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Is King Coal’s Demise Exaggerated? Energy Risk Management Suggests...

Posted by Dennis Vegas on Aug 9, 2013 9:04:00 AM

With President Obama directing the Environmental Protection Agency (EPA) to implement policies to curb emissions from coal fired power plants, the Mercury and Air Toxin Standards (MATS) rule taking effect and continued low prices, it has become uneconomic for older and smaller coal plants to install environmental controls. Between 2013 and 2016 approximately 40,000MW of coal generation will be retired.

The case for the end of the coal-fired power era

There are numerous reasons  why many think that coal fired generation is going the way of the dinosaurs.  In terms of pollutants issued per megawatt hour of energy produced, coal is the key culprit. According to the EPA, for every megawatt hour produced, the average coal plant belches out 2,249 pounds of CO2, 13 pounds of SO2, and six pounds of NO2.  By contrast, the typical natural gas fired plant only emits 1,135 pounds of CO2, 0.1 pounds of SO2, and 1.7 pounds of NO2 per megawatt hour generated.  Clearly, natural gas fired generation produces lower levels of pollutants than coal and with the recent concerns about the impact of power generation on the environment, there are likely to be additional pressures brought to bear on coal fired generation. 

In addition, natural gas prices have fallen considerably over the past several years, making natural gas fired power plants economically cost competitive with coal plants.  While the actual costs vary around the country, the decreased cost competitiveness of coal fired power makes it an increasingly less attractive fuel source for power generation.

Finally, the age of most coal plants in the U.S.  according to data compiled from the Energy Information Administration (EIA), the average age of coal plants in the U.S. is almost 50 years.  Like any other machine, as these coal plants have aged, they have  become increasingly less efficient, meaning that they require more fuel to produce the same amount of electricity.

The case for continuing coal

There are multiple efforts under way to reduce the environmental impact of coal fired power.  According to the Institute for Energy Research, NOx emissions from coal plants decreased 70% between 1980 and 2006.  This suggests that even though coal still emits significant amounts of pollutants, its performance is improving.  The reduction in environmental impact comes from technological advances, such as scrubbers, particulate collectors, and improved cooling towers. In sum, the owners of coal plants are taking actions to reduce the environmental impact of coal generation.

With electricity provided by coal plants continuing to enjoy an advantage over natural gas fired units from a cost standpoint, the demise of coal may be a bit pre-mature.  In fact, in its 2013, energy outlook, the EIA estimated that coal will continue to be the primary fuel generation source until at least 2040.  Coal’s market share has decreased from 51% in 2003 to 41% in 2011, and is projected to be 35% in 2040.

What this means for end users

While there are coal plant retirements occurring at a record pace, those proclaiming the end of the era of King Coal are being a bit pre-mature.  From an energy procurement risk management perspective, it is easy to get caught up in the proclamations that coal plants are on their way out.   However, in the foreseeable future, the U.S. will continue to rely on coal fired power plants that provide affordable and reliable power suppliers.  Eventually, we expect to see shifts in the generation mix of several markets as coal generation loses market share to other fuels. Not only Coal, but also, Nuclear and Renewable Capacity will be affected by future natural gas prices. Therefore, understanding regional market fundamentals is essential in developing smart energy risk management practices.

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Topics: energy risk management, energy procurement, PJM Energy, energy regulations


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