Coal & America s Energy Future

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1 National Conference of State Legislatures Nov. 20, 2008 Coal & America s Energy Future Mike Quillen, Chairman & CEO Alpha Natural Resources, Inc.

2 Today s discussion First a little bit about Alpha Headquartered in Abingdon, Virginia Went public in Feb. 2005; listed on NYSE (symbol: ANR) 62 mines (more than any other U.S. coal company), 11 coal preparation plants & 3,800 employees in 4 states About $2 billion in annual revenues Supply about 30 million tons coal a year to approx. 120 customers Largest U.S. producer & exporter of metallurgical coal for the worldwide steel industry Also a major supplier of thermal coal to electric utilities

3 The basics : how is coal mined? Primary Underground Mining Methods

4 The basics : how is coal mined? Primary Surface Mining Methods Truck & shovel Truck & loader Dragline Auger Highwall miner

5 Coal: a case for energy security Coal is the most abundant energy resource in the United States. The U.S. has more than 270 billion tons of recoverable coal, enough to fuel the nation s energy needs for 240 years at the present consumption rate. U.S. Fossil Energy Reserves Btu Basis Coal 94% Petroleum 3% Natural gas 3% Source: BP; Energy Information Administration

6 Master Header Coal provides low-cost electricity Cost per kwh & Percentage of Electricity Generated by Coal, by State % % = average retail price per kilowatt hour, 2007 % = percent of total generation from coal, % % 5.1 0% % % % $ % % % 6 94% % % % $ $ $ % % % % % % % % % 36% % % % 56% % % % % % % % % % % % NH % VT % MA % RI % CT % NJ % DE % MD % % % < 8.0 > > 10.0 Hydro SOURCE: Energy Information Administration, March 2008

7 Energy costs : coal vs. other fuels Electric Utility Fuel Price Increases, $28.3 $101.5 $110.5 SOURCE: U.S. DOE/EIA (November 2007)

8 Master Header Energy costs : an unequal burden Family Energy Costs as % of After-Tax Income, % 20% 19% 15% $43.9 $ % 10% 11% 8% 5% 5% $101.5 $ % 0% Under $50K/yr Over $50K/yr SOURCE: U.S. DOE

9 Master Header Energy costs : coal vs. other fuels 140% 120% Change in Household Energy Expenses By Fuel Source to % 100% 80% 60% 40% 20% $ % $ % $101.5 $ % 51% 0% Electricity Natural gas Fuel oil Propane AVERAGE Costs by fuel are averages for households using that type of fuel. SOURCE: Americans for Balanced Energy Choices

10 If not coal then what? Percentage of Electricity Generation, by Fuel Type NAT GAS 19% HYDRO 7% OIL 2% RENEWABLES/ OTHER 2% COAL 50% NUCLEAR 20% Replacing 50% of the fuel used to power America is not feasible in the near term. SOURCE: U.S. Energy Information Administration; National Mining Association

11 Master Header If not coal then what? Federal Subsidies by Resource Per Megawatt Hour Produced Natural gas $0.25 Coal $0.44 Hydroelectric $0.67 Nuclear $1.59 Wind $23.37 Solar $24.32 Cost of renewables is expensive, meaning states have to mandate use (RPS) and the charge gets hidden in utility bills. SOURCE: U.S. Energy Information Administration

12 Master Header If not coal then what? Source Nuclear Solar Wind Transmission Challenge plants needed by 2030 just to maintain contribution Credit crisis may stall development Best technology today is expensive and only 40% efficient Big issues with power storage, polysilicon supply Wind generators typical output is only 25-35% of rated capacity An energy source rather than baseload capacity resource High voltage projects can take years from design to construction In Southeast (SERC), large # of proposed power plants are in areas with inadequate transmission SOURCE: North American Electric Reliability Corp.

13 Electricity demand is increasing U.S. Electricity Consumption vs. GDP (Actual / EIA Forecast ) TwH NOTE: FORECAST ASSUMES THAT THE REAL PRICE OF ELECTRICITY REMAINS FLAT SOURCES: (1) Actual EIA, CEA (2) Forecast: EIA 2007 Reference Case. US GDP ($B 2000) Electricity demand grows with the overall economy and should continue doing so.

14 Master Header Our electric grid is in peril Energy demand is growing faster than supply Oil use is up 15% since 1973 energy crisis but electricity use is up 115% Peak demand for electricity in the U.S. is projected to increase by more than 135 Gw (17.7%) in the next 10 years, while committed resources are projected to increase 77 Gw (8.4%) leaving capacity margins dangerously low Baseload generating capacity margins dropped to 17% last year from 30-40% in the early 1990s California, other areas face potentially crippling blackouts as early as next year America s electric reliability is squarely at risk. SOURCE: North American Electric Reliability Corp.; NextGen Energy Council; Forbes magazine

15 Master Header Our electric grid is in peril Forecasted U.S. Electricity Capacity Margins Available Capacity Margin SOURCE: North American Electric Reliability Corp

16 Master Header Our electric grid is in peril We re to the point where we need every possible resource: renewables, demand response and energy efficiency, nuclear, clean coal you name it, we need it. Rick Sergel, President North American Electric Reliability Corp.

17 Coal : our challenges But America s most abundant and economical source of electricity faces numerous challenges

18 Coal : our challenges Mine productivity is steadily declining Costs are steadily rising 50,000 new miners are needed over the next 10 years Regulatory oversight has intensified Permits are difficult to obtain, and costly

19 Master Header Challenge : permitting Mining Permit Circa 1983 Prep time: ~ 6 Months Cost: ~$10,000

20 Master Header Challenge : permitting Mining Permit Circa 1983 Mining Permit Circa 2005 Prep time: ~ 6 Months Cost: ~$10,000 Prep time: 3 + Years Cost: ~$750,000

21 Challenge : the environment Federal Environmental Laws That Govern Coal Operations Clean Air Act Clean Water Act Safe Water Drinking Act Solid Waste Disposal Act Federal Land Policy and Management Act Surface Mining Control and Reclamation Act Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Toxic Substances Control Act Resource Conservation and Recovery Act Migratory Bird Treaty Act Endangered Species Act and then there are state regulations.

22 Coal : our challenges Mine productivity is steadily declining Costs are steadily rising 50,000 new miners are needed over the next 10 years Regulatory oversight has intensified Permits are difficult to obtain, and costly Carbon regulation is on the way

23 Master Header Carbon legislation is on the way Newsweek magazine April 28, 1975 There are ominous signs that the earth s weather patterns have begun to change dramatically. after three quarters of a century of extraordinarily mild conditions, the earth s climate seems to be cooling. satellite photos indicated a sudden, large increase in Northern Hemisphere snow cover in the winter of Others regard the cooling as a reversion to little ice age Some of the more spectacular solutions proposed (include) melting the arctic ice cap..

24 Carbon legislation is on the way The Virginia Energy Plan sets out four broad energy goals for the Commonwealth over the next 10 years: 1. Increase energy independence Virginia is a net importer of energy Increase Virginia indigenous energy production by 20% Reduce growth rate of energy use by 40%, with a focus on energy conservation 2. Expand consumer energy education Overcome barriers to energy efficiency and conservation actions Goal of 10% reduction in electricity use from such actions 3. Increase energy R&D Alternate fuels Nuclear technology Coastal energy production Carbon capture & storage (CCS) 4. Reduce greenhouse gas emissions 30% by 2025 Reduce emissions to 2000 levels Plan to be developed by Governor s Commission on Climate Change

25 Carbon legislation is on the way President-Elect Obama Supports cap-and-trade system to cut U.S. carbon dioxide emissions 80% below 1990 levels by % of emission credits auctioned. Provide incentives to accelerate private sector investment in clean coal technology. Instruct DOE to develop 5 commercial-scale coal fired power plants with carbon capture & storage.

26 Concluding thoughts about CCS Industrial scale CCS has been commercially deployed : StatoilHydro (Norway) has been operating more than 12 years Power station projects in Germany and France will be operational shortly commercial scale CCS power plans expected in Europe by 2015 The European Commission estimates that the cost of meeting its climate change commitments to 2030 would be 40% higher (60 billion Euros) if CCS is not included in the response. The Pew Center estimates that building 30 CCS demonstration projects would save the U.S. $ billion in subsequent CO 2 mitigation costs.

27 Concluding thoughts about CCS 2007 MIT Study The Future of Coal We conclude that CCS is the critical enabling technology that would reduce CO 2 emissions significantly while also allowing coal to meet the world s pressing energy needs.

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