Addressing New Environmental Regulations John N. Voyles, Jr. Vice President, Transmission &...

Addressing New Environmental Regulations

John N. Voyles, Jr. Vice President, Transmission & Generation Services

KIUC Annual Energy Conference, March 2014

Drivers from Recent EPA Regulations

Mercury & Air Toxics Standards

(MATS)

Cross State Air Pollution Rule (CSAPR)

National Ambient Air Quality Standards (NAAQS)

LG&E and KULeast-Cost Compliance Plans

Coal Capacity

Trimble County

Mill Creek

Ghent

E.W. Brown

Install additional clean coal technology at 4 largest stations


Coal Capacity

Trimble County

Mill Creek

Ghent

E.W. Brown

Additional control technology construction progressing


Coal Capacity

Retire 800 MW at 3 coal-fired stations

Cane Run Green River

Tyrone

Cane Run 7 Natural Gas Combined Cycle Construction Progressing

EPA Regulations Still to Comewith Significant Ramifications

• Coal Combustion Residuals (CCR)

• Greenhouse Gas — New& Existing SourcePerformance Standards

• National Ambient Air QualityStandards (Ozone and PM2.5)

• Effluent Guidelines & 316 (b)

Purchased Electricityfor Own Use

Company-OwnedVehicles

Fuel Combustion

ProductUse

Outsourced Activities

Contractor-OwnedVehicles

Waste Disposal

Employee BusinessTravel

Production ofPurchased Materials

Scope 1Direct

Scope 2Indirect

Scope 3Indirect

CO2 SF6 CH4 N2O

http://www.airnow.gov/

Coal Combustion Residual (CCR) Treatment Facilities & Dry Landfills

• Dewatering systems• Beneficial reuse transfer

systems• Conveying systems

• Transport systems• Lined landfill• Leachate collection• Groundwater monitoring

More Carbon Regulations?

• EPA has re-proposedregulations for newcoal plants

• EPA must proposein June 2014 regulations for existing plants

• Impacts???— Efficiency improvements?— Renewable standards?— Cost implications?

29 States and D.C. Have RPS Mandates

Source: FERC

NAAQS — Revised Ozone Standard?

•EPA re-evaluates standards every 5 years

•2012 — The President delayed the release of the 2008 proposed ozone revision

•EPA expected to issue ozone proposal this year

•Ozone Transport Region (OTR) states petition to expand original participants

Effluent Limitation Guidelines(Plant Waste Water Streams)

Bottom Ash Transport

Boiler Blowdown

Fly Ash TransportWater & Ash Pond

Effluent

WFGD & WESPBlowdown

Misc. Water Usage

Coal Pile RunoffCooling Tower BlowdownMetal Cleaning Wastes

Meeting FutureCapacity Needs in a World of Uncertainty

Generation Supply is ChangingDue to Retirements

• Recent press clipping…— “MISO will fall below [reserve margin] targets during

the 2015 summer season. If resources do not come on-line, an increased likelihood of firm load shedding is possible.” (2013 Long-term Reliability Assessment; NERC).

• 37 GWs of announced retirements by 2015 in Eastern Interconnect— PJM and MISO reserve margin forecasted to decline

precipitously (PJM – from 31% today to 21% in 2018; MISO – from 18% today to 12% in 2015).

• Problems were widespread during January cold temps— TVA declared energy emergency alerts on 3 occasions

in January 2014.— PJM experienced non-firm natural gas curtailments and

20% EFOR.— SCE&G had rolling blackouts from high load and

outages.

Announced Coal RetirementsHigher Than 2013

2012

2013

2014

2015

2016

2017

2018

2019

2020

2012

2013

2014

2015

2016

2017

2018

2019

2020

0

5

10

15

20

25

30

35

40

45

PJM SERC MISO SPP NYiso isoNE FRCC

Cu

mu

lati

ve C

oal

Reti

rem

en

tsEaste

rn I

nte

rcon

nect

(GW

)

8.7 9.1 11.6

17.0 14.7

25.8

7.4

34.9

26.0

38.3 38.7

26.5

39.0

26.8

39.4

26.8 26.8

39.3

Weather Impacts Can Resultin Higher-Than-Expected Loads

January 6-7, 2014 weather• Temperatures up to 30°

F below normal with low of-4 °F

• Winds of 10-25 mph with gusts up to 33 mph

Renewables Contribute Intermittently. . .

• Limited potential for renewable generation at peak— No solar (new winter peak set after 8 p.m.)— Strong but variable winds diminished quickly— MISO wind gen. at peak hour dropped 86% from

Jan. 6 to Jan. 7

Load

Diminishing

Note: Wind speed does not correlate to load

System Planners Consider Key Uncertainties

• Key uncertainties for potential capacity additions— Range of natural gas prices— CO2 regulations — Range of load forecast

(peak and energy)• Using a probability for each

scenario, a plan with theexpected lowest reasonablecost is identified

• Consider a range of outcomesin combination to minimizecosts

A Range of Economic Forecastsare Considered…

Source: IHS Global Insight

10,000

20,000

30,000

40,000

GDP

($ B

illio

ns)

Base Optimistic Pessimistic

High

Base

Low

Also a Range of Natural Gas Prices…

- 2 4 6 8

10 12 14 16 18 20

$/M

MBtu

EIA-AEO 2013 Base EIA-AEO 2013 High EIA-AEO 2013 Low

Source: Energy Information Administration

High

Med

Low

And Potential CO2 Prices

-

20

40

60

80

100

120

140

160

$/sh

ort to

n

Low Mid High

Source: Synapse Energy Economics

High

Med

Low

Comparative Levelized Costs of Electricity of Dispatchable Technologies — 2015

Baseload technologies

Comparative Levelized Costs of Electricity of Non-Dispatchable Technologies* — 2015

Without integration costs

Examine AlternativesAcross a Range of Scenarios

• Prefer NGCC in low-gas and carbon scenarios. Need NGCC for base load in carbon scenarios.

• NGCC is not unfavorable in any scenario.• Coal response only favorable in high gas, zero

carbon scenarios.• Simple Cycle CT not desirable in carbon scenarios.• High capital cost and limited dispatch flexibility

reduce value of wind and solar.

Gas Med Med Med Med High High High High Low Low Low LowLoad Base Base Low Low Base Base Low Low Base Base Low Low

Alternative Carbon Zero Med Zero Med Zero Med Zero Med Zero Med Zero MedNatural Gas Combined CycleCoalSimple Cycle CT Renewables

<-Better/Worse->

Green River Station

Green River 5 — Natural Gas Combined Cycle Unit

Similar to rendition of the Cane Run 7 NGCC

Photovoltaic (PV) Solar Resources

PV Array in Spain

48 MW380 acres

Potential Solar Array LocationE.W. Brown Station

LG&E and KUPV Array~10 MW

~ 100 acres

Total Capital Required Trends(2009 versus 2012)

2009

2012

PC NGCC Nuclear Onshore Wind

CSP PV0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Tota

l C

apit

al R

equir

ed (

$/k

W)

Levelized Cost of Electricity Trends2009 versus 2012

2009

2012

PC NGCC Nuclear Onshore Wind

CSP PV0

50

100

150

200

250

300

350

400

450

500

Levelize

d C

ost

of

Ele

ctri

city

($/M

Wh)

Portfolio in Transition: Combined Cycle Gas Will Be 15% of Capacity by 2019

Portfolio in Transition: 25% of Energy From Two NGCC Units by 2019

1% non-fossil

Non-Fossil Resources Increasing by 40% Since 2005 (Nameplate Capacity)

~ 40%

* Solar capacity addition only if approved by KPSC

MW

Non-Fossil Energy Increasing 50% Since 2005(Intermittent Output Based on Resource)

~ 50%

* Solar energy addition only if approved by KPSC

GW

h

2014–2018 Capital Investments

No investments included for GHG regulations

Electricity Generation by Fuel,1990-2040 (Trillion kWh by Year)

Source: http://www.eia.gov/forecasts/aeo/er/pdf/0383er(2013).pdf

Regional Rate Comparison — Industrial

5.15¢ 6.52¢6.02¢

6.30¢

6.38¢

5.71¢

LG&E and KU — 5.64¢

5.35¢

U.S. Industrial Average per kWh is 6.60 cents

Source: Edison Electric Institute, Winter 2012, Typical Bills and Average Rates Report

Closing Thoughts

• Current and future EPA regulations continue to impact investments and energy costs.

• Supply side retirements during 2015 and 2016 will likely present transitions issues for the grid.

• Key uncertainties impact near-term and long-term alternative supply resource options.

• Renewable energy resources can be a part of a portfolio.

• LG&E and KU continue to pursue least reasonable cost options for these challenges.

of Electricity

Addressing New Environmental Regulations John N. Voyles, Jr. Vice President, Transmission &...

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