Another Assault on Coal, Another Push to Natural Gas
This week, the Environmental Protection Agency (EPA) again gave notice that it intends to curb non-carbon emissions at U.S. power plants.
I addressed these new rules five months ago in “Two Non-Carbon Regulations About to Rock the Coal Sector,” October 29, 2010 – well before the EPA made its public move. As I said at the time, my contacts in the power generation sector considered these non-carbon developments far more serious than limits on carbon emissions.
At the center of the storm are substantial reductions in mercury, sulfurous, and nitrous oxide emissions.
Coal as a fuel is again coming under attack in the U.S.
The move has hardly caught the industry unaware. Larger utilities have been reducing this kind of environmentally hazardous polluting for some time now.
What is now facing coal-fired plants, however, is the prospect of either retrofitting existing facilities with counter-measures… or closing them entirely.
There will certainly be some concerted conversations about the time scale. But nobody in the coal sector seriously disputes the validity of the pollution findings or, for that matter, the necessity of the adjustments.
As this tug of war continues, meanwhile, the progressive move to cleaner-burning natural gas as the primary source for electricity production continues to intensify.
Let’s take a look at why.
The Current Situation
About half of the nation’s electricity comes from more than 400 coal-fired plants spread across 46 states.
According to the EPA, about 44% of the coal-fired plants in the country currently have no pollution control equipment. That results in about 380,000 tons of these pollutants spewing from the plants annually.
Mercury emissions tend to localize heavily where the coal-fired plants are most dominant and affect children most acutely, although harmful effects extend for hundreds of miles around each plant. Preliminary data indicate that, every year, at least 17,000 deaths and 11,000 heart attacks can be directly linked to the mercury emissions alone.
The emission restrictions at issue are extensive. They require a removal of 90% of mercury emissions by 2015, along with 80% of sulfurous oxides and 52% of nitrous oxides by 2018.
Cutting this amount of emissions is tantamount to transfiguring the entire electricity generation grid… in less than a decade.
It is that four-year window on mercury, however, that has the industry most concerned.
What I Am Seeing
First, more than 60 gigawatts (GW) of capacity will be coming off the grid by 2020 – more than twice as much as was retired in the decade from 2000 through 2010. Since the new rules begin their phase-in less than a year from now, power companies must make decisions now based upon the harsher emission limits.
Second, we will experience an even greater movement to natural gas and renewable energy as sourcing for new power plants. In fact, moving forward, there is now not a single co-fueled facility (one that can use both coal and gas) on anybody’s agenda.
The result: We can expect natural gas to replace more than 20% of coal in the generation of electricity in the next few years, translating into the need for some five billion cubic feet a day of gas by as early as 2015.
This explains the rapid increase in gas extractions at unconventional fields (shale gas, tight gas, coal bed methane) – even despite the present market’s depressed prices. There is shortly going to be a hefty increase in domestic demand, and everybody in the industry knows the sourcing of that increasing demand.
My Evaluation of the Impact (It Is Extensive)
These new standards will apply to 31 states and the District of Columbia. That makes for a considerable impact.
Even in those states where the rules will not apply (at least initially), interstate power transmission lines will still extend the EPA’s jurisdiction.
When I first talked about this issue here last October, I predicted that generating plants in 17 states would close as a direct result of the new standards. This will translate into a much greater amount (than the 60 GW already announced) of existing generating capacity coming off-line by 2020.
My latest estimates put the generating capacity moving off-line at 15% above the levels I concluded five months ago and now directly resulting in closures in 19 states instead of 17.
The result is a rapid acceleration in natural gas as a fuel source and the continuing overall decline in the use of coal.
But this is hardly happening across the board.
Coal will still comprise a significant ingredient in power production in those regions where:
- the concentration of coal-only electricity generation is too great to allow a short-term transition; and
- movements are already in place to improve the situation.
And that means some of the larger providers are in the center of this issue. Primary among them is American Electric Power Co. (NYSE:AEP), whose Virginia/Appalachia network is 84% coal-fired.
In a report issued Wednesday, the Environmental Defense Fund has identified three AEP plants – one each in Ohio, Indiana, and Texas – as among the 25 leading emitters of mercury in the country.
In response, AEP has initiated its own remedial program. Since 2000, the company has reduced mercury emissions by 36%, sulfur dioxide by 63%, and nitrogen dioxide by 79%.
Yet this comes at a significant cost, both to AEP and consumers. Estimates put the price tag at well over $2 billion over the past five years for Virginia-Appalachia alone. Those costs are largely passed on to consumers via increased rates.
And that is where the next stage of these developments will play out.