Abundant natural gas is a game-changer for coal
The 20th century industrial might of the United States was fired with coal.
Its abundance, affordability, distribution, and BTU content made it an unrivaled resource to power the nation’s ambitions in every industrial sector.
Still today, coal fills furnaces and power plants and propels state economies. It’s no wonder that coal has admirers and promoters in every corner of Wyoming and in the corridors of elected power in Washington, D.C.
For more than a century, it’s been a king with no rivals.
But because of the amount of CO2 pollution it generates (barring major technological breakthroughs)—along with powerful new competitors, and the potential for energy efficiency—coal’s dominance is on the decline.
Coal is being challenged in the United States as never before, both in the marketplace and through regulation.
That combination should be a victory for those who truly favor an “all of the above” (diversified) approach to energy creation and use.
One challenge among many that the coal industry faces are recently proposed EPA regulations that would regulate CO2 emissions in new power plants.
The EPA’s proposed rules are a direct consequence of a Bush-era Supreme Court ruling that said the carbon emitted from burning coal must be regulated by the EPA as a greenhouse gas unless the agency can prove, scientifically, that CO2 does not contribute to climate change.
The EPA, with the mission of protecting human health and the environment, has determined that there is ample evidence proving that CO2 is in fact a greenhouse gas and that CO2 production as a result of burning coal for power is directly affecting climate change.
The agency says it will effectively prohibit the new construction of any coal-fired power plants in the United States unless those plants severely restrict CO2 emissions.
While it is technically possible to do so, the costs involved, according to many analysts, will price coal out of contention as a fuel for new power generation.
Depending on one’s point of view, the EPA is either a champion in the fight to clean up our environment or a political pawn being used to dethrone a powerful king.
Some who deny climate change argue that the EPA’s proposed regulatory regime will take the country back to the early 20th century, both in terms of lifestyle and culture.
Meanwhile, others believe that the EPA is not doing enough about greenhouse gases, quickly enough. Dethroning a king is never easy. But is it really the EPA that is doing the deed?
Perhaps, but from my vantage point, there are other potent factors that seem to be even more influential in this battle. The first among them is abundant natural gas and its potential to transform the U.S. energy marketplace.
Natural gas: A challenger like no other
Compare these round figures. It takes about a pound of coal to illuminate a 60-watt light bulb for a little more than 16 hours. The same bulb can glow for the same amount of time from electricity generated by 1,000 cubic feet of natural gas. At wholesale, the cost of the coal is about twice that of natural gas for the equivalent amount of electricity that can be produced (.0043 cents to .0022 cents).
To put it simply then, if you are an investor in a large investor-owned utility and this cost comparison is predicted to be relatively stable for the foreseeble future, which fuel are you going to demand that a CEO use when constructing new power generation?
It’s an easy answer for every power utility in the country and it has nothing to do with the EPA, climate change, or political influence. It is simply a matter of dollars and sense.
Need proof? Here is what one official with Duke Energy (which ranks 5th in the Fortune 500 list in its utilities sector) told Greenbiz.com about coal versus natural gas:
“This (the EPA) proposal means nothing to us,” said Tom Williams, director of external relations for Duke Energy. “Our carbon profile is going down. We’re shutting down 3,800 megawatts of coal and [the new plants] we’re bringing on will replace that with lower carbon emissions.”
Closer to home, it has been reported that Rocky Mountain Power will convert part of its Naughton Power Plant coal-fired generation to natural gas. In an interview with WyoFile, company spokesman, Dave Eskelsen, said:
“The cost differential between emission controls (for coal) and converting (to natural gas) is significant. It’s a better deal for customers.”
The trend to use natural gas is clear and can only gain in momentum as energy generators make decisions about how they will continue to meet their over-arching regulatory and shareholder obligations to deliver electricity to their customers safely, reliably, and at a competitive cost with a maximum return on equity to their investors.
While long-term pricing estimates are varied (but not remarkably volatile), the U.S. Energy Information Administration predicts relatively stable natural gas prices through 2013.
The EIA also “expects that large gains in electric power use will offset declines in residential and commercial use.” Coupled with “the relatively low capital requirements for building natural gas-fired combined cycle generation plants, as well as the reduction of emissions that can be earned from using natural gas as opposed to other fossil fuels, the EIA expects 60 percent of new electric generation capacity built by 2035 will be natural gas combined-cycle or combustion turbine generation.”
All of this reinforces the decisions that the large electrical energy production companies, including Duke and PacifiCorp are making.
Another challenger: Renewables
Of course there are other rivals to coal, too. Widespread deployment of renewables has reduced our tolerance of the carbon footprint of coal-fired electricity generation.
The parent company of Rocky Mountain Power, PacifiCorp, is Wyoming’s largest renewable energy generator; PacifiCorp is investing heavily in renewable projects in Oregon and the desert Southwest in order to meet its customers’ demand for clean, reliable, and affordable energy.
The company has also tried to find ways to mitigate its carbon emissions that contribute to climate change by helping to preserve 1.5 million acres of rain forest in Bolivia and Belize.
Even locally, individual energy users are selecting their own alternatives to coal by installing rooftop solar panels and backyard wind turbines. Wyoming companies that specialize in such installations are struggling to keep up with demand even as they expand into neighboring states.
What about conservation?
Conservation (and its partner, efficiency) are challengers to coal’s dominion, too. Take this report from just three years ago by McKinsey & Company which says the country can save $1.2 trillion dollars in wasted energy costs and reduce consumption by 23 percent by 2020 with an investment of only $520 billion (that sounds like a rate of return any investor should welcome).
As an added bonus, McKinsey predicts an annual abatement of 1.1 gigatons of greenhouse gases—or roughly one-third of the annual anthropogenic CO2 production in the United States.
Why King Coal is really on the ropes
At least in this country and absent any major technical achievement, the beginning of the end for coal is here.
- Natural gas is cheap, abundant, and in comparison to coal, has a smaller carbon footprint.
- According to the U.S. Energy Information Administration, renewables are earning an increasing share of the nation’s energy production portfolio. In 2000, renewables met about 8.5 percent of the country’s energy needs. Last year renewables accounted for close to 12 percent of our energy requirement; most of this came at the expense of coal.
- Conservation and energy efficiency are strong and with the right kind of leadership (from both directions—top down and bottom up) might help dethrone King Coal, too.
Say what you will about the EPA and regulation but it’s really the market and competition that is deciding the fate of King Coal in this country.
Absent any technological breakthroughs that reduce coal’s carbon emissions and make it cost competitive, its dominance is ending.
For those who really believe in an “all of the above” and diversified approach to energy creation and use, that has to be a good thing. And although there is still a lot of work to be done to really put a dent in climate change, a diminished appetite for coal is not bad for the environment either.
Richard Garrett can be reached at email@example.com or 307-332-7031