october 7, 2014 the importance of baseload power renewal peter c. balash, ph.d., on behalf of...

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%



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






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

http://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf

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






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


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


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






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




24%

58%

6%

12%

CoalNGWindOther


73%

14%

12%



-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




35%

42%

8%

14%

CoalNGWindOther


87%

9%

5%


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

october 7, 2014 the importance of baseload power renewal peter c. balash, ph.d., on behalf of...

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growth of

gdp growth

baseload bkwh

projections growth

gw baseload

percent growth

steo gdp

forecasted gdp