Potential Impacts to Wyoming of the Coal Transition

Transcription

1 Potential Impacts to Wyoming of the Coal Transition Robert Godby and Roger Coupal Center for Energy Economics and Public Policy (CEEPP) WIA Spring Meeting, Jackson WY March 28, 2019

2 Shift away from coal continues unabated

3 Drivers of coal decline Cost Competitiveness Consumer Preferences Coal squeezed out of markets Aging Fleet Natural gas Renewables Regulation Uncertainty Preference for cleaner and cheaper fuels

4 Future Risks of Energy Transition 1. National coal declines may cause bankruptcy, mine closures in PRB. Reclamation risk. Concentrated impact in PRB communities. State revenue impact. 2. Early generator retirement in Wyoming Mine-mouth plants in western Wyoming Higher cost mines Single or majority customer => mine closure

5 1. Impacts of Retirements Elsewhere Primary risk to Wyoming remains how closures elsewhere will affect Wyoming. Wyoming historically only uses 7% of coal mined in the state => biggest risks in Wyoming due to retirements elsewhere.

6 Recent coal declines: Wyoming Impacts (Statewide) 19% 18% 26% Production decline since 2015 Employment decline since 2015 Coal severance tax decline since 2015

7 Closures Coming (known to date) % Generator Retirements by 2025 Units using Wyoming Coal Share of current WY Production

8 More declines are coming No new plants being built More retirements coming A new generator retirement has been announced every two weeks since 2016.

9 Coal Retirements Nationally

10 Megawatts Coal Retirements Nationally 20,000 All Coal Retirements Wyoming Coal 15,000 15,884 9,837 MW Wyoming coal 10,000 7,959 31,437 MW all coal 5, Source: Author s dataset, EIA, IEEFA, various press sources.

11 Millions of Short Tons (MMst) Coal Production Projections (PRB) % decline 2012 to Reference case Low econ. growth Low oil price Low oil and gas res. and tech. High econ.c growth High oil price High oil and gas res. and tech. AEO2018 w/o Clean Power Plan Note 2018 reference case (w/o CPP) was much higher than 2019 scenarios project. Range in projections from 9% (26 MMst) to 36% decline (107 MMt tons), with reference case declining by 21% (62 MMst through 2028). Source: EIA Annual Energy Outlook 2019 (assumes no change in current regulations)

12 Risks from National Market Decline PRB produces approximately 40% of U.S. coal Produced 293 million tons in 2018 Coal mining in region employs 4628 workers directly in worker per 10 households in the 5-county PRB area of Wyoming. These create ~2,600 indirect jobs using results of 2015 coal impact study These create ~2,300 induced jobs using results of 2015 coal impact study

13 Impacts from National Market Decline Total: 9,500+ direct, indirect and induced jobs created by coal mining in PRB in 2018 not including rail and generation. 2 jobs per every 9 households in the PRB. Does not include related rail or generation jobs in Wyoming. 13,000 coal-dependent jobs in PRB Approximately 3 coal economy jobs per every 10 households in the PRB.

14 Potential impacts in next decade For a 9% decline in employment and output (-26 MMst/yr) 400+ direct mining, 400+ indirect and induced jobs lost Approximately 2 percent of PRB households affected 2015 study: $60 mill/yr lost revenues. For a 21% decline (-61 MMst/yr) 1000 direct mining, 1000 indirect and induced jobs lost Approximately 5 percent of PRB households affected $140 mill/yr lost revenues. For a 36% decline (-105 MMst/yr) 1,700 direct mining, 1700 indirect and induced jobs lost Approximately 8 percent of PRB households affected. $240 mill/yr lost revenues.

15 PRB production sensitivity to retirements PRB produced million tons of coal in Delivered to 139 plants in 2018 (136 remain open) Based on deliveries in 2017 some plants are much more important than others. One quarter of plants served buy over half of PRB output 33 plants served in 2017 accounted for 55 percent of coal produced. One of these plants retired in 2018 responsible for 2% of total PRB output (over 6 million tons) Reduced output demand by 400 trainloads.

16 Most Important PRB-Served Plants: Coal Received per Year 10 mill tons 6 mill tons 3 mill tons 15,000 tons = 1 train 3 mill tons = 200 trains Each of the 32 plants shown used more than 1 percent of total PRB output in 2017.

17 Mine Sensitivity to these plants: 8 of 12 mines in the PRB are overly exposed (>55% of coal produced) to these 33 plants These plants account for Over 80% of production at Eagle Butte. Over 70% of production at Coal Creek, Belle Ayr Over 60% of production at Cordero Rojo, Dry Fork, Caballo 9 of the 32 plants received deliveries from 6 or more mines in the PRB If one of these nine plants were to close, impact is disproportionate Large loss of output in PRB (average = 5.8 mill tons or 2 percent of PRB output in 2018) Affects majority of mines across the PRB

18 Future: PRB demand will continue to decrease Coal demand will continue to decline => Early retirements will accelerate Of the 32 key plants 2 scheduled to close 2022 to Comanche MMst/year (3 mines, 2% of 2018 output) Sherburne 2023, MMst/year (1 mine, 1.2% of 2018 output) Two others currently scheduled for retirement in 2030 Some other of the 104 smaller customers will retire too larger impact coming PRB mine closures likely, or acquisition by less financially secure companies.

19 Time to Plan Impacts on PRB region will increase. Impacts will be larger than currently forecast. Likely to happen relatively slowly a decade to plan and prepare Need for state planning to deal with State revenue losses => tax structure changes will be necessary Coal revenue losses likely to double in this decade continue to decline afterward Economic impact in these areas Economic development efforts needed more than ever. Alternative uses for coal will help but also need to look at other activity Remediation in case of mine closures? Back-taxes?

20 2. Southwest Wyoming Impacts Looking at possible end of coal-generation in southwest Wyoming over next decade End of mining in that region too 3% of Wyoming production, 15% of coalmining employment.

21 Possible coal retirements? Scheduled retirements: PacifiCorp Naughton Unit 3: Jan (=> Kemmerer Mine, 25% of production) Naughton Units 1 and 2: 2022? (=> Kemmerer Mine, 40% of production) Jim Bridger Units 1 and 2: 2022? (=> Bridger Mine, Black Butte, Black Thunder) Dave Johnston (all units): 2027 (=> Dry Fork, Cordero Rojo, other PRB) Jim Bridger Units 3 and 4: 2037? (=> Bridger Mine, Black Butte, Black Thunder) Wyodak: 2039 (=> Wyodak Mine, 50% of production) Others (all PRB-fueled): Laramie River Station: 2040 Dry Fork: 2044 Black Hills Plants:

22 PacifiCorp Coal Plant vs. Mkt Purchases Source: Energy Strategies June 2018 study

23 PacifiCorp Coal Plant vs. Wyoming Wind Source: Energy Strategies June 2018 study

24 PacifiCorp Coal Plant Competitiveness Levelized costs December Update identified Naughton 1-2, Bridger 1-2, Craig 1-2, Hayden 1-2 as retirement prioritization. Source: PacifiCorp, March 2019 IRP Update

25 PacifiCorp Coal Jim Bridger plant: 560 mining jobs, 350 plant jobs.? Indirect jobs at risk in Rock Springs Naughton Units 1 and 2 (Unit 3 closed in January) 140 plant employees (includes on Unit 3), 285 mining jobs in Kemmerer No immediate loss in employment for Unit 3 closure, but will cause mining reduction and indirect job loss. Dave Johnston scheduled for retirement in plant workers in Glenrock One of the 32 high-impact plants served by PRB Good candidate for CCS demonstration?

26 Tri-State Risk Laramie River Station Produces power for the eastern grid as well as the west Cost is higher than recent new wind or wind + storage bids plant jobs at risk in Wheatland 9 th largest plant using PRB coal

27 Tri-State Risk Source: Rocky Mountain Inst Study (Summer 2018)

28 Impact Estimates of Possible Plant Closures Scenarios considered: Naughton Unit 3 closure this past January Closing Naughton Units 1 and 2 in 2022 Closing Bridger Units 1 and 2 in 2022 also consider closing Bridger 3,4 early Dave Johnston scheduled to close in eight years.

29 Naughton Unit 3 Closure Modeled no employment loss at Naughton/70 miners at Kemmerer Unit 3 used ~25 percent of mine output Effect Workers Displaced Direct Effect 70 Indirect Effect 13 Induced Effect 13 Total Effect 96 Tax Revenue loss: $2.7 million ad valorem + $1.6 million severance taxes + $240,000 Fed. Mineral Royalties = $4.5 million annually.

30 Naughton Units 1, 2 Closed Naughton shutdown 100 workers/kemmerer shutdown 215 workers Units 1, 2 close (unit 3 already closed and 70 workers lost), mine closes. Effect Workers Displaced Direct Effect 315 Indirect Effect 55 Induced Effect 76 Total Effect 446 Tax Revenue losses: $2 million property taxes at plant + $10.9 million ad valorem + $6.4 million severance taxes + $963,000 Fed. Mineral Royalties = $20.3 million annually.

31 Bridger Employment Impacts Assume half (Units 1,2) and full plant shutdown, closures of Bridger and Black Butte mines. Assume 563 miners, 350 plant workers Effect Units 1 and 2 Full plant closure Direct Effect Indirect Effect Induced Effect Total Effect Tax Revenue losses: $5.4 million property taxes at plant + $18.4 million ad valorem + $16.8 million severance taxes + $7.5 million Fed. Mineral Royalties = $48.1 million annually.

32 Dave Johnston Closure Full shutdown: 200 workers (one third assumed live in Casper, Glenrock, Douglas). Effect Workers Displaced Direct Effect 200 Indirect Effect 101 Induced Effect 207 Total Effect 508 Tax Revenue losses: $2.9 million property taxes at plant + $2 million ad valorem + $2.4 million severance taxes + $2.1 million Fed. Mineral Royalties = $9.4 million annually.

33 What do we do about potential communities at risk? Possible revenue sources to fund transition aid in Wyoming?

34 What do we do about potential communities at risk? Possible Policies Affecting Company 1. Legislative action to keep plants open. At best, a temporary and possibly costly solution. 2. Ask companies for compensation or community transition funding. Precedents at Colstrip, Centralia 3. Company reinvestment in affected areas. Xcel Energy wind farms near Pueblo (Comanche) 4. Securitization of ratepayer payments to create transition funding. Basis of New Mexico, Colorado legislation. 5. Combination of the above.

35 What do we do about potential communities at risk? Problems Some of these methods result in the rate-payers being asked to pay for some portion of the aid. Funding comes from rate-payer increases or sharing of any cost-savings.. PacifiCorp rate-base across 6-states Actions to help Wyoming communities may require support of their PSC-entities and/or Legislature Potential difficulty with securitization Wyoming ratebase for such an effort may be too small.

36 Securitization Normal cost recovery: Rate-payer payments agreed to over life of plant Utility costs for OPEX, CAPEX and rate of return

37 Securitization Normal cost recovery: Rate-payer payments agreed to over life of plant Utility costs for OPEX, CAPEX and rate of return Securitization of rate-payer payments: Rate-payer payments Bond created with low interest rate due to low risk of default Bondholders receive payments in form of bond principal and return Bond sale proceeds Bond sale proceeds go to Utility for decommissioning, cost recovery Funds for transition

38 What do we do about potential communities at risk? State Policy Transition/energy impact funding from State Impact funding for energy contraction as well as expansion Where could funding come from? AML funds from Federal government. Could this be funded by a new account? unplanned revenues whenever CREG forecast underestimates energy prices? Other Ideas Tax policy new funds Continued and aggressive economic development (ENDOW+?)

39 What do we do about potential communities at risk? Other possible support actions? Transition policy planning across jurisdictions that allows better community involvement Expanded economic development options Reclamation as an economic driver? Education policy to support affected workers and communities.

40 Other Development Strategies? Potential for commercial-scale CCS in Wyoming? Dave Johnston CCS or Dry Fork? State match funds to support Federal funds? Experimentation with BECCS/negative carbon emissions Expand Wyoming engagement in technical solutions for climate change mitigation Expanded renewable development What policies could attract greater activity in this area? Tax policy, incentives, other?

41 We need to start planning now Energy transition cannot be stopped Limited time before impacts occur Plans must address Ground Zeroes : most affected communities in southwest and PRB. Future statewide economic and fiscal challenges Alternative revenue models Economic development and diversification World challenges: alternative energy development options renewables and CCS/BECCS Wyoming can be a leader, not a victim.