Coal Takes a Blow, but Not Down for the Count

It finally happened; on Dec. 21, 2011, the U.S. Environmental Protection Agency (EPA) released the finalized Mercury and Air Toxics Standards, now commonly called MATS, limiting mercury emissions from coal-fired power plants. In addition, the rule limits several hazardous air pollutants, including lead, arsenic, hydrogen chloride, hydrogen fluoride and dioxins/furans. Environmental groups are elated. Many people who aren’t even passionate about the environment are happy about this rule. They assume that less of any toxin in the air is a good thing. I’m sure they’re right. Many of these same people, however, don’t understand that their electric bills almost certainly will increase because of this new rule. Proponents of the rule claim that other expenses incurred by individuals and governments, especially health care costs, will decrease much more than electric bills will increase. Time will tell if Americans’ health improves and, if so, if the improvement is enough to reduce health care costs.

It won’t take long, however, to determine if power generation costs will increase. I haven’t heard one person in the electricity industry say they won’t. Predictions about how much it will cost to comply with the new rule vary. Power generators are deciding whether to retrofit their coal-fired power plants to meet the new MATS rule or retire their plants and build new capacity. Either way, they must spend money, which could mean they’ll have to raise rates. ScottMadden’s latest “Energy Industry Update” released in November 2011 predicts that retrofitting a large coal unit will cost about $800 per kilowatt, while retrofitting a marginal coal unit will cost from $1,700 to $2,400 per kilowatt. The same report predicts that a new natural gas-fired combined-cycle power plant could be built for $800 to $1,000 per kilowatt. This, along with a natural gas price hovering around $2 per million Btu could explain why many power generators have already announced that they will retire some of their older, less efficient units. In some areas, wind generation also will replace retired coal-fired capacity.

Many people, especially proponents of the MATS rule, assume that coal’s position as the No. 1 fuel for electricity generation will soon be history and cleaner fuels, such as natural gas and wind, will take its place. These people might be surprised if they read the latest from the U.S. Energy Information Administration (EIA). The EIA released the “Annual Energy Outlook 2012 Early Release Overview” in late January. It’s not surprising that the EIA predicts coal consumption for electricity generation will fall off through 2015 as coal plants are retired. The “Early Release Overview” says, “Over the next 25 years, the projected coal share of overall electricity generation falls to 39 percent, well below the 49 percent share seen as recently as 2007, because of slow growth in electricity demand, continued competition from natural gas and renewable plants, and the need to comply with new environmental regulations.” This fall to 39 percent, however, is not enough to dethrone coal as the top fuel for electricity generation. Even in its leanest year, coal is still well ahead of all other fuel sources for electricity generation.

I created a table from the latest EIA data to give you a better picture of its electricity generation fuel mix prediction thought 2035. I’m not surprised that coal is still on top. It is, after all, an abundant and, even now, relatively low-cost fuel capable of creating reliable electricity, which is something consumers want and the U.S. needs. I suspect proponents of the MATS rule and other strict environmental regulations pertaining to coal-fired power plants might be surprised and disappointed by the prediction. The MATS rule might have dealt coal a serious blow, but it is still far from being down for the count.

Teresa Hansen, editor in chief

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