Availability and Costs of Supply-Side Electricity Options

Availability and Costs of Supply-Side Electricity Options Revis James Director Energy Technology Assessment Center EPRI Global Climate Change Research Seminar Washington, DC May 20, 2009

Key Messages The size of the challenges Technology costs Status Trends Drivers Technology insights Full portfolio vs. silver bullet Importance of baseload technologies New challenges: renewables, efficiency 2

Substantial Electricity Demand Now: 2007 U.S. electricity consumption ~ 3800 TWh Future (EIA 2009 Annual Energy Outlook) Final report projects 900 TWh (24%) increase in U.S. electricity consumption by 2030. About same as addition of new load equivalent to 2006 consumption of Texas, California, Florida, Ohio. 3

Huge Emissions Reductions 2005 Annual U.S. CO 2 Emissions ~2.5x total emissions for U.S. electric sector* 17% 2005 Annual U.S. CO 2 Emissions *2007 U.S. electricity sector CO 2 emissions = 2.4B mmt CO 2 4

Key Elements of Levelized Cost of Electricity Estimate annual cash flows from project inception through end of plant life Calculate net present value (NPV) of cash flows Calculate constant annual cash flow to produce same NPV Levelized cost of electricity (LCOE) = constant annual cash flow divided by annual electricity production 6

Key Elements of Capital Costs Total Plant Cost (TPC) Owners Costs Allowance For Funds Used During Construction (AFUDC) Project-specific Costs 7

Key Elements of Capital Costs Total Capital Requirement (TCR) = TPC + Owner s Costs + AFUDC + Project Specific Costs Under standard assumptions, Owner s costs+afudc ~ 16 19% of TPC. Project-specific costs ~ 10 15% of TPC 8

Technology Cost Estimates Vary 9

Costs Vary by Region (IEA 2008 World Energy Outlook) 10

Electricity Production Cost Driven by Capital Cost, Capacity Factor Levelized Cost of Electricity, $/MWh 120 Biomass 110 Wind (32.5% Capacity Factor) 100 90 NGCC ($10/MMBtu) All costs are in December 2007 $ IGCC 80 NGCC ($8/MMBtu) Average 2007 U.S. wholesale electricity price = $66/MWh 70 60 PC Nuclear NGCC ($5/MMBtu) 50 40 30 Note: Solar Thermal ~ 175 $/MWh 0 10 20 30 40 50 Cost of CO 2, $/Metric Ton EPRI 1018329, October 2008 11

Common Drivers Affect Costs Shop load > 80% Boilers Compressors Motors Piping Structural steel Valves Turbine generators Vessels & tanks Wire & cable Lead times > 1 year Boilers Compressors Turbine-driven equipment Pressure vessels Bechtel Global Supply Trends, April 2008 12

Effects of Recession on Cost Escalation (Source: Chemical Engineering Magazine, March 2009) 660 1,500 Chemical Engineering Plant Cost Index 640 620 600 580 560 540 520 500 480 460 440 420 400 380 Chemical Engineering Plant Cost Index Marshall & Swift Equipment Cost Index One engineering company reported that their cost estimate for an IGCC project is now ~12% lower than the original estimate developed in October 2008 1,450 1,400 1,350 1,300 1,250 1,200 1,150 1,100 1,050 1,000 950 Marshall & Swift Equipment Cost Index 360 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 900 13

Cost Uncertainty and Technology Mix Vary costs, timing of key technologies: nuclear, CO 2 capture and storage Proportions of different generation technologies vary, but a diverse portfolio of technologies is optimum in all cases. 15

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $113/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $74/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 16

Important Technology Insights Together, advanced nuclear and advanced coal + CCS play a dominant role in all scenarios. The magnitude of demand reduction across all scenarios will likely drive increasing end-use efficiency. Renewables ultimately play a large role in nearly all scenarios. 17

Lead Times are Long for Technology Development Basic Science, Experiments Prototypes, Proof of Principle Large scale demonstration, first of kind plants Commercial technology, widespread deployment ~ 15-25 years GROWTH FIRST OF KIND MATURE EMERGING 18

Future Cost Trends Factors leading to lower capital costs: Commodity, transportation and fuel costs are declining from 2008 peaks Reduced demand due to worldwide recession Currency exchange rates (country-specific; in United States, the dollar improved versus other currencies) Factors leading to higher capital costs: Need for infrastructure projects in developing nations Increased project finance costs due to credit crisis Procurement costs: Declining procurement price increases projected for 2009, 2010 Shop loads stable in 2009, declining in 2010 19

Other Future Trends Affecting Technology Chinese commodities, components will become more focused on export, create competition CO 2 policy impacts on fuel markets Pressure on increasing NG, LNG consumption Longer term, reprocessing and breeder nuclear fuel cycles Bechtel Global Supply Trends, 2008 Mid-Year Update 20

Conclusions Even with cost escalation and variability, we can conclude that: The scale of technology expansion and transformation will be huge. No one technology will be a silver bullet a portfolio of technologies will be needed. Baseload technologies will be needed. Renewables and efficiency will also play a large role. There is no time to lose technology development lead times are long. 21

Together Shaping the Future of Electricity 22

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $112/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $76/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 23

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $116/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $81/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 26

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $114/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $89/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 27

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $112/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $85/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 29

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $124/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $95/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 30

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $123/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $96/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 31

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $122/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $95/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 32

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $125/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $100/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 33

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $125/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $98/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 35

EPRI 2008 MERGE Sensitivity Analyses Key parameters in 2030 (2006 $) Wholesale Electricity Cost = $129/MWh CCS in: 2020 2030 T&S (ton) = $10 $30 $10 $30 7 6 CO 2 Cost = $103/metric ton CO 2 200 TWh ~ 2006 AEP System Generation Nuclear Electricity Production Costs (2006 $) $64/MWh $80/MWh $94/MWh $122/MWh Thousand TWh 5 4 3 2 1 Coal Gas Hydro Biomass Wind Coal w/ccs Gas w/ccs Nuclear Oil Demand Reduction 0 2000 2010 2020 2030 2040 2050 Year 2008 Electric Power Research Institute, Inc. All rights reserved. 37