MUNI FSS Coal and Nuclear Energy Martin Jirusek, PhD. Context - use of coal on the global scale - 27% in global energy mix - 40% of elctricity - 68% of steel produced - Major source that has been offsetting the rising energy demand - Coal is available in 80 countries worldwide - 860 billion tonnes of worldwide proven reserves - > 17 000 Gt of resources 2 MUNI FSS WORLD PRIMARY ENERGY MIX (2035 FORECAST) 3 'Million barrels of oil equivalent per day Source: Total estimates MUNI FSS Asia Pacific Africa Middle East Europe CIS S. & Cent. America North America 4500 4000 3500 3000 2500 2000 1500 1000 500 MUNI FSS Coal - a global picture - Drop of coal use in 2015 - 2016, slight increase in 2017 & 2018 - Tale of two worlds - Countries poised to tackle pollution, squeezing coal out of the mix - China (bid to improve air quality) - Europe (e.g. UK - carbon price) - North America (e.g. Canada, US - natural gas) - Countries where demand remains strong - source of cheap electricity addressing demand growth - India - Pakistan - SE Asia - Consumption expected to remain stable or increase slightly as a result of development in the 2nd group - Coal prices to remain volatile MUNI FSS Coal - reserves, producers, Biggest coal reserves -USA 237 Bt -Russia 157 Bt -China 114 Bt -Australia 76 Bt Top coal producers -China -USA - 13% of world total -India -Australia -Indonesia consumers & importers Biggest coal consumers - China - USA (11%) - India - Japan Biggest coal importers - China - India - Japan - S. Korea MUNI FSS Locatio.n'Of the world's main fossil fuel reserves (v.-coe) Coal H Oil ■ Natural Gas N. America South 6 Central America I Europe 6 Eurasia Middle East China Africa Asia Pacific 7 Source.- BP Statistical Review of World Energy 2017 ond WCA analysis 2017 Coal and the US - a history - Coal use surged during the industrial revolution, replaced wood - Coal was originally imported from UK - Birth of the coal industry on the Eastern coast - quality black coal from Pennsylvania - Railroads played key role (again) - The civil war accelerated use of coal, coal (coke) replaced charcoal in steel furnaces (Pennsylavnia) - Key role in colonization of Western territories - transport and use of railroads - Key role for industry and transportation until WWII Electricity generation as the main consumer came later 8 MUNI FSS Coal and the US - a history - Decline in coal use started after the WWI - European coal mines re-opened - economic crisis hit US industry hard - WWII partially revived the coal use - Industry switched to gas and (partially) oil, so did transportation Another increase came with the oil shocks - Today, coal still among the mainsources for power generation decline in recent years (increase of gas) 9 MUNI FSS Source Sector Percent of Sources Percent of Sectors Transportation 27.0 11 US electricity generation by source 2013 -2015 Coal 39% Natural gas 27% Nuclear 19% Hydro power 6% Biomass 1.7% Geothermal 0.4% Solar 0.4% Wind 4.4% Oil 1% Other gases <1% 2018 Natural gas 35,2% Coal 30.4% Nuclear 19,4% Hydro power 7% Wind 6.5% Biomass 1.4% Solar 1.5% Geothermal 0.4% Petroleum 0.6% Other gases 0.3% 12 MUNI FSS Power generation by source Monthly U.S. electricity generation by source (Jan 2012 - Dec 2017) million megawatthours 13 MUNI FSS Main coal plays Coal mines in the US - Coal mines located in 25 states, mostly in Wyoming, Virginia, Kentucky, Pennsylvania, Texas - Biggest reserves in Wyoming (with the biggest potential to increase production) 15 North Antelope, Wyoming - The biggest open cast mine in the world - 1,8 bn. tonnes since its opening - 2,4 bn tonnes to go 16 Coal power plants in the US Production - trends Production stagnates or decreases Electricity generation increases its share, ageing PPs - rather short- to mid-term lived trend (power plants are getting old) 18 250 ZOO ISO 131 153 I lOO z 50 Source: "Clean Energy Standards: State and Federal Policy Options and Implications .* Policy Discussion Paper. Regulatory Assistance Project and The Center for Climate and Energy Solutions. November 2011 MUNI FSS Predictions - Wyoming as potentially the biggest producer in future if the coal use continues... Possible future US coal production based on recoverable reserves 1600 T— 1400 ■ Pennsylvania □ West Virginia ■ Rest of Appalachian area ■Illinois ■ Rest of interior area Montana ■Wyoming Rest of western area Reality... Table 6.1 Coal Overview Thousand Short Tons 150,000 100,000 50,000 -50 00Q i-1-1-1-1-1-1-1-1- 2000 2002 2004 2006 2008 2010 2012 2014 2016 — Coal Production Coal Net Imports — Coal Consumption MUNI Source: U.S. Energy Information Administration F S S Contemporary trends Abundance of cheap gas, economic crisis, environmental issues - abundance of coal - US coal forced to seek new markets - Worldwide abundance, slowing economy (mostly in SE Asia) - US coal exports decreased (20% annually) as well production (20% since 2008) - Cheap coal is putting a pressure on US producers (Columbia, Indonesia) - US still a net exporter though - Peak of imports in 2007, before the crisis - 2019 - the lowest coal production since late 1970s (ca. 10% yearly decline and counting) MUNI Productive capacity of coal mines by mine type, 2009-18 thousand short tons 1,600,000 i.-::.::: 1./::::.:::::: 1,000,000 800.000 :. : : 0 r 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 B underground B surface 0 total Average number of employees by mine type, 2009-18 emp loyees 100.000 90.000 - ;:.cc: 30.000 2Z.ZZZ \Z.ZZZ 0 r 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 I underground H surface B total GIB. Sou ice: Annual Coal Report Table 11. t^lEl Source: Annual Coal Report Table 18. 22 MUNI FSS Contemporary trends TRUMP t DIGS t COA - Trump's vows to revive the coal industry - limited impact - industry's prospects remain weak - the market beats the administration's plans Support for sources (guaranteed prices, grid operators obliged to buy elektricity from designated sources) that can be stockpiled (i.e. coal and nuclear) - Power generation is shifting to natural gas and renewables - no significant shift despite alleviated environmental policies - e.g. on waste water from mines - "Trump Can't Save Coal Country" (see IS) 23 Coal in the US energy sector and on the global scale World's biggest... - Increase in steam coal production - Coking coal stagnates SE Asia to fuel the demand - US & Canada dropped out of the top exporters TOP COAL IMPORTERS (2016) Total of which Steam Coking PR China 256 Mt 197 Mt 59 Mt India 200 Mt 152 Mt 48 Mt Japan 189 Mt 138 Mt 51 Mt South Korea 134 Mt 99 Mt 35 Mt Taiwan 66 Mt 59 Mt 7 Mt TOP COAL EXPORTERS Total coal exported Steam Coking Australia 389 188 Indonesia 370 369 1 Russia 171 149 22 Colombia 83 82 1 South Africa 76 75 Unwanted coal? - Abundance of cheap natural gas (quiet revolution), massive increase of RES - RES development spurred by preferential treatment (grid operators), incentives and low production costs - Tightening environmental measures (Obama's war on coal) - Clean Power Plan aimed on cutting C02 pollution generated by PPs - aimed at coal PPs - criticized by Trump's administration - repealed and replaced by (much milder) Affordable Clean Energy rule (6/2019) - softened vehicle efficiency standards (light, medium and also heavy-duty) - Relaxed restrictions on methane (O&G producers to regulate themselves) 3 ways of cutting C02 according to CCP - efficiency, substituting gas for coal, substituting RES for hydrocarbons - Coordinating bodies: DoE, FERC MUNI FSS Unwanted coal? - Tightening measures and less favourable economy of coal-based sources is squeezing coal out of the market and also has wider consequences for other technologies (e.g. CCS) - Combined-cycle power plants (coal + gas) - shift to gas-based production compared to a situation a decade ago - Coal-fired PPs - Construction costs, environmental restrictions (increasing costs) - Unstable electricity prices - lower predictability of investment - More competitive sources 27 MUNI FSS Can export be the cure? - Europe in the lead in imports until 2016 - simplified: metallurgical- Europe, steam - Asia - Consumption is predicted to rise out of the OECD countries (SE Asia) - US coal exports - short- to mid-term lived trend - GER (20% US) & UK, NED, ITA importing US hard coal - European environmental goals about to aggravate the position of US coal - Coking coal demand predicted to be stable - Exporting emissions/carbon leakage? MUNI Can export be the cure? Quarterly U.S. steam and metallurgical coal exports, 2013-2019 million short tons 20 " metallurgical steam Source: U.S. Energy Information Administration: Quarterly CoaSReport Quarterly U.S. coal production, 2013-2019 milium 'jhuil IOI1S 1,250 i n i ■■■in 2013 2014 2015 2016 2017 201B 201S I fourth quarter I third quarter I ic;;"^ ;„:vLr:' fi ist quarter yuur eigl Includes refm^ recovery. Source: U.S. Energy Information Adminislralbn: L^jarterfy CoalRgporl Quarterly U.S. coal exports and imports, 2013-2019 million short tons I exports ■ imports 2ZVi 2015 2017 Source: U.S. Energy Information Administration: Quarterly Coal Report Can export be the cure? Can export be the cure? Top destinations for US coal (metallurgical) Top destinations for US coal (steam) - Japan - S. Korea - Brazil - India - Ukraine - Japan - Canada - India - South Korea 31 MUNI FSS Can export be the cure? - Asian consumers as the future of coal consumption Importance of costs that increase the selling price - production, inland transport, taxes,... (Free-on-Board - FOB) - increasing production costs (no more 'easy coal') - high costs of inland transport production is set to decline - Long distance to major consumers compared to Indonesia and Australia - S American coal has more favourable economy and is pushing to US markets 32 MUNI FSS FOB costs: Comparison Nuclear energy - US is the world's biggest nuclear-based electricity producer (30% of world' - 20% of produced electricity - 98 reactors in 30 states, 2 under construction - Operated by 30 different companies - Majority bulit between 1967 - 1990 - 1953 „Atoms for Peace" - influence of the project Independence - BWR & PWR reactors - Key role of private investments - Chicago Pile 1 - 1st reactor (1942, Uni. of Chicago) - Part of the Manhattan Project - Atoms for Peace - D. Eisenhower - redirected the effort towards pecful utilization of atomic energy China Russia South Korea Canada Ukraine Germany UK Sweden Spain Belgium India Japan Czech Republic Finland Switzerland ■ Brazil ■ Bulgaria ■ Hungary ■ South Africa ■ Slovakia ■ Mexico ■ Romania ■ Pakistan ■ Iran ■ Argentina ■ Slovenia ■ Netherlands I Armenia I 36 Source: IAEA. PRSS Database- MUNI FSS Nuclear sector - history - US as a pioneer of research and use of nuclear fission - Used in military - submarines and ships (development of PWR) - Construction boom in 1960s & 1970s - Advantage of regulated electricity market + state-owned utilities - financing was secured - Consumers payed the costs - Deregulation accelerated in 1990s (EP Act of 1992) - 1st commercially operated NPP - Shippingport, PA - 1957 37 Three Mile Island - A major setback for the industry - 28.3.1979 - cooling section malfunction - partial meltdown of the core - Level 5 accident of the INES scale Trends in the Sector - No new projects between 1977-2013 - economy of nuclear sources (compared to e.g. gas PPs) - increasing fixed costs (construction, insurance,...) - tightening safety measures (after TMI) - Ageing PPs (nuclear and coal) - need investments - NPPs life can be extended up to 60 years - Sector is heterogenous and commercially driven - undermines planning - Energy Policy Act of 2005 - tax reliefs for newly installed units, state guarantees for loans and decommissioning 2:0 200 1 -11 § 100 39 Trends in the Sector - Fixed vs. Variable costs - problems of financing of the construction vs. cheap fuel and operation - Cheap gas and RES making the NPPs' economy unfavourable - Ageing NPPs can theoretically be operated up to 80 years - 40 years life cycle was calculated as a lifespan needed to repay the initial costs and with regard to the lifetime of the reactor vessel - Gas-fired PPs - relatively lower investment risk given the lower initial costs - EP Act of 2005 - substantial investment incentives for the nuclear sector - applications for new projects pilled up 40 MUNI FSS Trends in the sector - Government's long-term (since the late 1990s) efforts to spur new projects - Conducted by DoE (Nuclear Power 2010, NE Research Initiative, Plant ageing, Generation IV,....) - Problematic economy of the sector - low prices and uncertain return of initial costs (up to 13 reactors are considered as uneconomical and poised to close even before the end of their life expectancy) - deregulated market is not able to guarantee return of costs within the life-cycle of a power plant - rise of RES and gas - lower initial costs and more favourable economy - Gas-based elektricity price so low that it posesses even bigger threat to nuclear (and coal) than RES - 3/2017 - Westinghouse filed for bankruptcy reorganization - Higher taxation of C02 emitting sources would help - Given the current situation, operators are inclined to rather close the PP than to upgrade it MUNI Trends in the sector - Uneven deregulation - NPP closures mostly in de-regulated states - yellow - deregulated power sector - grey - temporarily halted - white - regulated 42