T V A ' S I N T E G R A T E D R E S O U R C E P L A N A N D R E C E N T R E S O U R C E P L A N N I N G D E C I S I O N S Economic Analysis of Closing the Paradise June 10, 2014 and Widows Creek Coal Units Presented by: Thomas Hewson, Principal Phillip Graeter, Analyst Energy Ventures Analysis 1901 N. Moore St. Arlington, VA 22209 (703) 276 8900
ABOUT ENERGY VENTURES ANALYSIS EVA, Inc. is an energy consulting firm located in Arlington, VA. EVA is focused on economic, financial and risk analysis for the electric power, coal, natural gas, petroleum, and renewable, and emissions sectors. Since 1981, EVA has been publishing supply, demand and price forecasts as part of its FUELCAST subscription service for these energy sectors. EVA performs various analyses for an array of clients that include: power utilities, • fuel producers, • fuel transporters, • commodity traders, • regulators, and • financial institutions. • 1
OUTLINE INTRODUCTION TVA’S FUTURE ELECTRICITY GENERATION PORTFOLIO EVA’S ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK ECONOMIC ANALYSIS OF TWO ENVIRONMENTAL GROUPS TVA’S ENVIRONMENTAL ASSESSMENT OF PARADISE 1 & 2 SUMMARY 2
TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS INTRODUCTION 3
INTRODUCTION Board meeting November 14, 2013: TVA announces to retire the coal-fired units Paradise 1 and 2, Widows Creek 8, and Colbert 1 through 5, and to construct a new gas-fired plant at the Paradise location Colbert 1-5 must retrofit environmental controls or retire by June 30, 2016 under EPA consent decree BUT: No requirement under EPA consent decree for Paradise 1-2 and Widows Creek 8, because these units already have post combustion controls (FGD/SCR) and very low emission rates However, these stations will need to invest in additional particulate control systems to comply with the EPA Mercury and Air Toxics Standard by 2015-2016. Widows Creek Paradise 4
SUMMARY TVA Act of 1933 requires TVA to provide adequate and reliable service at the lowest system cost • Paradise Units 1 and 2 among TVA’s lowest-cost and most heavily used generating units • Widows Creek 8 has lower variable costs than TVA’s natural gas plants that would displace it. • All 3 coal units comply with current emissions regulations • Retrofitting Paradise 1-2 and Widows Creek 8 with advanced particulate controls for MATS is • system’s least-cost resource alternative. Consistent with TVA’s own analysis contained in their Environmental Assessment • Additional adverse socio-economic impacts on the Western Kentucky region • Loss of employment at plants • Loss of employment at coal and limestone mines • Tax revenue loss for state and counties • Closing of Paradise 1-2 and Widows Creek 8 will ultimately result in higher power prices for TVA ratepayers. 5
TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS TVA’S FUTURE ELECTRICITY GENERATION PORTFOLIO 6
TVA’S FUTURE ELECTRICITY GENERATION PORTFOLIO 2014 2024 Source: TVA BoD Meeting Feb 13, 2014 Coal Generation Coal Generation Share Coal Capacity (needed) 2014 57,105,692 40% 12,120 2024 36,119,350 23% 7,497 TVA Coal Capacity after announced retirements: 9,234 Therefore, additional coal retirements are likely under this generation portfolio outlook. 7
TVA’S PARADISE 1-2 AND WIDOWS CREEK 8 IN DETAIL Capacity Factor SO2 Emission Rate (lb/MMBTU) NOx Emission Rate (lb/MMBTU) Unit 2012 Rank 2013 Rank 2012 Rank 2013 Rank 2012 Rank 2013 Rank Paradise 1 94.8% 1 82.8% 3 0.493 19 0.432 17 0.110 18 0.085 19 Paradise 2 81.3% 5 81.4% 4 0.497 20 0.399 16 0.119 20 0.109 18 Widows Creek 8 51.9% 27 52.6% 27 0.239 14 0.245 10 0.073 12 0.107 14 Source: EPA CEMS & EVA Inc. Paradise Units 1-2 in Top 5 (by capacity factor) TVA coal units for past years • High CF indicates units are among lowest variable cost units in TVA system • Units are being dispatched ahead of TVA’s lowest-cost natural gas units • Widows Creek Unit 8 not as low cost as Paradise 1-2, but still has CF over 50% • More economic than most TVA gas units (CF ≈ 48%) • 8
ENVIRONMENTAL COMPLIANCE OF WIDOWS CREEK 8 AND PARADISE 1-2 Unit SO2 Controls Nox Controls PM Controls Paradise 1 Wet Limestone Selective Catalytic Reduction Wet Scrubber Paradise 2 Wet Limestone Selective Catalytic Reduction Wet Scrubber Widows Creek 8 Wet Limestone Selective Catalytic Reduction Wet Scrubber Source: EPA CEMS & EVA Inc. Paradise 1-2 and Widows Creek 8 equipped with state-of-the art SO2 and NOx controls, allowing • them to comply with current and future EPA emissions regulations. However, these units will require additional particulate controls to meet new Mercury and Air Toxics standards. Existing cooling tower system at Paradise does NOT require future upgrades under new EPA 316b • Cooling Water Intake rule from May 19, 2014 Existing once through cooling system at Widows Creek 8 may require future upgrades that will • depend upon state interpretation of 316b best technology available provision. The requirement and needed capital cost may not be known for 2-5 years 9
TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK 1 0
ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK Limited economic information provided by TVA: Capital cost for environmental controls: • Widows Creek - $163 million • = $ 348 / kW • Paradise – $ 691.8 million (Project budget approved at August 2012 Board meeting) • = $ 550 / kW • Capital cost for new gas combined cycle plant: • Authorized up to $1.12 billion for 1,025 MW capacity • Capital recovery and O&M cost: • Combined cycle plant would cost $140 million in depreciation, interest, O&M and base • capital for a plant costing $1,200 million Fuel cost forecast not disclosed • 1 1
ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) EVA assumptions based on industry experience and data: Capital recovery costs same as presented by TVA for a combined cycle plant in its Congressional • Briefing total cost of 10% for depreciation, interest and base capital • Annual non-fuel O&M costs: • $30 per kW-year for a base-load coal plant • $20 per kW-year for a combined cycle plant • Heat rates based on actual 2013 heat rates for Paradise and Widows Creek plants and for TVA’s • existing combined cycle gas plants First-year fuel costs equal to the year-to-date through February 2014 reported delivered fuel prices • to TVA’s Paradise, Widows Creek and combined cycle plants 1 2
ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) Full Year Impact of Retrofit Controls and New Gas Unit: Paradise Widows Combined 1-2 Creek 8 Cycle Capacity MW 1,230 465 1,025 Capacity Factor 75% 75% 75% Generation GWh 8,081 3,055 6,734 Capital Cost ($ million) 692 163 1,120 Depreciation 2.5% 17 4 28 Interest 5.0% 35 8 56 Base Capital 2.5% 17 4 28 Annual Capital Cost 69 16 112 O&M Cost 37 14 20 Total Capital Cost 106 30 132 Total Capital Cost $/MWh 13 10 20 Fuel Cost Delivered Price* $/mmBTU 1.84 2.22 4.71 Heat Rate BTU/KWh 10,037 10,340 7,000 Fuel Cost $/MWh 18.48 22.93 32.98 Total Cost $/MWh 31.62 32.85 52.58 *2014 delivered fuel prices used 1 3
ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) EVA’s Paradise Plant Fuel Cost Outlook: 1 4
ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) EVA’s Paradise Plant Total Annual Cost Outlook: Retrofitting Paradise 1-2 would save TVA over $ 1.9 billion over the next 10 years when compared to the natural gas combined cycle alternative. Annual Cost savings average about $174 million over the 10-year period, or $19.33 per TVA electric customer. Annual Cost Difference = Total Annual Cost NGCC Paradise – Total Annual Cost Paradise 1-2 Retrofit Assuming same generation output for both alternatives • 1 5
ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) EVA’s Widows Creek Plant Fuel Cost Outlook: 1 6
ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) EVA’s Widows Creek Plant Total Annual Cost Outlook: Retrofitting Widows Creek 8 would save TVA over $ 650 million over the next 10 years when compared to a natural gas combined cycle alternative. Annual Cost savings average about $61 million over the 10-year period, or $6.82 per TVA electric customer. Annual Cost Difference = Total Annual Cost NGCC Widows Creek – Total Annual Cost Widows Creek 8 Retrofit Assuming same generation output for both alternatives • 1 7
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