Predictions show steam coal demand rising to 1,123 million tons in 2015, but this period will be followed by a decline to 1,101 million tons in 2020. That later drop hinges on U.S. Environmental Protection Agency (EPA) factors, which are expected to affect efficiency, cost and price for coal-fired generation.
Although restructuring has made coal more appealing in the short term because of economic viability, potential costs to reduce emissions and extract utilities from legal entanglements (EPA has already taken some legal action to force the addition of scrubbers) could make investment in coal-fired plants risky. If the EPA is successful in its efforts, those restrictions could make even existing coal-fired plants run in the red, forcing shutdowns or gas conversions, along with other possibilities-none of them coal positive.
Overall costs at contemporary plants are currently low enough to cushion the added expense of new emission-control equipment, allowing the plants to still be contenders in a competitive electric marketplace-which means that the demand for steam coal should continue to rise steadily for the next decade. However, natural gas is gaining ground.
Gas is the prime fuel of choice for new plants. Even though coal is still cheaper on the operational level, gas is initially more cost effective-in terms of construction factors. Plus, it’s flexible, efficient and has lower NOx and SO2 emissions.
Although EPA legislation is creating havoc in the area of emissions controls, many coal properties are available with very attractive operating costs, making expansion and acquisition still viable to many U.S. coal producers. Improvements in production and capacity have made coal even more cost efficient. The bottom line: nothing is cheaper than coal. It makes more money for many utilities, and, like one of Newton’s laws, it will continue to do so until acted upon by a greater force-namely the EPA.
Like demand, coal prices are expected to fall as well. Unlike demand, this trend is nothing new to the coal industry; low costs plus more productivity have been contributing to a falling price since the 1950s. The cost of adjusting to increasing environmental restrictions seems to be the only factor that could elevate prices, but Phase 1 of the 1990 Clean Air Act Amendment (CAAA) had only a moderate impact since the supply was easily met by the coal industry, resulting in very little price flux.
Phase 2, effective this year, has created only a small jump in Central Appalachian compliance-coal demand. Prices shouldn’t follow since expected expansions in sulfur limitations by the EPA will shift the demand pressure from compliance to low sulfur in the near future-adding pressure to the Powder River Basin (where most low sulfur coal is mined). Their prices are expected to increase a modicum in response, but no spikes are forecast.
In the end, both demand and price variations rest in the hands of the environmental legislation on the horizon. CAAA has indeed made significant changes in types of coal in demand, and it is expected to be the major blow to coal’s cost-effectiveness. Plus, new ozone National Ambient Air Quality Standards (NAAQS) resulting from CAAA could add strain to coal-fired utilities since they tighten the emission limits even further than Phase 2. (The included table from the GRI report projects utilities’ plans for complying with acid rain legislation for the next five to 10 years.)
However, the major environmental stumbling block seems to be the Kyoto Protocol, a 1997 agreement to fight CO2 emissions in developed countries. Although accepted at the conference, it has yet to be ratified by the Senate-and that may never happen. Concerns about economics and the science of global warming continue to stall possible legislation, and assuming that gas-fired plants are the only viable replacements for defunct coal plants, utilities will have reliability problems looming on the horizon. If passed (and without a major, as-yet-unforeseen technological breakthrough in cutting CO2 emissions), the ratification of the Kyoto Protocol could affect the consumer, which the electric industry has been trying desperately to avoid.
“So, the analysis of the Kyoto Case without International Offsets is simple. Sometime around 2011-2012 time frame, coal shipments to the electric utility industry cease and the U.S. still experiences brownouts and blackouts,” the Hill and Associates study states.
The GRI study, “Coal Outlook and Price Projection,” is available by contacting Kelly Murray at GRI’s baseline center in Arlington: (703) 526-7832 or baseline@GRI.org.
Barging South of the Border
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The Esperanza is the largest vessel of its type ever built in the U.S. and consists of a self-contained power plant capable of producing 124 MW, housed on a deck barge. Powered by seven 25,000 hp MAN B&W diesel engines, the power barge is owned by PQP Limited, a joint venture between Enron and Centrans Energy Services, a consortium of Guatemalan and foreign investors. Cascade General, Portland, Ore., completed construction and trials for the barge’s delivery in May to Guatemala. Photo courtesy of Cascade General.