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

Challenges Facing U.S. Coal Understanding the Structural Decline of 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- fj red 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. 1,200 million tons Peak Coal, 2008: 1,172 million tons 1,000 800 2018: –35.5% 756 million tons 600 EIA 2020 estimate –45.5% 638 million tons 400 200 0 1931 ’35 ’40 ’45 ’50 ’55 ’60 ’65 ’70 ’75 ’80 ’85 ’90 ’95 2000 ’05 ’10 ’15 ’20 Source: Energy Information Administration; 2019-2020 estimates from May 2019 Short-Term Energy Outlook

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. 700 million tons Change from peak Western, 2008 peak 634 million tons 600 Appalachia, 1990 peak 489 million tons 500 –45% 400 300 Interior, 1990 peak –66% 206 million tons 200 100 –40% 0 1985 1990 1995 2000 2005 2010 2015 2020 Source: Energy Information Administration; 2019-2020 estimates from May 2019 Short-Term Energy Outlook

The math behind the U.S. coal industry is simple: 90% 90% U.S. coal Thermal coal Electric power generation Exports account For the most part, for a relatively coal companies and small share 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. Coal Type and Exports Domestic Consumption Thermal Electric Power Metallurgical Other Industial, 74.3 million tons 700.3 million tons Coke, Commercial Sector 9.6% 90.4% and Institutional 665.0 million tons Exports 51.9 million tons 92.8% 74% 6% 7.2% Source: Energy Information Administration

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. 2007: Peak Coal Consumption 2019 Q3: 284 million tons Q1: 145 million tons 300 million tons 4-quarter rolling average 250 200 150 100 50 0 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 Source: Energy Information Administration

U.S. Coal Exports, Quarterly U.S. coal export volume has fm uctuated considerably in recent years. Metallurgical coal has usually made up the majority — between 50 and 75 percent — of those exports. 40 million tons Thermal (Steam) Coal Metallurgical Coal 30 20 10 0 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 Source: Energy Information Administration

Fuel Share for Electric Power Generation (Utility Scale, All Sectors) 50% EIA short-term outlook Coal for 2020 40 30 Natural Gas 20 Nuclear Wind + Solar 10 Hydro 0 2005 2010 2015 2020 Source: Energy Information Administration (STEO, May 2019)

Driving the Energy Transition: Seven Technology Disruptions

GENERATION GRID Energy Wind Solar Fracking Grid Energy E ffj ciency Integration Storage Grid Independence Policy/ Semiconductor/ Software/ Electrochemical Technology Manufacturing/ Information Engineering/ disruption Construction Technology Business Model disruption disruption disruption Mining Extraction/ Equipment Scale/ Mechanical/ Industrial Technology Business Model Industrial Construction disruption disruption disruption

U.S. Net Generation of Electricity, 1950-2018 Decades of growth in electricity use ended in 2007, and demand has been essentially fm at for a decade. 4,000 million megawatt hours 2007: previous peak 4,157 mil. MW hours 2018: Peak Generation 3,000 4,178 mil. MW hours 2,000 1,000 0 ’50 ’55 ’60 ’65 ’70 ’75 ’80 ’85 ’90 ’95 ’00 ’05 ’10 ’15 ’18 Source: Energy Information Administration

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. 12% Solar (utility-scale) exceeds 1% share Wind May 2016 10 Solar (small-scale, starts 2014) Solar (utility-scale) 8 Wind exceeds 5% share April 2013 6 4 Wind exceeds 1% share April 2007 2 0 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 Source: Energy Information Administration Share of generation for all sectors

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. 40 trillion cubic feet of gross withdrawals 2018 37.0 trillion cubic feet 30 20 2017 19.0 trillion 10 From Shale Gas 2007 2.0 trillion 0 1935 ’40 ’45 ’50 ’55 ’60 ’65 ’70 ’75 ’80 ’85 ’90 ’95 2000 ’05 ’10 ’15 Source: Energy Information Administration

Rapid Growth of Wind Power Generation Wind power has grown enormously over the last 10 years. In 2018, 21 states generated fj ve percent or more if their total generation from wind— up from just four states in 2008. Wind’s share of state electric generation 0% 5% 10% 20% 30% 40% 2008 2018 Iowa 34% Kansas 36% Oklahoma 32% Source: Energy Information Administration

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. 0% 10% 20% 30% 40% 50% 60% 70% S. Dakota 45% Iowa 62% Illinois 9.4% March 2019 Kansas 54% 1.4 million MW hours Enough to meet the Oklahoma 45% entire state power needs of Idaho, South Dakota, Maine, Hawaii, Alaska, Rhode Island, Delaware or Vermont. Source: Energy Information Administration Through March 2019

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 over gas, and storage is disrupting market structure

Consequences for Coal-Fired Power

U.S. Coal-Fired Generation Capacity Peak capacity: IEEFA 2018 year-end 350 gigawatts 318 GW, 2011 estimate: 241 GW 300 2019-2024, based on current announcements 250 200 150 100 50 0 2005 2010 2015 2018 2020 2024 Sources: EIA; IEEFA research

Coal-Fired Electric Generation Retirements and Conversions Preliminary fj gures show that in 2018, nearly 15.4 gigawatts of coal- fj red capacity retired or was converting to natural gas. New announcements continue to add to the list of closures expected over the next six years. Retired coal- fj red capacity Announced retirements/conversions/closures 15,445 MW 15,000 megawatts Preliminary retirements, conversions and closures 10,000 32,759 MW 5,000 0 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 ’23 ’24 Sources: EIA; PJM; S&P Global; IEEFA research (2017-2024) As of May 24, 2019

Operating U.S. Coal Plants, October 2018, by Capacity 346 coal- fj red 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. 105 plants under 100 MW 102 Largest Operating Coal Plants 3,352 MW capacity 1.4% 68.5% of all capacity 41 plants 100 to 250 MW 6,841 MW capacity 2.8% 23 plants over 2,000 MW 23.7% 58,186 MW capacity 118 plants 250 to 1,000 MW 67,330 MW capacity 27.4% 346 Operating Coal Plants 79 plants 1,000 to 2,000 MW 245,671 MW 44.8% 109,962 MW capacity Capacity Source: S&P Global