The U.S. Energy Information Administration’s (EIA) expectation that coal will overtake natural gas and reclaim its role as the leading fuel for power generation in 2017 is based on sound economics, experts told Hart Energy, but the bragging rights will be fleeting.
“Although all of what we’ve read about for the last several years was that coal is dying and natural gas is taking its place, the reality is that the amount of power in this country produced by coal remains very significant,” Charles D. McConnell, executive director of Rice University’s Energy and Environment Initiative, told Hart Energy.
“The other thing that people have not considered is that mere changes of 20 or 30 cents per MMbtu on natural gas dramatically changes the variable cost structure of electricity generated by a natural gas facility, whereas coal prices continue to decrease and coal availability continues to be quite robust because demand is down,” he said. “Generators that have a coal option are able to look at coal as a much more economically advantaged option. Without regulatory requirements to shut them down, they’re going to run those plants.”
Those regulatory requirements were detailed in the Obama administration’s Clean Power Plan, which would have shut down numerous coal-fired power plants in the U.S. The Trump administration’s review and potential repeal of the plan has spared those plants, Greg Haas, director of integrated energy research at Stratas Advisors, told Hart Energy, but it won’t spare the coal industry’s fate.
“It may be that coal overtakes gas for a brief while,” Haas said. “But note coal’s projected lead for 2017 is only in the tenths of a decimal point of 1% [31.3% vs 31.1%]. That’s a very tenuous lead if it actually comes about.”
Factors that create a short-term advantage for coal include:
- The relative value of coal (flat to down) compared to gas (rising prices on falling production and rising exports);
- The slow pace of permitting new pipelines to feed new gas turbine power plants either as a result of environmental opposition or a lack of a commissioner’s quorum at Federal Energy Regulatory Commission under slow congressional approval of appointees by the Trump administration; and
- A more favorable operating and economic environment for coal power plants given the Trump administration’s efforts to boost coal supplies and mining.
Haas said that Stratas Advisors’ analysis concurred with the EIA and projected that gas will regain and expand its lead over coal as a U.S. power generation fuel starting in 2018. He said he anticipates that gas production will ramp up when climate regulatory uncertainty dissipates and power and pipeline permitting accelerate.
But the economic advantage that natural gas enjoys over coal is not universal, even in the U.S.
“Natural gas across the country is not always that advantageously priced,” McConnell said. “People look at an aggregate across the country. You look at coal and the price of coal in one part of the country vs. another is pretty much the same and that’s the way it’s been for years and years. Natural gas prices are considerably different in different parts of the country largely driven by infrastructure and ability to supply. So natural gas average pricing doesn’t necessarily impact a specific area that’s considering a transition. In many of those instances today, the transition will happen slower, not faster.”
Long term, Haas believes that even clean coal power plants will not be able to compete against natural gas, given the economics in the U.S. The recent debacle surrounding Mississippi Power Co.’s clean coal plant, which suffered cost overruns in the billions and was told by state regulators to switch fuels to cheaper natural gas, is emblematic of coal’s decline.
McConnell, however, considers the failure of the Kemper County Energy Facility as an example of a flawed approach in which the costs of what was essentially a research and development commercialization effort were borne by the local customers.
“If you’re looking to develop, implement and commercialize transformative technology, the mechanism to do that is to not burden ratepayers in one area of the country but to actually spread that cost across the country so that it becomes a manageable way to promote and develop and commercialize new technology,” he said. “It’s very difficult to be able to build a first-of-its-kind facility on time on budget because you don’t really have a recipe to follow—you just do it as you go.”
The reality is that countries like China and India rely on coal for most of their electric power generation, McConnell said. If the U.S. is going to contribute to the global effort to reduce CO2 emissions, then developing and exporting carbon capture utilization technology is one way to accomplish that.
“As a leader in technology, our country bears a responsibility to promote technologies that can be exported overseas, that can make an impact on climate,” he said. “That can generate jobs and economic growth in our country by exporting that capability.”