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October 7, 2014
The Importance of Baseload Power Renewal
Peter C. Balash, Ph.D.,on behalf of
Strategic Energy Analysis and Planning
2
• The analysis presented and conclusions drawn are solely those of the author(s), and do not represent the views of the United States Department of Energy
Disclaimer
3
• Electricity Trends and Projections– Growth and capacity needs may be under-projected
• Issues in Focus – “GHG concern”– Obscures otherwise economic coal plant additions
• Issues in Focus – “Ageless Baseload”– Is high utilization of aging capacity realistic?
• Impact of Retirements– Infrastructure and reliability concerns
Outline – Importance of Basleoad
Growth in electricity use slows, but still increases by 29% from 2012 to 2040
-2%
0%
2%
4%
6%
8%
10%
12%
14%
percent growth (3-year compounded annual growth rate)
Source: EIA, Annual Energy Outlook 2014 Early Release
4
History
Projections
2012
electricity use
GDP
Structural Change in Economy - Higher prices - Standards - Improved efficiency
Period Annual GrowthElectricity use GDP
1950s 9.8 4.11960s 7.3 4.41970s 4.7 3.21980s 2.9 3.01990s 2.4 3.22000-2012 0.7 1.82013-2040 0.9 2.5
Overview of AEO2014 Accelerated Power Plant Retirement Side Cases May 20, 2014
5
Long-term relation of kWhgr/GDPgr = 0.683Implicit AEO 2014 relation = 0.381 (2012 to 2040); 56% of long-term relationship
Annual Growth RateElectricity End Use
Annual Growth Rate Real GDP
All Periods 1.89% 2.77%
Non-recession 2.25% 3.21%
Recession -1.04% -0.87%
1- 4 quarters after recession 0.66% 1.17%
1- 8 quarters after recession 1.97% 2.60%
5- 8 quarters after recession 3.29% 4.03%
Sources: Electricity, EIA, Monthly Energy Review, Table 7.6, Electric Power Month, STEO; GDP, Bureau of Economic Analysis, NIPA Table 1.1.6 Real GDP Chained 2005 Dollars; Rates, AEO2014 Tables 8 and 20; and NETL analysis; IHS, North American Power Quarterly Briefing, May 5, 2014; “gr” stands for growth rate.
Electricity and GDP Growth~30 Year Avg. Year-over-Year Growth Rates, 1982Q1-2014Q1
For a medium-term comparison, IHS projects kWh growth of 1.8%/year and GDP growth of 3.0%/year from 2015-20.
6 Sources: BEA – NIPA Table 1.1.6; EIA – Monthly Energy Review; Annual Energy Outlook 2014; *kWh end use (consumption); dashed lines represent6th order polynomial fit
19501953
19561959
19621965
19681971
19741977
19801983
19861989
19921995
19982001
20042007
20102013
20162019
20222025
20282031
20342037
2040
-2%
0%
2%
4%
6%
8%
10%
12%
14%
3-ye
ar m
ovin
g av
erag
e
SEAP
AEO’14
Forecast
kWh Growth Rate*: AEO’14 vs. SEAP
7
Growth of U.S. GDP vs. GenerationHistoric and Forecast
Sources: BEA – NIPA Table 1.1.6; EIA – Annual Energy Review; Annual Energy Outlook 2014
19701973
19761979
19821985
19881991
19941997
20002003
20062009
20122015
20182021
20242027
20302033
20362039
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
3,000
7,000
11,000
15,000
19,000
23,000
27,000
31,000
35,000
39,000AEO’14Forecast
“Structural Change in The Economy”, Anticipates Less Energy Required Per Unit of GDP;“Higher Prices” Also Assumed to Suppress Demand
Real GD
P Billions (2010$)
Bubble Divergence
Generation
GDP
Gen
erati
on (B
kWh) What If, in addition,
GDP grew at AEO’05 rate?What if historic trend in kWh and GDP growth
is applied to forecasted GDP?
672 BkWh* missing in 2040;Equivalent to 491 baseload BkWh
≈ 70 GW Baseload
1,187 BkWh* missing in 2040;Equivalent to 866 baseload BkWh
≈ 124 GW baseload
2.46% CAGR
3.0% CAGR
GDP Gap 70 GW
Generation Gap
124 GW
8
• Electricity Trends and Projections– Growth and capacity needs may be under-projected
• Issues in Focus – “GHG concern”– Obscures otherwise economic coal plant additions
• Issues in Focus – “Ageless Baseload”– Is high utilization of aging capacity realistic?
• Impact of Retirements– Infrastructure and reliability concerns
Outline – Importance of Basleoad
20052006
20072008
20092010
20112012
20132014
20152016
20172018
20192020
20212022
20232024
20252026
20272028
20292030
20312032
20332034
2035
-60
-40
-20
0
20
40
60
80
100
120
140
160
180
New
Coa
l Cap
acity
(GW
)AEO Coal Capacity Addition Forecasts
A Wide Variation in Outlooks Over a Brief Period of Forecasts
Sources: EIA - Annual Energy Outlook 2006 through 2014; AEO’ 06 included 19 GW equivalent of CTL
AEO’06
AEO’07
AEO’08
AEO’09 AEO’10AEO’11
55% Capacity Increase - to 17% Decreasewithin 8 Years of Forecasts
AEO’12
Additions less Retirements
AEO’13
AEO’14AEO’13
AEO’14
Beginning with AEO ‘09, EIA applies financing cost adder to coal plants
10
“GHG Concern”“The LCOE values shown for each utility - scale generation technology in Table 1 and Table 2 in this discussion are calculated based on a 30 - year cost recovery period, using a real after tax weighted average cost of capital (WACC) of 6.5 % . In reality, the cost recovery period and cost of capital can vary by technology and project type. In the AEO2014 reference case, 3 percentage points are added to the cost of capital when evaluating investments in greenhouse gas (GHG) intensive technologies like coal fired power and coal - to - liquids (CTL) plants without carbon control and sequestration (CCS). In LCOE terms , the impact of the cost of capital adder is similar to that of an emissions fee of $15 per metric ton of carbon dioxide (CO 2 ) when investing in a new coal plant without CCS, which is representative of the costs used by utilities and regulators in their resource planning . 5 The adjustment should not be seen as an increase in the actual cost of financing, but rather as representing the implicit hurdle being added to GHG - intensive projects to account for the possibility that they may eventually have to purchase allowances or invest in other GHG - emission - reducing projects to offset their emissions. As a result, the LCOE values for coal - fired plants without CCS are higher than would otherwise be expected. ”
AEO’14 AssumptionsIncreasing Coal Cost of Capital Nearly 50%
Source: EIA, "Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2014" http://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf
11
Alternate NEMS Scenarios*
Low oil and gas resources
High economic growth Reference coal price No GHG concern0
10
20
30
40
50
60
70
80
90
Up to 80GW of Coal may plausibly be neededG
ener
ation
cap
acity
(GW
)
Higher Gas Prices, No Cost Penalty, reference coal prices
High Gas Prices
No cost penalty
*Performed by NETL
12
• Electricity Trends and Projections– Growth and capacity needs may be under-projected
• Issues in Focus – “GHG concern”– Obscures otherwise economic coal plant additions
• Issues in Focus – “Ageless Baseload”– Is high utilization of aging capacity realistic?
• Impact of Retirements– Infrastructure and reliability concerns
Outline – Importance of Basleoad
13
Generation by fuel“In the Reference case, coal-fired generation increases by an average of 0.2 percent per year from 2011 through 2040. Even though less capacity is available in 2040 than in 2011, the average capacity utilization of coal-fired generators increases over time. In recent years, as natural gas prices have fallen and natural gas-fired generators have displaced coal in the dispatch order, the average capacity factor for coal-fired plants has declined substantially. The coal fleet maintained an average annual capacity factor above 70 percent from 2002 through 2008, but the capacity factor has declined since then, falling to about 57 percent in 2012. As natural gas prices increase in the AEO2013 Reference case, the utilization rate of coal-fired generators returns to previous historical levels and continues to rise, to an average of around 74 percent in 2025 and 78 percent in 2040. Across the alternative cases, coal-fired generation varies slightly in 2025 (Figure 30) and 2040 (Figure 31) as a result of differences in plant retirements and slight differences in utilization rates. The capacity factor for coal-fired power plants in 2040 ranges from 69 percent in the High Oil and Gas Resource case to 81 percent in the Low Oil and Gas Resource case.”
AEO’13 Issues in Focus (page 42)
The “Ageless Baseload” Assumption
Gas-fueled units account for most projected capacity additions in the AEO2014 Reference case
14
U.S. electricity generation capacity additions
gigawatts
Source: Form EIA-860 & EIA Annual Energy Outlook 2014, Early Release
19501954
19581962
19661970
19741978
19821986
19901994
19982002
20062010
20142018
20222026
20302034
2038
-10
0
10
20
30
40
50
60
70
Other Renewables
Solar
Wind
Oil and Natural Gas
Nuclear
Hydro / Other
Coal
History Projected
Overview of AEO2014 Accelerated Power Plant Retirement Side Cases May 20, 2014
Electricity Generation by Fuel, 1980-2040
15
billion kilowatthours
19801983
19861989
19921995
19982001
20042007
20102013
20162019
20222025
20282031
20342037
20400
500
1000
1500
2000
2500
Coal
Petroleum
Nuclear
Natural Gas
Renewables
Note: Includes generation from plants in both the electric power and end-use sectors.
Source: History: U.S. Energy Information Administration (EIA), Annual Energy Review;
Projections: AEO2014 Early Release (December 2013).
ProjectionsHistory 2012
Overview of AEO2014 Accelerated Power Plant Retirement Side Cases May 20, 2014
16
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 990
2
4
6
8
10
12
14
16
Age
Capa
city
(GW
)Aging Baseload Coal-fired Fleet in 2040
Existing Capacity in 2040New AEO Capacity
Reference – Ventyx Velocity Suite (existing units and announced retirements - EIA AEO 2014 (forecasted additions and Retirements)
Includes AEO ‘14 additions after 2014Accounts for announced retirementsAnd EIA forecasted retirements
Capacity-weightedAverage Age 62
Operating at Highest Capacity Factors Ever at 62 Years Average Age?
Virtually no new Coal Capacity to make up for aging and retired units
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 990
5
10
15
20
25
Age
Capa
city
(GW
)Coal & Nuclear Baseload Capacity by 2040
New Coal Capacity
Existing Coal Capacity Existing Nuclear Capacity
New Nuclear Capacity
20402014
Reference – Ventyx Velocity Suite (existing units and announced retirements - EIA AEO 2014 (forecasted additions and Retirements)
60 years or older by 2040
Coal: 168 GW (66%)
Nuclear: 43GW (42%)
Virtually no new Coal Capacity and very little Nuclear Capacity to make
up for aging and retired units
18
0-1010-20
20-3030-40
40-5050-60
60-7070-80
80-90
90-100
100-110
110-1200
20
40
60
80
100
120
140
0
10
20
30
40
50
60
70
80
Announced Retirement
Projected Retirement
Continued Operation
Average capacity factor of units in age band in 2012Age groupings in 2040
Tota
l Cap
acity
(GW
) Capacity factor (%)
Age Distribution of Existing Coal Units by 2040(AEO 2014 Reference Case)
Identity of Projected Retirement units using NETL methodology
Will these units credibly support a 75% average capacity factor
in 2040?
~75% Capacity Factor in 2040?
Unit Capacity Factor by Age range(10-year ranges) (Kernel density plots)
Kernel density plots exclude units with heat rates equal to 0 or greater than 35,000 and exclude units with capacity factors greater than 100; note: kernel density estimates approximate the density f(x) from observations on x
0.0
1.0
2.0
3.0
4D
en
sity
0 20 40 60 80 100cf
10 years and under 11 to 20 years
21 to 30 years 31 to 40 years41 to 50 years 51 to 60 yearsover 60 years
20
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 840
10
20
30
40
50
60
70
80
90
100
Average capacity factors for Coal units for operations 1998-2013 by unit age
Unit age (years)
Aver
age
capa
city
fact
or (%
)Coal unit capacity factors drop off as they age
Data source and notes: Data from Ventyx's Energy Velocity. Unit age in each year was calculated then averaged; black line is 3 rd order polynomial of the entire data set.
Approximation of actual industry capacity factor
experience based on unit age
80%
60%
14%
21
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84
0102030405060708090
100Average capacity factor by unit age for coal operations, 1998-2013Q3
Unit age in years
Avera
ge c
apacit
y f
acto
r (%
)
Potential Coal GWs - Reference
Reference – Ventyx Velocity Suite; - EIA AEO’13 remaining coal unit identities; AEO 2014er reference case generation; missing generation estimate 144 GW @80% average C.F. for new units to meet 2040 demand; includes AEO’13 estimate of retiring units beyond public announcements
20142015
20162017
20182019
20202021
20222023
20242025
20262027
20282029
20302031
20322033
20342035
20362037
20382039
20400
200
400
600
800
1,000
1,200
1,400
1,600
1,800
BkW
h
EIA AEO’14 Generation
Generation from current fleet, plus additions, less announced & AEO 2013
retirements, based on historic age/capacity factor operating data (above)
80%60%
14%
144GW
1,007 BkWh
109GW
56GW
31GW 79
GW
Development needed today?
22
• Electricity Trends and Projections– Growth and capacity needs may be under-projected
• Issues in Focus – “GHG concern”– Obscures otherwise economic coal plant additions
• Issues in Focus – “Ageless Baseload”– Is high utilization of aging capacity realistic?
• Impact of Retirements– Infrastructure and reliability concerns
Outline – Importance of Basleoad
23
Coal capacity retirements will dominate in the Eastern Interconnection through 2020
Source: Ventyx Velocity Suite Generating Unit Capacity Query
Cumulative change (GW) of the generation mix for 2010-2020 period
Other: hydro, nuclear, oil, renewable, solar, other
16%
60%
4%
20%
CoalNGWindOther
New generation mix 2010-2020 (56.84 GW)
54%
27%19%
Retired generation mix 2010-2020 (93.08 GW)
Other: hydro, oil, renewable, other
-6.1
2.3
8.6
-41.0Coal
NG
Wind
Other
0Other: Retirements of hydro (0.1 GW), oil (13.6 GW), nuclear (2.6 GW), and non-wind renewables (1.2 GW),and addition of hydro (0.6 GW), oil (0.6 GW), nuclear (5.6 GW), and non-wind renewable (5.2 GW)
Note: Graph illustrates announced to date (Sept 2014) retirements in the Eastern Interconnection
24
Coal Generation Fleet per Regulatory Impact Analysis, 2020
US -
50,000
100,000
150,000
200,000
250,000
300,000
5,931 29,480
67,508
202,762
Coal generation capacity operational status from IPM Option 1 and Announced Re-tirements (MW) for the US
Continued operation
Additional retirements forecast by IPM
Announced retirements (forecast by IPM)
Announced retirements (NOT forecast by IPM)
In Energy Velocity database, there are currently 36 GW of announced retirements
IPM forecasts a total of 97 GW of retirements
by 2020 in Option 1
Notes: Announced coal unit retirements from Ventyx’s Energy Velocity, Projected retirements identified at the unit level using NETL’s “Best Estimate” methodology and data from IPM Option 1 model results summing coal retirements by state.
25
Coal Retirements by 2020Actual, Announced, and EPA IPM
Retirements 2010-2013-20 GW (210 units)
Operating and Standby Units
Announced Retirements2014 - 2020
-36.7 GW (211 units)
Coal RetirementsView Layer
Off
Off
On
OnActual Retirements (2010-2013)
Announced Retirements
IPM Retirements
IPM Missed Announcements
Operating Units as of 2014 /Remaining units in 2020 after applied retirements
Summer Capacities*Best Estimate based on unit size , capacity factor, age, and competitiveness
Estimated IPM Case Coal Retirements*
-97 GW by 2020
OffOn X
26
New NGCC Builds by 2020Actual Announcements
View Layer
OffOnUnder Construction+16 GW
Proposed NGCC Builds 83 GW
Permitted+18 GW
Proposed+49 GW
Off
Off
On
On
New NGCC Builds
Built in 2010-2013
Under Construction
Permitted
Proposed
NGCC Builds in 2010 – 2013+23 GW OffOn
NM MN MA KY MD OH TN IN OR MI NV VA WI WV AZ GA WA MN OK LA 0%
5%
10%
15%
20%
25%
30%
35%
% of generation from announced retirements
Perc
ent o
f sta
te's
tota
l ele
ctri
city
gen
erati
onGeneration from AnnouncedRetiring Units, January 2014
Notes: Announced coal unit retirements from Ventyx’s Energy Velocity
Generation from Projected Retiring Units, January 2014
Notes: Announced coal unit retirements from Ventyx’s Energy Velocity, Projected retirements identified at the unit level using NETL’s “Best Estimate” methodology and data from IPM Option 1 model results summing coal retirements by state.
AR DE WI GA NM TX WY NH OK MN FL MA AZ KY MD AL MS LA UT 0%
5%
10%
15%
20%
25%
30%
35%
% of generation from pro-jected retirements
% of generation from announced retirements
Perc
ent o
f sta
te's
tota
l ele
ctri
city
gen
erati
on
29
• Historic relationship between electricity demand and economic growth suggests current under-projection of required power generation– ~100-200 GWeq.
• EIA modeling assumptions limit coal plant additions• Reliance on high utilization of aging coal (and nuclear) baseload assets
risky– Uncertain historical basis for continued high utilization
• Considerable potential for new baseload assets due to aging of the current fleet– ~100-150 GW
• Far more coal retirements than gas additions raises reliability concerns
Conclusions
Additional Slides
31
From 2010 to 2020, coal retirements will be the primary driver behind RFC capacity losses
Source: Ventyx Velocity Suite Generating Unit Capacity Query
Cumulative change (GW) of the generation mix for 2010-2020 period
Other: hydro, nuclear, oil, renewable, solar, other
24%
58%
6%
12%
CoalNGWindOther
New generation mix 2010-2020 (13.14 GW)
73%
14%
12%
Retired generation mix 2010-2020 (35.9 GW)
Other: hydro, nuclear, oil, renewable, solar, other
-2.8
0.7
2.4
-23.1Coal
NG
Wind
Other
0Other: Retirements of hydro (0.01 GW), oil (3.2 GW), nuclear (0.6 GW), biomass (0.1 GW) and non-wind renewables (0.6 GW) and addition of hydro (0.4 GW), oil (0.02 GW), non-wind renewable (0.3 GW), biomass (0.6 GW) and solar (0.3 GW)
Note: Graph illustrates announced to date (Sept 2014) retirements in RFC
32
Coal capacity retirements will dominate in former ECAR areas through 2020
Source: Ventyx Velocity Suite Generating Unit Capacity Query
Cumulative change (GW) of the generation mix for 2010-2020 period
Other: hydro, nuclear, oil, renewable, solar, other
35%
42%
8%
14%
CoalNGWindOther
New generation mix 2010-2020 (5.5 GW)
87%
9%
5%
Retired generation mix 2010-2020 (22.6 GW)
Other: hydro, oil, renewable, other
-0.3
0.5
0.4
-17.7Coal
NG
Wind
Other
0Other: Retirements of hydro (0.0 GW), oil (0.8 GW) and non-wind renewables (0.3 GW) and addition of hydro (0.1 GW), oil (0.0 GW), and non-wind renewable (0.7 GW)
Note: Graph illustrates announced to date (Sept 2014) retirements in ECAR
RFC-ECAR
33
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20230%
5%
10%
15%
20%
25%
30%
35%
40%
Historical 2012 NERC LTRA 2013 NERC LTRA NETL
Rese
rve
Mar
gin
(%)
Eastern Interconnection reserve margin levels consistently decrease through 2023 (units in queue only)
Data Source: NERC Summer Reliability Assessments (2010 – 2013), NERC Long-Term Reliability Assessment (2012 & 2013) and NETL Simulations using PROMOD IV 11.1