impact of coal displacement on unit and system operations...source: u.s. energy information...

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U.S. Energy Information Administration Independent Statistics & Analysis

Impact of Coal Displacement on Unit and System Operations

31st USAEE/IAEE North American ConferenceStan Kaplan, Director, Office of Electricity, Renewables, and Uranium

Statistics ([email protected])November 4-7,2012| Austin, TX

About EIA

2

The U.S. Energy Information Administration (EIA) collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment.

For contact information, please see the last slide.

Stan Kaplan, Austin, TX,November 4-7, 2012

Explore the new Electricity Data Browser on EIA’s Beta Site: http://www.eia.gov/beta/enerdat/

Key Points

Stan Kaplan, Austin, TX,November 4-7, 2012 3

• The price of natural gas is key to the displacement of coal-fired baseload generation, but it is not the only factor.

• Other factors include:– The size and efficiency of the regional fleets of natural gas combined

cycle (NGCC) generators.

– The relative inefficiency of coal units.

– The market-insensitive nature of coal prices and resulting generation costs (at least to date).

– Stagnant market for power (the pie is not growing).– Over the longer term: The cost of maintaining aging plants, including

the cost of environmental compliance.

Primary Data Sources


• EIA– Power plant generation and delivered fuel costs: data collected on the

Form EIA-923.

– Power plant capacity and heat rates: data collected on the Form EIA-860.

– All data is public other than tested heat rates, and can be found at http://www.eia.gov/cneaf/electricity/page/data.html.

– Data for 2011 and 2012 is preliminary and subject to change.

• Other Sources– Coal prices are proprietary data from SNL Financial (http://www.snl.com/).– Henry Hub cash gas prices are from the FRED database maintained by

the St. Louis Federal Reserve Bank (http://research.stlouisfed.org/fred2/).

Background: Overall Trends


The fuel mix is changing (1)Electricity generation by fuel, Jan 2006 – August 2012: Thousand Mwh

6

Source: U.S. Energy Information Administration, Form EIA-923, Power Plant Operations Report


‐

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jan‐06

Aug

‐06

Mar‐07

Oct‐07

May‐08

Dec

‐08

Jul‐0

9

Feb‐10

Sep‐10

Apr‐11

Nov

‐11

Jun‐12

Coal

Natural Gas

Nuclear

Conventional Hydroelectric

Other Renewables

The fuel mix is changing (2)Electricity generation by fuel, Jan 2006 – August 2012: Percent of Monthly Total

7



0%

10%

20%

30%

40%

50%

60%Jan‐06

Aug

‐06

Mar‐07

Oct‐07

May‐08

Dec

‐08

Jul‐0

9

Feb‐10

Sep‐10

Apr‐11

Nov

‐11

Jun‐12

Coal

Natural Gas

Nuclear

Conventional Hydroelectric

Other Renewables

The fuel mix is changing (3)Difference Between Coal and Gas Net Generation, Jan 2006 – August 2012: Thousand MWh

8



Surplus of Coal Generation Over Gas (MWh)

Generation Shares: a longer-term perspective

9Stan Kaplan, Austin, TX,November 4-7, 2012

Source: EIA (7/13/2012). “Competition among fuels for power generation driven by changes in fuel prices”. Today in Energy.

Natural gas’s share of generation capacity has grown over past decades


Source: EIA (6/7/2012). “Recent mix of electric generating capacity additions more diverse”. Today in Energy.

Natural gas prices have reached long-term lows in past 2 years


Source: FRED database, St. Louis Federal Reserve Bank (http://research.stlouisfed.org/fred2/).

$0

$2

$4

$6

$8

$10

$12

$14

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Five Year Range, 2006‐2010 2011 2012

Henry Hub Cash Price, $/MMBtu

Natural gas has seen increased production despite weak prices


Source: EIA (6/11/2012). “U.S. dry natural gas production growth levels off following decline in natural gas prices”. Today in Energy.

Natural gas in underground storage, Lower 48 states, BCF


‐

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Five Year Range, 2007‐2011 2012 2011

Source: EIA , Weekly Natural Gas Storage Report data files (http://ir.eia.gov/ngs/ngs.html). Notes: Data is for the end of week. The end-of-week dates shown are for 2012 reporting; 2011 data has been matched to those dates as closely as possible. or additional information on the data collection, estimation methodology, and computation of the minimum and maximum range values see the notes at the web site cited in the source note.

Coal prices have generally stayed within historical ranges: Central App


Source: SNL Financial

$‐

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00


Five Year Range, 2006‐2010 2011 2012

NYMEX Big Sandy 12,000 btu/lb 1.67% SulfurBargePrompt Quarter Spot Price, $ per Short Ton

Coal prices have generally stayed within historical ranges: PRB


Source: SNL Financial

Wyoming PRB8,800 btu/lb 0.8% SulfurRailPrompt Quarter Spot Price, $ per Short Ton

$‐

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00


Five Year Range, 2006‐2010 2011 2012

Coal supply has been ample with large stocks at power plants



‐

50,000

100,000

150,000

200,000

250,000


Five Year Range, 2006‐2010 2011 2012

End-of-Month Stocks of Coal at Power Plants (Electric Power Sector), in Short Tons

Generation Has Been Stagnant


Sources: EIA estimates using the EIA-923 database.

‐

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

‐

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2007 2008 2009 2010 2011 2012 1H

National ScaleRegional ScaleAverage Generation (GWh) per Month

MISO PJM SE TOTAL LOWER 48

A warm winter of 2011-12 suppressed overall power demand


Source: EIA (5/18/2012). “Warm weather and low natural gas prices dampen spot electricity prices this winter”. Today in Energy.

Demand growth continues to slowAnnual growth in electricity consumption

19

percent growth (3-year rolling average)

Projections

HistoryPeriod Annual Growth1950s 9.81960s 7.31970s 4.71980s 2.91990s 2.42000-2010 1.02010-2035 0.8

Structural Change in Economy - Higher prices - Standards - Improved efficiency

2010

Source: EIA, Annual Energy Outlook 2012


Analysis of Study Group of Plants


Study Group of Power Plants (1)


• Plants that were in operation at the beginning of 2007, plus subsequent capacity additions.

• Minimum summer net capacity on 1/1/2007:– Coal-fired plants: 250 Mw– Natural gas combined cycles (NGCC):100 Mw.

• Primary business selling power to the public (no industrial or commercial cogenerators). In EIA parlance, this is the “Electric Power Sector.”

Study Group of Power Plants (1)


Type No. of Plants

Mw at end of 2011

% of U.S. Total Mw for Type,

2011

% of U.S. Total

Mwh for Type, 2011

Coal 295 287,164 91% 93%

NGCC 313 187,495 83% 81%

Study Regions


CAISO

MISO

ERCOT

SPP PJM

ISO NE

FRCC

Other WECC

Southeast

NYISO

Source: Map created by EIA using Ventyx (Energy Velocity).

The Most Significant Declines in Coal Generation Have Been in the East and Midwest


CY 2007 (GWh) July 2011 ‐ June 2012

(GWh) Change in GWh % Change

Share of Total Change

ISNE 15,798 3,463 (12,334) ‐78% 3%NYISO 16,306 5,171 (11,134) ‐68% 3%PJM 382,158 266,045 (116,113) ‐30% 28%FRCC 54,292 39,193 (15,099) ‐28% 4%SOUTHEAST 483,695 331,184 (152,512) ‐32% 37%MISO 442,593 379,410 (63,183) ‐14% 15%SPP 136,718 135,818 (901) ‐1% 0%ERCOT 115,215 97,372 (17,843) ‐15% 4%OTHER WECC 221,311 195,906 (25,404) ‐11% 6%CISO ‐ ‐ ‐ 0%TOTAL 1,868,086 1,453,563 (414,523) ‐22% 100%

Source: Data calculations by EIA from the EIA-923 database; map created by EIA using Ventyx (Energy Velocity).

The Most Significant Changes in NGCC Generation Have Also Been in the East and Midwest


CY 2007 (GWh) July 2011 ‐ June 2012 (GWh)

Change in GWh % Change Share of Total

Change ISNE 49,378 54,699 5,321 11% 3%NYISO 28,118 30,515 2,397 9% 2%PJM 41,634 104,858 63,224 152% 40%FRCC 77,447 80,347 2,899 4% 2%SOUTHEAST 77,106 155,790 78,684 102% 50%MISO 25,707 41,435 15,728 61% 10%SPP 32,733 42,347 9,614 29% 6%ERCOT 114,881 127,929 13,048 11% 8%OTHER WECC 112,967 89,943 (23,024) ‐20% ‐15%CISO 53,576 43,287 (10,288) ‐19% ‐7%TOTAL 613,547 771,150 157,603 26% 100%

Source: Data calculations by EIA from the EIA-923 database; map created by EIA using Ventyx (Energy Velocity).

Regional Distribution of Capacity


Study Region Coal Mw NGCC MwCoal % of U.S. Total

NGCC % of U.S. Total

ISNE 2,241 10,704 1% 6%NYISO 2,318 6,349 1% 3%PJM 61,411 20,407 21% 11%FRCC 8,217 22,514 3% 12%SOUTHEAST 72,752 36,598 25% 20%MISO 70,082 13,045 24% 7%SPP 22,227 12,866 8% 7%ERCOT 16,248 28,432 6% 15%OTHER WECC 31,667 27,142 11% 14%CISO ‐ 9,438 0% 5%TOTAL 287,164 187,495 100% 100%

Source: Data calculations by EIA (EIA-860 database); map created by EIA using Ventyx (Energy Velocity).

Efficiency of Coal and NGCC Units


5,000

7,000

9,000

11,000

13,000

15,000

17,000

19,000

0 200 400 600 800 1000 1200 1400

Tested Heat Rates, PJM

Coal Units in Study Group Combined Cycle Units in Study Group

5,000

7,000

9,000

11,000

13,000

15,000

17,000

19,000

0 200 400 600 800 1000 1200 1400

Tested Heat Rates, Southeast

Coal‐Fired Units in Study Grouip NGCC Units in Study Group

5,000

7,000

9,000

11,000

13,000

15,000

17,000

19,000

0 200 400 600 800 1000 1200 1400

Tested Heat Rates, MISO

Coal Units in Study Group NGCC Units in Study Group

The Southeast appears to have a concentration of

highly efficient NGCC units.

Source: EIA-860 survey database (non-public data).

Trends in Spot Coal (FOB Mine) and Natural Gas Prices


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2005

_01

2005

_04

2005

_07

2005

_10

2006

_01

2006

_04

2006

_07

2006

_10

2007

_01

2007

_04

2007

_07

2007

_10

2008

_01

2008

_04

2008

_07

2008

_10

2009

_01

2009

_04

2009

_07

2009

_10

2010

_01

2010

_04

2010

_07

2010

_10

2011

_01

2011

_04

2011

_07

2011

_10

2012

_01

2012

_04

2012

_07

Inde

x: Janu

ary 2005

= 1.0

Central App NYMEX Spec

Northern App 13,000 3.00 Rail

Wyoming PRB 8,800 0.80 Rail

Illinois Basin 11,800 5.00 Rail

Henry Hub Cash Price

Sources: Coal prices from SNL; Henry Hub price from St. Louis Fed (FRED database).

FOB mine spot coal prices had a late and, in the east, limited

response to the decline in gas prices.

NGCC Production Costs Track Natural Gas Spot Prices


‐

0.50

1.00

1.50

2.00

2.50

3.00 20

07_0

1

2007

_04

2007

_07

2007

_10

2008

_01

2008

_04

2008

_07

2008

_10

2009

_01

2009

_04

2009

_07

2009

_10

2010

_01

2010

_04

2010

_07

2010

_10

2011

_01

2011

_04

2011

_07

2011

_10

2012

_01

2012

_04

Index (1/2005 = 1.0)

CISO

ERCOT

FRCC

ISNE

MISO

NYISO

OTHER WECC

PJM

SERC

SPP

HENRY HUB CASH PRICE

Sources: Henry Hub price from St. Louis Fed (FRED database); production costs are EIA estimates using delivered fuel prices (EIA-923 database) and tested heat rates (EIA-860 database).

Rigidity in Coal Plant Production Costs (1)


‐

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Index (1/2005 = 1.0)

MISO Representative Production Cost

PJM Representative Production Cost

Southeast Representative Prod. Cost


Spot NYMEX Big Sandy FOB Mine

Spot NAPP Pittsburgh Seam FOB Mine

Sources: Coal prices from SNL; Henry Hub price from St. Louis Fed (FRED database); production costs are EIA estimates using delivered fuel prices (EIA-923 database) and tested heat rates (EIA-860 database).

Rigidity in Coal Plant Production Costs (2)


Sources: Coal prices from SNL; Henry Hub price from St. Louis Fed (FRED database); production costs are EIA estimates using delivered fuel prices (EIA-923 database) and tested heat rates (EIA-860 database).

‐

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Index (1/2005 = 1.0)

ERCOT Representative Prod. Cost

MISO Representative Production Cost

PJM Representative Production Cost

Southeast Representative Prod. Cost


Spot Wyoming PRB 8,800 FOB Mine

Spot Illinois Basin 11,800 FOB Mine

Differences in Representative Production Costs


($20.00)

($10.00)

$0.00

$10.00

$20.00

$30.00

$40.00

$50.0020

09_0

1

2009

_03

2009

_05

2009

_07

2009

_09

2009

_11

2010

_01

2010

_03

2010

_05

2010

_07

2010

_09

2010

_11

2011

_01

2011

_03

2011

_05

2011

_07

2011

_09

2011

_11

2012

_01

2012

_03

2012

_05

$ Per Mwh

MISO NGCC vs Coal

PJM NGCC vs Coal

SE NGCC vs Coal

Sources: Coal prices from SNL; production costs are EIA estimates using delivered fuel prices (EIA-923 database) and tested heat rates (EIA-860 database).

Overlap in Coal and NGCC Representative Production Costs, Southeast Region


$(40.00)

$(20.00)

$‐

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00 20

07_0

120

07_0

320

07_0

520

07_0

720

07_0

920

07_1

120

08_0

120

08_0

320

08_0

520

08_0

720

08_0

920

08_1

120

09_0

120

09_0

320

09_0

520

09_0

720

09_0

920

09_1

120

10_0

120

10_0

320

10_0

520

10_0

720

10_0

920

10_1

120

11_0

120

11_0

320

11_0

520

11_0

720

11_0

920

11_1

120

12_0

120

12_0

320

12_0

5

$ per MWh

NGCC production cost range (+/- 1

standard deviation).

Coal production cost average and +/- 1 SD range.

Capacity Factor Trends for Coal Plants


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%20

07_0

1

2007

_04

2007

_07

2007

_10

2008

_01

2008

_04

2008

_07

2008

_10

2009

_01

2009

_04

2009

_07

2009

_10

2010

_01

2010

_04

2010

_07

2010

_10

2011

_01

2011

_04

2011

_07

2011

_10

2012

_01

2012

_04

Capacity Factor

PJM

SOUTHEAST

MISO

Source: Data calculations by EIA from the EIA-923 and EIA-860 databases.

Capacity Factor Trends for NGCC Plants (1)


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2007

_01

2007

_04

2007

_07

2007

_10

2008

_01

2008

_04

2008

_07

2008

_10

2009

_01

2009

_04

2009

_07

2009

_10

2010

_01

2010

_04

2010

_07

2010

_10

2011

_01

2011

_04

2011

_07

2011

_10

2012

_01

2012

_04

Capacity Factor

PJM

SOUTHEAST

MISO


Capacity Factor Trends for NGCC Plants (2)


‐

1.00

2.00

3.00

4.00

5.00

6.00

7.00 20

07_0

120

07_0

420

07_0

720

07_1

020

08_0

120

08_0

420

08_0

720

08_1

020

09_0

120

09_0

420

09_0

720

09_1

020

10_0

120

10_0

420

10_0

720

10_1

020

11_0

120

11_0

420

11_0

720

11_1

020

12_0

120

12_0

4

Index (1/2007 = 1.0)

PJM

SOUTHEAST

MISO


Concluding Comments (1)


• The recent advantage of natural gas over coal in power markets is largely a function of the rapid fall in natural gas prices and inflexibility in the coal generation sector.

• Price stability has historically been a strength of coal. However, in a market in which gas prices are low or dropping rapidly price stability becomes a disadvantage. It is unclear to what extent the current price rigidity in the coal market is driven by financial need (stable revenues to support large and long-lived capital investments by railroads and miners) or are simply traditional business practices.

• Coal pricing flexibility may evolve, but it would require more willingness by coal producers and transporters to accept risk. However, if the coal market is entering a long-term period of stagnation, or if costs are inflexible, this may not be the path to profit maximization.



• In any case, greater pricing flexibility does not necessarily provide a solution for coal generators competing with natural gas. Coal spot prices have experienced significant volatility (see slide 25) but multi-year supply contracts with fixed or non-market indexes (e.g., PPI, CPI) insulated coal buyers. If coal contract prices were linked to market indexes, coal buyers would see competitive gains versus low priced gas only if coal prices moved in synch with natural gas. This may not be the case, considering the disparate factors (oneexample: whether Australian mines are experiencing strikes or floods) that can influence coal prices.

• Other rigidities in the coal power sector include the limited operational flexibility of steam electric plants, differences in coal qualities, and the willingness and ability of railroads to change service conditions and patterns.



• For natural gas, past disadvantages – price and demand volatility, and overbuilt combined cycle capacity – are now advantages. Combined cycle plants have been built or modified to efficiently handle intermediate loads, creating a wide space for these plants in daily and seasonal dispatch. Market-driven pricing keeps gas contract prices in sync with the spot market (good as long as prices are low or declining). Surplus NGCC capacity is available to displace coal generation.



• Other factors which may prove important:– Growing need for fast ramping capacity in markets with large

amounts of variable renewable power and/or demand response. Gas-fired are more suitable for this need than coal.

– Dispatch of peaking turbines ahead of coal, perhaps associated with efforts by operators to revise air permits to allow more operating hours.

• This is, of course, a market that was unimaginable just a few years ago. Perhaps the fundamental question is which sector, coal or gas generation, can best flourish in an environment of lower prices and great uncertainty.

impact of coal displacement on unit and system operations...source: u.s. energy information...

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