energy

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Electricity demand growth has slowed in each decade since the 1950s. From 2000 to 2009 demand grew by 0.5 percent per year. Electricity demand growth is expected to rebound, but remain relatively slow, as demand growth will be offset by efficiency gains from new appliance standards and investments in energy-efficient equipment. New technology investment has reduced SOx and NOx emissions by 63% and 50% respectively over the past decade while CO2 emissions has remained stable at around 2000 million metric tons.

Coal-fired plants continue to lead electricity outputAssuming no additional constraints on carbon emissions, coal will remain the dominant source of electricity generation in the future. Generation from coal will increase by 25 percent from 2009 to 2035, but only 10 percent from pre-recession 2007 levels, largely as a result of increased use of existing capacity. Its share of the total generation mix, however, falls to less than 45 percent as a result of rapid increases in generation from natural gas and renewables.

Most new capacity additions use natural gas and renewablesNatural gas fired plants will account for 60 percent of capacity additions between 2010 and 2035, compared with 25 percent for renewables. Escalating construction costs have the largest impact on capital intensive technologies, including nuclear, coal, and renewables. However, Federal tax incentives, State energy programs, and rising prices for fossil fuels increase the competitiveness of renewable and nuclear capacity. In contrast, uncertainty about future limits on greenhouse gas emissions and other possible environmental regulations reduces the competitiveness of coal-fired plants.

State portfolio standards increase renewable electricity generationSupported in part by Federal tax credits, the Federal renewable fuels standard, and State renewable portfolio standards, nonhydropower renewable generating capacity is expected to grow at a faster rate than fossil fuel capacity. Total nonhydropower renewable capacity will increase from 47 gigawatts in 2009 to 100 gigawatts in 2035.

Electricity use increases despite use of efficient electric devicesElectricity use is expected to grow 0.7% CAGR, from 42% of total residential delivered energy consumption in 2009 to 47% in 2035. Growing service demand will be only partially offset by technological improvements that lead to increased efficiency of electric devices and appliances.

Improved interconnection supports growth in distributed generationMore than 40 States have interconnection standard or guideline that governs the installation and incorporation of DG capacity into the grid. Total commercial DG capacity is expected to increase from 1.9 GW in 2009 to more than 6.8 GW by 2035.

Alin Dev

November 27, 2011

ELECTRICITYState of Electricity Power Industry and Level of Emission

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Contents

Electricity Demand................................................................................................................................................5

Electricity Supply and Fuel Use............................................................................................................................6

Costs Associated with Electricity Generation.......................................................................................................9

Coal-fired generating technologies:..................................................................................................................9

Gas-fired generating technologies:....................................................................................................................9

Nuclear generating technologies:......................................................................................................................9

Wind generating technologies:........................................................................................................................10

Renewable and Combined heat & power generating technologies:................................................................10

Environmental Impact.........................................................................................................................................11

Drivers of Environmental Improvement.............................................................................................................12

But, Environmental Improvement At What Cost?..............................................................................................13

Conclusion...........................................................................................................................................................14

Bibliography........................................................................................................................................................15

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Electricity Demand

Electricity demand growth has slowed in each decade since the 1950s. After 9.8-percent annual growth in the 1950s, demand increased 2.4 percent per year in the 1990s. From 2000 to 2009 demand grew by 0.5 percent per year. Electricity demand growth is expected to rebound but remains relatively slow, as growing demand for electricity services is offset by efficiency gains from new appliance standards and investments in energy-efficient equipment.

Retail demand for electricity increased 1.3% CAGR over the last 10 yrs from 1999 to 2010 to reach 3745 million megawatthours, but efficiency of production have not improved much. The lost and unaccounted for amount of electricity continues to remain at 6-7% range of the generated output.

Electricity demand is expected to grow by 31 percent (an average of 1.0% CAGR), from 3,745 billion

kilowatthours in 2010 to 4,908 billion in 2035. Residential demand grows by 18 percent over the period, spurred by population growth, rising disposable income, and continued population shifts to warmer regions with

greater cooling requirements. Commercial sector electricity demand is expected to increase 43 percent, led by the service industries. Industrial electricity demand will grow only 9 percent, slowed by increased competition from overseas manufacturers and a shift of U.S. manufacturing toward consumer goods that require less energy to produce.

Through 2021 electricity prices is expected to fall in response to lower coal and natural gas prices, and the phaseout of competitive transition and system upgrade charges included in transmission and

distribution costs. After 2021, rising fuel costs more than offset the lower transmission and distribution costs. Economic growth will lead to more demand for electricity and the fuels used for generation, raising the prices of both.

Chart 2: Retail demand increased 1.3% CAGR

Source: Energy Information Administration

Chart 1: electricity demand growth rate has been falling historically


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Electricity Supply and Fuel Use

Over the long term, growth in electricity generating capacity and growth in end-use demand for electricity track one another. However, unexpected shifts in demand or dramatic changes affecting capacity investment decisions can cause imbalances for a period of time. Because long-term planning is required for large-scale investments in new capacity, such periods of imbalance can take years to work out.

Total summer capacity of electricity production, including electric utilities, independent producers, commercial and industrial in-house producers and combined heat and power producers, has grown from 810 gigawatts in 2000 to 1040 gigawatts in 2010 reflecting a CAGR growth rate of 2.5%.

The no. of plants running on renewable resources has increased over the years and accounts for more than 25% of the plants in the US, while some coal plants have been shut down.While the dependence on coal reduced over the past decade, capacity of plants using natural gas now accounts for more than 40% of installed capacity.

Assuming no additional constraints on carbon emissions, coal remains the dominant source of electricity generation. Generation from coal is expected to increase by 25 percent from 2009 to 2035, but only 10 percent from pre-recession 2007 levels, largely as a result of increased use of existing capacity. Its share of the total generation mix, however, will fall from 45 percent to 43 percent as a result of rapid increases in generation from natural gas and renewables. Growth in gas fired generation is supported by low natural gas

prices and stable capital costs for new plants. Low natural gas prices make the dispatch of

existing plants and construction of new natural gas fired plants more competitive.

Chart 4: Number of renewable energy plant grown 87%



Chart 3: Capacity of natural gas plants account for more than 40% of installed capacity

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Electricity generation from renewable sources is expected to grow by 72 percent in the Reference case, raising its share of total generation from 11 percent in 2009 to 14 percent in 2035. Most of the growth in renewable electricity generation in the power sector consists of generation from wind and biomass facilities. The growth in wind generation is primarily driven by State RPS and Federal tax credits. Generation from biomass comes from both dedicated biomass plants and co-firing in coal plants. Its growth is driven by State RPS, the availability of low cost feedstocks, and the RFS, which results in significant production of electricity at plants producing biofuels.

Large number plants, amounting to 250 in number, running on renewable resources were added in 2010 – accounting for about 60% of the total addition, though this translates to only 27% of added capacity. While nine large capacity coal plants were added, data suggests that smaller coal plants were retired. Average size of renewable and natural gas plants added in 2010 amount to 21 megawatt and 71 megawatt respectively, while average size of coal plants added was 650 megawatt.

Chart 5: Projected capacity addition by fuel type


Chart 6: Capacity changes by no. of plants Chart 7: Capacity changes by size of plants

Source: Energy Information Administration Source: Energy Information Administration

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Dispersed and distributed generators are commercial and industrial generators. Dispersed generators are not connected to the grid while distributed generators are connected to the grid.Improved interconnection supports growth in distributed generation. More than 40 States have some kind of interconnection standard or guideline that governs the installation and incorporation of DG capacity into the grid. Dispersed and distributed generation increased 82% over the 5-year period 2005-09. Over the same period, steam turbines exhibited strongest growth of 25% CAGR while Internal Combustion generators accounted for more than 53% of capacity. Total commercial distributed generation capacity is expected to increase from 1.9 gigawatt in 2009 to more than 6.8 gigawatt by 2035.

Chart 8: Capacity of distributed generators grown 82%


Chart 9: Average expense of electricity generation by plant type


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Costs Associated with Electricity GenerationThe lowest levelized costs of generating electricity from the traditional main generation technologies are within the range of 25-45 USD/MWh. The levelized costs and the ranking of technologies are sensitive to the discount rate and the projected prices of natural gas and coal.The following estimation of levelized cost of electricity generation using different technologies are adopted from the paper “Projected Cost of Generating Electricity” by International Energy Agency (IEA).

Coal-fired generating technologies:Most coal-fired power plants have specific overnight construction costs ranging between 1000 and 1500 USD/kWe. Construction times are around four years for most plants. The fuel prices during the economic lifetime of the plants vary widely - the coal prices in 2010 vary by a factor of twenty.

At 5% discount rate, levelized generation costs range between 25 and 50 USD/MWh. Generally, investment costs represent about a third of the total, while O&M costs account for some 20% and fuel around 45%. At 10% discount rate, the levelized generation costs range between 35 and 60 USD/MWh. Investment costs represent around 50% in most cases. O&M cost account for some 15% or the total and fuel costs for some 35%.

Gas-fired generating technologies:For the gas-fired power plants the specific overnight construction costs range between 400 and 800 USD/kWe, which are usually lower than those of coal-fired and nuclear power plants. Gas-fired power plants are built rapidly and in most cases expenditures are spread over two to three years. The O&M costs of gas-fired power plants are significantly lower than those of coal-fired or nuclear power plants.

At a 5% discount rate, the levelized costs of generating electricity from gas-fired power plants vary between 37 and 60 USD/MWh. The investment cost represents less than 15% of total levelized costs; while O&M cost accounts for less than 10%. Fuel cost represents on average nearly 80% of the total levelized cost. At a 10% discount rate, levelized costs of gas-fired plants range between 40 and 63 USD/MWh. They are barely higher than at the 5% discount rate owing to their low overnight investment costs and short construction periods. Fuel cost remains the major contributor representing 73% of total levelized generation cost, while investment and O&M shares are around 20% and 7% respectively.

Nuclear generating technologies:For the nuclear power plants the specific overnight investment costs, not including refurbishment or decommissioning, vary between 1000 and 2000 USD/kWe for most plants. The total levelized investment costs include refurbishment and decommissioning costs and interest during construction. The total expense period ranges from five to ten years. In nearly all projects 90% or more of the expenses are incurred within five years or less.

At a 5% discount rate, the levelized costs of nuclear electricity generation ranges between 21 and 31 USD/MWh. Investment costs represent the largest share of total levelized costs, around 50% on average, while O&M costs represent around 30% and fuel cycle costs around 20%. At a 10% discount rate, the levelized costs of nuclear electricity generation are in the range between 30 and 50 USD/MWh except. The share of investment in total levelized generation cost is around 70% while the other cost elements, O&M and fuel cycle, represent in average 20% and 10% respectively.

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Wind generating technologies:For wind power plants the specific overnight construction costs range between 1000 and 2000 USD/kWe. Construction period is between one to two years in most cases. The levelized cost calculated over the lifetime of the plants does not reflect specific costs associated with wind or other intermittent renewable energy source for power generation and in particular it ignores the need for backup power to compensate for the low average availability factor as compared to base-load plants. For intermittent renewable sources such as wind, the availability/capacity of the plant is a driving factor for levelized cost of generating electricity. The availability/capacity factors of wind power plants range between 17 and 38% for onshore plants, and between 40 and 45% for offshore plants.

At a 5% discount rate, levelized costs for wind power plants range between 35 and 95 USD/MWh, but for a large number of plants the costs are below 60 USD/MWh. The share of O&M in total costs ranges between 13% and nearly 40% in one case. At a 10% discount rate, the levelized costs of wind generated electricity range between 45 and more than 140 USD/MWh.

Renewable and Combined heat & power generating technologies:The hydro power plants considered in the study are small or very small units. At a 5% discount rate, hydroelectricity generation costs range between 40 and 80 USD/MWh. At a 10% discount rate, hydroelectricity generation costs range between 65 and 100 USD/MWh. The predominant share of investment in total levelized generation costs explains the large difference between costs at 5 and 10% discount rate.

For solar plants the availability/capacity factors vary from 9% to 24%. At the higher capacity/availability factor the levelized costs of solar-generated electricity are reaching around 150 USD/MWh at a 5% discount rate and more than 200 USD/MWh at a 10% discount rate. With the lower availability/capacity factors the levelised costs of solar-generated electricity are approaching or well above 300 USD/MWh.

For combined heat and power the total levelized costs of generating electricity are highly dependent on the use and value of the co-product, the heat, and are thereby very site specific. At a 5% discount rate, the levelized costs range between 25 and 65 USD/MWh. At a 10% discount rate, the costs range between 30 and 70 USD/MWh.

In spite of almost doubling in the average cost of coal over the last decade, coal still remains the cheapest source of energy. A relatively cheaper price of coal drives its use.

A fall in natural gas prices in the latter half of the decade has made it a more viable option for use in power generation.

Petroleum prices on the other hand remained high throughout the decade with the gap in prices increasing further towards the end. High prices, coupled with increasing sulfur content, have turned it to a less desirable source for power generation.

Chart 10: Average cost and quality of fossil fuels for the electric power industry


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Environmental Impact

The total amount of CO2 emission has remained in the level between 2300 and 2500 million metric tons over the past decade, and is expected to remain at a similar level or increase slightly till 2035, driven by strong commercial activity.Growing service demand will only be partially offset by technological improvements that lead to increased efficiency of electric devices. At the same time, growth in electricity demand for new electronic equipment will more than offset improvements in equipment and building shell efficiency and growth in CHP.

CO2 emission on a per person level equivalent will drop drastically during the same time from 19 MT in 2009 to 16 MT in 2035.

The level of both SOx and NOx emissions decreased drastically over the last 10 years owing to technological advances, and government regulation making mandatory technology standards, such as use of scrubbers.

Over this time SO2 emission has decreased 50% from 11.5 million tons in 2000 to 5.7 million tons in 2009. This level is expected to further improve by another 35% to 3.7 million tons by 2015.

At the same time, NO2 emission has decreased 63% from 5.3 million tons in 2000 to 2.0 million tons in 2009. This level is more sustainable, and is expected to remain constant going forward

Chart 11: CO2 Emissions per person is expected to fall


Chart 12: SOx and NOx emissions reduced significantly over the last decade


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Drivers of Environmental Improvement

Amount of SOx and NOx emission has decreased over the years mainly driven by strict governmental regulations and technology standards.

As a first step, plants in the early days used particulate collectors to reduce emission. With newer technologies, and some of the old plants retiring, the number of plants with this technology has come down over the years.

The next technology was the use of cooling towers. Though this is a relatively simple mechanism, and cheaper to implement, effect of using cooling towers is limited to a smaller region, and it effectively transfers pollution from one place to another and does not really reduce the level of emission.The latest technological improvement is the use

of Flue Gas Desulfurizers or Scrubbers. New technology standards implemented by the govt. make use of scrubbers

mandatory resulting in growing number of plants using this technology. As SOx and NOx emissions reach a sustainable level, use of scrubbers is expected to remain constant at this level.

Choice of fuel also plays an important role in reducing the level of emission. Over the last decade, dominance of coal, though still significant, has reduced as the primary fuel of power generation.Within coal, bituminous variety, which has more sulfur and ash content, has been slowly being replaced with sub-bituminous variety which has relatively lower content of sulfur and ash.Specifically, receipts of bituminous coal delivered for the electric power industry has dropped from 444 million tons in 1999 to 403 million tons in 2010, while that of sub-bituminous coal has grown from 385 MT to 490 MT during the same period. Over this period, share of sub-bituminous

coal has increased from 42% in 1999 to more than 50% in 2010.

Chart 13: No. and capacity of generators with environmental equipment


Chart 14: bituminous coal has been replaced by sub-bituminous coal over the years


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The other important reason for reduction in emissions is the energy savings obtained through Demand-Side Management Programs.

These programs are broadly two pronged – effective load management leading to efficient level of power generation, and improved energy efficiency through the use of energy efficient technology, devices and appliances at all levels.

Energy efficiency programs particularly, have been able to save energy to the tune of 87 million megawatthours in 2010, up 65% from 53 million in 2000 at a rate of more than 5% CAGR.

Effective load management programs on the other hand has been more effective during the times of abnormal rise in fuel prices in 2003-04 and 2007-08

But, Environmental Improvement At What Cost?

With government mandating use of Flue gas Desulfurization units for coal plants, the average installed capital cost, based on replacement cost of the unit, for the plants has skyrocketed.

In addition, the scrubber unit itself has to use power to capture and store sulfur, which adds to incremental cost of operation and maintenance.

With tradable emission permits trading at historic low prices and possibility of continues low prices as a result of global economic downturn, installation of scrubbers may not be economically viable for many plants.

Chart 15: Demand-side management program energy Savings

Source: Platts, ICIS pricing, Edelweiss Research

Chart 16: Average Flue gas desulfurization costs



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Though the Demand-Side Management Programs have been effective in saving energy, the saving comes at a cost. The cost of total savings, calculated on a per kilowatthour basis, shows that the cost has grown at more than 9% CAGR during 2003-10. This high level of cost increase does not seem to be sustainable. This observation is also supported by the rapid rise of marginal cost of reducing one more unit as the total energy saving increases.

ConclusionVarious measures taken by the government, power generators and electricity end-users, such as, state and federal portfolio standards, use of environmental equipments, shift in fuel mix, demand side management programs etc. have reduced the level of emission to a large extent. But all the measures have effectively increased the cost of electricity production which are usually passed on to the end-users. Though the programs have been successful so far, the number of low-hanging fruits is reducing rapidly. The real challenge will be to reduce the level of emission, or at least keep it at the current level, without increasing the cost of electricity.

Chart 17: Cost of Total Savings growing at 9% CAGR


Chart 18: Direct cost increases with amount of energy savings


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Bibliography

1. "ANNUAL ENERGY OUTLOOK 2011", US Energy Information Administrationhttp://www.eia.gov/forecasts/aeo/MT_electric.cfm

2. “Projected Cost of Generating Electricity”, International Energy Agency (IEA)http://www.iea.org/textbase/npsum/ElecCostSUM.pdf

3. "True Cost of Electricity Generation"http://www.groundtruthtrekking.org/Issues/OtherIssues/True-Cost-Electricty-Generation.html

4. "Why Are Electricity Prices Increasing? An Industry-Wide Perspective"http://www.edisonfoundation.net/Brattle_report_Web.pdf

5. "Natural Gas and Electricity Costs and Impacts on Industry"http://www.netl.doe.gov/energy-analyses/pubs/NatGasPowerIndWhitepaper.pdf

6. "The Impact of Fuel Costs on Electric Power Prices"http://www.publicpower.org/files/PDFs/ImpactofFuelCostsonElectricPowerPrices.pdf

7. "Carbon Capture by Fossil Fuel Power Plants: An Economic Analysis"http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1443478

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