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(This guy might as well be on T. Boone Pickens's payroll.) NY Times November 29, 2010 Breaking Away From Coal By CLIFFORD KRAUSS HOUSTON — Progress Energy Carolinas, one of the South’s larger utilities, faced a dilemma last winter. Several of its coal-fired power plants were aging and needed scrubbers to reduce emissions and meet North Carolina pollution laws. Executives figured that even tougher regulations were coming from Washington, and overhauling 11 generators at four plants would have cost nearly $2 billion, which would have been passed on to the company’s 1.5 million electric customers. Plunging natural gas prices, however, offered Progress Energy an alternative that would save money and help it achieve pollution goals at the same time: scrapping the coal plants and replacing them with two gas plants over the next four years, at a cost of $1.5 billion. “It’s a turning point,” said Bill Johnson, chairman and chief executive of Progress Energy, the parent company. “We’ve been a coal-based generator for decades, and until a few years ago, we thought we would remain largely coal-based and nuclear until people started talking about carbon regulation. We decided we had to do something about it.” A lot of utilities are coming to a similar conclusion. Over the last year and a half, at least 10 power companies have announced plans to close more than three dozen of their oldest, least efficient coal-burning generators by 2019. A few are being replaced by new, more efficient coal plants, but many more are being replaced by gas-fired plants. Coal still accounts for about half of the country’s electrical power generation, compared with about a quarter for natural gas, but that ratio has been shifting gradually toward gas over the last decade or so. Gas burns cleaner than coal, helping utilities meet state and corporate goals for reductions in greenhouse-gas emissions. Older coal plants, on the other hand, require expensive upgrades, including scrubbers and other controls, to meet coming compliance rules to reduce mercury, nitrogen oxide and sulfur dioxide emissions. Energy specialists estimate that compliance with new federal regulations alone could require $70 billion of investments over the next decade for replacing or retrofitting the coal power fleet. Just as significant, gas prices have remained at depressed levels over the last two years after a two-thirds collapse from the 2008 economic tumult, while coal prices have increased by more than a third this year because of higher production costs linked to tougher regulations and increased demand from China. Many people in the industry believe that gas prices will stay relatively low because of the proliferation of gas drilling in shale fields across the country over the last five years. “Coal is losing its advantage incrementally to gas,” said Michael Zenker, a gas analyst at Barclays Capital, “and as long as gas prices stay as low as they have been, it’s going to continue indefinitely.” New gas generation capacity will outstrip new coal generation capacity by more than 30 percent through 2020, according to projections from the Energy Department. And Credit Suisse predicts that the replacement of coal plants by gas plants over the next seven years could lower annual demand for steam coal, which is burned for electricity, by 15 to 31 percent and increase demand for gas by 8 to 16 percent. “It has the potential to reshape energy consumption in the United States significantly and permanently,” said Dan Eggers, a Credit Suisse energy analyst. Although coal is also being replaced by nuclear and renewable energy sources in some places, energy specialists say that gas will be the main benefactor because of availability and cost. Since burning gas emits a fraction of the greenhouse gas of coal, environmentalists tend to favor the switch, although some worry that more gas drilling could pollute groundwater because of the chemicals used in breaking up shale rock. Pollution laws generally make gas more appealing than coal. Even as many states like Colorado and Michigan enacted stricter pollution laws, the Environmental Protection Agency last summer imposed new limits on sulfur dioxide and nitrogen oxide emissions in 31 Eastern states and Washington by 2014. Under court order, the E.P.A. is due to set a national standard for mercury emissions next year that will be phased in over the next three years or so. The E.P.A. is also pressing for efficiency improvements at existing coal plants to lower carbon emissions linked to climate change. “The biggest challenge we face in this industry is this tsunami of regulatory requirements,” said Frank Prager, vice president for environmental policy at Xcel Energy, a Minneapolis-based utility that has proposed to close four or five coal-fired generators in Colorado and replace them with two gas-fired plants to comply with a new state air pollution law. “It will be more cost-effective to get off coal and turn toward natural gas than it is to retrofit a lot of these facilities,” Mr. Prager said. Seventy percent of the nation’s coal plant fleet is more than 30 years old and a third is over 40 years old. Credit Suisse estimates that more than 30 percent of the American coal generating fleet have no emission controls at all, while another third lack either a scrubber for removal of sulfur dioxide or other controls for nitrogen oxides. Those plants, which are largely inefficient, will need expensive overhauls under the new rules. Sonny Garg, president of Exelon Power, said he expected that the plants with no emission controls would probably be closed by their owners, who he says will be wary of investing billions of dollars on old equipment. “It’s a significant transformation,” Mr. Garg said. Exelon Power has already announced the closing of three Eisenhower-era, coal-fired generators in Pennsylvania by May 2012 because low gas prices have made retail electricity rates so low the plants are no longer economical to run. Of course, not everyone thinks gas makes more economic sense. For example, a coalition of investors is building a $4 billion coal-fired generation plant in Illinois, betting that coal prices will remain low enough and regulations light to outperform gas. Indeed, retrofitting a coal plant can be somewhat cheaper than constructing a new combined cycle gas turbine, industry officials say. “A very wide range of utilities are wrestling with this issue of identifying what plants they would close because they are anticipating these regulations and there is a lot of planning going on right now,” said Revis James, director of energy technology assessment center at the Electric Power Research Institute. Utility executives have long been cautious about using gas because its price has historically bounced around unpredictably while coal prices have typically been low and stable. But that appears to be changing. Over the last decade, new drilling techniques have brought a century’s supply of reserves within reach. For Progress, the decision to scrap coal-fired plants and replace them with gas-fired plants was a drastic change in its business plan. It meant reducing the utility’s coal-fired production capacity by 30 percent while increasing gas power from less than 4 percent of its production capacity to a projected 25 percent after the gas plants are built. “You had to believe that gas was available long term” at reasonable prices, Mr. Johnson, Progress’s chief executive, said of the decision. “Around the country, people are having to have the same discussion, and what I think you are going to see is a significant move from older coal plants to newer gas plants.” ________________________________________________ Send list submissions to: Marxism@lists.econ.utah.edu Set your options at: http://lists.econ.utah.edu/mailman/options/marxism/archive%40mail-archive.com
