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The Future of Coal

The Future of Coal. Karen R. Obenshain, Sc.D. Sheet Metal Workers International Association Power Generation Summit June 19, 2008. Edison Electric Institute.

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The Future of Coal

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  1. The Future of Coal Karen R. Obenshain, Sc.D. Sheet Metal Workers International Association Power Generation Summit June 19, 2008

  2. Edison Electric Institute EEI is the national association of shareholder owned electric utilities in the U.S. Our members represent about 70 percent of the U.S. electric power industry and serve 95 percent of the ultimate customers in the industry’s investor-owned segment.

  3. Fuel Diversity and Innovative Technologies are Critical • Meet future energy demand • Provide affordable, reliable energy • Establish energy security • Generate energy efficiently with minimal environmental impact

  4. Demand for Electricity Is Increasing 6,000 5,000 4,000 Billion kiloWatthours 3,000 2,000 1,000 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Historical Projected Sources: U.S. Department of Energy, Energy Information Administration, Annual Energy Review 2005 and Annual Energy Outlook 2007 Early Release

  5. Margins Projected to Fall Below Minimum Target Levels RFC (MISO)* 2008/2008 MRO 2009/2009 (US) RFC (PJM) 2012/2014 NewYork 2011/2016+ Rocky Mtn 2008/2011 New England 2009/2009 California 2009/2012 AZ/NM/SNV 2009/2011 SPP 2015/2016+ *Excludes MISO resources outside the RFC boundary TRE (ERCOT) 2009/2016+ 5

  6. Coal • Accounts for approximately half of all electricity generated in the United States • Sufficient domestic reserves for at least 150 years • Innovative technology development has made ‘clean coal’ power a reality • Future issues: CO2 emissions

  7. Clean Coal Technologies • Combustion • Supercritical • Ultra-supercritical • Circulating fluidized bed • Gasification • Integrated Gasification Combined Cycle

  8. Industry Capex Continues to Rise

  9. Annual Capex Tops $70 Billion through 2009 P = projected

  10. Industry Capital Expenditures • Industry committed to reliability and making needed investments in generation, transmission, distribution and the environment • Increasing Capex to meet growing electricity demand already begun • Capex • 2005 totaled $48.4 billion • 2006 totaled $59.9 billion (+24%) • 2007 totaled $69.1 billion (+16%) • Environmental Capex • Fastest growing component • Increased spending is expected to continue for several years

  11. Distribution • Distribution systems deliver power to neighborhoods, businesses and consumers  • 2000-2006 – Real dollar annual spending increased 24% from $13.9B to $17.3B • Next 10 years - project ~$17-$18B / year • Investments replace aging infrastructure and modernizing system management and control

  12. Transmission • Reliable electric service and regional markets depend on strong transmission systems • 2000-2006 - Shareholder-owned segment invested more than $37.9B • 2006 - Shareholder-owned segment invested $6.9B in transmission (+9.7% over 2005) • 2007-2010 - Shareholder-owned segment planning to invest $37B (preliminary) Planned Actual

  13. Generation • EIA forecasting 258 GW of new capacity to meet growing demand by 2030 – > $400 billion (Real 2005$) • Shareholder-owned segment added 5,204 MW in 2007 • Shareholder-owned segment announced 24,949 MW of new capacity additions in 2007 Actual Planned

  14. Construction Costs are Soaring • Raw material prices (steel, cement) up significantly • Due to high global demand, higher production & shipping costs, and weakening US dollar • Higher labor costs having less of an impact on utilities, although that may rise. • Cost increases in all businesses (T, D & G)

  15. Construction costs Source: EEI with data from NYMEX and Bureau of Labor Statistics

  16. Escalating Cost to Build Coal Plants • Big Stone II – Milbank, SD • Otter Tail Power & 6 other utilities • 630 MW coal unit = $1B, high volt trans = $200M • Due to higher materials & labor, now $1.6 billion • Cliffside Steam Station – Duke Energy • May ’05 – two 800 MW coal units cost $2 billion • 5 months later, revised with 50% increase to $3B • NC Comm approved one unit, latest cost = $1.8B • Westar Energy – deferred 600MW coal unit • Est. cost rose to $1.4B from $1B

  17. Increased Cost to Build Transmission • NSTAR – two 345 kV lines in Mass. • Cost rose $58M or 25% to $292M • Due to construction & material increases • Copper +160%, steel +70%, concrete +45% • Southern Calif Edison – 500 kV line • Initial cost of $80.3M for Antelope-Pardee line • Due to higher land values (for right of way), revised to $92.5M, a 15% increase

  18. State Outlook • State-by-State implementation of RGGI (NY,ME,NJ) • Implementation of CA legislation • Western Regional Climate Action Initiative • The Climate Registry – 39 states

  19. Cancelled/Delayed coal generation Source: Sierra Club’s “Stop the Coal Rush” New Coal Generation – Cancelled or Delayed Across the Country

  20. Capacity Additions Historical and Under Construction This chart includes historical capacity additions by fuel since 1945 as well as generation under construction as of the end of May 2008.

  21. New Capacity Projects

  22. Any questions?kobenshain@eei.org

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