Transcript Challenges for New Base Load Generation Dave Harlan

Challenges for New Base Load Generation
Dave Harlan
Panel Discussion: Traditional Fuels and Technologies
Bonbright Center Electric and Natural Gas Conference
October 2007
R
New Long-term Generation is a Critical Component of
Entergy’s Portfolio Transformation Strategy
2012-2017 Supply Requirement and Existing Portfolio
Entergy’s
regulated
utilities need
additional longterm generation
capacity …..
Supply requirements; GW, % of peak
Generation portfolio; GW
26.5 120%
Reserve and
peaking
requirements met
with existing
assets and market
sources
Reserve Requirement
22.7 100%
Peaking
18.1 80%
…two supply
roles are
needed, base
load and loadfollowing….
….solid fuel
capacity is
needed to
reduce exposure
to natural gas
and provide fuel
diversity
Excess
intermediate
capacity
Intermediate
13.6 60%
9.0
40%
4.5
20%
0
0%
High Capacity Load Following
Requires more
solid fuel and
CCGT for base
load and high
capacity load
following
Base Load
0%
20%
40%
60%
80%
100%
% of Annual Hours That Load Level is Exceeded
Over 3,700 MW of base load
generation is needed by 2017, with
solid fuel generation needed for fuel
diversity and price stability
Page 1
Entergy’s Utility 2006 Fuel Mix Compared
to National and Regional Utilities
26% of Entergy’s fuel mix is from gas/oil generation, which is above that of
regional peers the national average of 18%. Entergy’s fuel mix relies less on
coal than regional and national competitors.
Gas/Oil %
Fuel Mix 2006 (%)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Entergy
CLECO
AECC
Hydro
Nuclear
Southern
Ameren
Coal
Gas & Oil
Other
TVA
USA
Source: Global Energy - Velocity Suite, USA Source: EIA
Page 2
Future costs of CO2 emissions and other uncertainties have
a major impact upon technology choice.
2017 Project Solid Fuel Production Cost Comparison(1) - ILLUSTRATIVE
Technology choice
for future base
load generation
depends upon
assumptions
regarding major
uncertainties
including Federal
incentives, future
gas price, cost of
labor and
materials, and cost
of CO2 emissions.
2017 view of 30-year Levelized; $/MWh
CO2
(2)
3P Emissions
Fuel & Variable O&M
Fixed
(2)
$7/
mmBtu
Gas
$5/
mmBtu
(real
2006$)
Gas
Price
New Nuclear New Nuclear
w/o
with
Incentives
Incentives
Pulverized
Coal (PC)
(3)
CFB Dual
Fuel (60/40
Pet Coke /
Coal)
IGCC w/o IGCC w/ CO2 CCGT New
CO2 Capture
Capture
Build
Page 3
Uncertainties Require a Diversified Portfolio and a Phased
Decision Making Process for Major Generation Projects
Long lead times are
required to plan and
construct new
generation, and
generation planning
must consider major
uncertainties.
Entergy’s Portfolio
Transformation
strategy is based
upon developing
multiple new supply
options using a
phased approach
that provides
multiple decision
points and off-ramps
in the event that
better options
become available in
the future.
Long-term Generation
Decision Uncertainty
Resource Supply
Strategy
Gas availability and price level
Maintain a diversified
supply portfolio
Supply and delivery of fuel to plants
Future environmental costs (e.g. carbon)
Resource additions
implemented in several
steps over time
Costs and availability of purchased power
Inflation
Construction period costs, timing and
risks
Technology cost and performance
Future market demand and market
structure
Create and maintain selfsupply options to build
new capacity
Phased commitment to
major construction
projects
Integrated resource
planning considering
generation, transmission,
and demand side options
Page 4
Near Term Gas Market Prices Are Above $7/mmBtu,
But Forecasters Predict Long-term Prices In $5-$7 Range
The price of natural
gas has a significant
impact on generation
planning.
Unfortunately, the
future prices for
natural gas are very
uncertain.
Recent market prices
for future deliveries
of gas have been
more than $7/mmBtu
(2006$ Real).
However, while there
are a variety of expert
opinions regarding
long-term gas prices,
most forecasting
services expect
prices within $5 to $7
per mmBtu.
NYMEX Henry Hub Gas Futures Curves (left)
Long-term Henry Hub Natural Gas Forecasts 2003-2019 (right)
$/mmBtu; 2006$ Real
2007-2008 price curves at
various points in time
Long-term forecasts from nine
separate experts
12
11
10
9
8
7
$5-$7
Range
6
5
4
3
Jan-07 Jul-07 Jan-08 Jul-08 Dec-08
2003
2007
2011
2015
2019
Contract Date
Page 5
There Is a Broad Range Of Forecasts For
Future Costs Of CO2 Emissions
There is a wide
range of opinion
regarding the future
cost of CO2
emissions by
various industry
experts.
Nominal $/ton
100
80
60
40
20
-
CERA (Asian Phoenix)
CERA (Mercury Rising)
SAIC (McCain-Lieberman legislation)
Carbon Capture Cost Cap
Page 6
2041
ICF (Carper)
2040
ICF (McCain-Lieberman legislation)
2039
ICF (Reference+CO2)
2038
ETR Planning Assumption
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
These forecasts
reflect scenarios
anticipated in 2006,
recent legislative
debate will result in
additional scenarios,
with some having
even higher costs
for CO2 emissions.
Carbon Dioxide (CO2) Emissions Price Forecast Comparison
Economics Of New Nuclear Relative To Alternatives Depend
On Gas Prices and CO2 Cost Outcomes
Technology Choice Sensitivity Analysis 30-year NPV*
The economics of
Illustrative
new base load
Gas Price
generation
(2006 Real $/mmbtu)
technology
12
depends upon
Coal (PC)
assumptions and
Lowest NPV
11
expectations
Gas @
regarding future
price
costs for gas
=$60/bbl oil 10
price, technology
cost, and CO2
Recent 9
Market Gas
emission
Price > $7 8
costs......
Forecast
Scenarios
Gas Price
Range
Nuclear Lowest NPV
7
6
5
CCGT Lowest NPV
4
0
5
10
15
20
25
30
35
40
CO2 Emissions Cost (2015 Real $/ton)
CCGT Better NPV
PC Better NPV
New Nuclear Better NPV
Page 7
Entergy Is Working to Develop a
New Nuclear Self Supply Option for 2017+ Timeframe
New Nuclear Plant Based on GE’s ESBWR Technology
New Nuclear Project Overview
GE’s Economic
Simplified Boiling
Water Reactor
(ESBWR) is the
current focus
technology for
Entergy’s new
nuclear self supply
generation option.

Option to build two 1,520MW
GE ESBWR nuclear plants for
2017+

Focus on qualifying for
incentives under the 2005
Energy Policy Act

Nuclear development will utilize
a phased decision approach

Initial phases complete NRC
applications for combined
Construction and Operating
License (COLs) by 12/2008 for
Grand Gulf and River Bend
Page 8
Nuclear Technology Development Overview

10+ years lead time for new nuclear generation – 2017
timeframe and beyond for plant COD (Commercial Operating
Date)

>$6 Billion costs for 1520 MW Plant with AFUDC

New licensing approach





Single “COLA” (Combined Operating License Application” at
NRC for approval of design and operating license at specific
site
2+ years to develop application
2-3 years for NRC review of application
Design certification and COLA awards expected in 2010-2011
5+ yrs for construction – no construction until COL (>2011)
Page 9
Implications for Utility Planners and Regulators

Significant $ invested to develop viable base load generation
options – regardless of technology choice

Large uncertainty regarding final costs and “go/no go decisions”





7 to 10+ year lead time – COD uncertain
Labor cost and commodity price uncertainty
Can’t commit to “fixed price” construction/equipment now
Project economics impacted by Greenhouse Gas legislation and
federal incentives for new nuclear
Timing and need depend on future cost of alternatives and growth in
power requirements

Plan for uncertainty – Need to maintain a diversified supply
portfolio

Need multiple options for future base load generation
Page 10
Implications for Utility Planners and Regulators

Size of capital expenditures for new base load will require
base rate increases and stress balance sheets

Regulatory provisions should support base load strategy

Regulatory certainty needed

Provide assurance of full and timely cost recovery of


Development costs

Costs to “preserve option”

Construction costs

Cancellation costs if warranted
Allow CWIP to reduce financing costs and “base rate
increase” at COD
Page 11
Implications for Utility Planners and Regulators

Regulatory provisions should support base load
strategy (continued)

Timely process for decision making

“Phased approach” for regulatory approvals

Clarity regarding how uncertainties faced in decision
making should be considered

future costs of labor/commodities

CO2 or other environmental compliance costs

types and cost of alternative generation and fuels
(e.g. CCGT and gas price)

value of federal incentives
Page 12