mark fulton tbli presentation nov 10 2011 nat gas and re

DB Climate Change Advisors Deutsche Bank

Natural Gas and Renewables: A Secure Low-Carbon Future Energy Plan for the U.S. Presented by Mark Fulton Global Head of Climate Change Investment Research TBLI Conference November 10th, 2011

DB Climate Change Advisors Deutsche Bank Mark Fulton

Natural Gas and Renewables: A Secure Low-Carbon Future Energy Plan for the U.S.

— March 11 earthquake and tsunami wreaked havoc on Japan’s energy infrastructure and triggered an industrial accident at the Fukushima nuclear facility

— Prior to Fukushima, net nuclear power capacity additions had been forecast to increase until 2050, reversing a downward global trend that began after the Chernobyl incident in 1986 — Of the 64 GW of new nuclear capacity now under construction and 178 GW of planned capacity

additions (as of September 2011), a substantial portion is now in question

— 56% of this capacity located in China (36%), the EU (10%), and Russia (10%)

— 56% of this capacity located in China (36%), the EU (10%), and Russia (10%)

2011 Key Energy Event: Japan’s Nuclear Crisis

10/26/2011 2010 DB Blue template

1

Source: “Fukushima: Entering the next phase”, HSBC, April 14 2011


Natural Gas and Renewables: A Secure Low-Carbon Future Energy Plan for the U.S

Energy Markets and Health, Safety, Security and the Environment

A comparative analysis of different energy fuel sources, based on current technology


2

Fuel Health Concerns Safety Concerns Energy Security Concerns

Environmental Concerns

Oil / Petroleum High High Very High Very High

Coal Very High High Low Very High

Nuclear Moderate High Low Moderate

Natural Gas Low High Moderate / Moderate Low

Hydro Very Low Moderate Very Low Low

Bioenergy Very Low Low Very Low Moderate

Geothermal Very Low Low Very Low Low

Wind Low Very Low Very Low Very Low

Solar Very Low Very Low Very Low Low

Source: DBCCA analysis 2011



Coal-to-Gas Switch Reduces Emissions of GHG and non-GHG Pollutants


3

Sources: Ventyx, EIA, DBCCA analysis 2011

100% 100%

80%

60%

47%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

SOx PM NOx CO2 at burner tip

CO2 LCA

Redu

ced

Emiss

ions

per

KW

h,

Switc

h fr

om C

oal t

o Ga

s



0

200

400

600

800

1,000

1,200

Natural Gas 2010 Natural Gas 2011 Coal

kg CO

2e/M

Wh

Methane

Non-Combustion CO2

Upstream Combustion

Fuel Combustion

582

1,103

523

53% less than coal 47% less than coal

4

Note: 100 year global warming potential Source: EIA, ICF International, DBCCA analysis 2011

+10% Revision

Gas still 47% cleaner than

coal

Lifecycle GHG Analysis Shows Gas (with fracking) Superior to Coal



5

Although Shale Has Water Footprint Issues… Volumes Not Massive and Manageable With Best Practices

Source: US EPA

Water Intensity of Energy

Production (Gal/MMBtu)

Shale Gas 0.6 – 6

Coal (no slurry transport)

2 – 8

Coal (with slurry transport)

13 – 32

Nuclear 8 – 14

Sources: US EPA, US DOE, New York State Department of Environnemental Conservation Groundwater Protection Council (GWPC) Report, 2008.



US Future Energy Pathway: Fuel Switch Mix Ease of Deployment in the Electricity and Power Sector


6

Source: DBCCA analysis 2010. * Other includes hydro, geothermal and biomass

DBCCA Taxonomy CO2

Technology Abatement

Capex Financing

Requirement

2020 Deployment Limitations

2030 Deployment Limitations

DBCCA Deployment

Rating

Renewable Power- Wind High High Moderate Moderate Moderate

Renewable Power- Solar High High Moderate Moderate Moderate

Renewable Power- Other* High High Moderate Moderate Moderate

Nuclear Energy High High Moderate High Low

Coal Low High High High Low

Fossil Fuel Switching (coal to gas) Moderate Low Low Low High



2010-2030: US Electricity Supply Mix Becomes Greener and More Gas-Intensive

45%

24%

19%

8%

3%

Coal Coal CCS Natural Gas Nuclear Baseload Renewables Wind and Solar


7

Note: 2010 values sum to to 99% due to 1% electricity supply from petroleum (not shown), Sources: EIA; DBCCA Analysis 2011

US Electricity Supply Mix 2010A (% Total TWh)

US Electricity Supply Mix 2030E (% total TWh)

11% RE 24% Nat Gas

24% RE 38% Nat Gas

— Assumes from 2010-2030 energy efficiency measures limit growth in electricity demand to 0.7% CAGR

20% 1%

38%

17%

7%

17%



With Nuclear Side-Lined, New Capacity of Gas and Renewables Comes in as Coal Capacity Goes Out


8

Note: Nuclear not shown prior to 2014 and coal not shown prior to 2015 because DBCCA’s Electric Power Forecast projects first addition/removal of installed capacity for these technologies in these years. Sources: UC-Berkeley Energy Resource Group’s “WPK Model,” DBCCA analysis 2011. The WPK model is named for Wei, Patadia, and Kammen, co-authors of the 2009 study “ Putting renewable and energy efficiency to work: How many jobs can the clean energy industry generate in the U.S.?”.

Annual Generation Capacity Additions/Removals by Technology in DBCCA Electric Power Forecast, 2010-2030 (MW)



And Pending EPA Regulatory Action Daunting for Polluting Energy Technologies


9

Source: Exelon Corp



Coal to Gas Fuel and Asset Switch Decision Tree Matrix and Commodity Price Sensitivity


10

Coal / Gas Scenarios 1 2 3

DBCCA Comment Power Generation Type ($/mmBtu

Fuel)

Existing Coal/Gas Plant LCOE

Depreciated Coal Plant EPA Retrofit Fully Loaded Cash

Cost

New Build Coal/Gas Scrubbed EPA

Compliant Plant Fully Loaded Cash Cost

Coal @ $3.00 0.04-0.06 0.06-0.09 0.10-0.14 Coal fully loaded cash costs rise with greater

EPA compliance

Gas @ $4.00 0.03-0.05

N/A 0.05-0.07 At $4/mmBtu, gas displaces coal across all

scenarios

Fuel switch Yes Yes Yes Hedge a carbon price

Asset switch Yes Yes Yes Hedge a carbon price; build new gas assets to replace inefficient coal

Gas @ $6.00 0.05-0.07 N/A 0.06-0.10 At $6/mmBtu, only old unscrubbed coal beats gas on LCOE but not based on fully loaded cash cost

Fuel switch No Yes Yes

Asset switch No Yes Yes Hedge a carbon price; build new gas assets to replace inefficient coal

Gas @ $8.00 0.06-0.08 N/A 0.07-0.09 At $8/mmBtu, old coal beats gas on LCOE and new EPA compliant builds are breakeven with gas

Fuel switch No Yes Selectively Hedge a carbon price; dispatch efficient gas assets

Asset switch No Yes Selectively Hedge a carbon price; build new gas assets to replace inefficient coal

Source: DBCCA analysis 2010.



35 GW of “at risk” Coal – Over Half can be Replaced by Increasing Capacity Factors of Existing Gas Plants

Total “at risk” Coal

“at risk” Coal with Proximate

NGCC

Proximate NGCC Plants

# of plants 148 32 60

GW 35 19 38

2010 generation (GWh)

306,000 32,000 113,000


11

Sources: SNL Financial, NREL, DBCCA Analysis 2011



Gas Generation is Increasing Relative to Coal in Most Regions of US


12

Sources: Ventyx, EIA, DBCCA analysis 2011

-20 -15 -10 -5 0 5 10

West South Central

West North Central

East South Central

Mountain

East North Central

South Atlantic

Middle Atlantic

New England

Pacific Contiguous

GWh

Coal

Natural Gas

YOY Change in Generation (MWh) Jan-Apr 2010 vs. Jan-April 2011



Gas Exceeds - and Wind is Catching up - with Coal Power Installations


13

Source: EIA; DBCCA analysis 2011

6,4415,461

4,343

18,883

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Natural Gas Coal Wind US Total

MW

2010 New Generation Capacity Additions (MW)



Renewables Still Need Some Level of Policy Support Transparency, Longevity and Certainty (TLC)

14

Country

Emissions Control Financial Support

Grid Improve-

ment Plan

Budget Strength

(% of 2010 GDP)

Capital Investment 200 0-2010 (USD Bn)

Binding Emissions

Target

Renewable Electricity Standard

(RES)

Long-term Energy

Efficiency Plan

Feed-in Tariff (

FiT)

Long-term Govt-based

‘Green Bank’

Tax Benefit

Long-term Funding Program

China ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ -1.6% 148.3

Germany ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ -3.6% 393.2

United Kingdom ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ -11.5% 384.1

United States COP Acc

State-level State-level State-level ✔ State-level State-level -10.0% 164.1

California ✔ ✔ ✔ ✔ X ✔ ✔ ✔ -1.0% -

Texas X ✔ ✔ X X ✔ ✔ ✔ -2.2% -

Brazil ✔ ✔ ✔ X ✔ ✔ ✔ ✔ -2.2% 42.3

South Korea COP Acc

✔ ✔ ✔ X ✔ ✔ ✔ -1.1% 31.2

India COP Acc

✔ ✔ State-level X ✔ ✔ ✔ -5.5% 27.1

Australia ✔ ✔ ✔ State-level X ✔ ✔ State-level -4.2% 9.8

South Africa COP Acc

✔ ✔ ✔ X X ✔ -5.3% 0.4

Notes: COP Acc = policy is a submission to the Copenhagen Accord and is not a legally binding target; = tentative / unconfirmed policy dependent on certain provisions such as funding; Source: DBCCA Analysis 2011



US Has History of Inconsistent Federal Policy Support for Renewables


15

0

2,000

4,000

6,000

8,000

10,000

12,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Annu

al W

ind

Capa

city

Add

ition

s (M

W)

Further extension of the Section 1603 Treasury cash grant program can help to create and preserve “green” jobs

92% Drop

76% Drop

76% Drop

Production Tax Credit Expiration Years

• Section 1603 Treasury Cash Grant – Extended in December 2010 for 1 year only

• Advanced Energy Manufacturing Tax Credit – Expired end-2010

• Sections 1703 & 1705 Loan Guarantees – Expiring in 2011

Will wind market drop off again in

2012?

Sources: AWEA, 2011; Bloomberg New Energy Finance, 2011

Forecasts / Estimates



— Conventional technologies have started out at very high cost and have only achieved cost reduction with economies of scale

— Solar and Wind are still more expensive than fossil generation and require interim support until adequate scale is reached

Renewables are Trending Towards Grid Parity

Source: Hudson Clean Energy Partners Analysis, 2011

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Reta

il Co

st ($

/kW

h)

Gene

ratio

n (T

Wh)

Coal Generation Gas Generation Nuclear Generation Solar Generation Wind Generation

Coal Cost Trend Gas Cost Trend Nuclear Cost Trend Solar Cost Trend Wind Cost Trend

Coal, Natural Gas, and Nuclear required massive achievements in improving scale to achieve current favorable cost structures

Solar and Wind are experiencing significant improvements in their cost structure with small increases in scale

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

Gen

erat

ion

(TW

h)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Ret

ail C

ost $

/ kW

h

1935 1940 1945 1950 1955 1960 1965 1930 1970 1975 1980 1985 1990 1995 2000 1965 2005 2010

Coal Generation

Coal Cost-trend

Gas Generation

Gas Cost-trend

Nuclear Generation

Nuclear Cost-trend

Solar Generation

Solar Cost-trend

Wind Generation

Wind Cost-trend

U.S. Electricity Generation and Retail Cost by Energy Source 1930 – 2010



~500,000 Net New Jobs in 2030 as Compared with 2010


17

Sources: UC-Berkeley Energy Resource Group’s “WPK Model,” DBCCA analysis 2011. The WPK model is named for Wei, Patadia, and Kammen, co-authors of the 2009 study “ Putting renewable and energy efficiency to work: How many jobs can the clean energy industry generate in the U.S.?”. The model itself is derived from a meta-study of 15 key job studies and produces normalized direct employment multipliers per unit of energy that can be applied to an energy forecast scenario.

Annual Net New Job Additions by Sector and Type, 2010-2030



Renewables Accounts for 81% of Net New Jobs by 2030


18

*CIM is Construction, Installation, and Manufacturing. Sources: WPK Model, DBCCA analysis 2011.

Breakdown of Employment Gains, 2030 vs. year-end 2009

Increase/ (decrease)

in jobs, 2030 vs.

2009

CIM direct

CIM

indirect

O&M direct

O&M

indirect

Total direct

Total

indirect

Sum total

% share

Geothermal 931 838 10,964 9,867 11,895 10,705 22,600 5%

Solar PV 76,945 69,251 43,814 39,433 120,759 108,683 229,443 47%

Solar Thermal 469 422 2,463 2,217 2,932 2,639 5,571 1%

Wind 33,144 29,830 38,410 34,569 71,555 64,399 135,954 28%

Subtotal – RE 111,489 100,340 95,651 86,086 207,141 186,427 393,567 81%

Natural Gas 4,896 4,406 68,664 61,797 73,560 66,204 139,764 29%

Pipelines & Electricity Grid 7,505 6,755 4,192 3,773 11,697 10,527 22,224 5% Coal , Oil, Coal CCS 0 0 (62,374) (56,136) (62,374) (56,136) (118,510) -24%

Nuclear 0 0 (3,039) (2,735) (3,039) (2,735) (5,774) -1% Energy Efficiency 28,679 25,640 NA NA 28,679 25,640 54,319 11%

Total Net 152,569 137,141 103,095 92,785 255,664 229,926 485,591 100%



-49%

-35%

35%

44% 50%

13%

-17%

-60%

-40%

-20%

0%

20%

40%

60%

GW

of I

nsta

lled

Cap

acity

How Japan can Reduce Nuclear While Containing CO2 Emissions – Ramp Gas, Efficiency, and Renewables


19

Nuclear Coal Natural Gas Solar PV Wind Hydro Efficiency & Conservation

Japan’s “Practical Nuclear Reduction” Scenario: Net Changes in Generation Capacity Relative to Government Base Case, 2030 (%)

Source: DBCCA estimates 2011.



Disclaimer

20

DB Climate Change Advisors is the brand name for the institutional climate change investment division of Deutsche Asset Management, the asset management arm of Deutsche Bank AG. 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I-024799-1.1

mark fulton tbli presentation nov 10 2011 nat gas and re

Economy & Finance

policy support

deutsche bank

deutsche bank

deutsche asset

electricity

increasing

replace inefficient

increasing