Challenges Facing U.S. Coal Understanding the Structural Decline of - - PowerPoint PPT Presentation

Challenges Facing U.S. Coal

Understanding the Structural Decline

• f the U.S. Coal Industry

Seth Feaster, Energy Data Analyst Institute for Energy Economics and Financial Analysis (IEEFA) June 2019

• 1. U.S. coal overview Production, consumption,

exports—but only the electric power industry matters

• 2. The electric power transition 7 technology

disruptions that are changing everything

• 3. Market-driven impacts on coal-fjred power

Retirements, declining use and growing industry risks

U.S. Coal Production, 1931-2018, With Estimates to 2020

Overall coal production fell by about 20 million tons in 2018 compared to 2017, resuming its precipitous slide from ‘peak coal’ in 2008, and despite an increase in exports of about 19 million tons. Source: Energy Information Administration; 2019-2020 estimates from May 2019 Short-Term Energy Outlook

’20 ’15 ’10 ’05 2000 ’95 ’90 ’85 ’80 ’75 ’70 ’65 ’60 ’55 ’50 ’45 ’40 ’35 1931 400 600 1,000 1,200 million tons 200 800 Peak Coal, 2008: 1,172 million tons 2018: –35.5% 756 million tons EIA 2020 estimate –45.5% 638 million tons

300 400 600 700 million tons 200 500 100

U.S. Regional Coal Production, 1985-2018, With Estimates to 2020

Output has fallen sharply in all three major coal mining regions. From their peak years to 2020, production is expected to fall by more than 40 percent in the West and the Interior, and 66 percent in Appalachia. Source: Energy Information Administration; 2019-2020 estimates from May 2019 Short-Term Energy Outlook

2015 2020 2010 2005 2000 1995 1990 1985 Appalachia, 1990 peak 489 million tons Change from peak –45% –66% –40% Interior, 1990 peak 206 million tons Western, 2008 peak 634 million tons

U.S. coal Thermal coal

90% 90%

Electric power generation The math behind the U.S. coal industry is simple: Exports account for a relatively small share For the most part, coal companies and utilities are not integrated

U.S. Coal Disposition and Consumption, 2017

Most of the coal mined in the U.S. is thermal coal, only a small portion of which is exported, in contrast with metallurgical coal, most of which is exported. Nearly all domestic consumption is for power generation. Source: Energy Information Administration

Thermal

700.3 million tons

90.4%

Metallurgical 74.3 million tons

9.6%

Exports 74% 6%

Electric Power Sector

665.0 million tons

92.8%

Other Industial, Coke, Commercial and Institutional 51.9 million tons 7.2%

Coal Type and Exports Domestic Consumption

U.S. Coal Consumption for Electricity Generation, Quarterly, 2003-2018

Coal consumption has fallen sharply in the past decade as disruptive energy technology trends have taken hold. Source: Energy Information Administration

100 150 250 300 million tons 50 200 ’19 ’18 ’17 ’16 ’15 ’14 ’13 ’12 ’11 ’10 ’09 ’08 ’07 ’06 ’05 ’04 2007: Peak Coal Consumption Q3: 284 million tons 2019 Q1: 145 million tons 4-quarter rolling average

U.S. Coal Exports, Quarterly

U.S. coal export volume has fmuctuated considerably in recent years. Metallurgical coal has usually made up the majority — between 50 and 75 percent — of those exports. Source: Energy Information Administration

Thermal (Steam) Coal Metallurgical Coal 10 20 30 40 million tons ’18 ’17 ’16 ’15 ’14 ’13 ’12 ’11 ’10 ’09 ’08 ’07 ’06 ’05 ’04 ’03

2020 2015 2010 2005 10 20 30 40 50%

Fuel Share for Electric Power Generation (Utility Scale, All Sectors)

Source: Energy Information Administration (STEO, May 2019)

Coal Natural Gas Nuclear Hydro Wind + Solar EIA short-term outlook for 2020

Driving the Energy Transition: Seven Technology Disruptions

GENERATION GRID Energy Effjciency Wind Solar Fracking

Policy/ Technology disruption Mechanical/ Industrial Construction disruption Semiconductor/ Manufacturing/ Construction disruption Software/ Information Technology disruption Equipment Scale/ Business Model disruption Electrochemical Engineering/ Business Model disruption Mining Extraction/ Industrial Technology disruption

Grid Integration Grid Independence Energy Storage

2,000 3,000 4,000 million megawatt hours 1,000

U.S. Net Generation of Electricity, 1950-2018

Decades of growth in electricity use ended in 2007, and demand has been essentially fmat for a decade. Source: Energy Information Administration

2018: Peak Generation 4,178 mil. MW hours ’15 ’18 ’10 ’05 ’00 ’95 ’90 ’85 ’80 ’75 ’70 ’65 ’60 ’55 ’50 2007: previous peak 4,157 mil. MW hours

4 6 10 12% 2 8

Wind and Solar Share of U.S. Electricity Generation

Wind and solar have been growing relentlessly as costs for these renwables have fallen sharply, grid operators have mastered integrating them, and utilities have increasingly embraced them. Source: Energy Information Administration Share of generation for all sectors

’19 ’18 ’17 ’16 ’15 ’14 ’13 ’12 ’11 ’10 ’09 ’08 ’07 ’06 ’05 ’04 Wind Solar (small-scale, starts 2014) Solar (utility-scale) Wind exceeds 1% share April 2007 Wind exceeds 5% share April 2013 Solar (utility-scale) exceeds 1% share May 2016

20 30 40 trillion cubic feet of gross withdrawals 10

U.S. Natural Gas Production, 1936-2018

Domestic production of gas plateaued after 1970, until technical advances in horizontal drilling and hydraulic fracturing led to a surge in supply from shale formations starting around 2008late. Source: Energy Information Administration

’15 ’10 ’05 2000 ’95 ’90 ’85 ’80 ’75 ’70 ’65 ’60 ’55 ’50 ’45 ’40 1935 2018 37.0 trillion cubic feet From Shale Gas 2007 2.0 trillion 2017 19.0 trillion

Rapid Growth of Wind Power Generation

Wind power has grown enormously over the last 10 years. In 2018, 21 states generated fjve percent or more if their total generation from wind— up from just four states in 2008. Source: Energy Information Administration

Wind’s share of state electric generation 2008 2018 0% 5% 10% 20% 30% 40%

Iowa 34% Kansas 36% Oklahoma 32%

Iowa 62%

• S. Dakota 45%

Kansas 54% Illinois 9.4% March 2019 1.4 million MW hours Enough to meet the entire state power needs

• f Idaho, South Dakota,

Maine, Hawaii, Alaska, Rhode Island, Delaware

• r Vermont.

Oklahoma 45% Source: Energy Information Administration Through March 2019

0% 10% 20% 30% 40% 50% 60% 70%

Wind’s Maximum Monthly Share of State Electric Generation

In some months, wind’s share of generation has been far higher, partly because of stronger winds in the spring and fall when power demand is generally lower. These levels highlight both the successful grid integration of wind resources by regional grid operators and the competitiveness of wind in power markets.

Coal, Gas, Renewables, Storage

Gas, by itself, is undercutting coal on price; + emissions advantage Wind, by itself, is undercutting coal on price; + emissions advantage Solar, by itself, is undercutting coal on price; + emissions advantage Together, gas and renewables are complementary in managing variable demand; coal is not Together, renewables + storage have advantages

• ver gas, and storage is disrupting market structure

Consequences for Coal-Fired Power

2018 2015 2010 2005 2020 2024

U.S. Coal-Fired Generation Capacity

Sources: EIA; IEEFA research

Peak capacity: 318 GW, 2011 50 100 150 200 250 300 350 gigawatts IEEFA 2018 year-end estimate: 241 GW 2019-2024, based on current announcements

’24 ’23 ’22 ’21 ’20 ’19 ’18 ’17 ’16 ’15 ’14 ’13 ’12

5,000 10,000 15,000 megawatts

Coal-Fired Electric Generation Retirements and Conversions

Preliminary fjgures show that in 2018, nearly 15.4 gigawatts of coal-fjred capacity retired or was converting to natural gas. New announcements continue to add to the list of closures expected over the next six years. Sources: EIA; PJM; S&P Global; IEEFA research (2017-2024) As of May 24, 2019

Retired coal-fjred capacity Announced retirements/conversions/closures 15,445 MW Preliminary retirements, conversions and closures 32,759 MW

Operating U.S. Coal Plants, October 2018, by Capacity

346 coal-fjred power plants were listed as operating by S&P Global at the beginning of October, 2018. However, two-thirds of the total generating capacity was at just 102 of the largest plants. Source: S&P Global

102 Largest Operating Coal Plants 68.5% of all capacity

23 plants over 2,000 MW 23.7% 58,186 MW capacity 79 plants 1,000 to 2,000 MW 44.8% 109,962 MW capacity 118 plants 250 to 1,000 MW 67,330 MW capacity 27.4% 41 plants 100 to 250 MW 6,841 MW capacity 2.8% 105 plants under 100 MW 3,352 MW capacity 1.4%

346 Operating Coal Plants 245,671 MW Capacity

Capacity Factors at 102 Largest Operating U.S. Coal Plants, 2007 and 2017

346 coal-fjred power plants were listed as operating by S&P Global at the beginning of October, 2018. However, two-thirds of the total generating capacity was at just 102 of the largest plants. Source: S&P Global

2007

In 2007, 79% of the capacity of the biggest plants

• pen today ran more than 70% of the time;

less than 1% ran less than 50% of the time. In 2017, only 19% of capacity of the biggest plants ran more than 70% of the time, and 39% of the capacity ran less than 50% of the time. Not yet built 90% 100% 80% 70% 60% 50% 40% 30% 20% 0%

2017

79% 19% 39%

2018 2015 2010 2005 2020 2024

U.S. Coal-Fired Generation Capacity

Sources: EIA; IEEFA research

Peak capacity: 318 GW, 2011 50 100 150 200 250 300 350 gigawatts IEEFA 2018 year-end estimate: 241 GW 2019-2024, based on current announcements

318 GW 2011 Peak coal-fjred capacity in the U.S. How much are the plants running? 212 GW Remaining coal-fjred capacity in the U.S. By 2018, 77 GW of coal capacity had permanently closed (24%) Another 32 GW (10%) has been announced as closing by 2024 65.3 GW(20.6%) ran less than 50% of the time 95.7 GW (30.1%), ran less than 70% of the time 52.2 GW (16.4%), ran at “baseload” levels, more than 70% of the time

90% + 80% - 90% 70% - 80% 60% - 70% 50% - 60% 40% - 50% 30% - 40% 20% - 30% 10% - 20% 0% - 10%

Impact on the Illinois Basin

23.3%

11th-20th plants by size

• f deliveries

13.2%

21th-30th plants by size

• f deliveries

18 other plants 7.9%

10.1%

Gibson (IN)

8.6%

Prairie State (IL)

27.0%

3rd-10th plants by size of delivery

73.7

• mil. tons

delivered 2018

Plants using Illinois Basin coal 2018 48 Power Plants Served 73.7 million tons delivered

Source: S&P Global.

7.5 million tons Power plant coal purchases 10 largest purchasers (orange dots) 1 million tons 200,000 tons Gibson 10.1% Cayuga Bowen Petersburg Mill Creek Ghent Clifty Creek Trimble County Seminole Prairie State 8.6%

Plants using Illinois Basin coal 2018 Retirements-closures- conversions, 2019-2024

Source: S&P Global.

7.5 million tons Power plant coal purchases 10 largest purchasers (orange dots) 1 million tons 200,000 tons Gorgas, 2019 Charles R Lowman, 2020 Hammond, 2019 Big Bend, 2019-2021 Gas conversion C.D. McIntosh Jr, 2024 Bull Run, 2023 G.G. Allen, 2023-2028 Paradise, 2020 A.B. Brown, 2023 Elmer Smith, 2019-2020 E.W. Brown, 2019 2 of 3 units R.M. Schahfer, 2023 TES Filer City, 2020 Bowen Wansley

First, the Bad News

For undiversifjed local and regional economies, the impact can be devastating and long-term

• Responses often begin after considerable

deterioration or complete loss of fjnancial resources

• Some areas have specifjc policies, especially around

taxes, that can worsen the situation

• Loss of power-plant jobs
• Loss of coal-mining jobs
• Loss of tax revenue and royalties
• In coal-mining bankruptcies, possible

loss of health-care and pension benefjts

First, the Bad News

• Reactive and defensive responses can waste years

better spent on preparation and proactive policies

• Competing interests can complicate policy responses:

What about ratepayers or competing industries?

• Smaller and more rural communities usually have

less expertise and fewer resources for any response

• r economic development planning
• Areas far from political and economic centers, or split

across jurisdictions, may get little state or federal help

Now, the Good News

• Wind and solar power facilities are often located in

multiple rural locations (not concentrated)

• Lease, payments-in-lieu-of-taxes (PILOT) and some tax

money can be very important to rural economies

• Important alternative to agricultural income
• Long-term revenue streams allow planning,

and can go to schools or infrastructure

• Can limit or reverse other tax increases
• Money stays in local or regional economy
• Can lower cost of power
• Little of the risk of legacy cleanup costs of

extractive industries

Now, the Good News

• Improvements for grid resiliency, reliability
• Energy independence becomes possible for many

new areas at the local, state and regional level

• Energy independence becomes possible for

larger consumers of power and homeowners alike