Monthly Market Risk Update: April 2024 [SlideShare]
Fuel for power
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
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
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
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
Fuel for Power
Source: American Coal Foundation
6. 6
Fuel for Power
Thomas Edison’s Pearl Street station begins operation
1882
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
Fuel for Power
electric generator
Electricity 101
12. 12
Fuel for Power
Pearl Street station
1882
Hoover Dam
1936
The Great Depression
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
Fuel for Power
Pearl Street station
1882
Hoover Dam Shippingport
1936
The Great Depression
World War II
1957
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
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
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
Fuel for Power
U.S. power sector regulation (Cliff notes version), part I
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
Fuel for Power
U.S. power sector regulation (Cliff notes version), part I
21. 21
Fuel for Power
U.S. power sector regulation (Cliff notes version), part I
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
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. 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
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
Fuel for Power
PURPA’s innovations:
• New market entrants: QFs, IPPs, merchant power players
• Technology: grounding the jet engine
27. 27
Fuel for Power
Capital costs, not fuel costs
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
Fuel for Power
North American ISOs and RTOs
Source: http:// www.iso-rto.org
33. 33
Fuel for Power
Uniform Clearing Price Auction
Source: NYISO
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Fuel for Power
Regulated and deregulated states
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
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
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
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