The War on Coal – Round 2

Issue 11 and Volume 116.

By Russell Ray, Managing Editor

During his first four-year term, President Barack Obama’s policies compelled power producers to plan the retirement of 15 percent of the nation’s coal-fired generation capacity and killed the scope for building new capacity fired by coal.

What does a second term mean for the most important segment of the U.S. power sector?

It means regulators at the Environmental Protection Agency will get their chance to follow through on new regulations that stifle coal and give power producers fewer options to meet demand with affordable electricity.

It means an army of EPA staff will be unleashed to quickly finalize the first greenhouse gas standard for power plants, a standard that precludes the construction of new, cleaner-burning coal-fired plants and discourages investment in clean-coal technologies.

It means the Obama-run EPA will be expanding its anti-coal agenda by proposing a greenhouse gas standard that targets existing coal-fired generation. It means ultra-supercritical coal-fired power plants – a low cost, low emission and highly efficient source of power – won’t be given a role in meeting demand and maintaining reliability.

According to one study, it means compliance costs will exceed $200 billion and consumers will pay up to $67 billion more for electricity.

Obama Obama’s plan to discourage new coal-fired generation and phase out existing coal plants is as irresponsible as Germany’s decision to exit nuclear power. It is a dangerous plan that relies on cheap natural gas and intermittent sources of expensive renewable power.

The EPA’s New Source Performance Standard would limit CO2 emissions from new power plants to 1,000 pounds per MW. The average coal plant emits 1,768 pounds per MW. The average gas-fired plant emits 800 to 850 pounds of CO2 per MW. The NSPS essentially requires all new power plants fueled with coal to install a carbon capture and storage system, a risk that no utility is willing to take due to the cost, the liability and questions about the technology.

“I think the EPA will be finalizing an NSPS for new power plants, probably by the end of this year,” said Todd Palmer, an environmental lawyer with Michael Best & Friedrick LLP.”I think the NSPS proposal is quite deliberate in attempting to phase out coal on new assets and to improve overall efficiency.”

Given another four years under Obama, the EPA is expected to extend limits on greenhouse gas emissions to the nation’s existing fleet of coal-fired power plants.

Once pollution control upgrades are made to existing coal units, the big fear is that these units will be declared by the EPA as a “new source” of CO2 emissions and thus required to comply with a new carbon standard.

“I do expect that during the second term, we will see a new NSPS standard for existing power plants that will focus on GHG emissions,” Palmer said.”There really is a deliberate policy at work here to develop regulations that discourage new coal and phase out existing coal.”

Achieving balance between economic concerns and environmental concerns should be the hallmark of all energy policy. In this respect, Obama’s power generation policies fail.

Meanwhile, the gap between gas prices and coal prices is widening. As a result, power generators are beginning to turn back to coal. The price of gas used to generate power will be about 22 percent higher in 2013, according to the Energy Information Administration. The average price of coal will rise just 1 percent next year.

This means total U.S. generation fueled with coal will rise from 37 percent in 2012 to 40 percent in 2013, according to EIA’s forecast (see the chart on pg. 236). The amount of power fired by gas will drop from 30 percent in 2012 to 27 percent in 2013.

The market is telling us that coal should play a starring role in this nation’s plan to meet the growing thirst for electricity. Without it, consumer costs will soar, reliability will suffer and jobs will be lost.

The EPA is fully engaged in its war on coal. Dig in. It’s going to be a long four years.