Corporate responsibility watchdog, As You Sow, just released an update to their 2011 white paper on The Financial Risks of Investments in Coal. The paper identifies financial risks associated with both mining and burning coal that have come about as the result of emerging trends in the utility industry. These shifts are driving demand away from coal as its overhead costs increase even as the costs of alternatives, including both natural gas and wind, continue to fall. This trend is underscored by the recent bankruptcy filing of Patriot Coal.
The five areas noted in the paper include: regulatory risk, commodity risk associated with natural gas, commodity risk due to coal price volatility, construction risks, and the emergence of viable and cost competitive alternatives.
On the regulatory front, the passage of the Mercury Air Toxics Standard (MATS), which requires that generators be equipped with the Maximum Achievable Control Technology is having an impact. This technology can be expensive, but then, so can mercury poisoning. Analysts at the National Institutes of Health estimate the cost of mercury exposure at $8.7 billion annually, $1.3 billion of which is directly attributable to power generation. The white paper estimates that 75GW of coal capacity will be retired by 2030 rather than face the cost of upgrading equipment.
This is a positive step for all of us, but it is also exactly the kind of regulation that Governor Romney has said he would roll back since the impacts of mercury poisoning on human health and the environment fall outside the realm of jobs, energy independence and corporate profits that seem to be his primary focus. This kind of short term thinking is really not sufficient to guide our society as we move forward into an uncertain future. Regulations like MATS that track and control the wider ranging impacts of economic activities will continue to be essential. Sadly, because of the kind of narrow thinking has so dominated our airwaves and arm-twisting activities of corporate lobbyists, we still lack the ability to effectively deal with greenhouse gases of which coal emits twice as much as natural gas.
Speaking of which, natural gas at $6.50 per million Btu (MMBtu) is competitive with coal. Last week, the price was $3.43. Not only that, the efficiency of a combined-cycle gas power plant is about 25 percent higher than that of comparable coal plants. Why would any utility, given the choice of gas or coal, choose coal? That is why generation from natural gas is up from 16 percent of total power production in the year 2000, to 25 percent last year, while coal declined from 52 percent to 42 percent in the same time period.
Then there is the price volatility of coal. A shift in coal production from Central Appalachia to the Power River Basin (PRB), in Wyoming has led to price increases due to, among other things, the extra transportation distance from major markets, as well as the lower energy content. Another factor impacting prices is the growing amount of coal that is being exported. In the four year period from 2007-2011, PRB coal exports to Asia grew from 1 million to 4.7 million tons. This increased demand also raised prices. Should China switch from coal to natural gas as they intend, there would be a dramatic reduction in GHG emission growth, though the price of gas would go up and coal would go down. China is planning to increase their use of gas from 4 percent to 10 percent by 2020 which should reduce their emissions by 17 percent.
Construction costs for coal plants are also going up. Both new construction and major upgrades trigger new source review laws which require more stringent environmental controls. In a nutshell, putting coal plants on a equal footing with renewables in terms of managing their adverse impacts on nature and society, also puts them on a more equal footing in terms of cost. The cost of Duke Energy’s Edwardsport IGCC plant nearly doubled from $1.985 billion to $3.3 billion since construction began.
Finally, there are the renewables coming on strong. According to Lazard’s Levelized Cost of Energy, wind power, biomass and geothermal, are all significantly cheaper in terms of $/MWh than coal, or any of the conventional energy sources, for that matter, except for combined cycle gas, which is only slightly more expensive than renewables. Wind power comprised 32 percent of all added generation capacity last year, while installed solar grew by 109 percent.
None of this even touches on the disastrous environmental damage associated with coal extraction techniques such as mountaintop removal mining.
The bottom line is that using coal for power generation no longer makes economic sense for anyone who doesn’t have his head in the sand. It also doesn’t make any sense at all for anyone who is concerned about climate change.
There does seem to be some renewed interest in coal as the result of a potential resurgence in the domestic steel industry.
I think it is safe to say that the American economy has begun to demonstrate the kind of innovation and flexibility that is allowing us to stay in business as we move away from the kinds of energy sources that threaten our future. We need to move faster still in our transition away from fossil fuels and to embrace both conservation and efficiency, but at least we have begun moving in the right direction.
[Image credit: Larry Myhre: Flickr Creative Commons]
RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining format. Now available on Kindle.