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

christopher.nichols@netl.doe.gov

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