The Coal Age Nears Its End
Wall Street Journal
23 December 2011
By Rebecca Smith
After burning coal to light up Cincinnati for six decades, the
Walter C. Beckjord Generating Station will go dark soon—a fate
that will be shared by dozens of aging coal-fired power plants
across the U.S. in coming years.
Their owners cite a raft of new air-pollution regulations from the
Environmental Protection Agency, including a rule released
Wednesday that limits mercury and other emissions, for the
shut-downs.
But energy experts say there is an even bigger reason coal plants
are losing out: cheap and abundant natural gas, which is booming
thanks to a surge in production from shale-rock formations in the
U.S.
"Inexpensive natural gas is the biggest threat to coal," says
Jone-Lin Wang, head of global power research for IHS CERA, a
research company. "Nothing else even comes close."
For decades, coal produced more electricity than all other fuels
combined, and as recently as 2003 accounted for almost 51% of net
electricity generation, according to the U.S. Energy Information
Administration.
But its share has dropped sharply in the last couple of years. It
fell to 43% for the first nine months of 2011, as natural gas's
share has jumped to almost 25% from under 17% in 2003. Meanwhile,
gas prices, on average, have fallen 37 cents to $4.02 per million
British thermal units so far this year.
Many big utilities have announced retirements of coal-burning
power plants, including Southern Co., Progress Energy Inc., First
Energy Corp., Xcel Energy Inc., Ameren Corp. and the Tennessee
Valley Authority.
Coal consumption by the power sector is expected to fall 2% this
year and 4% next year; even small movements are important because
utilities burned 92.4% of the 1,071 millionshort tons of coal
distributed last year in the U.S.
American Electric Power Co., the biggest user of coal in the U.S.,
expects to burn 67 million tons of coal this year but anticipates
its consumption will drop to 50 million tons after it retires 25
coal-burning generating units in six states by 2015.
Experts think 10% to 20% of U.S. coal-fired generating capacity
will get shut down by 2016.
Some of the soon-to-be-defunct plants have been operating only
sporadically because they are old, inefficient and expensive to
operate; Duke Energy Corp.'s Beckjord plant in Ohio, for example,
didn't even run three of its six generating units in 2010.
Market and regulatory forces are "sounding a death knell for many
an older coal-fired power plant," says Hugh Wynne, senior research
analyst for Sanford C. Bernstein & Co. in New York.
John Stowell, vice president of energy and environmental policy at
Charlotte, N.C.-based Duke, says the EPA rules are triggering "an
aging baby-boomer-type situation," that will force a record number
of retirements —and soon.
The coal and mining industries have opposed the new EPA
regulations as job-killers, though some coal companies have job
openings they can't fill. The communities that are home to the
closing plants will lose jobs and tax revenues.
Closing Beckjord, for example, will eliminate as many as 120 jobs
at the plant, according to Duke. The loss of tax revenues will
cost the local school district in New Richmond, Ohio, about $2
million a year, says Teresa Napier, the district's chief financial
officer. People are sorry to see the jobs go, but they understand
why it is happening, she says, because "people want clean air."
Meanwhile, natural-gas plants are springing up around the country,
from Connecticut to California. More are expected to crop up along
natural-gas pipelines, especially in places like Texas where
demand for power is outstripping supplies.
Duke, for example, is building four big power plants. Two, in the
Carolinas, will burn natural gas. One, in Indiana, will convert
coal to a cleaner, combustible gas. Only one, in North Carolina,
will burn coal.
Cost is a big reason for the shift away from coal. Coal prices
have jumped an average of 6.7% a year for the past decade,
according to the U.S. Energy Information Administration. Coal cost
$12 to $75 per short ton in early December, depending on where it
was mined and how hot it burns.
And with energy markets flooded with cheap natural gas from shale
rock, utilities have been idling coal capacity and running
gas-fired plants harder. Fitch Credit Ratings estimates this is
whittling coal sales by 63 million tons a year, equivalent to 6%
of 2010 U.S. coal consumption. Fitch says the new EPA regulations
could reduce coal sales by another 55 million tons a year, or 5%
by 2016, due to plant retirements. Hardest hit: central
Appalachian coal, due to its emissions profile.
Coal-firm shares have shown the strain. Peabody Energy Corp.'s
stock has dropped by half since April, to $34.54 from a 52-week
high of $73.95 set that month, and Consol Energy Inc.'s stock is
off by a third since March to $38.38 from a 52-week high of $56.32
set that month.
But the new EPA rules are also significant. On Wednesday, the
agency released its latest rule, requiring power plants to slash
emissions of mercury, arsenic and other toxic pollutants within
three to four years.
Last July, the agency released its final Cross-State Air Pollution
Rule, which requires reductions of sulfur-dioxide and
nitrogen-oxide emissions in 23 Eastern and Midwestern states
beginning next year, as well as seasonal ozone reductions in 28
states.
The EPA also is working on rules to limit the amount of water
drawn from natural waterways by power plants for cooling purposes
and to control the handling and storage of coal waste. Many state
utility commissioners say they fear the agency's recent rules will
push up electricity prices or could even hurt electric-system
reliability if too many power plants are shut down.
Stan Wise, an elected utility commissioner in Georgia, says
"implementation of the rules has got us in a tizzy." He has
written the EPA to express his objections.
EPA Administrator Lisa Jackson said the new mercury and toxics
rule will deliver $37 billion to $90 billion in health benefits,
per year, when fully implemented after 2016. "These are not
abstract statistics or numbers," she said on Wednesday, but mean
better health for millions of Americans.
Some utility executives have joined the chorus calling for a
slowdown. Nick Akins, chief executive of Ohio-based American
Electric Power, says his company needs until 2020 to make a
graceful transition to a cleaner fleet of plants. A senior EPA
official, who spoke on condition he not be identified, said the
agency doesn't order plants to shut down—they are fined for
noncompliance, instead, when not meeting emissions standards—so
"making a decision not to retrofit a plant is really a business
choice by the owner."
"We have to stage the work," he says, adding that the EPA doesn't
understand how hard it is to find skilled workers to install
pollution-control equipment. The agency assumes his company can
add a scrubber to a plant in three years, he says, but "it's more
like five years." Retrofit costs at larger plants could be
hundreds of millions of dollars.
Write to Rebecca Smith at rebecca.smith@wsj.com