Washington Coal Club May 14, 2008 Carl O. Bauer, Director Coping with Competing Energy Strategy Directions Office of Fossil Energy National Energy Technology

Washington Coal Club

May 14, 2008

Carl O. Bauer, Director

Coping with Competing Energy Strategy Directions

Office of Fossil Energy

National Energy Technology Laboratory

2C. Bauer, Washington Coal Club, 05/14/08

U.S. data from EIA, Annual Energy Outlook 2008 revision; world data from IEA, World Energy Outlook 2007

Fossil Energy Will Continue to Dominate

Energy Demand 2030

703 QBtu / Year82% Fossil Energy


+ 55%

+ 16%

United States

World

Energy Demand Today

453 QBtu / Year 81% Fossil Energy



Aiming for Balanced Solutions

Energy Strategy Complexity


South African Historical Demand Overview

Reserve Margin Aspiration = 15%

20,000

30,000

40,000

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Year

Pea

k D

eman

d &

Cap

acit

y (M

W)

Reserve

margin 25%

Reserve

margin 8–10%

“Update on State of Power Security in South Africa”Jacob Marolga, Chief Executive, Eskom, February 19, 2008

Peak DemandExpected Peak Demand

Installed Capacity (MW Sent-out)Operational Capacity (MW Sent-out)

Reserve

margin 25%

Reserve

margin 20%

Reserve

margin 16%


The Wall Street Journal, April 17, 2008

South African Grid Overwhelmed by Demand


“Areas of the most concern include WECC-Canada, California, Rocky Mountain States, New England, Texas, Southwest, and the Midwest . . .”

NERC LTRA 2007

Require 135 GW by 2016

NERC 2007 Long-Term Reliability Assessment

NERC 2007 Long-Term Reliability Assessment


U.S. Peak Summer Generation CapacityNERC and AEO’08 Capacity Outlook

Capacity Growth Forecasts Vary Substantially Due to Assumptions for Annual Electricity Demand Growth Rates, GDP Growth, and Oil Price

- 41 GW oil and gas steam boilers

EIA, Annual Energy Outlook 2008 revision; NERC 2007 Long-Term Reliability Assessment

0

200

400

600

800

1,000

1,200

1,400

GW

s

NE R C New S ummer C apac ity C oal O il and Natural G as S team

C ombined C yc le C ombus tion T urbine/Dies el Nuc lear P ower

R enewable S ources O thers

979 GW

+128 GW additional required to maintain capacity margins (NERC)

+7 GW by 2016 (EIA)


Declining Growth in Long-Term Electricity Demand and U.S. GDP;NERC Estimates Tied to Higher Growth Rate

1.9% / yr growth

1.1% / yr growth

Reduction of 36 BkWh / yr growth equates to reduced need for 4,900 MW of new generation each year (@ 85% c.f.)

1.5% / yr

1.6% / yr

NERC growth

AEO’08 revision 2.4% / yr GDP

growth

AEO’05 3.1% / yr GDP growth

Reduced 2025 GDP by $2.7 trillion (16%)

(2006 dollars)

EIA Annual Energy Outlook 2008 revision; NERC 2007 Long-Term Reliability Assessment

Declining Total Electricity Generation Growth Rate Assumptions


Total Electricity Generation Growth Rates

AEO’08AEO’08

1.1% / yr EIA

Electricity generation: EIA,19491994: Annual Energy Review 2006; 19952006: Electric Power Annual 2006; 20072030: Annual Energy Outlook 2008 revision; NERC 2007 Long-Term Reliability Assessment

2.2% / yr 20 yr

1.5% / yr NERC

Forecast for Electricity Generation Growth Well Below Recent Averages

1.7% / yr 6 yr


Source: Global Energy Decisions – Velocity Suite (April 2, 2008)

Total Net Reductions 614 MW (-0.9%) for 1th Quarter 2008

Wygen II90 MWNow Operational

95% of MWs removed represent “Announced” projects

Rem

oved

Cap

acity

Net Capacity Changes Removed or Added Opportunities

1st Quarter 2008


Coal-Fired Development Activity vs. EIA AEO’08

Actual Installation Trend and EIA AEO’08 Reference Forecast Similar;A Significant Surplus of Developments Exists Above EIA’s Forecast Demand

EIA, Annual Energy Outlook 2008 revision; Global Energy Decisions – Velocity Suite 12/31/07

Trendline 5-year actual

Trendline≈ 20 GW through 2016

AEO’08 reference case 17.9 GW by 2016

Low forecasts for new capacity may not reflect sufficient market promise to attract

new skilled human resources to the industry


Can Natural Gas Supply Support a “Dash to Gas”?

2.3 Tcf

1.4 Tcf

EIA AEO 2008 (rev.) and AEO 2005; Assumes NG-fired combined cycle plants operating at 50% efficiency to fill generation gaps

Coal AEO’08

Nuclear AEO’08

Total generation AEO’05

Oil and Natural Gas AEO’08

Renewable AEO’08

Generation from coal if no new plants are built

Total generation AEO’08

3.7 Tcf of Potential Natural Gas Demand Growth with Declining North American Supply


Annual Energy Outlook 2001, 2002, 2003, 2004, 2005, 2006, 2007 and 2008 March revision reference cases

Increased Use of Natural Gas in Electricity Will Require LNG;North American Natural Gas Supply for U.S. Trending Down

Tc

f / Y

ear

Gradual Decline to 20 Tcf without LNG

AEO’06AEO’06

AEO’01AEO’01

AEO’02AEO’02

AEO’03AEO’03

AEO’04AEO’04

AEO’05AEO’05

AEO’07AEO’07

AEO’08AEO’08

AEO’08no LNGAEO’08no LNG

Total Natural Gas Supply to United States (Including Liquid Natural Gas)


“Meantime, as Asian buyers grab more LNG from the Atlantic basin, U.S. prices, though at 27-month highs, still look cheap.”

“Overall, U.S. imports of LNG have slid over the past nine months to a five-year low, and natural-gas inventories are running relatively low . . . If the U.S. is unable to attract LNG supply this summer, prices could spike up sharply within a few months if a hot summer were to reduce the ability to build a cushion of gas going into next winter.”

Wall Street Journal on LNG (April 18, 2008)

Wall Street Journal, Surge in Natural-Gas Price Stoked by New Global Trade, Page1, April 18, 2008


31% higher 31% higher price increaseprice increase

148% average increase

$32.73 average increase



$30/t CO2 Tax and $14/MMBtu Natural Gas (Effect on Current Average Generating Costs, by Region)

Due to Natural Gas Price Impacts, Gas Intensive Regions Will SeeHigher Real Electricity Cost Impact From Carbon Taxes





249% higher 249% higher increaseincrease

Co

st p

er M

Wh


Summary

U.S. power generation industry is at a critical juncture, with social pressures and pending legislation demanding massive changes

Competing demands for reliable, low-cost energy and climate change mitigation appear incongruent

Our Nation’s liquid fuel dependence on foreign resources continues to grow

Uncertainty of regulatory outcomes and rising costs impact industry’s willingness to commit capital investment, endangering near-term production capacity

The United States must foster new processes that address conflicting energy objectives simultaneously


NETLwww.netl.doe.gov

For Additional Information

Office of Fossil Energywww.fe.doe.gov

Carl [email protected]

Documents

Washington Coal Club May 14, 2008 Carl O. Bauer, Director Coping with Competing Energy Strategy Directions Office of Fossil Energy National Energy Technology