The Future Electricity Fuels Mix: Key Drivers for Electric Power Conference & Exhibition May 15th, 2012 | Baltimore, Maryland by Howard Gruenspecht, Acting Administrator

Key results from the AEO2012 Reference case, which assumes current laws remain unchanged Projected growth of energy use slows over the projection period reflecting an extended economic recovery and increasing energy efficiency in end-use applications Domestic crude oil production increases, reaching levels not experienced since 1994 by 2020 With modest economic growth, increased efficiency, growing domestic production, and continued adoption of nonpetroleum liquids, net petroleum imports make up a smaller share of total liquids consumption Natural gas production increases throughout the projection period and exceeds consumption early in the next decade Renewables and natural gas fuel a growing share of electric power generation Total U.S. energy-related carbon dioxide emissions remain below their 2005 level through 2035 Growth of energy use slows over the projection period, reflecting an extended economic recovery and increasing energy efficiency in end-use applications Domestic crude oil production increased from 5.1 million barrels per day in 2007 to 5.5 million barrels per day in 2010. Over the next 10 years, continued development of tight oil combined with the development of offshore Gulf of Mexico resources are projected to push domestic crude oil production to 6.7 million barrels per day in 2020, a level not seen since 1994. U.S. dependence on imported petroleum as a share of total liquid fuels consumption declines from 49 percent in 2010 to 36 percent in 2035. This outcome reflects increased vehicle efficiency, growth in domestic crude oil production of over 1 million barrels per day by 2020, an increase in biofuels use by over 1 million barrels per day crude oil equivalent by the middle of the next decade and modest economic and demographic drivers of demand. Note that this occurs in a reference case that does not include recently proposed fuel economy standards for model year 2017 to 2025 light duty vehicles, which, if included, would significantly reduce projected liquid fuel consumption and petroleum imports in the 2025 to 2035 period Natural gas production is expected to exceed consumption by early in the next decade. The outlook reflects increased use of LNG in markets outside of North America, strong domestic natural gas production, reduced pipeline imports and increased pipeline exports, and relatively low natural gas prices in the United States compared to other global markets.  The natural gas share of electric power generation increases from 24 percent in 2010 to 27 percent in 2035 and the renewables share grows from 10 percent to 16 percent over the same period. The projected coal share of overall electricity generation falls to 39 percent in 2035, well below the 48- to 50-percent share seen as recently as 2007, because of slow growth in electricity demand, continued competition from natural gas and renewables, and the need to comply with new environmental regulations. Energy-related CO2 emissions, which have in recent yearrs remained below their pre-recession peak level in the middle of the past decade, grow very slowly in the Reference case -- they are more than 7 percent below their 2005 level in 2020 and do not return to their 2005 level by the end of the projection period. Howard Gruenspecht Electric Power, May 15, 2012

What is included (and excluded) in developing EIA’s “Reference case” projections? Generally assumes current laws and regulations excludes potential future laws and regulations (e.g., proposed greenhouse gas legislation and proposed fuel economy standards are not included) provisions generally sunset as specified in law (e.g., renewable tax credits expire) Some grey areas adds a premium to the capital cost of CO2-intensive technologies to reflect current market behavior regarding possible future policies to mitigate greenhouse gas emissions assumes implementation of existing regulations that enable the building of new energy infrastructure and resource extraction Includes technologies that are commercial or reasonably expected to become commercial over next decade or so includes projected technology cost and efficiency improvements, as well as cost reductions linked to cumulative deployment levels does not assume revolutionary or breakthrough technologies Howard Gruenspecht Electric Power, May 15, 2012

Energy use grows slowly over the projection in response to a slow and extended economic recovery and improving energy efficiency U.S. primary energy consumption quadrillion Btu per year Shares of total U.S. energy History 2010 Projections Renewables (excluding liquid biofuels) 7% 11% 4% 1% Liquid biofuels 25% 25% Natural gas 9% Nuclear 9% 21% Coal 20% 37% Oil and other liquids 32% Source: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012

In 2010, U.S. electricity generation was 70% fossil fuels, 20% nuclear, and 10% renewable 2010 Total net generation: 4,120 billion kWh 2010 Non-hydro renewable net generation: 168 billion kWh Other gases 0.3% Conventional hydroelectric 6.2% Nuclear 19.6% Natural gas 23.8% Other 0.3% Wind: 2.3% Solar thermal and PV: <0.1% Other renewable 4.1% Wood and wood-derived fuels: 0.9% Geothermal: 0.4% Coal 44.9% Petroleum 0.9% Other biomass: 0.5% Source: EIA, Annual Energy Review, October 2011 Howard Gruenspecht Electric Power, May 15, 2012 5

The fuel mix for electricity generation varies widely across U. S The fuel mix for electricity generation varies widely across U.S. regions (2010) Share of Generation by Fuel, 2010   National Average Minimum Maximum Coal 45% 0% 80% Natural Gas 24% 3% 85% Nuclear 20% 40% Renewables 10% 50% Oil / Other 1% 8% Source: EIA AEO2012 (Early Release), based on Form EIA-923 Howard Gruenspecht Electric Power, May 15, 2012

While electricity consumption grows by 23% over the projection, the annual rate of growth slows percent growth (3-year rolling average) Period Annual Growth 1950s 9.8 1960s 7.3 1970s 4.7 1980s 2.9 1990s 2.4 2000-2010 1.0 2010-2035 0.8 History 2010 Structural Change in Economy - Higher prices - Standards - Improved efficiency Projections Source: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012 7

Electricity mix gradually shifts to lower-carbon options, led by growth in renewables and natural gas electricity net generation trillion kilowatthours per year 2010 27% Natural gas 24% 16% Renewables 10% 39% Coal 45% 20% Oil and other liquids Nuclear 18% 1% 1% Source: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012 8 8

Non-hydro renewable sources more than double between 2010 and 2035 non-hydropower renewable generation billion kilowatthours per year 2010 Advanced biofuels cogeneration Biomass Power sector Industrial CHP Wind Solar Geothermal Waste Source: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012 9

Examples of updated environmental retrofit costs Selective Catalytic Reduction (2010 $/kW)   Capital Costs ($/kW) VOM ($/MWh) 300 MW $203 $1.30 500 MW $185 700 MW $177 Flue Gas Desulfurization (2010$/kW)   Capital Costs ($/kW) VOM ($/MWh) 300 MW $602 $1.72 500 MW $521 700 MW $474 Dry Sorbent Injection + Full Fabric Filter (Baghouse) (2010$/kW) Size (MW) Capital Cost ($/kW) VOM ($/MWh) 300 197 6.72 500 180 700 171 Source: EPA IPM v4.1 Documentation http://www.epa.gov/airmarkets/progsregs/epa-ipm/docs/suppdoc.pdf http://www.epa.gov/airmarkt/progsregs/epa-ipm/docs/v410/Chapter5.pdf Howard Gruenspecht Electric Power, May 15, 2012

Global spot natural gas and crude oil prices vary widely U.S. dollars per million British thermal unit 482 1,460 273 Source: EIA based on Bloomberg as of 5/4/2012 Howard Gruenspecht Electric Power, May 15, 2012

Technically recoverable natural gas resources reflect updated assessments U.S. dry gas resources trillion cubic feet Unproved shale gas Unproved other gas (including Alaska* and offshore) Proved reserves (all types and locations) 2,214 482 1,460 273 AEO Edition *Alaska resource estimates prior to AEO2009 reflect resources from the North Slope that were not included in previously published documentation. Source: EIA, Annual Energy Outlook Howard Gruenspecht Electric Power, May 15, 2012

Shale gas offsets declines in other U. S Shale gas offsets declines in other U.S. natural gas production sources U.S. dry gas production trillion cubic feet per year History 2010 Projections 49% Shale gas 23% 26% Tight gas 21% 9% Non-associated offshore 2% 9% 7% Coalbed methane 10% Alaska 1% Associated with oil 7% 7% 21% Non-associated onshore 9% Source: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012 13 13

Domestic natural gas production grows faster than consumption U.S. dry gas trillion cubic feet per year History 2010 Projections Consumption Domestic supply Net imports Source: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012

EIA’s natural gas price projections for AEO 2012 Early Release natural gas spot price (Henry Hub) 2010 dollars per million Btu History 2010 Projections Sources: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012

The average delivered price of coal to electricity generators varies widely across U.S. regions – transport costs are a key reason 2010 Delivered coal prices, $ per million Btu $1.91 $1.83 $1.46 $1.49 $1.57 $1.93 1.77 $1.51 $2.45 $2.48 $3.65 $4.46 $3.40 $1.75 $2.02 $2.96 $3.41 $2.01 $2.91 N/A National Average Minimum Maximum $2.25 $1.46 $4.46 Source: EIA, Annual Energy Outlook 2012 Early Release Howard Gruenspecht Electric Power, May 15, 2012

Operating costs: existing plants with and without a value on carbon Fuel Cost for Existing Coal and Combined Cycle Natural Gas Units with a Value Placed on Carbon Dioxide Emissions The “crossover point” for least-cost dispatch of coal and natural gas capacity depends on both fuel prices and the carbon value. At lower natural gas prices, the “crossover” occurs at a lower carbon value. Environmental operating costs and retrofit costs for pollution controls at existing coal-fired plants can “raise the bar” for their continued operation. For retrofit decisions, the unit’s perceived “useful life,” which plays a critical role, can be affected by views regarding future climate policies 2010 dollars per megawatthour Coal at $3 Coal at $2 Natural Gas CC at $7 Natural Gas CC at $4 Natural Gas CC at $3 Howard Gruenspecht Electric Power, May 15, 2012

For more information U.S. Energy Information Administration home page | www.eia.gov Annual Energy Outlook | www.eia.gov/forecasts/aeo Short-Term Energy Outlook | www.eia.gov/forecasts/steo International Energy Outlook | www.eia.gov/forecasts/ieo Monthly Energy Review | www.eia.gov/totalenergy/data/monthly Annual Energy Review | www.eia.gov/totalenergy/data/annual Howard Gruenspecht Electric Power, May 15, 2012