3.8% 20 Power Plant EmployeeSafety Risks 4.4% 4.4% 4.4% 4.4% 4.3% 4.3% 4.3% 4.2% 4.2% 21 Power Plant Operation and Decommissioning: Environmental Safety 2.7% 2.7% 2.7% 2.7% 2.7% 2.6% 2.6% 2.6% 2.5% 22 Effect of Power Plant Development on Endangered Species 5.7% 5.7% 5.7% 5.7% 5.7% 5.7% 5.6% 5.6% 5.6% Grand Total: 100% 100% 100% 100% 100% 100% 100% 100% 100% Table D 3 Progress Energy Florida weighted RPNs as percentage of total RPNs

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156 Company: Tampa Electric PV Share in the company portfolio Type of Failure 0% 2.5% 5% 7.5% 10% 12.5% 15% 17.5 20% 1 Effect of Fuel Supply Volatility on Power Plant Operation 6.6% 6.5% 6.5% 6.4% 6.3% 6.3% 6.2% 6.2% 6.1% 2 Effect of Fuel Price Volatility on Power Plant Operation 7.6% 7.6% 7.5% 7.4% 7.3% 7.2% 7.1% 7.1% 7.0% 3 Effect of Change in Customer Demand and/or Loss of Electricity Customers on Power Plant Operation and Return on Invested Capital 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4 Power Generation New Technology Risk 2.1% 2.2% 2.4% 2.5% 2.7% 2.9% 3.0% 3.2% 3.4% 5 Effect of Availability of Capital Resources on Power Plant Operation and Feasibility 5.3% 5.2% 5.2% 5.1% 5.1% 5.0% 5.0% 4.9% 4.9% 6 Power Plant Construction Risk 4.6% 4.6% 4.5% 4.5% 4.5% 4.5% 4.5% 4.4% 4.4% 7 Power Plant LandPrice Risk 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 8 Effect of Fuel Transportation Risks on Power Plant Operation 7.3% 7.2% 7.2% 7.1% 7.0% 6.9% 6.8% 6.8% 6.7% 9 Effect of Human Error on Power Plant Operation 3.5% 3.5% 3.5% 3.5% 3.4% 3.4% 3.4% 3.4% 3.4% 10 Effect of Labor Disruptions or Other Potential Crises on Power Plant Operation 4.5% 4.6% 4.6% 4.7% 4.7% 4.8% 4.8% 4.9% 4.9% 11 Effect of Explosions, Fires and Similar Accidents on Power Plant Operation 2.4% 2.4% 2.4% 2.4% 2.5% 2.5% 2.5% 2.5% 2.5% 12 Effect of Mechanical Breakdowns and Equipment Failures on Power Plant Operation 6.0% 6.0% 6.0% 5.9% 5.9% 5.9% 5.8% 5.8% 5.8% 13 Power Plant Outages due to Planned Maintenance 5.8% 5.7% 5.7% 5.6% 5.6% 5.5% 5.5% 5.5% 5.4% 14 Effect of Natural Hazards (Hurricane, Storms, Tornados and Floods) on Power Plant Operation 5.1% 5.1% 5.2% 5.3% 5.4% 5.5% 5.6% 5.7% 5.8% 15 Effect of Natural Hazard (Climate Change) on Power Plant Operation 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% 3.3% 3.3% 3.3% 16 Effect of Natural Hazards (Earthquakes or Tsunamis) on Power Plant Operation 4.0% 4.0% 4.0% 4.0% 4.0% 3.9% 3.9% 3.9% 3.9% 17 Effect of Natural Hazards (Solar Events, Electromagnetic Event) on Power Plant Operation 3.0% 3.1% 3.1% 3.1% 3.1% 3.1% 3.2% 3.2% 3.2% 18 Effect of Vandalism and Theft on Power Plant Operation 6.0% 6.2% 6.3% 6.5% 6.6% 6.8% 6.9% 7.1% 7.3% 19 Effect of Cyber Attacks, Terrorism and War on Power Plant Operation and Safety 4.1% 4.1% 4.1% 4.0% 4.0% 4.0% 4.0% 4.0% 3.9% 20 Power Plant EmployeeSafety Risks 4.6% 4.6% 4.5% 4.5% 4.5% 4.4% 4.4% 4.4% 4.4% 21 Power Plant Operation and Decommissioning: Environmental Safety 2.8% 2.8% 2.8% 2.8% 2.7% 2.7% 2.7% 2.7% 2.6% 22 Effect of Power Plant Development on Endangered Species 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% Grand Total: 100% 100% 100% 100% 100% 100% 100% 100% 100% Table D 4 Tampa Electric weighted RPNs as percentage of total RPNs

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157 APPENDIX E SURVEY QUESTIONNAIRE

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167 BIOGRAPHICAL SKETCH Eh san Nasri earned his Ph.D. in design, construction and planning and h is M aster s of Science in f inance at the Univ ersity of Florida. He holds Bachelor of Science and Master of Science in civil e ngineering and computational mechanics (s tructures) from Isfahan University of Technology, Iran. Prior to attending the University of Florida's doctoral program, he worked as research engineer, project manager and consultant for several national and international pr ojects in the energy construction and steel industry. Ehsan is a certified Project Management Processional (PMP) and he is a member of Sigma Lambda Chi ociety for leaders in construction. He has several prestigious scholars hips, published papers and presentations on his record. His research and working interests cover different aspects of energy finance and energy risk managemen t