energy future holindings txu_121206

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energy future holindings txu_121206

  1. 1. The Need For Power In Texas Natural Gas Fundamentals And Reliance On Gas-Fired …That Is Further Complicated By Rapidly Growing Demand Generation Have Placed Texas’ Power Supply At Risk… And An Aging Generation Fleet Growing supply deficit for US natural gas… …and increased reliance on foreign reserves… …that will deplete current reserve margins… Texas has a rapidly growing population… ERCOT reserve margins Total population growth 95-10E; TCF 05; Percent (100% = 6,338 TCF) 00-11E; Percent 00-15E; Millions of people Other Russia 6.3 5.7 25 5.2 30 27 US 29 Over 80% of Over 80% of 26 23 23 demand total world 41 total world 17 16 15 16 reserves are 21 reserves are 11 2.4 controlled by 2.0 2.0 9 controlled by 7 5 1.4 19 US foreign 1.1 1.1 0.9 15 foreign Iran supply governments 3 17 governments 14 CA TX FL AZ GA NC VA NV WA MD 00 02 04 06E 08E 10E U.S. 95 97 99 01 03 05 07 09 Qatar …and stress an aging generation fleet… …resulting in increasing heat rates …have driven high and volatile prices… …particularly in markets with gas on the ERCOT generation fleet age ERCOT generation supply margin 95-10E; $/MMBtu1 06; Percent of generation capacity 06; $/MWh @ $8/MMBtu gas 06; Percent of time gas is on the margin Peak demand 100% = 77 GW 150 06 10 12 343% 343% >50yrs 41-50yrs 10 92 2% 90+ 100 80 79 6% <10yrs 8 58 31-40yrs 22% 6 47 50 35% 40 4 2 0 0 20 40 60 80 0 19% FRCC ERCOT WECC NEPOOL Entergy SPP PJM 21-30yrs 16% 95 97 99 01 03 05 07 09 Cumulative capacity (GW) 1 2 10-20yrs 1 Projected prices from 06-10 based on calendar strip prices as of Aug 31, 2006 …And The Tradeoffs Associated With Each TXU Examined All Generation Technologies… Competitive Capital recovery technology Fixed O&M Horizon 1 Horizon 2 Emission cost Technology 0-5 years 5-15 years Levelized price to achieve full reinvestment economics Fuel and variable O&M 06; $/MWh Constructible Wind 86 Cost effective with subsidies 71-74 73 60 Constructible Gas 50-53 15 Reliable 71 45-48 2 58 25-28 0.2 Constructible Pulverized 4 7 43 Reliable 1.0 coal 0.6 Cost effective 8 20 18 15 7 Constructible 1 IGCC Wind Advanced IGCC CCGT Super-critical Reliable nuclear coal Cost effective Constructible Supercritical pulverized coal has a distinct advantage over the other technologies Supercritical pulverized coal has a distinct advantage over the other technologies Reliable Nuclear and could have a steep learning curve to widen the gap and could have a steep learning curve to widen the gap Cost effective 3 4 1Includes $3/MWh renewable energy credit (REC); does not include production tax credit (PTC)
  2. 2. The Need For Power In Texas TXU’s Program Will Help Ensure Reliability And Reduce TXU’s Plan Will Help Meet These Challenges In Texas Reliance On Natural Gas In Texas… Historical and projected ERCOT Generation capacity by fuel type Ensuring reliability and reducing reliance of natural gas reserve margins 06-10E; Percent through a plan to bring on 9 GW of new capacity by 2010, 00-11E; Percent 1 40 rebalancing the Texas supply stack and helping to maintain 100%= 1,070 GW 77 GW 90 GW Impact of TXU Power adequate reserve margins through 2014 Generation Program 30 29 30 26 35 42 Other 23 58 19 Lowering prices by leveraging a scale power generation 20 17 16 17 16 2 15 program to displace high cost generation and share savings 11 12 12 with our customers 65 12 3 10 58 Gas 42 9 7 5 0 US Texas 06E Texas 10E 00 03 06E 09E Improving the environment through the largest ever 3 2000 – 2004 2005 – 2007 2008 – 2011+ Reduction in gas voluntary offset program and displacement of less efficient 2000 – 2004 2005 – 2007 2008 – 2011+ Reduction in gas 22 GW of natural gas fired Rapid Dangerously reliance and 22 GW of natural gas fired Rapid Dangerously reliance and generation capacity generation added; demand low supplies volatility by shifting generation added; demand low supplies volatility by shifting adequate supplies growth require 1.5 GW the stack away from adequate supplies growth require 1.5 GW the stack away from eliminates per year gas towards solid eliminates per year gas towards solid reserve fuel reserve fuel 5 6 Source: ERCOT, 10/1/05 and 6/19/06 …Allowing TXU To Deliver Lower Cost Power To Its …While Continuing To Improve The Texas Environment Customers… Estimated key emissions Breakeven power prices for TXU’s Power Generation Program Total annual ERCOT market SO2 NOX Hg Thousands of tons savings 06E; $/MWh 11E; $ billions 2005 emissions (nine existing facilities) 273.1 42.1 .0025 Forward power price 76-79 17 Emissions after new development and 1.7 218.5 33.7 .0020 voluntary reductions 5 4 Total TXU reductions 54.6 8.4 .0005 50-53 Reduction relative to 05 TXU emissions (20%) (20%) (20%) 3rd Additional reductions from displacement of 0.0 12.1 0.0 party units US ranking1 among 20 largest coal generators 1st 1st 2nd TXU emissions rates1 relative to US average (63%) (82%) (30%) Market savings Expectations Decreased Decreased Operational TXU for subscale capital costs fuel costs advantages target builder TXU has committed to the largest voluntary emissions reduction in U.S. history TXU has committed to the largest voluntary emissions reduction in U.S. history TXU’s plan will more than double its capacity in Texas while cutting key TXU’s plan will more than double its capacity in Texas while cutting key Without scale, it would be virtually impossible for TXU Without scale, it would be virtually impossible for TXU emissions by 20% and its emission rates by 70% emissions by 20% and its emission rates by 70% to deliver needed cost savings to its customers to deliver needed cost savings to its customers 7 8 1 TXU after new power generation development program and retrofits; relative to average US coal plant
  3. 3. Coal Is The Fuel Of Choice …Today, Supercritical Coal Appears To Have The Economic While TXU Believes A Portfolio Of Technologies Is Needed To Advantage Meet America’s Energy Challenges… Horizon 1 Horizon 2 Capital recovery Technology 0-5 years 5-15 years Fixed O&M Levelized price to achieve full reinvestment economics Emission cost 06; $/MWh Constructible Wind Fuel and variable O&M Cost effective 86 with subsidies 71-74 73 Gas Constructible 60 Reliable 50-53 15 71 45-48 2 58 SCPC Constructible 25-28 0.2 Reliable Cost effective 4 7 43 1.0 0.6 Constructible IGCC 8 Reliable 20 18 Capacity additions 15 Cost effective 7 represent 12% of 06-20 1 Wind Advanced IGCC CCGT Supercritical coal US demand growth Constructible Reliable nuclear Nuclear Cost effective Technology GW Technology GW Supercritical pulverized coal has a distinct advantage over the other technologies Wind 3.0 Wind 1.5 Supercritical pulverized coal has a distinct advantage over the other technologies TXU aspiration: and could have a steep learning curve to widen the gap SCPC 30.0 SCPC 23.0 and could have a steep learning curve to widen the gap balanced portfolio of IGCC 6.0 IGCC 0.0 state of the art Nuclear 8.0 Nuclear 2.5 generation 1Includes 1 2 $3/MWh renewable energy credit (REC); Does not include production tax credit (PTC) Total 47.0 Total 27.0 …Wind Must Be Part Of The Solution While The Characteristics Of Wind Generation Make It Difficult To Meet Long-Term Baseload Demand… TXU plans to double its wind …furthering Texas as the nation’s portfolio by 2010… leader in wind generation capacity Wind availability versus hourly electricity demand in ERCOT 06; Percent TXU wind generation purchases Total wind generation capacity 05-10E; MW 06; MW 146% 146% 100 2,370 1,425 80 2,325 1,260 Hourly 1,100 At peak demand demand 930 60 periods wind averages less than 40 580 20% capacity Wind 825 800 capacity 20 0 1 5 9 13 17 21 06E 07E 08E 09E 10E TX CA IA MN Hours Not only does wind peak in the off-peak hours, it peaks in the shoulder months TXU is the largest purchaser of wind generation in Texas Not only does wind peak in the off-peak hours, it peaks in the shoulder months TXU is the largest purchaser of wind generation in Texas 3 4 Source: AWEA Second Quarter Market Report, July Source: AWEA Second Quarter Market Report, July
  4. 4. Coal Is The Fuel Of Choice There Must Be Regulatory And Capital Breakthroughs To …As Well As Solutions For Long-Term Storage Of Spent Fuel Make Nuclear Generation Competitive In The Long Term… …and concerns about storage capacity have made Escalating costs with expectations of nuclear capacity additions uncertain additional increases…. Estimated U.S. used nuclear fuel accumulation Estimated construction cost for the High construction costs… …combined with long …result in a high total 00-50E; Thousands of tons of heavy metal (tHM) Yucca Mountain Project lead times… cost relative to coal 86-00; $ billion1 200 MIT “global growth” 76% Construction costs Installation time Breakeven power price 76% Nuclear scenario growth 06E; $/KW 06E; Months 06E; $/MWh 127% 167% 43% 127% 167% 43% 150 60 scenario Yucca Mountain 73 2,500 70-73 120 capacity according to DOE 01 study (83,800 20 tHM) 100 34 1,100 CO21 45 50-53 50 Yucca Mountain legal capacity (63,000 tHM) SCPC coal Nuclear SCPC coal Nuclear SCPC coal Nuclear 0 86 00 00 05 15 25 35 45 The lack of a long-term spent fuel solution also makes The lack of a long-term spent fuel solution also makes nuclear a longer-term generation solution nuclear a longer-term generation solution A solution for spent fuel must be defined before nuclear can be a long-term A solution for spent fuel must be defined before nuclear can be a long-term solution for America solution for America 5 6 1 Based on potential carbon scenario with current European ETS pricing 1 02 dollars Gas Fundamentals And Improvements In Supercritical Coal Today, IGCC Is Uncompetitive With The Supercritical Coal Make It The Winning Economic Technology Today Technology Coal is a relatively low cost fuel source… …in abundant supply in the US US reserves Commodity prices Breakeven power price of SCPC and IGCC in Texas 04; Years of remaining reserves 99-06; $/MMBtu 06; $/MWh 12 191% 1,900% 1,900% 200 2 3 71-74 9 1 4 Natural Gas 13 6 50-53 1 1 3 Coal 29% 10 0 Sep- Sep- Sep- Sep- Sep- Sep- Sep- Sep- 99 00 01 02 03 04 05 06 Gas Coal TXU PC Lower Lower Higher Lower Longer Longer Higher IGCC Coal technology has become more cost …and emissions have been reduced reference emissions heat rate capital capacity ramp up time to operating estimate effective… dramatically plant cost cost factor time build cost Improvements in construction cost NOX emissions from US power plants 9,130 PC ref plant Per TXU $1,100/KW 94% None 38 months $42/KW/yr MMBtu/ 95-05; Percent reduction 05; Lbs/MMBtu estimate nominal (online 01/10) MWh 8,520 $1,800/KW 6 Months 62 months $56/KW/yr Per TXU IGCC baseline 85% MMBtu/ nominal (online 01/12) 85% estimate 45 85% 104% MWh 0.33 104% 22 IGCC is unproven on coal available in Texas IGCC is unproven on coal available in Texas Longer construction time makes it difficult to hedge output Longer construction time makes it difficult to hedge output 0.03-0.13 0.05 Cost of carbon capture is not necessarily advantaged Cost of carbon capture is not necessarily advantaged US average TXU new Gas 7 8 Source: GE; EPRI, academic literature; press reports coal coal Gas Coal
  5. 5. Coal Is The Fuel Of Choice …To Ensure The Plants Are Part Of The Environmental TXU Is Investing In The Newest Technology… Solution SO2 Building the most efficient plants in the country… …designed for potential future carbon capture Average emission rates NOX Coal plant steam outlet temperatures for plants 70-15E; Lbs/MMBtu under construction 4.37 06E; Degrees Fahrenheit Meet EPRI IEA requirements to be 1,085 1,085 advanced considered carbon capture TXU supercritical ready status standard Sufficient space in critical access locations >90% >90% 1,050 1,050 1,050 Options for CO2 storage 1.08 0.78 Design studies on potential 0.35 0.29 0.29 ~0.2 ~0.1 0.12 0.12 0.10 0.05 separation methodologies Pre-investments including TXU Plant Plant Plant Plant US Avg US Avg Texas CAIR Oak Grove, Reference plant siting reference A B C D 1970 2004 2004 2015 Sandow 5 plants plant TXU’s new plants will operate with the best available control technology, TXU is commercializing the most efficient coal plants and continues to ensure TXU’s new plants will operate with the best available control technology, TXU is commercializing the most efficient coal plants and continues to ensure reinforcing Texas’ proven environmental track record the plants will be able to be retrofitted with carbon capture technology reinforcing Texas’ proven environmental track record the plants will be able to be retrofitted with carbon capture technology 10 9 Source: EPA Acid Rain database and EIA TXU Is Proactively Investing In Next Generation Technologies As In Europe, TXU Believes These Advances Will Continue To Make Coal The Winning Technology TXU is investing across technologies… …while working to commercialize technologies across the entire value chain… Horizon 1 Horizon 2 Levelized breakeven power cost European announced new 0-5 years 5-15 years Generation Demand $/MWh build capacity Wind 11+; Percent (100%=54 GW) IGCC Gas Combustion Flue gas Customer Other Fuel Efficiency Gasification removal initiatives Coal 100 Wind Advanced coal Wind 5 • Coal • Waste to • R&D • Solid CO2 • Time of cleaning energy partnership capture use retail • Oxy- • Chilled IGCC products 80 Nuclear • CO2 free firing NH3 40 • MEA products 33 • • Efficiency Storage Nuclear study solutions 60 CCGT @ …acquiring the lowest-cost carbon offsets …and starting an environmental ventures 6.50/MMBtu SCPC across the world economy… fund to spur investment in this area 5 40 4 06; $/ton 13 Nuclear IGCC 0 5 10 15 20 25 30 35 TXU Natural 120 Transport Methane CO2 credit, $/ton efficiency gas 90 capture Bank $200M Advisory Industrial No-till 60 fund gas Board farming Equipment It would take a combination of low gas prices and high sustained carbon prices to It would take a combination of low gas prices and high sustained carbon prices to capture 30 supplier make the winning technology a non-coal technology make the winning technology a non-coal technology 0 Venture This gap will continue to widen as the coal construction learning curve is exploited This gap will continue to widen as the coal construction learning curve is exploited capital 0 1 2 3 4 5 6 7 8 11 12 CO2 reductions (Billion tons)
  6. 6. TXU Development: Solving America’s Energy Challenges TXU Power Development Is Focused On Developing A TXU Announced 9.1 GW of New Coal Capacity To Meet The Pipeline Of Origination Opportunities Future Power Needs Of Texas To become the Net leading originator Capacity and constructor of Mission Unit MW Fuel County baseload generation throughout the US Oak Grove 1, 2 1,634 Lignite Robertson Valley Sandow 5 581 Lignite Milam Monticello Morgan Creek Martin Lake Big Brown 3 858 PRB Freestone Big Brown Tradinghouse Originate long-term Develop steady Construct baseload Lake Creek Oak Grove Monticello 4 858 PRB Titus off-take agreements pipeline of baseload generation 35% Sandow and equity sell Martin Lake 4 858 PRB Rusk opportunities to add cheaper and faster Objectives downs to ensure 30% 3 GW of new capacity and make 5% annual of construction is Morgan Creek 7 858 PRB Mitchell annually improvement sold forward Tradinghouse 3, 4 1,716 PRB McLennan PJM Development Proprietary Construction Muni/Co-op Solutions Program Whole System Approach Lake Creek 3 858 PRB McLennan Industrial Solutions Incumbent Customer Advantaged Relationships Valley 4 858 PRB Fannin Equity Partnership Solutions Strategy With Top Contractors and Solutions Manufacturers Industrial Partnerships Strategies TXU is using its current, advantaged sites to expand capacity in ERCOT Global Low-cost Country, TXU is using its current, advantaged sites to expand capacity in ERCOT National Advocacy Scaled Sourcing Program Initiative Learning Curve Codification 1 2 TXU Is Also Working With Regulated Entities To Deliver New TXU Has Focused Its Near-Term Ex-ERCOT Growth On The Generation At Lower All-In Costs Deregulated PJM and Northeast Markets Northeast coal investment return analysis Status of PJM development TXU’s current origination efforts include up to …to provide potential customers with long- 06; IRR effort 10 GW of new generation… term, low-cost power Breakeven power prices for TXU’s Power Generation Program Completed Outstanding 06E; $/MWh 76-79 Status Units GW 4 Target entry zones 5 3 GW of sites Final fuel plan 17 identified/secured Key Preliminary discussions 5 4 Preliminary stakeholder 50-53 transmission agreements Advanced discussions 4 3.5 studies complete completed by end of 2006 Site engineering Letters of intent1 3 2.5 complete Geo-technical evaluation Preliminary air Definitive agreements 0 0 modeling complete Permit levels Total 12 10 identified and discussed with states TXU Increased Increased Operational Regulated High target capital fuel costs disadvan- cost costs tages expecta- tions TXU has had more than 10 unsolicited requests for development projects in TXU has had more than 10 unsolicited requests for development projects in Low regulated markets regulated markets 1 Letter of intent signed or in approval process. 3 4

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