Category Archives: Energy Policy

Regulations and Natural Gas: A Perfect Storm Hitting Coal in the U.S.

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The decline of coal generation in the U.S. has been written about extensively over the past year, and whether low natural gas prices or EPA regulations are to blame. So which is it? Are natural gas prices or regulations shuttering coal units? The answer is not that simple, and is dependent on the economic situation of each coal unit. Factors that influence the retirement, repowering, or replacement (with new natural gas-fired unit) decision include:

  • Unit characteristics: age, heat rate, type of boiler, and currently installed emission controls. A supercritical pulverized coal unit equipped with a scrubber and selective catalytic reduction (SCR) system has a different economic vulnerability than an unscrubbed, inefficient 50-year-old unit;
  • Capacity utilization of the unit;
  • Geographic location and delivered price of coal or natural gas – which takes into consideration infrastructure such as pipelines and rail networks;
  • Electricity market in which the unit resides, as different markets have different electricity prices, generating fleet profiles, and merit orders;
  • Reliability considerations and the valuation of ancillary services such as spinning reserves;
  • Projected fuel prices into the future;
  • Asset diversification and risk considerations;
  • Ability to retrofit or use some portion of the generating unit if repowered with natural gas;
  • Timelines for compliance;
  • Other regulatory permitting considerations including New Source Review.

Recently, a Duke University study attempted to tease out the interaction of natural gas prices and regulations by estimating the cost of coal-fired generation compared with natural gas-fired generation at different gas prices and under existing and pending EPA emissions standards. Under current standards and at current fuel prices, the study estimates that 9 percent of coal-fired plants are more costly to run than a median-cost natural gas plant, but even a modest increase in natural gas prices would make coal power the least-cost option. The influence of new emissions standards would make 65 percent of coal plants as costly to run as a natural gas powered plant, even with significant increases in gas prices. The study is useful for understanding the influence of regulations under different natural gas price scenarios, illuminating that this perfect storm of regulations combined with low gas prices will change the economics of coal-fired generation.

However, it is important to note what the study did not address: compliance decisions, retirements and replacement power costs. The competitiveness of coal with natural gas generation is regional and basin-dependent, with lower cost Powder River Basin coal (PRB) competitive with natural gas at lower prices than Appalachian coal. There may also be market shifts once some units retrofit with scrubbers to comply with the Mercury and Air Toxics Rule, as the demand for low-sulfur PRB (driven in large part by unscrubbed coal units) may decrease while demand for medium and high sulfur bituminous increases. Some utilities are also hesitant to overly rely on natural gas in their generation portfolio. This is due to the risk associated with supply disruption rather than concerns about price volatility. As some coal units retrofit to comply with regulations, while others retire and are replaced with natural gas capacity, the generating fleet profile and markets for coal and natural gas will change. One thing is certain, however: coal will no longer be the least cost source of electricity generation in the U.S.

The Staggering Cost of Addressing Climate Change

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Climate change took center stage this week as President Obama pledged that during his second term the U.S. would lead the transition to a more sustainable energy future. While the President’s address lacked any specifics, a study released this week by the World Economic Forum put a price tag on tackling climate change: $700 billion per year in new investments. The $0.7 trillion USD is an incremental investment – in addition to $5 trillion per year required for water, agriculture, telecoms, power, transport, buildings, industrial and forestry sectors to meet global population projections of 9 billion people under a business-as-usual (BAU) scenario. Not only does the additional $0.7 trillion need to be spent, but the $5 trillion must be “greened” to limit global temperature increases to 2°C. Currently, the report notes, that the BAU scenario investments are predominately in conventional, emissions-intensive technologies. The renaissance of coal power globally (while not in the U.S.) to meet growing energy demands as many countries abandon nuclear power means that BAU investments are going to be more carbon-intensive, not less.

So now for the good news: the required greening investments aren’t all in the power sector, which has been economically and politically difficult to move beyond fossil fuels. Energy efficiency investments for buildings and industry account for nearly 50% of the new green spending required, and transportation accounts for another 27% of new spending. In terms of total investment, greening these two sectors will get us halfway to the $5 trillion required. The maturation of enabling technologies for energy efficiency is encouraging, and improved battery technologies, fuel efficiency, and alternative fuels are poised to transform the transportation sector.

The study notes that investments in protecting access to water supplies remains uncertain. Indeed, the nexus of water and energy use has recently become a focus of scientific discussion. The impacts of climate change on water availability has not been sufficiently studied to make any quantitative predictions. Protecting safe water supplies for domestic, agricultural, industrial, and energy production needs to be a priority for all governments, which the World Economic Forum study highlights.

And what about the power sector? How can green investments offset the projected increased use of coal worldwide? Several prominent energy and climate groups, including the International Energy Agency (IEA), the Center for Climate and Energy Solutions (formerly the Pew Center on Global Climate Change), and the World Resources Institute have published on the vital importance of carbon capture and sequestration (CCS) to control carbon emissions from a world power sector dominated by coal. Carbon capture has been slow to deploy because of poor economics, and lack of policies to drive investment and adoption (whether that be a carbon tax, carbon cap, or other regulatory mechanism). It is important to note that in the U.S., the retirement and movement away from coal power has been due to low natural gas prices and expected compliance costs for new EPA regulations. With higher natural gas prices, as in some European countries, coal is more – not less – attractive compared to alternative energy sources. The study outlines the that private financing, rather than public funds, will need to drive greening investments.

Read the full World Economic Forum study: The Green Investment Report: The ways and means to unlock private finance for green growth.

Can the U.S. learn from other countries’ energy mistakes?

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Amidst a steady stream of coal unit retirement announcements and lip service given to the coal industry during U.S. presidential debates, some very interesting energy news has surfaced in other countries. News that policymakers should pay attention to. In Britain, energy regulator Ofgem (that’s the Office of Gas and Electricity Markets) has warned that the United Kingdom could face blackouts by 2015 as a result of coal and oil-fired power stations being phased out too quickly. Most telling, the regulator said that despite encouraging the building of lower-carbon power sources to bolster the country’s power structure, the “problems have not gone away.” Coal remained the dominant fuel in the UK over gas, due to low prices. Over in Germany, the government shuttered nearly half of the country’s nuclear stations, only to find itself relying on coal even more. While Germany wanted to commit to reducing greenhouse gas emissions by 40 percent by incorporating larger percentages of renewable energy, problems with grid instability surfaced during a summer which saw unprecedented use of wind power.  And of course who could forget the massive power outages in India, leaving 670 million people without electricity due to inadequate generating capacity, with some coal plants idling from lack of fuel. For a country that depends on coal for nearly 70 percent of its electricity generation, India has messed things up with policies that limited investment in energy resources and created inverted electric pricing schemes. In the aftermath of the Fukushima disaster, Japan planned to abandon nuclear power entirely, only to abruptly back off on that policy amidst criticism. Japan relies on imports for 80 percent of its energy needs due to lack of domestic resources, so replacing displaced nuclear capacity (which accounts for 30 percent of the country’s power generation) would only make that country more reliant on imports. Japan’s future energy plans remain vague, and no new reactors are planned at this time.

If we can learn anything from other countries, it is that providing reliable power economically is a balancing act. It is not wise to abandon any major domestic source of energy in haste. To do so risks increasing reliance on imports and compromising the stability of the transmission system. The economic consequences of walking away from nuclear, coal, oil, or natural gas would be severe, not just to those industries and its suppliers, but also to American manufacturing and businesses from higher energy prices, a strained electric grid, and brownouts. The U.S. has a chance to be the world leader in energy, deploying advanced coal technologies, new generation nuclear power, safe extraction of natural gas and domestic oil reserves, innovation in biofuels and bioenergy, and a modernized transmission network that effectively utilizes solar and wind energy resources. Or we will just repeat other countries’ hapless mistakes.

Sizing Up the Presidential Candidates’ Energy Plans

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Let’s start with the basics. Neither candidate has proposed an actual energy “plan” because doing so would involve difficult compromises, something that voters are adverse to during election time (and maybe any other time as well). Both “plans” are political marketing pieces that lack details and do not address key energy issues, but we’ll review them for face value.

No wordsmith here

“The Romney Plan For A Stronger Middle Class: Energy Independence” is mainly a collection of quotes from other sources. In fact, of the 10,164 words in his plan, only 2,452 words were written by the Romney campaign. The remaining 7,712 words are quoted from news reports, commentary, and a Citigroup analysis that is optimistic about U.S. energy reserves.

The Romney platform claims that EPA rules are causing regulatory uncertainty . The current confluence of regulations, some which have been promulgated and others that are still in proposed stage, are widely the result of various court decisions vacating rules and lawsuit settlements that bound EPA to produce revised rules in certain (overlapping) timeframes. So yes, there is a regulatory mess, but it is not solely caused by EPA. Romney’s plan to cap regulatory costs and impose minimum compliance timeframes is a step in the right direction, but the requirement that major regulatory actions (those with an economic impact greater than $100 million – which is extremely low in terms of industry-wide compliance costs) needing approval by both houses of Congress would mire regulations in more political uncertainty, not less.

Power for our homes and cars

Neither plan mentions electric transmission infrastructure, other than one mention of “a smarter electrical grid” in the Democratic platform. This is a glaring omission from Obama’s camp because integration of higher levels of renewables would necessitate transmission upgrades (and create jobs for that matter). In fact, it is simply technically inconceivable how the U.S. could get 80 percent of its energy from “clean” sources without expanding transmission infrastructure….unless the plan is simply to repower all coal with natural gas. More on that in a minute.

Both plans forget about any non-fossil transportation fuels and electric vehicles, other than a cursory nod to “advanced vehicles” (whatever that means) and one mention of biofuels production by Obama. Romney’s white paper mentions biofuel regulations being better administered by states. Transportation fuels are a major driver for U.S. oil consumption, so having an energy plan that proposes a solution to the “pain at the pump” should be important to voters. Romney’s ‘let’s produce more domestic oil’ stance reflects a basic ignorance of the global crude market. Even the Congressional Budget Office concluded that gasoline prices will not be significantly affected by more domestic oil production. The Obama administration’s solution seems to be liquefied natural gas (LNG) vehicles, and calls natural gas a “clean fossil fuel.” There is no discussion of a timeframe for accomplishing this mass conversion of the transportation industry, something unlikely to happen during a second term. Some analysts have speculated that using LNG for transportation combined with increased exports would significantly raise the cost of natural gas from its current lows. That will of course raise electricity costs, as the mass conversion from coal to gas has already begun.

What happens to baseload generation?

Nuclear energy is absent from the Democratic platform as it is a lightening rod issue in the wake of the Fukushima disaster and the Yucca Mountain storage fiasco. However, Obama’s renewable energy goals combined with environmental regulations that would preclude new coal-fired power will be difficult to meet without replacement of existing baseload coal. The wording leaves us wondering whether the intent is to just replace all coal with natural gas and call it a “clean energy” economy. Over-reliance on any one source of energy is economically risky for the nation. And what about those concerns over fracking? Do they just go away?

Conversely Romney appears to support new nuclear development, with a claim of being able to approve new sites within two years (a variation on the SAFE Nuclear Act). The Nuclear Regulatory Commission approved Southern Company’s two new nuclear units at Plant Vogtle using a combined construction and conditional operating license. That process took over 3 years, however.

Major gaffes

The omission of any discussion of energy efficiency and reducing energy waste is a blunder on the part of the Romney campaign. Just about everyone, including utility execs, support energy efficiency. In addition, technological advances for improving energy efficiency – everything from appliances to building design to smart meters – create jobs. In addition, not mentioning climate change AT ALL may appease the conservative right, but it leaves everyone else wondering if Romney really gets it – not so much the science of climate change, but that most Americans are concerned about it. In a recent study, 78 percent of those polled say global warming will be a serious problem if left alone.

Surprisingly, Obama’s platform makes no mention of using federally-owned lands for new wind and solar projects, something that has decent support among moderates. His administration has pursued using federal lands for coal leases (Powder River Basin) as well as solar, geothermal, and wind projects. Why not mention it? The only guess is that he thought the idea would be too unpopular with green activists that seek to prevent development on federal lands.

Summing it all up

The energy platforms are not plans, and implementation of most of the objectives from either party will require the participation and cooperation of Congress. But the platforms provide us with a glimpse of how each candidate thinks: Romney supports more use of fossil energy with less environmental regulations, while Obama would provide more financial incentives for wind and solar, while capitalizing on currently low natural gas prices. A viable energy policy would incorporate elements of both parties’ platforms, recognize the tradeoffs between environmental goals and economic recovery, while being far more specific on short-term and long-term objectives. Selling that energy policy to the American public would be the problem.

Is Waste-to-Energy the Future of Waste Management?

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A recently released report by Pike Research shows that more than 260 million tons of waste per year will be converted to energy by 2022.  That sounds like a good thing until you realize that by 2025, the world’s population is projected to generate over 2 billion tons of municipal solid waste. So while a first read of the Pike Research report is encouraging, even under the “optimistic” scenario where 396 million tons per year are used to produce power, that means that globally we will still have a lot of trash to manage (waste-to-energy accounting for under 20% of the volume generated). Unfortunately in the U.S., where landfill costs are low and recycling rates are under 35%, we still view waste as a waste. We need an waste management policy as much as we need an energy policy. Actually, the two could work in harmony as part of an overall policy that utilizes our abundant domestic energy resources (including waste), supports research and technology development, protects against environmental damage, and provides much-needed economic benefits.

The barrier? While its easy to blame politics, as a people we are as polarized as our elected leaders. We want to clean up the world but don’t consider that some policies place the economic burden primarily on those of disadvantaged economic status. We want to have low energy prices but don’t consider the life-cycle costs of energy sources (from extraction to use to disposal of byproducts). We protest the development of new energy sources in our community (whether it be coal, natural gas, wind, solar, waste, or others) because of environmental, noise, or even visual concerns but continue to be consumers of energy and wasters of resources without proposing alternative solutions. Of course the “we” I refer to are different groups of people with different demographics depending on the issue. Until “we” are willing to compromise, our wasteful ways will continue.

Want to learn more? Read Dawn Santoianni’s commentary at Scientific American’s Plugged In Blog.

The Potential for Carbon Storage and the Reality

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An interactive atlas showing the vast potential for carbon capture was recently released by the U.S. Department of Energy (DOE), Natural Resources Canada (NRCan), and the Mexican Ministry of Energy (SENER). Carbon storage resources were “defined as the volume of porous and permeable sedimentary rocks available for CO2 storage and accessible to injected CO2 via drilled and completed wellbores.” As such, the atlas is an estimate of the geological and physical potential, but does not consider other challenges to implementing the technology, including land use and economic issues.

The atlas and website are really interesting for several reasons. The website gives good introductory information about carbon capture and storage (CCS) technology, types of geologic formations that could support carbon storage, a decent reference list, and links to several individual maps that comprise the interactive map. Using the interactive map, you can overlay the locations of stationary CO2 sources with different geologic formations for carbon storage (the only thing I don’t like is that stationary electric generating sources, i.e. power plants, are shown in a similar blue color to assessed saline storage sites). What really strikes you about the atlas is turning off and on the different categories of CO2 sources. Even from the overview map of stationary sources you can appreciate the prevalence and regional concentrations of power generation sources.  From a look at the atlas, qualitatively it appears there are ample regional sites for carbon storage.  Overall, an estimated 500 years(!) of storage capacity in North America was identified.

But wait…there’s reality.  Currently, carbon capture and storage from coal-fired power plants remains fraught with difficulties. American Electric Power’s (AEP) Mountaineer plant had been demonstrating CCS using a slipstream equivalent to 20 MW, or 1.5% of the installed plant capacity. The second phase of the project was placed on hold last year citing economic and policy uncertainties. Southern Company is conducting a similar CCS demonstration at Plant Barry in Mobile, Alabama. At a mere 25 MW, this project is billed as the “largest” carbon capture unit on a coal plant (consider that Plant Barry has a total installed coal-fired capacity of over 1600MW). Southern Company has delayed moving forward with a larger 160 MW CCS project. The reasons behind the limited demonstration of CCS in the U.S. are numerous:

Footprint: CCS equipment takes up a lot of space. Most coal-fired power plants are already land-locked or severely limited in the acreage they have available and directly adjacent to the generating units.

Economics: CCS is expensive. Phase I of AEP’s project cost over $100 million, and that was just for 1.5% of carbon emission capture. Regulated utilities in the U.S. must get approval from public utility commissions to fund improvements necessary to meet environmental regulations (i.e. rate cases). As greenhouse gas regulations are still in the proposal stage, it would be unlikely for utilities to recover the tremendous investments in CCS technology before a final regulation is promulgated. And before they can make that investment on their own dime, they have also have stakeholders to answer to.

Energy Penalty: Running the CCS system requires about 1/3 of the electric power generated for the portion of the emissions captured. In other words, to capture 100MW of emissions a plant must generate 130MW. That’s a lot of excess power required, and of course more coal mined, transported, and burned. Although studies are underway to lower the energy penalty, the technology has not been demonstrated at full-scale.

The DOE/NRCan/SENER atlas is encouraging for carbon storage potential, but there is a long way to go before CCS is a utility-scale reality. Making it happen requires that we take a long-range, coordinated approach to our energy and environmental policies while investing in technological improvements.

The U.S. Electric System: Beyond the Light Switch

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A good overview video series from Scientific American about U.S. electricity production covers the challenges of coal, natural gas, nuclear, solar, and wind energy.  It shows us that meeting our nation’s energy and environmental challenges will require tradeoffs.

Divided into 6 segments, the entire series is about an one hour 40 minutes long.

Watch Beyond the Light Switch

A Future for Coal Power?

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The 1,600 MW coal-fired Prairie State Energy Campus in Illinois will soon be operational, making it the largest new coal power plant to be built in the U.S. in the last 30 years.  This is a significant development for the future of coal power for several reasons: pollution control, efficiency, and economics.  The plant is equipped with $1 billion in air pollution controls that will remove 98 percent of SO2 emissions, 90 percent of NOx emissions, and more than 99 percent of particulate matter emissions.  In addition, the plant utilizes a super-critical steam electric process, making it more efficient than typical (and older) coal-fired power plants.  Prairie State is located adjacent to the coal mine that is projected to power the energy complex for the next 30 years.

While announcements of coal unit retirements seem to appear weekly, Prairie State Energy represents the potential to keep coal power an important part of the nation’s energy mix.  Even with falling natural gas prices, the Energy Information Administration (EIA) predicts coal-fired power will maintain a significant percentage of the generation mix – 39 percent in 2035 – still surpassing either natural gas or renewable sources.  If coal is to retain such a vital role in the generation mix over the next few decades, the industry will need to navigate increasingly stringent environmental regulations, including those aimed at carbon emissions.  Changes in natural gas prices, the economic viability of carbon capture technologies, and the ability to permit upgrades or new coal-fired power present risks to the industry.  Good or bad, Prairie State may be the harbinger for the future of coal power.

Read more: A Path Forward for Coal