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National EnergyTechnology Laboratory
Chris NicholsNational Energy Technology Laboratory, Office of Strategic Energy Analysis and Planning
VCEA 36th Annual ConferenceMay 19, 2015
Analysis of coal retirement impacts and the prospects for new “anytime electricity” generation capacity
The analysis presented and conclusions drawn herein represent solely those views of the author(s), and do
not represent the views of the United States Department of Energy.
Disclaimer
• Estimating the impact of announced coal retirements:– Using list of retiring units between now and 2022, we estimated the
impacts of these units in terms of jobs, coal usage and monetary value
• Identifying unit identities from energy model forecasts:– We used our best estimate process to identify likely units and examine
state-level impacts
• Forecasting the prospects for new coal:– No new coal appears in most energy models, but there may be
modeling methodologies and assumptions that mask the need for new “anytime electricity” generation capacity
Presentation Overview
• Current baseline coal retirement level of ~40 GW by 2020 was used, based on our data
• We developed estimates of the following parameters with respect to units projected for retirement:– affected plant workers: 8,691 – coal miners: 6,961– power plant property tax value: $1.1B– Retail value of electricity generation: $13.4B– Retail value of coal production: $4.2B
Evaluating the impact of announced coal retirements
Around 16,000 direct jobs are impacted
Almost $19B worth of property tax, electricity generation and coal production
Retiring units and affected mines
• Estimating the impact of announced coal retirements:– Using list of retiring units between now and 2022, we estimated the
impacts of these units in terms of jobs, coal usage and monetary value
• Identifying unit identities from energy model forecasts:– We used our best estimate process to identify likely units and examine
state-level impacts
• Forecasting the prospects for new coal:– No new coal appears in most energy models, but there may be
modeling methodologies and assumptions that mask the need for new “anytime electricity” generation capacity
Presentation Overview
Most analyses project 50-100 GW of coal retirements from CPP
Announced retirements
AEO'14
ANCR
$25/mt CO2 price
Base case
Building Blocks 1&2
Full Option 1
Rivalry Scenario
Baseline case
Unconstrained 111d compliance
Constrained 111d compliance
Announced + EPA modeled
Navigant analysis
EVN
EMS
IPM
IHS
NER
AIE
R
- 50 100 150 200 250 300
39
51
103
256
51
83
101
75
51
97
220
52
84
Coal retirement projections, 2014-2030 (GW)
• Energy market models (NEMS, IPM, etc) forecast retirements and new builds of generation capacity, but often do no identify the specific units and may not fully define the grid-level impacts of capacity changes
• We apply a production cost methodology to model results to develop a list of units most likely to retire and quantify the impacts of their retirements
• Unit-level assessment allows us to drill down to state-level impacts of retirements to find issues that may be glossed over in national-level results
Identifying units from energy forecasts
CPP (ESPS) Coal Retirements by 2020Actual, Announced, and EPA ESPS IPM Model
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
Link to NETL’s “Best Estimate“ methodology
Coal and NGCC units in Ohio
Announced retirements
Projected retirements
Continued Operation
Pipelines
Operating NGCC
Under Const NGCC
Permitted NGCC
Proposed NGCC
Transmission
• Estimating the impact of announced coal retirements:– Using list of retiring units between now and 2022, we estimated the
impacts of these units in terms of jobs, coal usage and monetary value
• Identifying unit identities from energy model forecasts:– We used our best estimate process to identify likely units and examine
state-level impacts
• Forecasting the prospects for new coal:– No new coal appears in most energy models, but there may be
modeling methodologies and assumptions that mask the need for new “anytime electricity” generation capacity
Presentation Overview
20052007
20092011
20132015
20172019
20212023
20252027
20292031
20332035
-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 2015; AEO’ 06 included 19 GW equivalent of CTL
AEO’06
AEO’07
AEO’08
AEO’09 AEO’10AEO’11AEO’12
Additions less Retirements
AEO’13
AEO’14AEO’13
AEO’14
Beginning with AEO ‘09, EIA applies financing cost adder to coal plants
AEO’15
AEO’15
• What if – more electricity is needed than projected?– existing plants can’t generate as much as modelers think
they will?– Projected fuel costs are lower than what actually happens?– Capital costs are artificially inflated in modeling
assumptions?– Unmodeled regulations create a greater shortfall in
capacity than currently expected?
Do models mask the need for more or different generation capacity?
Growth in electricity use slows, but electricity use still increases by 24%
from 2013 to 2040
U.S. electricity use and GDPpercent growth (rolling average of 3-year periods)
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
0
2
4
6
8
10
12
14
Source: EIA, Annual Energy Outlook 2015 Reference case
Annual Energy Outlook 2015, April 14, 2015
Structural Change in Economy - Higher prices - Standards - Improved efficiencyProjections
History 2013
Period Average Growth__Electricity use GDP
1950s 9.8 4.21960s 7.3 4.51970s 4.7 3.21980s 2.9 3.11990s 2.4 3.22000-2013 0.7 1.92013-2040 0.8 2.4
Gross domestic product
Electricity use
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
Sources: BEA – NIPA Table 1.1.6; EIA – Monthly Energy Review; Annual Energy Outlook 2015; *kWh end use (consumption); dashed lines represent6th order polynomial fit
Historical Trend
AEO’15
Forecast
Electricity and GDP Growth: Comparing TrendskWh Growth Rate*: AEO’15 vs. historic ratio
GDP Gap 68 GW
Growth of U.S. GDP vs. GenerationHistoric and Forecast
Sources: BEA – NIPA Table 1.1.6; EIA – Annual Energy Review; Annual Energy Outlook 2015 ; baseload assumed to operate at 80% capacity factor; 73% of generation is assumed to come from baseload units
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’15Forecast
“Structural Change in The Economy”, Anticipates Less Energy Required Per Unit of GDP;“Higher Prices” Also Assumed to Suppress Demand
Real GD
P Billions (2009$)
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?
650 BkWh* missing in 2040;Equivalent to 474 baseload BkWh
≈ 68 GW Baseload
1,161 BkWh* missing in 2040;Equivalent to 848 baseload BkWh
≈ 121 GW baseload
2.5% CAGR
3.0% CAGR
Generation Gap
121 GW
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
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 of units by 2040
Capa
city
(GW
)Coal & Nuclear Baseload Capacity Renewal
Examining Prior EIA Forecasts
Reference – Ventyx Velocity Suite (existing units and announced retirements - EIA AEO 2016-2014er (forecasted additions)
End of AEO’06-’09
forecast2030
AEO 2006AEO 2007AEO 2008AEO 2009AEO 2010AEO 2011AEO 2012AEO 2013
AEO new CoalAEO new Nuclear
AEO 2014
Existing aging coal and nuclear fleetEIA Forecasted new coal and nuclear fleet to meet demand and replace aging
fleet
Examining Historic Coal Unit Capacity Factors 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
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
100Average capacity factor by unit age for coal operations, 1998-2013
Unit age in years
Ave
rag
e c
ap
acit
y f
acto
r (%
)
Approximation of actual industry capacity factor
experience based on unit age
80%
60%
14%2020
2030
By 2030 average age of existing coal plants imply
capacity factors < 50%
Avg. age existing
coal plants
EPA ESPS estimated capacity factor for
coal units irrespective of age
78%
2040
Gas-fueled units account for most projected capacity additions in the AEO2014 Reference case
22
U.S. electricity generation capacity additionsgigawatts
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
Models are not strong at price prediction
1993 1995
1997 1999
2001 2003
2005 2007
2009 2011
2013 2015
2017 2019
2021 2023
2025 2027
2029 0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00 Natural Gas Price, Electric Power Sector, Actual vs. Projected
AEO 1994
AEO 1995
AEO 1996
AEO 1997
AEO 1998
AEO 1999
AEO 2000
AEO 2001
AEO 2002
AEO 2003
AEO 2004
AEO 2005
AEO 2006
AEO 2007
AEO 2008
AEO 2009
AEO 2010
AEO 2011
AEO 2012
AEO 2013
AEO 2014
Actual in Nominal$
AEO 2015
Pric
e (n
omin
al d
olla
rs p
er m
illio
n Bt
u)
Historically, EIA projections have set
the floor on gas prices
Is it different this time?
“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
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
• For known retirements: – Lost jobs, coal tonnage and economic impact data can be
reasonably quantified and are significant• “Best estimate” methodology allows us to identify likely
additional units for retirement– Impacts in terms of lost generation, possible pipeline
congestion, jobs and revenue can then be calculated• Common energy forecasting assumptions and practices
may hide the need for new capacity– “anytime electricity” will still be needed
If you can look into the seeds of time, and say which grain will grow and which will not, speak then unto me. -
William Shakespeare
Conclusions
Chris Nichols
Senior Analyst, Strategic Energy Analysis and Planning
National Energy Technology Laboratory
304 285-4172
Questions and discussion
Albany Pittsburgh Morgantown
Backup slides
– Direct plant employment based on reported FERC Form 1, using a multiplier of 0.22 jobs per MW of capacity
– Property tax based on replacement value• AEO PC capital cost values• State/county property tax average
– Miner employment based on MSHA productivity and FERC coal transaction data
Methodology and data sources for announced retirement impact analysis
• NETL’s “Best Estimate” of coal unit retirements ranks coal units in each Electricity Market Module (very close to NERC Subregions) or state by each unit’s adjusted production cost of electricity. Parameters included in determining the adjusted cost are:
• Baseline production cost:– Fuel cost (consists of heat rate and price of fuel)– Variable O&M– Fixed O&M (includes capacity factor as a component)
• Emission control costs (if each is required to be added):– Amortized capital cost– O&M costs (includes nameplate capacity and capacity factor)
• Life extension cost (if unit is greater than 30 years old)– Amortized capital cost– Sliding scale of exposure to full life extension cost based on age (older units pay
more of the full cost at once)
NETL “Best Estimate” of Coal Unit retirement methodology
• Once the unit’s adjusted production costs is determined, the unit is ranked with all other coal units in its EMM or state and the cumulative capacity is summed according to ranking. Units with announced retirements are moved to the top of the retirement ranking. The model assigns one of three categories to each unit until the cumulative capacity of retirement is reached in each EMM or state:– Planned retirement – retirement has been announced and
documented by EV– Projected retirement – unit is projected to retire based on adjusted
production cost and cumulative retired capacity in AEO’14 or IPM cases
– Continued operation – unit’s ranking places it above the projected retirement mark for the applicable AEO’14 or IPM case.
Methodology (cont)
• Generalized equation to determine adjusted production cost (unit and magnitude balancing factors have been omitted for clarity)
• Green = Baseline production cost• Blue = Amortized and operating cost of any needed
emissions controls• Purple = Amortized capital cost of life extension, based
on a sliding scale with older units paying more
Equation
Parameter Units Description SourceF $/MMBTU Fuel cost, avg 2013 EVHR MMBTU/kWh Heat rate, avg 2013 EV
$/MWh Variable O&M EV$/kW-yr Fixed O&M EV
GEN MWh Generation, 2013 EV$/MWh Variable O&M, FGD ICF, using EPA data$/kW-yr Fixed O&M, FGD ICF, using EPA data$/MWh Variable O&M, SCR ICF, using EPA data$/kW-yr Fixed O&M, SCR ICF, using EPA data$/MWh Variable O&M, Hg control ICF, using EPA data$/kW-yr Fixed O&M, Hg control ICF, using EPA data$/kW Capital cost, life extension ICF, using EPA data
CAP kW Generation capacity, nameplate EVAGE Years Unit age EV
Parameters used in equation
Comparison of NEMS and IPM Retirements
AK AL AR AZ CA CO CT DE FL GA HI IA ID IL IN KS KY LA MA MD MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA SC SD TN TX UT VA WA WI WV WY0
2000
4000
6000
8000
10000
12000
14000Coal retirements above those already announced through 2020 using NETL's "Best Estimate"
methodology applied to AEO'14 ANCR Case and IPM Option 1 of ESPS by state
IPM Option 1
ANCR
Capa
city
of c
oal r
etire
men
t pro
ject
ed (G
W)
*Summer CapacitiesSources - Ventyx – Velocity Suite
EIA – AEO 2014EPA – IPM Option 1
RFC-W Coal Retirements by 2020ANCR and IPM
Actual Retirements (2010-2013)
Announced Retirements
EIA ANCR Retirements Remaining units by 2020
EPA IPM Retirements
Missed announced units by IPM
Operating and remaining units
Proposed New NGCC Builds
Proposed New NGCC Builds (11.5 GW by 2020)
NGCC (off)NGCC (on)
OffOn
Off
Off
On
On
Operating and Standby Units
EIA ANCR Case Coal Retirements
(-13 GW by 2020
Retirements 2010-2013-9 GW (62 units)
Announced Retirements2014 - 2020
-11 GW (58 units)
Estimated IPM Case Coal Retirements*
-9 GW by 2020
Construction 1.9GWPermitting 3.6 GWAnnounced 6 GW
X