building new coal generation/sng regulated vs unregulated
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1
Building New Coal Generation/SNGRegulated vs Unregulated
August 22, 2006
2
World’s Largest Coal Company:Peabody’s Portfolio of Operations
Market position as of December 31, 2004. 2005 sales volume in millions of short tons. Venezuela sales volume for Paso Diablo Mine, of which Peabody owns a 25.5% interest. Reserves based on 2005 proven and probable for areas shown. Queensland market position represents met coal only. Source: Peabody analysis & industry reports.
St. Louis
DominionTerminal
Queensland
Dalrymple BayTerminal
Port ofNewcastle
Port ofBrisbane
Venezuela
Port ofSanta Cruz
MarketPosition Sales Reserves
Wyoming PRB #1 126 3,327Midwest #1 38 4,174Southwest #1 18 980Colorado #1 11 252Appalachia #6 14 584Queensland #5 8 289Venezuela #1 7 175
Millions of short tons
3
Peabody Participating in MultipleBtu Conversion Opportunities
30% ownership inEcono-Power InternationalPRB and Illinois Basin coal transformed into low-Btu gasCost effective at $5 to $6/mmBtu
Agreement with Arclight to evaluate Illinois location for pipeline-quality gasConocoPhillips and Fluor participating in technology and plant design Pipeline-quality natural gas competitive as low as $7 per mmBtu
Peabody part of FutureGen Industrial AllianceGoal: Generation and hydrogen; near-zero emissions; CO2 sequestrationAlliance includes Southern Company, AEP, Huaneng $700 million from DOE; $250 million from industry
High gas prices point to need for coal-to-liquidsCoal-to-liquids at $35 – $40/barrel oilPeabody partnership with Rentech for coal to liquids plant
Planned “Coal to Diesel” Plant in Erdos, China
LiquefactionLiquefaction HydrogenHydrogenGasificationGasification(Industrial or Pipeline)
4
Global Coal Use Soars 25%, or 1.1 Billion Tons, in 3 Years
ThreeThree--Year Percent Change in Global Energy ConsumptionYear Percent Change in Global Energy Consumption
Source: BP Statistical Review of World Energy, 2003, 2004 & 2005.
0 5 10 15 20 25
25.3%
2001
-20
04C
hang
e
9.1%
5.9%
7.6%
3.9%
Coal
Natural Gas
Oil
Hydro
Nuclear
5
IndiaChina
Mexico
RussiaSouth Korea
Australia
USA
UKItaly
Malaysia
0
3,000
6,000
9,000
12,000
15,000
0 10,000 20,000 30,000 40,000
GDP per Capita (in US$)
Kilo
wat
t-hou
rs p
er C
apita
Mexico
Russia
South Korea USA
Italy
IndiaChina
AustraliaUK
Malaysia
0
150
300
450
600
0 10,000 20,000 30,000 40,000
GDP per Capita (in US$)
Pass
enge
r Veh
icle
s pe
r 1,0
00 P
eopl
e
Electricity Usage per CapitaElectricity Usage per Capita Passenger Vehicles per CapitaPassenger Vehicles per Capita
Per-Capita Coal Use Just 1/3rd (China) and 1/9th (India) the U.S. Level
Developing Countries Will Greatly Expand Per-Capita Energy Use
Source: United Nations’ Human Development Report 2005, World Energy Outlook & ConocoPhillips.
6 Source: Energy Information Administration, August, 2006.
10.3¢ 28%
6.7¢65%
5.8¢95%
5.9¢10%
5.6¢67%
5.1¢96%
7.8¢72%
6.5¢7%
6.6¢75%
7.4¢89%
8.9¢46%
11.8¢1%
5.8¢96%
6.4¢46%
10.0¢38%
6.8¢78%
6.6¢63%
7.2¢53%
5.9¢85%
6.7¢48%
7.6¢39%
8.0¢70%
6.2¢49%
8.2¢ 25%
8.1¢58%
6.4¢94%
7.5¢87%
10.8¢2%
8.4¢37%
6.7¢57%
7.5¢65%
6.7¢ 39%
5.0¢ 91%
6.7¢45%
8.5¢56%
5.0¢98%
7.5¢61%
6.8¢ 61%
5.1¢1%
12.5¢10%
20.4¢14%
NH 14.3¢ 17%VT 11.4¢ 0% MA 15.5¢ 25% RI 14.1¢ 0%CT 14.1¢ 12%NY 13.1 ¢ 14%NJ 10.5¢ 19%DE 7.8¢ 60%MD 8.3¢ 56%
¢ = average retail price per kilowatt hour through 5/06
% = percent of total generation from coal for CY 2005 < 6.5¢
> 6.5¢ - < 8.0¢> 8.0¢ - < 9.5¢
> 9.5¢ - < 11.0¢
> 11.0¢Hydro
Retail Cost Per kWh & Percent of Coal GenerationRetail Cost Per kWh & Percent of Coal Generation
Over 51% of U.S. Electricity is from CoalSource of Low Cost Electricity in US
7Source: U.S. Environmental Protection Agency, IEA Annual Energy Outlook 2005.
Coal Based Electricity Has Increased 80% Since ‘80Coal Based Electricity Has Increased 80% Since ‘80WhileWhile Emissions Have Been Significantly ImprovedEmissions Have Been Significantly Improved
actual forecast
Reductions continue with existing plants
8
Emissions from CoalEmissions from Coal--Fueled Generating PlantsFueled Generating Plants
* EstimateSource: EPA’s Clean Air Markets database; EIA 2005 Annual Energy Outlook; GE Energy; SFA Pacific.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Poun
ds P
er M
illio
n B
tu
Sulfur DioxideNitrogen Oxide
U.S.Average
2005
Clean AirInterstate
Rule2010
New MidwestPermit Limit
Clean AirInterstate
Rule2015
0.10
0.320.39
0.16
0.26
0.120.182
0.07 0.06
0.93
New PRB Plant Permit
Limit
Near-Zero
FutureGenGoals
0.030.06
New IGCCProjection
ExistingIGCC
(PermitLevel)
0.17
0.08
The Path Toward Near-Zero Emissionsfrom Coal-Fueled Generating Plants
9
Regulated vs Unregulated Coal Generation or SNGIt Matters How Much Risk You Can Manage
Capital costs risk – Coal project costs up by 30 – 50% over the last 2 years for steel, copper and labor - $1 – 3 billion in project size (600 – 1,600 MW)
– Regulated generation/SNG can pass risk to ratepayers with PUC approval– Unregulated generation/SNG needs capital cost “managed” much more tightly to
financeTechnology risk – Usually shows up in the form of operating performance risk – How do you manage operating availability if its only 70% versus 90% expected?
– Regulated generation/SNG can pass poor performance along to ratepayers with PUC approval
– Unregulated generation/SNG manage with performance guaranteePay higher capital costs (10 – 20%) for potential new regulations
– Regulated generation can pass along to ratepayers with PUC approval– Unregulated generation few avenues to offset unless legislation
Selling output– Regulated generation/SNG implies contract– Unregulated generation/SNG must be explicit long term agreement (15 -20 years)
Manage on going fuel cost fluctuations due to technology inflexibility – Some new technologies struggle with the low cost coalsPlant location/fuel source – if long term fuel cost an issue, tend to locate for fuel advantages, mine-mouth or on water
10
Major Coal Supply BasinsCost and Location Favor New Coal Plants in Illinois Basin
(East) and Western/PRB (West)
Northern AppalachiaMedium-High CostStable ReservesVery Transportable
Central AppalachiaHigh CostDeclining ReservesTransportable
Illinois BasinMedium CostAbundant ReservesLimited Transport
Northern LigniteLow-Medium CostStable ReservesNot Transportable
Western CoalsMedium CostSomewhat AbundantTransportable (Varies)
Powder River BasinLow CostAbundant ReservesVery Transportable
Southern LigniteMedium CostSomewhat AbundantNot Transportable
11
Thoughts on New Coal Generation Technology Choice
Do you have a large government subsidy or ratepayers “guaranteeing” payment of extra costs?IGCC hold great promise but not commercially viable at this time for unregulated generation without subsidiesIGCC technology has not been scaled up to large coal size > 1,200 MWIGCC costs significantly moreSupercritical units on most coals are more efficient than IGCC
– Illinois Basin, lignite and PRB (low cost coals) not fuels of choice for IGCC– Most IGCC run on expensive “designer” coals or petcoke (not coal)
Coals with high ash content (Illinois Basin and lignite) difficult for IGCC technology. Concerns exist about compatibility.
12
Net Export/Import of Electricity per StateNet Export/Import of Electricity per State
Major Electricity Export StatesAre Coal States
Source: Energy Information Administration, March 2006.
-26-11%
1392%
19157%
910%
15%
29189%
-3-6%
-2-4%
37%
1151%
411%
-83-30%
1036%
-4-40%
257%
-3-7%
-20-28%
1016%
23%
3522%
2634%
-17-22%
-3-5%
7 8%
00%
1311%
-18-10%
NewEngland
-4-3%-19
-11%
-5-11%
4040%
-12-8%
13 14%
-1%-1
-41-34%
5534%
60181%
-11-8%
-17 -15%
-13-55%
00%
00%
NJ -24 -29%DE -5 -39%MD -23 -30%
+/- = TWh of Electricity Exported or Imported per State
% (+/-) = Percent Export/Import versus Retail Sale & Loss
Large Exporter: >10 TWhSmall Exporter: 0 – 10 TWhSmall Importer: -10 – 0 TWhLarge Importer: < -10 TWhNeither: 0 TWh
13 Source: DOE/NETL 6/21/06
3, 900
2,500 500
3,100
900
1,200
2,400
500
2,100
3,300
5,000
2,5002,100
600
10,900
1,900
1,500
2,400
1,200
10,400
800
2,500
700
1,300
400
1,7004,300
0
40
400 0 1,200
2,700
4,9002,200
3,200
2,100
8001,000
500
700
0
NH 0VT 0MA 0RI 0CT 0NJ 0DE 0MD 200
> 4,0002,000 – 4,0001,000 – 1,999100 – 9990 – 99
MW of Announced Coal Plants
New Coal DevelopmentCentered Around Coal Producing States
14
Cost of Capital Var. O&M Fixed O&M Coal Gas
$0
$10
$20
$30
$40
$50
$60
$70
$80
Mine-Mouth LargeNew Coal
$0.95/ MMBtu
Utility Site LargeExisting Coal$1.80/ MMBtu
Retrofit LargeExisting Coal$1.80/ MMBtu
Retrofit SmallExisting Coal$2.40/ MMBtu
Gas CC $6.00/ MMBtu
Gas CC $9.00/ MMBtu
Source: Energy Information Administration Annual Energy Outlook 2005 & Peabody analysis; assumes 90% capacity factor, 10.8% weighted cost of capital, 30-year investment life, delivered fuel cost as shown above, latest environmental technologies & EIA’s estimates of capital and non-fuel costs
Req
uire
d 20
10 P
rice
($ /
MW
h, in
clud
ing
retu
rn) $57.63
$48.97
$79.37
2010 Delivered Fuel Prices
New Gas
$54.89
Lowest Cost Baseload Option Location Matters – Mine Mouth
$33.29
$57.40
Michigan Delivered Coal
15
PRAIRIE STATE ENERGY CAMPUSPRAIRIE STATE ENERGY CAMPUSNew LowNew Low--Cost, Clean Coal GenerationCost, Clean Coal Generation
− 40 miles Southeast of St. Louis in Illinois
− 1,600 MW supercritical generating plant fueled by 6+ million ton/year adjacent mine
− Final air permit received April 2005, now in appeal process expecting US EPA Board of Appeals decision within a month
− All other permits needed to operate have been issued by the initial permitting agency
− Cleanest coal Plant in Illinois and 7% – 20% more CO2 efficient than existing coal fleet
− 47% of project owned by a group of Midwestern municipals & cooperatives
− Additional 6% of ownership is committed
− Targeting generation in the 2011 timeframe
Prairie State Energy CampusWashington County, Illinois
16
1. Wolverine Power Supply Cooperative, Inc.
– Abbreviation: WPSC– 400,000 people served
2. Northern Illinois Municipal Power Agency
– Abbreviation: NIMPA– 52,000 people served
3. Missouri Joint Municipal Electric Utility Commission
– Abbreviation: MJMEUC– 800,000 people served
4. Soyland Power Cooperative, Inc.– Abbreviation: Soyland– 156,000 people served
5. Indiana Municipal Power Agency– Abbreviation: IMPA– 340,000 people served
6. Kentucky Municipal Power Agency– Abbreviation: KMPA– 54,000 people served
1
2
3
45
6
Prairie State Partners Serve Nearly 2 Million PeoplePrairie State Partners Serve Nearly 2 Million PeopleIn 5 States, Almost All in the Midwest ISOIn 5 States, Almost All in the Midwest ISO
17
Supercritical Pulverized Coal vs. IGCCAnalogy to the Family Car
Family of 6 needs a new car and has annual income of $60,000 and lives in rural area with few neighbors so the car must run wellDecision tried and true Chrysler/Ford/GM minivan or new type of van with new type of engineIssues
– Tried and true van costs 20% less ($30,000 versus $36,000)– Spouse has to use van to get kids to school everyday as well as run errands, little or no
alternatives if van does not run.– Operating history shows “new van with new engine” 15 – 30% more unavailable than tried
and true model.– Mechanics for tried and true model all over, new van with new engine requires specialty
maintenance that only a few in the US can do– Operating the new van is very different than tried and true to the point that spouse must take
special driving classes to operate– Tried and true van has complete warranty for 10 years and 100,000 miles; new van has 60
day warranty– Tried and true gets 15% better gas mileage than old cars, is equal to “new van” and in many
cases better gas mileage except when using the designer gas that only a few stations carry– Both cars have great environmental performance – 70% lower than average today and
exceed 2015 government standards with new van being slightly better– New van will perform better if all tail-pipe emissions must be captured and stored, but in both
cases it will double the cost of operating the vehicle to the point you are unsure that vans make sense
Which car is your spouse going to let you buy?
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