This past Sunday I saw a very interesting commercial about clean coal. A group called, Thisisreality.org ran the spot during Meet The Press. Essentially, the ad calls out the coal industry for touting clean coal technology – which doesn’t actually exist in the U.S. Here’s a link to the clip if you haven’t seen it.
Now while I certainly enjoyed the ad, there’s only so much that can be said within 30 seconds. So in an effort to shed some light on the realities of coal – both environmental and economic – allow me to show you why coal-fired power plant operators are about to begin a long swim upstream against the backdrop of new climate change legislation and expedited depletion.
The Days of Cheap Coal are Over!
You’ve probably heard many times before that the U.S. boasts a 250-year supply of coal. But what you probably have not heard is that this 250-year supply quote is based on USGS estimates from the 1970s. If you look at the most recent 2007 USGS estimates, you’ll find we have much less than previously reported.
According to a National Research Council report – which was mandated by Congress in 2007 – we may only be looking at about 100 years of remaining coal. Check it out…
” It is clear that there is enough coal at current rates of production to meet anticipated needs through 2030, and probably enough for 100 years. However, it is not possible to confirm the often-quoted assertion that there is a sufficient supply for the next 250 years.” — National Research Council, June 20, 2007
By the way, this is based on current rates of consumption. If we somehow end up using more coal to meet a growing demand, that rate of consumption could be much higher. And don’t forget exports either. A recent note from an analyst at Friedman Billings Ramsey indicated that U.S. net coal exports are likely to rise 300 percent for the 2008/2009 shipping period. My friends, with that kind of export growth, we could easily see that 100-year supply dry up even faster.
But wait, there more!
Thanks to CO2 mitigation initiatives and climate change legislation that – whether you like it or not, IS going to happen – the cost of coal-fired generation is about to increase dramatically. And investors that prefer partisan loyalty and the fat belly laughs that come with mocking clean energy, instead of focusing on the consequences of ignoring this reality, are going to miss out.
Bottom Line: In the very near future, carbon-intensive energy generation will be hit with heavy carbon offset costs. And that’s going to force coal-fired plant operators to pay a damage bill that, until now, they’ve been able to avoid like the plague. Of course, this is really how it should be anyway. After all, as most of us learned at a very young age, if you make a mess, you clean it up. It is not the responsibility of anyone else, but you. So if a coal-fired power plant spews millions of tons of CO2 into the air every year, is it not the responsibility of the operator of that plant to foot the damage bill? Or should we expect the taxpayer to pick up the tab for that too? Why not? It seems like those guys in DC are doing a heck of a job throwing our tax dollars around like drunken rappers on a video shoot.
Sarcasm aside, these carbon costs are going to add up fast. For instance, while a 1,600 MW coal-fired power plant could run you about $2.9 billion upfront (based on the cost of Peabody Energy Corp’s newest coal-fired power plant in Souther Illinois), the CO2 bill for an estimated 40-year lifespan will run almost as much as the initial construction costs.
According to the Union of Concerned Scientists, a typical coal plant generates 3.7 million tons of CO2 per year. Based on the current international price on the Chicago Climate Exchange of about $16.50 per ton of CO2, you’re looking at a bill of more than $61 million per year.
Multiply that by 40 years, and we can go ahead and tack on another $2,442,000,000 onto that original $2.9 billion price tag…giving us a new total of more than $5.3 billion.
And by the way, that $5.3 billion is still being extremely generous.
There are a few more issues that still aren’t being accounted for.
For instance, a typical 500MW coal plant…
* Draws about 2.2 billion gallons of water each year from nearby lakes and rivers. (That’s enough water to support a city of approximately 250,000 people)
* Generates 170 pounds of mercury. And it only takes 1/70th of a teaspoon in a 25-acre lake to make fish unsafe to eat. Enjoy that freshly-caught trout on your next fly fishing trip!
* Relies on the transportation of coal. A cost that will continue to remain volatile as long as the price of oil remains volatile.
While it’s easy to get caught up in the environmental issues associated with coal-fired generation, the economic impact tied to those environmental issues cannot be ignored or glossed over. Especially if you invest in energy. Now I’m not saying coal-fired generation is going to disappear anytime soon. But investors would be wise to follow the trail of climate change legislation closely, as it will certainly provide many headaches for coal-fired power generators – and many rewards for renewable energy investors.