1. The Importance of Baseload Power Renewal
October 7, 2014
The Importance of Baseload Power Renewal
Peter C. Balash, Ph.D.,
on behalf of
Strategic Energy Analysis and Planning

2. Disclaimer
The analysis presented and conclusions drawn are solely those of the author(s), and do not represent the views of the United States Department of Energy

3. Outline – Importance of Basleoad
Electricity Trends and Projections
Growth and capacity needs may be under-projected
Issues in Focus – “GHG concern”
Obscures otherwise economic coal plant additions
Issues in Focus – “Ageless Baseload”
Is high utilization of aging capacity realistic?
Impact of Retirements
Infrastructure and reliability concerns

4. Growth in electricity use slows, but still increases by 29% from 2012 to 2040
percent growth (3-year compounded annual growth rate)
Period Annual Growth Electricity use GDP
1950s
1960s
1970s
1980s
1990s
2012
History
Structural Change in Economy - Higher prices - Standards - Improved efficiency
electricity use
Projections
GDP
Source: EIA, Annual Energy Outlook 2014 Early Release
Overview of AEO2014 Accelerated Power Plant Retirement Side Cases May 20, 2014

5. Electricity and GDP Growth
~30 Year Avg. Year-over-Year Growth Rates, 1982Q1-2014Q1
For a medium-term comparison, IHS projects kWh growth of 1.8%/year and GDP growth of 3.0%/year from
Annual Growth Rate
Electricity End Use
Real GDP
All Periods
1.89%
2.77%
Non-recession
2.25%
3.21%
Recession
-1.04%
-0.87%
1- 4 quarters after recession
0.66%
1.17%
1- 8 quarters after recession
1.97%
2.60%
5- 8 quarters after recession
3.29%
4.03%
Long-term relation of kWhgr/GDPgr = 0.683
Implicit AEO 2014 relation = (2012 to 2040); 56% of long-term relationship
Sources: Electricity, EIA, Monthly Energy Review, Table 7.6, Electric Power Month, STEO; GDP, Bureau of Economic Analysis, NIPA Table Real GDP Chained 2005 Dollars;
Rates, AEO2014 Tables 8 and 20; and NETL analysis; IHS, North American Power Quarterly Briefing, May 5, 2014; “gr” stands for growth rate.

6. kWh Growth Rate*: AEO’14 vs. SEAP
Forecast
SEAP
AEO’14
Sources: BEA – NIPA Table 1.1.6; EIA – Monthly Energy Review; Annual Energy Outlook 2014; *kWh end use (consumption); dashed lines represent
6th order polynomial fit

7. Growth of U.S. GDP vs. Generation Historic and Forecast
3.0% CAGR
AEO’14 Forecast
What If, in addition, GDP grew at AEO’05 rate?
What if historic trend in kWh and GDP growth is applied to forecasted GDP?
2.46% CAGR
Generation (BkWh)
GDP Gap 70 GW
Real GDP Billions (2010$)
GDP
Generation Gap
124 GW
Bubble Divergence
Generation
672 BkWh* missing in 2040;
Equivalent to 491 baseload BkWh ≈ 70 GW Baseload
1,187 BkWh* missing in 2040;
Equivalent to 866 baseload BkWh ≈ 124 GW baseload
“Structural Change in The Economy”, Anticipates Less Energy Required Per Unit of GDP; “Higher Prices” Also Assumed to Suppress Demand
Sources: BEA – NIPA Table 1.1.6; EIA – Annual Energy Review; Annual Energy Outlook 2014

8. Outline – Importance of Basleoad
Electricity Trends and Projections
Growth and capacity needs may be under-projected
Issues in Focus – “GHG concern”
Obscures otherwise economic coal plant additions
Issues in Focus – “Ageless Baseload”
Is high utilization of aging capacity realistic?
Impact of Retirements
Infrastructure and reliability concerns

9. 55% Capacity Increase - to 17% Decrease within 8 Years of Forecasts
AEO Coal Capacity Addition Forecasts A Wide Variation in Outlooks Over a Brief Period of Forecasts
AEO’06
AEO’07
55% Capacity Increase - to 17% Decrease within 8 Years of Forecasts
AEO’08
AEO’09
AEO’10
AEO’11
AEO’12
AEO’13
AEO’14
Additions less Retirements
AEO’13
AEO’14
Beginning with AEO ‘09, EIA applies financing cost adder to coal plants
Sources: EIA - Annual Energy Outlook 2006 through 2014; AEO’ 06 included 19 GW equivalent of CTL

10. AEO’14 Assumptions Increasing Coal Cost of Capital Nearly 50%
“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. ”
Source: EIA, "Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2014"

11. Alternate NEMS Scenarios*
High Gas Prices
No cost penalty
*Performed by NETL

12. Outline – Importance of Basleoad
Electricity Trends and Projections
Growth and capacity needs may be under-projected
Issues in Focus – “GHG concern”
Obscures otherwise economic coal plant additions
Issues in Focus – “Ageless Baseload”
Is high utilization of aging capacity realistic?
Impact of Retirements
Infrastructure and reliability concerns

13. AEO’13 Issues in Focus (page 42) The “Ageless Baseload” Assumption
Generation by fuel
“In the Reference case, coal-fired generation increases by an average of 0.2 percent per year from 2011 through 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 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 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.”

14. Gas-fueled units account for most projected capacity additions in the AEO2014 Reference case
U.S. electricity generation capacity additions
gigawatts
Source: Form EIA-860 & EIA Annual Energy Outlook 2014, Early Release
Overview of AEO2014 Accelerated Power Plant Retirement Side Cases May 20, 2014

15. Electricity Generation by Fuel, 1980-2040
billion kilowatthours
History
2012
Projections
Note: Includes generation from plants in both the electric power and end-use sectors.
Source: History: U.S. Energy Information Administration (EIA), Annual Energy Review;
Projections: AEO2014 Early Release (December 2013).
Overview of AEO2014 Accelerated Power Plant Retirement Side Cases May 20, 2014

16. Aging Baseload Coal-fired Fleet in 2040
Capacity-weighted
Average Age 62
New AEO Capacity
Operating at Highest Capacity Factors Ever at 62 Years Average Age?
Existing Capacity in 2040
Virtually no new Coal Capacity to make up for aging and retired units
Includes AEO ‘14 additions after 2014
Accounts for announced retirements
And EIA forecasted retirements
Reference – Ventyx Velocity Suite (existing units and announced retirements
- EIA AEO 2014 (forecasted additions and Retirements)

17. Coal & Nuclear Baseload Capacity by 2040
2014
2040
60 years or older by 2040
Coal: 168 GW (66%)
Nuclear: 43GW (42%)
Virtually no new Coal Capacity and very little Nuclear Capacity to make up for aging and retired units
New Coal Capacity
New Nuclear Capacity
Existing Coal Capacity
Existing Nuclear Capacity
Reference – Ventyx Velocity Suite (existing units and announced retirements
- EIA AEO 2014 (forecasted additions and Retirements)

18. Age Distribution of Existing Coal Units by 2040 (AEO 2014 Reference Case)
~75% Capacity Factor in 2040?
Will these units credibly support a 75% average capacity factor in 2040?
Identity of Projected Retirement units using NETL methodology

19. Unit Capacity Factor by Age range(10-year ranges) (Kernel density plots)
Kernel density plots exclude units with heat rates equal to 0 or greater than 35,000 and exclude units with capacity factors greater than 100; note: kernel density estimates approximate the density f(x) from observations on x

20. Coal unit capacity factors drop off as they age
80%
Approximation of actual industry capacity factor experience based on unit age
60%
14%
Data source and notes: Data from Ventyx's Energy Velocity. Unit age in each year was calculated then averaged; black line is 3rd order polynomial of the entire data set.

21. Potential Coal GWs - Reference
80%
60%
14%
Development needed today?
EIA AEO’14 Generation
79 GW
31 GW
109 GW
144 GW
1,007 BkWh
56 GW
Generation from current fleet, plus additions, less announced & AEO 2013 retirements, based on historic age/capacity factor operating data (above)
Reference – Ventyx Velocity Suite; - EIA AEO’13 remaining coal unit identities; AEO 2014er reference case generation; missing generation estimate 144 average C.F. for new units to meet 2040 demand; includes AEO’13 estimate of retiring units beyond public announcements

22. Outline – Importance of Basleoad
Electricity Trends and Projections
Growth and capacity needs may be under-projected
Issues in Focus – “GHG concern”
Obscures otherwise economic coal plant additions
Issues in Focus – “Ageless Baseload”
Is high utilization of aging capacity realistic?
Impact of Retirements
Infrastructure and reliability concerns

23. Coal capacity retirements will dominate in the Eastern Interconnection through 2020
New generation mix (56.84 GW)
Retired generation mix (93.08 GW)
Other: hydro, nuclear, oil, renewable, solar, other
Other: hydro, oil, renewable, other
Cumulative change (GW) of the generation mix for period
Coal NG
Wind
Other
Other: Retirements of hydro (0.1 GW), oil (13.6 GW), nuclear (2.6 GW), and non-wind renewables (1.2 GW),
and addition of hydro (0.6 GW), oil (0.6 GW), nuclear (5.6 GW), and non-wind renewable (5.2 GW)
Note: Graph illustrates announced to date (Sept 2014) retirements in the Eastern Interconnection
Source: Ventyx Velocity Suite Generating Unit Capacity Query

24. Coal Generation Fleet per Regulatory Impact Analysis, 2020
Notes: Announced coal unit retirements from Ventyx’s Energy Velocity, Projected retirements identified at the unit level using NETL’s “Best Estimate” methodology and data from IPM Option 1 model results summing coal retirements by state.

25. Coal Retirements by 2020 Actual, Announced, and EPA IPM
105% at 3, miles
306 GW operating Coal as of 2014
Coal Retirements
View Layer
Retirements
-20 GW (210 units)
Off On
Announced Retirements
-36.7 GW (211 units)
Operating and
Standby Units
Actual Retirements ( )
Announced Retirements
IPM Retirements
IPM Missed Announcements
Operating Units as of /Remaining units in 2020 after applied retirements
Off On
Estimated IPM Case Coal Retirements*
-97 GW by 2020 X
Summer Capacities
*Best Estimate based on unit size , capacity factor, age, and competitiveness
Off On

26. New NGCC Builds by 2020 Actual Announcements
105% at 3, miles
306 GW operating Coal as of 2014
View Layer
NGCC Builds in 2010 – 2013
+23 GW
Off On
Proposed NGCC Builds 83 GW
New NGCC Builds
Under Construction
+16 GW
Off On
Built in
Under Construction
Permitted
Proposed
Permitted
+18 GW
Off On
Proposed
+49 GW
Off On

27. Generation from Announced Retiring Units, January 2014
Notes: Announced coal unit retirements from Ventyx’s Energy Velocity

28. Generation from Projected Retiring Units, January 2014
Notes: Announced coal unit retirements from Ventyx’s Energy Velocity, Projected retirements identified at the unit level using NETL’s “Best Estimate” methodology and data from IPM Option 1 model results summing coal retirements by state.

29. Conclusions
Historic relationship between electricity demand and economic growth suggests current under-projection of required power generation
~ GWeq.
EIA modeling assumptions limit coal plant additions
Reliance on high utilization of aging coal (and nuclear) baseload assets risky
Uncertain historical basis for continued high utilization
Considerable potential for new baseload assets due to aging of the current fleet
~ GW
Far more coal retirements than gas additions raises reliability concerns

30. Additional Slides

31. From 2010 to 2020, coal retirements will be the primary driver behind RFC capacity losses
New generation mix (13.14 GW)
Retired generation mix (35.9 GW)
Other: hydro, nuclear, oil, renewable, solar, other
Other: hydro, nuclear, oil, renewable, solar, other
Cumulative change (GW) of the generation mix for period
Coal NG
Wind
Other
Other: Retirements of hydro (0.01 GW), oil (3.2 GW), nuclear (0.6 GW), biomass (0.1 GW) and non-wind renewables (0.6 GW) and addition of hydro (0.4 GW), oil (0.02 GW), non-wind renewable (0.3 GW), biomass (0.6 GW) and solar (0.3 GW)
Note: Graph illustrates announced to date (Sept 2014) retirements in RFC
Source: Ventyx Velocity Suite Generating Unit Capacity Query

32. Coal capacity retirements will dominate in former ECAR areas through 2020
New generation mix (5.5 GW)
Retired generation mix (22.6 GW)
RFC-ECAR
Other: hydro, nuclear, oil, renewable, solar, other
Other: hydro, oil, renewable, other
Cumulative change (GW) of the generation mix for period
Coal NG
Wind
Other
Other: Retirements of hydro (0.0 GW), oil (0.8 GW) and non-wind renewables (0.3 GW) and addition of hydro (0.1 GW), oil (0.0 GW), and non-wind renewable (0.7 GW)
Note: Graph illustrates announced to date (Sept 2014) retirements in ECAR
Source: Ventyx Velocity Suite Generating Unit Capacity Query

33. Eastern Interconnection reserve margin levels consistently decrease through 2023 (units in queue only)
Notes:
1. Planning Reserve Margins are calculated using the formula : Reserve = (Total Capacity – Net Internal Demand)/Net Internal Demand, where Net Internal Demand = Total Internal Demand – Dispatchable, Controllable Demand Resources
2. Historical values ( ) are from NERC’s annual Summer Reliability Assessment for that year.
3. The 2012 NERC LTRA only included forecasts for the period 2014 through 2022.
4. The 2013 NERC LTRA only included forecasts for 2014, 2018, and 2023.
5. NETL simulations include only existing and certain generation through 2023 and an assumed annual peak demand growth of 0.8%
Data Source: NERC Summer Reliability Assessments (2010 – 2013), NERC Long-Term Reliability Assessment (2012 & 2013) and NETL Simulations using PROMOD IV 11.1