Kentucky’s Coal Outlook

1. Kentucky’s Coal Outlook Secretary Charles Snavely, Energy and Environment Cabinet Interim Joint Committee natural resources & energy June 4, 2019

2. Agenda for Today • Coal Statistics • Cabinet Coal Information • Electric Utility Industry • Looking Ahead

3. Coal Statistics Employment, Price, consumption & Production

4. Kentucky Coal Mine Employment Source: Kentucky Office of Energy Policy

5. https://www.eia.gov/coal/data/browser/

6. U.S. Coal Market Sales by Basin Region

7. Average Delivered Coal Prices Source: Kentucky Office of Energy Policy

8. Kentucky Coal Mine Production Source: Kentucky Office of Energy Policy

9. Kentucky Coal Deliveries Source: Kentucky Office of Energy Policy

10. Key Take-a-ways • It is likely that economic energy intensity will continue to decline moving forward. • Kentucky’s electricity remains price competitive on average. • However, there is growing differences between the rate classes in Kentucky and changes occurring in terms of consumption between the sectors….all affecting the price. • Kentucky’s electricity demand overall could be classified as stable to declining. • Regional differences in electricity demand exist due the differing nature of Kentucky’s landscape, economic activity, and utility market environments. • Coal plant retirements look to stabilize in the near future. • Planned capacity additions nationwide moving forward include natural gas and renewable generation.

11. Cabinet Coal Statistics Permitting, KRGF, and Tax Receipts

12. Kentucky Coal Mining – Incident Rates

13. Kentucky Coal Mine Permitting Source: Energy and Environment Cabinet

14. Kentucky Reclamation Guaranty Fund The KRGF fund is a revolving, interest-bearing account that will provide financial assistance to the cabinet in the event the permit-specific reclamation bond is insufficient to complete reclamation on a mine site. • *bonds forfeited and transferred to KRGF awaiting reclamation by Abandoned Mine Lands (AML) • **Additional money requested to reclaim forfeited sites Source: Energy and Environment Cabinet

15. Kentucky Tax Receipts

16. Key Take-a-ways • Central Appalachian coal remains price challenged. • Depending on the price of natural gas, Illinois Basin coal (WKY) can be price competitive. • 2018 was a major year for coal generation capacity retirements and coal production in Kentucky appears to have leveled out. • Depending on the price of natural gas, Illinois Basin coal (WKY) can be price competitive. • Powder River Basin has greater productivity per labor hour which enables the low commodity prices. • Coal production outlook looks to be flat but stable with Illinois Basin and Power River Basin showing some growth. • The amount of permanently abandoned or temporarily closed mines is increasing.

17. Electric Utility Industry Coal consumption, Energy intensity, Sales, Price, generation, emissions, and retirement

18. 2018 Kentucky Power Plant Coal Consumption by Source State (tons) *Data through November 2018 Source: Kentucky Office of Energy Policy

19. Energy Economic Indicators Kentucky Energy Intensity U.S. Energy Intensity and GDP Kentucky is on a downward trajectory for energy intensity of the production of goods and services. EIA estimates that the U.S. energy intensity of economic activities will continue to decrease.

20. Kentucky Net Electricity Generation & Retail Sales Net electricity generation increased in 2018. (Cooling Degree Days were greater than normal in 2018.Heating Degree Days were close to normal but higher than 2017).

21. Kentucky Retail Price of Electricity There is a slow narrowing of the gap but Kentucky remains competitive on average among all rate classes. https://www.eia.gov/electricity/data/browser/

22. While Kentucky electricity prices on average remain competitive nationally, there are differences between the rate classes regarding price. The commercial rate class of customers is approaching pricing to that of the national average. https://www.eia.gov/electricity/data/browser/

23. Kentucky Net Electricity Generation by Fuel Comparison https://www.eia.gov/electricity/data/browser/

24. Kentucky Electricity Sector Emissions

25. Kentucky Electricity Sector Emissions Source: Kentucky Office of Energy Policy

26. U.S. Retirement of Coal Generation Capacity https://www.eia.gov/todayinenergy/detail.php?id=37817andhttps://www.eia.gov/todayinenergy/detail.php?id=37952

27. Age of the Coal Generation Fleet https://www.eia.gov/electricity/data/eia860M/

28. KY Retirement of Coal Generation Capacity

29. Looking Ahead Exports and Production

30. U.S. Coal Exports • The top five destinations of U.S. coal exports and their shares of total U.S. coal exports in 2018 were: • India (15%) • The Netherlands(11%) • Japan(9%) • South Korea (8%) • Brazil (7%) https://www.eia.gov/coal/production/quarterly/

31. U.S. Coal Production Forecast

32. National Coal Council: Coal in a New Carbon Age • Utilization of domestic U.S. coal for coal-to-products applications has the potential to be on the same order of magnitude as that projected for coal power generation applications. • Coal-to-products markets create associated and additive economic and social benefits in the form of new mining and manufacturing jobs. https://www.nationalcoalcouncil.org/page-NCC-Studies.html

33. Conclusions • Increasing energy efficiency across end-use sectors is expected to keep energy consumption relatively flat, even as Kentucky’s economy continues to expand. • The power sector has and will continue to experience a notable shift in fuels used to generate electricity, driven in part by low natural gas prices but also includes larger shares of intermittent renewables. • Retirement of less economic coal plants will continue but will stabilize through 2030. • Kentucky’s coal fleet is younger on average than the rest of the U.S. coal fleet. • Coal production in Kentucky is likely to decrease through 2020 and then flatten through 2030. • U.S. metallurgical coal exports are expected to be stable through to 2030. • U.S. steam coal exports are not expected to increase until after 2030. • Coal-to-products is an emerging opportunity but requires support to realize the economic benefits.