June 19, 2014 Recent Electricity Trends and Coal Plant Retirements The Importance of Baseload Power Renewal Peter C. Balash, Ph.D. Deputy Director Strategic

June 19, 2014

Recent Electricity Trends and Coal Plant Retirements

The Importance of Baseload Power Renewal

Peter C. Balash, Ph.D.Deputy Director

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

• Issue in Focus – “Ageless Baseload”– Is high utilization of aging capacity realistic?

• EIA “Response”: Accelerated Retirement Scenario– Infrastructure and reliability concerns

• All Bets on Gas– Elastic supply, or excessive optimism?

Outline

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

Total Electricity Consumption vs. GDP Forecasts(all AEOs extrapolated through 2040)

0 1,000 2,000 3,000 4,000 5,000 6,000 7,0000

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Billion kWh

Rea

l G

DP

(B

illi

on

201

0$)

AEO’05: $21.4 trillion GDP from 4,958 BkWh

1949-2005 R-squared = 0.971

Sources: EIA, Annual Energy Outlooks (editions AEO05 through AEO14; Annual Energy Review; BEA: Implicit Price Deflator and Real GDP)

‘05

‘11

‘10‘09 ‘08

‘07‘06

AEO’14: $29.6 trillion GDP from 4,954 BkWh (2040)

’12

+$8.2 trillion (38.1%) more GDP from ~same kWh

‘14

2040 kWh difference from AEO’05 to AEO’14:

2,215 BkWh

’13

9

• Electricity Trends and Projections• Issue in Focus – “Ageless Baseload”• EIA “Response”: Accelerated Retirement Scenario• All Bets on Gas

Outline

10

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

11

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

12

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


13

Average capacity utilization of natural gas combined cycle and coal generating capacity, 2008-2040

percent

0

10

20

30

40

50

60

70

80

90

Natural Gas

Coal

2012

Source: AEO2014 Early Release (December 2013)

History Projections


14

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

15

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%

16

Coal Capacity and Unit Ages in 2040

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

0

10

20

30

40

50

60

70

80

90

Age

Capa

city

(GW

)

New Capacity (2013-2040)

Existing Capacity

Historic Age-basedCapacity Factor Trend

(1998-2013)AEO’13 AVERAGE Capacity Factor 2040

Historic AVERAGE Capacity Factor Existing Units (1998-2013)

78%

64%

AVERAGE Capacity Factor based on 2040 ages and

16 year historic operation

28%

Capacity Factor

(%)

Reference – Ventyx Velocity Suite (existing units and announced retirements - EIA AEO 2013 (Reference case forecasted additions and retirements; AEO 2014 reference case generation)

Includes AEO ‘13 additions after 2012Accounts for announced retirementsand EIA forecasted retirements

Capacity-weighted average age 62(average unit age 66)

AEO’14 AVERAGE Capacity Factor 2040 73%

80%

60%

14%

17

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?

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

19


Outline

20

Accelerated Nuclear and Coal Retirements Scenario (ANCR): Coal Retirements Doubled

Source: EIA, AEO’14

20122014

20162018

20202022

20242026

20282030

20322034

20362038

20400

30

60

90

120

Gig

awatt

s

ANCR

Reference

MATS fully implemented in 2016

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 - ANCR

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 ANCR Generation

Generation from current fleet, plus additions, less announced & AEO 2013

retirements, based on historic age/capacity factor operating data (above)

80%60%

14%

Development needed today?

80GW

563 BkWh

33GW

19GW

22

Reference ANCR-150

-100

-50

0

50

100

Coal -44Coal -83

Oil NG Steam -10

Oil NG Steam -12

C Turbine -7

C Turbine -8

NGCC 19NGCC 36

C Turbine 18

C Turbine 20Nuclear 6

Nuclear 6

Renew

Nuclear

C Turbine

NGCC

Oil NG Steam

Coal

Renew

Nuclear

C Turbine

NGCC

Oil NG Steam

Coal

Sum

mer

Cap

acity

(GW

)2013-2020 Additions and Retirements

EIA AEO 2014, Reference and Accelerated Coal and Nuclear Cases

Retir

emen

tsAd

ditio

ns

Effective Renewable Capacity Derate

Adj. Renew. 5

Adj. Renew. 6

Renew. 26

Renew. 29

Twice as much baseload retires as is “replaced” by gas

23

Reference ANCR-200

-100

0

100

200

300

400

Coal -45Coal -98Oil NG Steam -27

Oil NG Steam -32

C Turbine -9

C Turbine -9

Nuclear -1.22

Nuclear -38.67

NGCC 131NGCC 195

C Turbine 93

C Turbine 91Nuclear 10

Nuclear 6

Renew

Nuclear

C Turbine

NGCC

Oil NG Steam

Coal

Renew

Nuclear

C Turbine

NGCC

Oil NG Steam

Coal

Sum

mer

Cap

acity

(GW

)2013-2040 Additions and Retirements

EIA AEO 2014, Reference and Accelerated Coal and Nuclear Cases

Retir

emen

tsAd

ditio

ns

Adj. Renew. 11

Adj. Renew. 13Effective Renewable Capacity Derate

Renew. 53

Renew. 64

Will gas capacity arrive in time?

Vast majority of gas capacity additions come in well after coal retirements

24

Coal Retirements by 2020AEO 2014 ANCR Side Case

Retirements 2010-2013-20 GW (210 units)

Operating and Standby Units

Estimated ANCR Case Coal Retirements*

(less announced) -42.6 GW by 2020

Announced Retirements2014 - 2020

-36.7 GW (211 units)

Coal Retirements 99 GWView Layer

Off

Off

Off

On

On

On

Actual Retirements (2010-2013)

Announced Retirements

Estimated ANCR Retirements (less Announced Retirements)

Operating Units as of 2014 /Remaining units in 2020 after applied retirements

Summer Capacities*NETL Best Estimate based on unit size , capacity factor, age, and competitiveness

25

Actual Retirements (2010-2013)

Announced Retirements

Estimated ANCR Retirements (less Announced Retirements)

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

OffOn View Coal Retirements Layer

2010-’13 20 GW 23 GWCommitted 37 GW 25 GWUncommitted 42 GW 58 GW Total 99 GW 106 GW

New NGCC

RetiredCoal

26

KY MI IN WV WI MN ND OH MD MO TN VA IA IL PA NY SD0%

5%

10%

15%

20%

25%

30%

% from projected retirements

% from announced retirements

Perc

enta

ge o

f tot

al s

tate

gen

erati

on fr

om

coal

retir

emen

tsGeneration from Retiring Units, January 2014

Ventyx, based on EIA, and NETL projections

27


Outline

28

Natural Gas Consumption/UseAEO 2014 Reference and ANCR Cases

Electric Power

IndustrialNet Exports

Residential

Data Sources:EIA MER 12/2013; EIA AEO 2014 (Reference and Accelerated nuclear and coal retirement case)

Transportation

*

*Does not Include Pipeline and DistributionDoes not Include GTL Heat & Power nor Lease & Plant Fuel

AEO 2014 Reference caseAEO 2014 Accelerated Nuclear and Coal Retirement case

Commercial

11.23

14.40

8.63

5.80

5.10

0.59

0.85

8.69

3.55

19501955

19601965

19701975

19801985

19901995

20002005

20102015

20202025

20302035

20400

2

4

6

8

10

12

14

16

Tcf

Large (5-6 Tcf) increases in gas for power and exports leaves little for industrial expansion

4.12

2025 Projections: NG Dry Production vs. Price*

Source: EIA, various AEO editions, MER; BEA, Implicit Price Deflator, NIPA Table 1.1.9. *Prices for AEO’01 through AEO’06 are Wellhead averages; prices for AEO’07 through AEO’14 are Henry Hub; Henry Hub tended to be at least 50 cents/mmbtu greater than wellhead price. AEO‘01, ‘02 extrapolated through 2025, based on 2010-2020 projected growth rates.

15 20 25 30 35 402

3

4

5

6

7

8

9

10

11

Trillion Cubic Feet

$/m

mbt

u (2

012$

)

Cases: - High Economic Growth- Reference- Low Economic GrowthIncreasing PricesDecreasing Prices

AEO’14AEO’03 AEO’13

AEO’12AEO’04

AEO’11

AEO’08 AEO’05

AEO’06

AEO’10

AEO’07

AEO’09

AEO’01AEO’02

AEO’14: 2040

ANCR

ANCR

Long Run Supply Curve?

30

Coal and Natural Gas Price History and Forecasts

19911994

19972000

20032006

20092012

20152018

20212024

20272030

20332036

2039$0

$2

$4

$6

$8

$10

$12

$14

$/M

MB

tu (y

ear

201

3$)

Sources: EIA, Electric Power Monthly, Table 4.1; Monthly Energy Review; AEO 2014; AEO 2002 *Electric Power Sector prices

AEO’14 forecast

Natural Gas

Coal

From 2002 to 2011, actual price was, on average, 65% higher than what AEO’02 predicted

AEO’02 Gas Price Prediction

Historical Price

A continuation of trend of AEO under predicting gas price would suggest AEO serves as price floor

Price Floor:AEO

Upside Risk: AEO+65%

31

• Historic relationship between electricity demand and economic growth suggests current under-projection of required power generation– ~100-200 GWeq.

• Reliance on high utilization of aging coal (and nuclear) baseload assets risky– Little historical basis for continued high utilization

• Considerable potential for new baseload assets due to aging of the current fleet– ~100-150 GW

• Current projections presume gas for all needs– Potential risks for reliability, infrastructure bottlenecks, and price volatility

• Large-scale timing issue for baseload replacement• Who gets the gas?

Conclusions

Documents

June 19, 2014 Recent Electricity Trends and Coal Plant Retirements The Importance of Baseload Power Renewal Peter C. Balash, Ph.D. Deputy Director Strategic