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Fuel for power

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Description of development of US electric power business.

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Fuel for power

  1. 1. Fuel for Power An overview of the U.S. power sector from the perspective of fuel demand Editorial Abroad Singapore July 14, 2010 Peter Maloney, Chief editor, Platts Global Power Report
  2. 2. 2 Fuel for Power U.S. power plant fuels 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 bil Btu wind solar geothermal biomass natural gas petrol nuclear hydro coal Source: Energy Information Administration
  3. 3. 3 Fuel for Power U.S. power plant fuels by % 100% 80% 60% 40% 20% 0% 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 bil Btu wind solar geothermal biomass natural gas petrol nuclear hydro coal Source: Energy Information Administration
  4. 4. 4 Fuel for Power Source: BP World Coal Reserves Country million tonnes Share USA 246,643 27% Russia 157,010 17% China 114,500 13% India 92,445 10% Australia 78,500 9% South Africa 48,750 5%
  5. 5. 5 Fuel for Power Source: American Coal Foundation
  6. 6. 6 Fuel for Power Thomas Edison’s Pearl Street station begins operation 1882
  7. 7. 7 Fuel for Power Thomas Edison’s Pearl Street Power Station Began operation: 1882 Capacity: 100 kW Why coal? Historically if you need to turn a turbine, there were two choices: • coal • water But • It is cheaper to build a coal plant (than a hydropower plant) • Coal is less location dependent
  8. 8. 8 Fuel for Power electric generator Electricity 101
  9. 9. 9 Fuel for Power + +
  10. 10. 10 Fuel for Power
  11. 11. 11 Fuel for Power
  12. 12. 12 Fuel for Power Pearl Street station 1882 Hoover Dam 1936 The Great Depression
  13. 13. 13 Fuel for Power • Hoover Dam • Came online: 1936 • Capacity: 2,080 MW Followed by Federal power authorities: • Tennessee Valley Authority • Bonneville Power Authority
  14. 14. 14 Fuel for Power Pearl Street station 1882 Hoover Dam Shippingport 1936 The Great Depression World War II 1957
  15. 15. 15 Fuel for Power First nuclear power plants 1954 Obninsk, Russia 1956 Calder Hall, England 1957 Shippingport, Pa., US Nuclear power as % of total US generation (MWh) 25 20 15 10 5 0 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Three Mile Island, March 1979 Partial core meltdown
  16. 16. 16 Fuel for Power Three Mile Island power station, Londonderry, PA from “… too cheap to meter …” to • stagflation • 1979 – Three Mile Island, partial core meltdown Fallout: • 1983 – Washington Public Power Supply System (Whoops) defaults on $2.25 billion of bonds • 1988 – Public Service Co. of New Hampshire declares bankruptcy Next COL application: 2006 Cost overruns! What happened?
  17. 17. 17 Fuel for Power U.S. power sector regulation (Cliff notes version), part I Electric utility structure worldwide (circa pre-1985) England 1 CEB France 1 EDF Italy 1 ENEL Saudi Arabia 1 SAE Pakistan 2 WAPDA & KESC India 26+ SEBs + 4 central agencies Thailand 3 EGAT, MEA, PEA Philippines 2 Napacor + Meralco Indonesia 1 PLN Australia 8 by state Singapore 1 Tk China 1+ State, Huaneng, Shandong Japan 10 Regional utilities US 3,273 !!!!!
  18. 18. 18 Fuel for Power U.S. power sector regulation (Cliff notes version), part I
  19. 19. 19 Fuel for Power U.S. power sector regulation (Cliff notes version), footnote Public/private Private utilities in the U.S. are publicly traded, i.e., they are listed companies aka joint stock companies BUT in federal law (Federal Power Act) they are called public utilities or public power companies Do not confuse that with publicly owned utilities such as munis It is safest to call U.S. private, i.e., publicly traded utilities IOUs
  20. 20. 20 Fuel for Power U.S. power sector regulation (Cliff notes version), part I
  21. 21. 21 Fuel for Power U.S. power sector regulation (Cliff notes version), part I
  22. 22. 22 Fuel for Power U.S. power sector regulation (Cliff notes version), part II Ratebase regulation “Normal” business • Cut costs • Beat the competition • Earn profits Incentive: cost cutting, efficiency I.O.U.s • Franchise = obligation to serve • Profits are capped, +/- 12% ROE • Costs increase the basis Incentive: overbuilding, “Gold plating”
  23. 23. 23 Fuel for Power U.S. power sector regulation (Cliff notes version), part II How are costs approved, i.e., put into rate base? regulatory process, a rate case, at the state level regulation X PUC, PSC, BPU, VCC, ARC, ACC, DPU, URC, DTE, TRA, VCC, RAS, WUTC, … =
  24. 24. Golden age for electric utilities • Growing efficiency • Declining prices for consumers 24 Fuel for Power Oil shocks lead to passage of the National Energy Policy Act Pearl Street Hoover Dam 1882 1936 • Gas Act & Public Utility Regulatory Policies Act of 1978 OPEC oil embargo PURPA Shippingport 1957 TMI 1979 1973 1978 The Great Depression World War II The Atomic Age
  25. 25. 25 Fuel for Power PURPA’s innovations: • New market entrants: QFs, IPPs, merchant power players  IOUs decreased from 261 in 1992 to 239 in 1998  IPPs increased from 1,792 in 1992 to 1,954 in 1998  Between 1985 and 1991, the annual growth rate for utility capacity was 1%  Non-utility capacity grew by 13.9% annually, increasing by almost 120% in six years  Non-utilities accounted for only 6% of the total in 1991, but they added more net capacity during 1990 and 1991 than did utilities – EIA
  26. 26. 26 Fuel for Power PURPA’s innovations: • New market entrants: QFs, IPPs, merchant power players • Technology: grounding the jet engine
  27. 27. 27 Fuel for Power Capital costs, not fuel costs
  28. 28. 28 Fuel for Power PURPA’s innovations: • New market entrants: QFs, IPPs, merchant power players • Technology: grounding the jet engine • Regulatory: Energy Policy Act of 1992  FERC Order 888 (1996)  Unbundling  Wholesale power markets
  29. 29. 29 Fuel for Power North American ISOs and RTOs Source: http:// www.iso-rto.org
  30. 30. 30 Fuel for Power
  31. 31. 31 Fuel for Power Electric Power Load Curve
  32. 32. 32 Fuel for Power
  33. 33. 33 Fuel for Power Uniform Clearing Price Auction Source: NYISO
  34. 34. 34 Fuel for Power  June 1998 - Midwest spot electricity prices spike to $7,000/MWh (compared with a more “normal” prices of $50 - 70/MWh)  200,000 MW of gas-fired power plants built, many on a merchant basis (about 20% of the U.S. installed capacity of 1,112,000 MW Singapore’s installed capacity is 10,600 MW India’s is 147,000 MW China’s is 622,000 MW)
  35. 35. 35 Fuel for Power U.S. power sector fuels 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 wind solar geothermal gas petro nuclear hydro coal mil kWh
  36. 36. 36 Fuel for Power U.S. power sector fuels by % 100% 80% 60% 40% 20% 0% 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 wind solar geothermal gas petro nuclear hydro coal
  37. 37. 37 Fuel for Power 2000 - 2001 • Western (California) energy crisis • Wash trade scandals • Enron collapses (Oct. 2001) End of an Era • Wholesale power prices collapse • Natural gas rises to $14/MMBtu • Power marketers disappear • Deregulation goes in reverse
  38. 38. 38 Fuel for Power Pearl Street Hoover Dam 1882 1936 Shippingport OPEC oil embargo PURPA 1957 TMI 1979 The Great Depression World War II 1973 1978 The Atomic Age EPAct 1992 The PURPA Era Enron falls Midwest price spike 1992 1998 2001
  39. 39. 39 Fuel for Power Bankruptcies: • Calpine • Mirant • NRG Energy Financial players enter the market, buying up distressed assets ($13 billion by 2004): • American International Group • ArcLight Capital • Bear Stearns • Blackstone Group • Carlyle Group • Goldman Sachs • KKR Back to Basics • No proprietary trading • Build baseload plants, i.e., coal plants
  40. 40. 40 Fuel for Power In 2006 there were almost 50 new coal project announcements representing 31,000 MW Annual Net Coal Project Backlog Flow (MW) 30,000 25,000 20,000 15,000 10,000 5,000 - (5,000) (10,000) (15,000) 2002 2003 2004 2005 2006 2007 (thru Sept) Net Annual MWs Added to Backlog Source: GF Energy Why? Gas was at the margin
  41. 41. 41 Fuel for Power May 2006 – An Inconvenient Truth Feb. 2007 - Kravis Roberts & Co. and Texas Pacific Group agree to acquire TXU for $45 billion (NRDC & ED sign off) Canceled coal-fired projects 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1Q 2Q 3Q 4Q MW 2007 2008 2009 (9 mos.)
  42. 42. 42 Fuel for Power Pearl Street Hoover Dam 1882 1936 Shippingport 1957 TMI oil embargo PURPA 1979 The Great Depression World War II 1973 1978 The Atomic Age EPAct 1992 Enron falls Midwest price spike 1992 1998 2001 The PURPA Era TXU buyout 2007 Back to Basics/Financial Players
  43. 43. 43 Fuel for Power What’s the price of Caron dioxide? Unknown Everything is on the table: • Nuclear • Coal • Natural gas • Renewables (wind, solar, geothermal, biomass)
  44. 44. 44 Fuel for Power US Climate change/energy bills Bill Number Sponsor(s) Cap & trade Status Comment American Clean Energy and passed out of Security Act H.B. 2454 Waxman-Markey yes House June 26 Clean Energy Jobs and American Power Act S. 1733 Kerry-Boxer yes passed out of Env. & Pub. Works Comit. Nov. 5 Dept. of Ag. Handles offsets American Clean Energy Leadership S. 1462 Bingaman no passed by Energy & Nat. Res. Comit. June 17 energy only Clean Energy Partnerships Act S. 2729 Stabebnow no referred to Sen. Env. & Pub. Works Comit. outline for offsets Clean Energy Act S. 2776 Alexander-Webb no introduced Nov. 1, 2009 nuclear power, loan guarantees Carbon Limits and Energy for American's Renewal Act S. 2877 Cantwell-Collins no introduced Dec.1, 2009; referred to finance committee cap and dividend draft na Kerry-Graham- Liebermann unknown draft
  45. 45. 45 Fuel for Power Nuclear power  2006 - NRG Energy applies for COL for 2,700-MW expansion project  NRC now has 26 COL applications (+/- 26,000 MW), 7 more expected  Federal loan guarantees: • $8.3 billion guar. to Southern Co. leaves $10 bil, enough for 1 project • $10 billion more to come?  Costs: $17 billion price tag shocks NRG’s partners ($4,800/kW)
  46. 46. 46 Fuel for Power Coal  Not in my backyard (NIMBY, BANANA, NOPE)  IGCC: Duke Energy’s $2.8 bil, 630-MW Edwardsport ($4,570/kW)  CCS: AEP’s $668 mil, 235-MW Mountaineer CCS II ($2,840/kW)
  47. 47. 47 Fuel for Power Natural Gas Shale gas changes everything  Unconventional gas went from 28% of U.S. production in 1998 to 46% in 2007 Shale gas production is forecast to increase from 42% of total US gas production in 2007 to 64% in 2020. –API  Production of shale gas is expected to increase from a 2007 US total of 1.4 Tcf to 4.8 Tcf in 2020. At 2007 production rates of 19.3 Tcf, there are enough recoverable resources of natural gas to supply the US for the next 90 years. – U.S. DOE  The Marcellus shale alone could produce 27 Bcf/day, equal to half the total U.S. lower 40 production – Navigant Consulting Producer estimates indicate that shale plays could boost U.S. gas resources to 2,247 Tcf of 118 years supply at current production levels – Navigant Consulting  Median break-even price for shale gas extraction is $6.64/mcf with a range of $4.20/mcf to $11.50/mcf – Bank of America/NYMEX
  48. 48. 48 Fuel for Power
  49. 49. 49 Fuel for Power Renewables Wind  8,358 MW installed in 2008  10,000 MW installed in 2009  State RPS  National RPS?  PTC?  Cash in lieu?
  50. 50. 50 Fuel for Power • The stimulus effect? • Gas price volatility (power was 4.6 Tcf/yr in 1998, 6.9 Tcf in 2007) • Carbon price • CAIR replacement or Carper-Alexander (SO2, NOx) • Federal incentives • Patchwork regulation Electricity demand three year rolling average % growth 12 10 8 6 4 2 0 -2 1950 1960 1970 1980 1990 2000 2010 2020 2030 Source: Energy Information Administration Period Annual growth 1950s 9.8 1960s 7.3 1970s 4.7 1980s 2.9 1990s 2.4 2000-2008 0.9 2008-2035 1.0
  51. 51. 51 Fuel for Power DC State renewable portfolio standard with solar / distributed generation (DG) provision State renewable portfolio goal with solar / distributed generation provision Source: DSIRE State Renewable Portfolio Standards
  52. 52. 52 Fuel for Power Regulated and deregulated states
  53. 53. 53 Fuel for Power Power plants online in the last five years, by fuel 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2004 2005 2006 2007 2008 2009 MW COAL Natural Gas SOLAR Wind
  54. 54. 54 Fuel for Power Power plants under construction in the US, by fuel 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2009 2010 2011 2012 2013 MW COAL Natural Gas Nuclear Solar WIND
  55. 55. 55 Fuel for Power Power plants in development, by fuel 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 MW COAL Natural Gas Nuclear SOLAR WIND
  56. 56. 56 Fuel for Power 2008 38% 34% 8% 5% 11% 3% Capacity mix by fuel 2020 39% 34% 8% 5% 9% 4% nat ural gas coal hydro oil nuclear wind solar geot hermal wood pet coke biomass unkonwn ot her
  57. 57. 57 Fuel for Power
  58. 58. 58 Fuel for Power Conclusion  Federal action/inaction aside  Industry will take the path of least resistance: natural gas

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