Transcript Agenda - University of Pittsburgh School of Law

Factors and Issues Re Fuel
Switching and Building New
Gas Plants
Jeffrey J. Norton, Esq.
Energy Law & Policy Institute
University of Pittsburgh School of Law
August 1-2, 2013
Agenda

Overview of Factors that Lead Toward
Fuel Switching

SWOT Analysis of Fuels and Switching

Gas Utilization Opportunities

Legal Issues with Increased Gas
Utilization in Baseload Generation
2
Gas Shale Plays in the U.S.
3
Outlook for U.S. Energy Use
Source: U.S. Energy Information Administration,
Annual Energy Outlook 2011, April 26, 2011.
Total Energy Use By Fuels

Oil
34%

Natural Gas
26%

Coal
19%

Renewables
11%

Nuclear
10%
(Source: EIA and JohnHanger.com Blog)
6
U.S. Power Generation Trends
Coal
Gas
Nuclear
Wind
Solar
2000
52%
16%
20%
0
0
2011
42%
26%
20%
3%
0.2%
2012
36%
29%
20%
4%
0.4%
Source: EIA
Black & Veatch predicts in next 25 years*:
Gas-fired generation will increase to 54%
Coal-fired generation will decrease to 21%
*assumes that electricity demand will double with economic recovery
7
Top Energy Trends

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Energy Boom Time in U.S.
Oil & Natural Gas are Growing
Coal is Declining
World and U.S. Trends are Different
Fuel Prices Have Dramatic Impact
Shale Gas Continues to Evolve
Rise of the Decentralized Electric Grid
Demand Side – Consumer Stakeholders
Push for National Energy Policy
8
Coal v. Gas SWOT Analysis
Coal

Strengths and Opportunities

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Vast supplies
A major player in generation
Clean coal technologies
Carbon capture and storage
Global exports are strong
10
Coal

Weaknesses and Threats

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
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100,000 MW of U.S. Coal-Fired Power Plants
are 40 yrs. old or older
Coal retirements in next 10 yrs.
Low nat. gas prices - loss of market share
New environmental regulations


NSPS standards for new plants, GHG limits for
plants to be issued by EPA (in Sept. 2013?)
Climate change issue, especially in long-term
11
Obama’s Climate Action Plan of
2013



President’s plan to cut carbon pollution
Directs EPA to establish carbon pollution
standards for both new and existing
power plants
Likely result: Stringent CO2 standards;
new control equipment too expensive for
coal
12
Critics of Climate Action Plan

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Electricity prices will rise resulting in
higher energy bills
Lost coal jobs
Natural gas prices will rise halting
manufacturing renaissance
No impact on real global climate change
Unilateral exec. order bypasses Congress
No realistic backup plan
13
Recent News re Climate Change

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First Energy will close 2 coal-fired plants in PA,
scrapping gas conversion (380 jobs, 2,080 MWs)
AEP will close coal-fired OH plant instead of converting
Alpha Natural Resources will lay off 100 employees
in WV coal mines
United Church of Christ to divest pension funds and
investments in fossil fuel companies
US Supreme Court to review case re EPA’s Cross-State
Air Pollution Rule
3rd Cir. Court approved EPA rule that forced PA plant to
reduce sulfur emissions into NJ
14
Gas Development
15
Natural Gas

Strengths and Opportunities


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U.S. Gas Production in 2011 Set Record
U.S. is the World’s #1 Gas Producer
Shale Gas is about 37% of Total U.S. Gas
Supply
U.S. Oil to Gas Ratio at Record Levels: 35:1
30% of U.S. electricity gas fired in March
2012
Uses: Transportation, Generation and Export
Cracker Plants and Move to NGL
16
Natural Gas

Weaknesses and Threats

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Increased Regulation/Potential Litigation
Emotional Response – Gasland/Truthland
Impact Studies – water, emissions
Low Prices Affect on Drilling
Over Supply – Gas Storage Nears Capacity
Drill rigs count in PA is down 29%
Number of wells drilled in PA in 1st Q
declined 18% from last year (per DEP)
Need for infrastructure
17
Protecting the Environment
Primary Environmental Issues For Shale Gas

Methane Leakage

Gas Migration

Air Emissions

Injection of Wastewater in Deep Caverns

Water
18
Gas Utilization and Energy Efficiency
Example: Combined Heat &
Power (“CHP”)

CHP – co-generation



on-site generation of electricity/use natural gas
create thermal energy – can be used in direct process
applications or indirectly
CHP has many benefits:

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lowers demand on the electricity delivery system
frequently reduces reliance on traditional energy supplies
makes businesses more competitive by lowering their costs
reduces greenhouse gas and criteria pollutant emissions
refocuses infrastructure investments towards a next-generation
energy system
20
CHP - Overall Efficiencies
21
CHP - Continued


Incentives are potentially available for a CHP Project:

Accelerated depreciation

Section 48 - Investment Tax Credits (“ITC”)

Net Metering (up to 5MW) for excess electricity

Act 129 Funds: FE, PECO, PPL and DLC

Possible rebates or financing from EDCs
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Gas Energy Efficiency Program
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PA loan programs/Alternative and Clean Energy Program
AEPS: Renewable energy credits (“RECs”) or other
potential credits may be generated by the CHP Project
22
Legal Issues and Challenges
Legal Issues
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Increased Environmental Regulation
Level Playing Field for Energy Incentives
Term of Fuel Contract
Reps and Warranties
Liabilities
Risk of Loss/Insurance
24
Long-Term Purchase Contracts and
Hedging Arrangements

Natural gas suppliers, power generators
and consumers can share risk of future
price changes

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
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agree to a fixed price for portion with balance priced
at market rate
buyers and sellers can have contract terms of
different lengths
regulators can adopt framework to approve prudent
long-term purchases
pipeline owners and regulators can agree on
appropriate tariffs
25
Thank you. For Further Information:
Jeffrey J. Norton, Esq.
[email protected]
Two Liberty Place
50 South 16th Street
22nd Floor
Philadelphia, PA 19102
(215) 523-7810
26
213 Market Street
8th Floor
Harrisburg, PA 17101
(717) 237-7192