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Energy Ventures Analysis
1901 N. Moore St. Arlington, VA 22209 (703) 276 8900
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 and Widows Creek Coal Units Presented by: Thomas Hewson, Principal Phillip Graeter, Analyst June 10, 2014
SLIDE 2 1 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.
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2 OUTLINE EVA’S ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK INTRODUCTION TVA’S FUTURE ELECTRICITY GENERATION PORTFOLIO TVA’S ENVIRONMENTAL ASSESSMENT OF PARADISE 1 & 2 ECONOMIC ANALYSIS OF TWO ENVIRONMENTAL GROUPS SUMMARY
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3 TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS INTRODUCTION
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4 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
SLIDE 6 5 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.
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6 TVA’S FUTURE ELECTRICITY GENERATION PORTFOLIO TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS
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7 TVA’S FUTURE ELECTRICITY GENERATION PORTFOLIO
Source: TVA BoD Meeting Feb 13, 2014
2024 2014
Therefore, additional coal retirements are likely under this generation portfolio outlook.
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
SLIDE 9 8 TVA’S PARADISE 1-2 AND WIDOWS CREEK 8 IN DETAIL
- 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%)
Source: EPA CEMS & EVA Inc.
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 Capacity Factor SO2 Emission Rate (lb/MMBTU) NOx Emission Rate (lb/MMBTU) Unit
SLIDE 10 9 ENVIRONMENTAL COMPLIANCE OF WIDOWS CREEK 8 AND PARADISE 1-2
- 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 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.
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1 0 ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS
SLIDE 12 1 1 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
SLIDE 13 1 2 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
- $20 per kW-year for a combined cycle plant
- Heat rates based on actual 2013 heat rates for Paradise and Widows Creek plants and for TVA’s
existing combined cycle gas plants
- First-year fuel costs equal to the year-to-date through February 2014 reported delivered fuel prices
to TVA’s Paradise, Widows Creek and combined cycle plants
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1 3 ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) Full Year Impact of Retrofit Controls and New Gas Unit:
*2014 delivered fuel prices used
Paradise 1-2 Widows Creek 8 Combined Cycle Capacity MW 1,230 465 1,025 Capacity Factor 75% 75% 75% Generation GWh 8,081 3,055 6,734 Capital Cost ($ 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
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1 4 ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) EVA’s Paradise Plant Fuel Cost Outlook:
SLIDE 16 1 5 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
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1 6 ECONOMIC ANALYSIS OF CLOSING PARADISE AND WIDOWS CREEK (CONT’D) EVA’s Widows Creek Plant Fuel Cost Outlook:
SLIDE 18 1 7 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
- ver 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
SLIDE 19 1 8 EPA JUNE 2 DRAFT PROPOSAL FOR GREENHOUSE GAS EMISSION RATES FOR EXISTING POWER PLANTS
E N E R G Y V E N T U R E S A N A L Y S I S , I N C .
All TVA fossil fired power plants will be subject to CO2 emission rates beginning in 2020
Proposal provides CO2 credit for state Renewable Energy and Energy Efficiency Programs. (Watts Bar nuclear plant part
State Emission Limitations
–
Kentucky
2,158 #CO2/MWh
- Interim Limit (2020-2029)
1,844 # CO2/MWh (15% reduction)
1,763 #CO2/MWh (18% reduction)
–
Tennessee
1,975 #CO2/MWh
- Interim Limit (2020-2029)
1,254 # CO2/MWh (37% reduction)
1,163 #CO2/MWh (41% reduction)
–
Alabama
1,477 #CO2/MWh
- Interim Limit (2020-2029)
1,147 # CO2/MWh (22% reduction)
1,059 #CO2/MWh (28% reduction)
Implications on system operations
–
Forced environmental dispatch of system units
–
Higher natural gas prices from greater natural gas demand
–
Higher proportion of power supply from variable resources (wind, solar)
–
Greater energy efficiency program incentives
SLIDE 20 1 9 CORRELATION BETWEEN COAL GENERATION AND RETAIL PRICES 2013 In-State Coal Generation Share and State Retail Power Prices, Eastern U.S.:
coal for power generation results in low electric rates for retail ratepayers such as homeowners and businesses due to low fuel cost for power plants
- Correlation consistent for long
period of time, independent of natural gas prices
- Closing of Paradise 1-2 and
Widows Creek 8 will ultimately result in higher power prices for TVA ratepayers
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2 0 ECONOMIC ANALYSIS OF TWO ENVIRONMENTAL GROUPS TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS
SLIDE 22 2 1 SIERRA CLUB’S ECONOMIC ANALYSIS
- Sierra Club’s economic consultant (Synapse)
agreed that Paradise and Widows Creek plants are economic to invest in emissions controls rather than retire
- August 14, 2012 report categorized all of TVA’s
coal-fired units based on their estimates of the cost to invest in emissions controls and their expected market cost of power
- Paradise 1-2 and Widows Creek 8 units have
lower cost to retrofit all possible environmental controls than to retire
- Synapse used 78% higher capital costs ($291
million) than actual costs disclosed by TVA of $163 million for Widows Creek investment
- Even including $21/tonne carbon tax, analysis
shows units are still more economic to retrofit than to retire
SLIDE 23 2 2 UNION OF CONCERNED SCIENTISTS’ ECONOMIC ANALYSIS Union of Concerned Scientists also agreed that Paradise and Widows Creek plants are economic to invest in emissions controls rather than retire UCS November 2012 report evaluated economic competitiveness of coal generators to other clean(er) energy sources Analysis estimated cost of retrofitting the existing coal feet by installing the most effective pollution control technologies available + typical O&M costs for coal-fired generators and comparing additional costs to the O&M costs of a typical existing NGCC plant w/capital costs largely covered Conclusion:
- 353 coal generators nationwide were uneconomic to
retrofit and should be retired
- Other scenarios ($20/tonne carbon tax, PTC extension)
yielded even higher numbers
- All scenarios considered Widows Creek 8 and Paradise 1-2
as economic and should therefore not be retired
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2 3 TVA’S ENVIRONMENTAL ASSESSMENT OF PARADISE 1 & 2 TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS
SLIDE 25 2 4 TVA’S ENVIRONMENTAL ASSESSMENT OF PARADISE 1 & 2
- November 2013: TVA publishes Environmental
Assessment “Paradise Fossil Plant Units 1 and 2 Mercury And Air Toxics Standards Compliance Project”
- Assessment analyzed the environmental and socio-
economic impacts of three alternatives: (A) Do nothing (B) Retrofitting units 1-2 with Pulse-Jet fabric filter systems to reduce PM emissions (C) Replace units 1-2 with a NGCC plant “On a kilowatt basis, the PJFF system at PAF Units 1 and 2 will cost substantially less than both the CT plant and the new CC plant under Alternative C.”
- TVA Environmental Assessment, November 2013
- Minor environmental advantages for Alternative C
- Reduction in SO2, Nox and CO2 emissions or
reduction in water withdrawal for cooling purposes
- No advantages quantified in a cost-benefit analysis
SLIDE 26 2 5 SOCIO-ECONOMIC IMPACTS ON WEST KENTUCKY
- Closure of Widows Creek 8 and Paradise 1 and 2 will result in various adverse economic impacts to
the Western Kentucky region
- Replacing Paradise 1-2 with a combined cycle plant will result in a 49% reduction in plant
employment
- 500 workers responsible for producing coal used by the Widows Creek and Paradise power plants
“About 410 of these workers were in Western Kentucky, where they make up 9 percent of regional coal mine employment. The mining of the limestone used in the Units 1 and 2 FGD systems provided additional employment. Unless the coal and limestone mines find other markets for their products, additional adverse economic impacts to the area would occur from closure of these facilities.”
- TVA Environmental Assessment, November 2013
- Loss of tax revenue to Muhlenberg County from the state severance tax is estimated to be $2.2
million annually
- Substantial amount not considered in TVA’s environmental assessment
SLIDE 27
2 6 SUMMARY TVA'S INTEGRATED RESOURCE PLAN AND RECENT RESOURCE PLANNING DECISIONS
SLIDE 28 2 7 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.
SLIDE 29
Energy Ventures Analysis
1901 N. Moore St. Arlington, VA 22209 (703) 276 8900
ANALYSIS AND PRESENTATION BY Thomas Hewson, Principal Phillip Graeter, Analyst 1901 N. Moore Street Suite 1200 Arlington, VA 22209 (703) 276 8900 - Main (703) 276 9541 - Fax
