assessing and understanding the implications of economics of coal … · 2018-02-02 · 1|...
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Copyright © 2013 The Brattle Group, Inc.
Assessing and Understanding the Implications of Economics of Coal-Fired Plants
PRESENTED AT
Alberta Power SymposiumCalgaryPRESENTED BY
Judy Chang
September 26, 2013
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Agenda Coal Plants Under PPAs
Costs of Coal Plants Compared to Other Technologies
Current Economics of Existing Coal Plants
Albert Power Prices and Future Economics of Coal Plants
Drivers of Coal Plant Retirements in Other Markets
Outlook
About the Author / About The Brattle Group
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Expiration of PPAs with Coal Plants– Expiration of 4,300 MW of coal
PPAs in December 2020 has raised concerns over large simultaneous retirements
– However, the margins of these existing coal plants exceed their fixed costs (in absence of large cap ex needs), which makes PPA‐expiration‐related retirements unlikely
– New federal regulations effectively forces retirement of coal plants after their 50thoperating year
– Vintage of Alberta fleet means these retirements will only occur gradually between 2020 and 2035
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2000
2001
2002
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2004
2005
2006
2007
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2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Cap
acity
(GW
) &
Sources and Notes: Hydro dependable capacity rating reported above is 67% of installed capacity. Retirement dates, MW rating, and PPA expiration dates from Ventyx (2010); AESO (2010c). Historic PPA expiration dates from Appendix D, AESO (2006). Clover Bar and HR Milner PPAs originally expired in 2010 and 2012, but had early termination dates of 2005 and 2001 reported above, CRA (1999); p.3, Balancing Pool (2001), p.9 (2004), p. 3 (2005).
Gas ST Gas ST (Now Retired)
Coal (Now Retired)
HydroGas CT
FutureHistoric
Sundance 1 & 2Retire Prior to PPA Expiration
Coal
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Cost Comparison of Existing Coal Plants Relative to New Entrants
▀ Existing coal plants are comparable to new gas plants▀ Even with environmental retrofit costs, they may be relatively competitive to some new entrants
~$700/kW for a 500MW plant (Wet
Scrubber and Selective Catalytic Reduction for NOx
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$0
$20
$40
$60
$80
$100
$120
$140
$160
2000
2001
2002
2003
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2005
2006
2007
2008
2009
2010
2011
2012
Pric
e (C
AD
/MW
h)
Mid C
AESO
NP15
Minnesota Hub
Alberta Market Is Currently Supportive of Existing Coal Plants
The Alberta power market yields power prices that are generally supportive of existing coal plants and new investments, including necessary retrofits
Annual Average On-Peak Energy Prices in Alberta and Neighboring Regions(California North Path 15, Mid-Columbia, and MISO’s Minnesota Hub)
Sources and Notes:Energy Prices from Ventyx (2013).U.S. prices converted to Canadian dollars according to the exchange rate at the time, Bloomberg (2013).While Mid Columbia,, California North Path 15, and Minnesota Hubs are quite far from Alberta, we report these prices as indicators of potential purchase prices inneighboring systems where there are no organized wholesale markets or liquid trading hubs.
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Energy Margin for Existing Coal Plants
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2011
Upd
ated
2011
Upd
ated
2011
Upd
ated
2011
Upd
ated
2011
Upd
ated
2011
Upd
ated
2020
Ope
ratin
g M
argi
ns a
nd F
ixed
Cos
ts ($
/kW
-yr)
Energy Margins
Fixed O&M
Reserves Revenue
Gas CT Gas CC CoalGas Cogen
Cost of New Plant
Wind Hydro
▀ Despite low gas prices, the economics of existing coal plants in the Alberta power market has remained strong over the last few years.
Additional $50/kW-yr
Energy Margin
for Existing
Coal Plants
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Prices in Alberta’s Energy Market▀ Existing coal plants benefit from the magnitude of the prices during peak
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Economics of Existing Coal Plants▀ If the energy margin remain similar to historical pattern, existing coal plants earn enough to pay for going‐forward costs.
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Sensitivity of Coal Plant Economics to Gas Prices▀ Energy margin is sensitive to gas prices▀ But low gas price alone is not expected to force retirements of existing coal plants
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So What is Driving Coal Retirements in Other Markets? In other markets, the economics of existing coal plants are mostly affected by:
▀ Low demand in the past few years have lead to supply surplus of generating capacity in several markets
▀ Low gas prices shifted more gas plants to operate as base‐load, reducing the capacity factors of coal plants, and making them lose money during off‐peak periods
▀ High environmental retrofit costs for certain existing plants.▀ High penetration of wind driving down energy prices, which have further reduced the capacity factor and margins of some coal plants
▀ Variability of large amount of wind and solar increase the cycling costs of coal plants
▀ Many regulated utilities decided to replace old coal plants and investing in new gas plants
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Carbon Price Will Change the Economics▀ If a price is placed on carbon, the picture can be quite different.▀ With ~$30/tonne price on carbon, the economics of existing coal plants could change significantly.
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Projected Change in Alberta Generation MixUnless government policies further force retirements, or a large generation surplus occurs in Alberta, the reduction in coal generating capacity is expected to be gradual beyond 2020.
Source: Alberta Electric System Operator (2012). 2012 Long Term Outlook. February 2013.
Coal
Gas Cogen
Gas CC
Gas CTHydroWindOther
0
5
10
15
20
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30
Existing 2017 2022 2032
Gro
ss G
ener
atio
n C
apac
ity (G
W)
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Speaker Bio and Contact Information
Judy Chang is a Principal leading Brattle’s efforts in strategic planning for energy companies. She is an energy economist with background in Electrical Engineering and Public Policy. She has recently worked on regulatory and market issues in Alberta, including the evaluation of various transmission‐related topics and around the integration of renewable energy. She has provided expert testimonies before U.S. federal and state agencies and before the Alberta Utilities Commission.
She has authored reports and articles detailing the economic issues associated with system planning, including comparing the costs and benefits of transmission using a comprehensive perspective over the value of transmission beyond the traditional avoided cost views. Ms. Chang also assists clients in comprehensive organizational strategic planning, asset valuation, finance, and regulatory policies. She holds a Master’s in Public Policy from Harvard Kennedy School.
Note: The views expressed in thispresentation are strictly thoseof the presenter and do notnecessarily state or reflectthe views of The BrattleGroup, Inc.
Insert corporate headshot
here.
Judy ChangPrincipal
Cambridge, MA [email protected]
P: +1.617.234.5630
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About The Brattle Group The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governmental agencies around the world. We combine in‐depth industry experience, rigorous analyses, and principled techniques to help clients answer complex economic and financial questions in litigation and regulation, develop strategies for changing markets, and make critical business decisions. Our services to the electric power industry include:
• Climate Change Policy and Planning• Cost of Capital & Regulatory Finance• Demand Forecasting & Weather Normalization • Demand Response & Energy Efficiency • Electricity Market Modeling• Energy Asset Valuation & Risk Management• Energy Contract Litigation• Environmental Compliance• Fuel & Power Procurement• Incentive Regulation
• Market Design & Competitive Analysis• Mergers & Acquisitions• Rate Design, Cost Allocation, & Rate Structure• Regulatory Compliance & Enforcement • Regulatory Strategy & Litigation Support• Renewables• Resource Planning• Retail Access & Restructuring• Strategic Planning• Transmission
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