Peter Spinney is Director of Market and Technology Assessment at I was recently asked to make a presentation at the American Coal Council’s Spring Meeting in Clearwater Beach, Florida about regulatory drivers as they affect coal-fired generation. This was part of a panel on “Game Changer Issues” chaired by Scott Stallard from Black & Veatch. While the weather was disappointingly cold, the conference was well-attended and there were many astute observations made about the state of our industry.
Federal Cap and Trade Legislation
The prospect of federal cap and trade legislation for CO2 was a dominant theme, for obvious reasons. Opinions varied about the near-term likelihood of legislation getting passed, but there was clear consensus on both the need for a carbon price signal to spur investment in new coal opportunities and the deleterious effect of the current EPA rule-making based on the Endangerment Finding.
Mathew Rose, Chairman, President & CEO of BNSF Railway gave the keynote for Wednesday’s lunch. Not only did he provide an excellent overview of the current state and challenges facing the rail industry, he also provided a bullish outlook on the economy, quoting his new boss Warren Buffet who called his acquisition of BNSF an “all-in bet on the future prosperity of the United States.”
During questions after the keynote, ACC CEO Janet Gellici asked Mathew what he viewed as the biggest threat to the US rail industry: “Lack of near-term legislation providing a carbon price is the biggest threat, because no one is going to build any more coal plants until we have such a price.”
Coal’s Prospects
While there was some of the inevitable doom and gloom about coal’s prospects, there were also many threads of optimism. Most notably, much was said about the electrification of the transportation sector, which essentially means clean coal will be competing against oil, for which supplies are diminishing both domestically and internationally. While opinions vary about the rate at which this will occur, as a closet automotive enthusiast, I must say it is remarkable how many plug-in hybrids are planned for introduction in the next year or two, by almost every major auto manufacturer.
Obviously the more traditional view sees coal competing in power generation primarily against natural gas. While the $14/mmBtu natural gas prices we saw just a couple years ago made for much bullish sentiment about the future of coal, recent geological and technological gains affecting the availability of shale gas in the US have been the cause of no small amount of hand-wringing. Several speakers pointed out that the biggest constraint on shale gas is not technology or environmental concerns or NIMBY, but simply the availability of water, which is becoming scarce in some parts of the US in a frightening hurry.
Of course coal supply has its own serious constraints, as witnessed by the current swirling controversy about mountain-top mining. Clearly there is no free lunch. So when you look at the tremendous growth rates in electricity demand in developing countries combined with the certain return of positive demand growth in North America, I believe we need to collectively foster all available sources of environmentally-responsible electricity generation: renewables, gas fired generation, nuclear, and clean coal.
Progress & Constraints
This in fact was a predominant theme in the presentation made by Jarad Daniels, Director of Planning & Environmental Analysis for the US DOE Office of Clean Coal/Fossil Energy, who was on my panel. He also talked about all the DOE CCS projects underway, with most of the storage projects utilizing deep saline formations, and I must say I was surprised at the progress being made. Between that and the developments he described of integrated gasified combined cycle coal plants (IGCC) and oxy-fuel retrofits for pulverized coal, he was quite bullish on the prospects for coal-fired generation.
Jared also showed a slide in his presentation that prominently featured the Clean Coal Power Initiative (CCPI) project we are currently completing at the NRG-Texas Limestone Generating Plant. I was glad someone at the conference referenced NeuCo and optimization, because my presentation focused exclusively on regulatory and market developments — it may be the first time in more than a decade I’ve given a presentation without using the term “optimization.”
There was also some good analysis as to why both electricity transmission and natural gas transportation infrastructure constrains how much coal can be retired and replaced with gas. Brad Kitchens, CEO of ScottMadden Consultants was also on my panel. He pointed out several examples — Constellation Wagner, for example, where unit retirement plans were nixed by PJM on the basis or reliability and grid stability concerns.
A Matter of Time
So let me attempt to summarize and tie together some of the disparate threads here. Coal-fired generation faces difficult challenges, but is not going away any time soon. Even the most optimistic projections for renewables will make for marginal contributions, and while they create new challenges for base-load generation they cannot replace it. There is widespread consensus that it is only a matter of time before we have a price for carbon, whether it takes the form of cap & trade, cap & dividend, or a tax. There is also consensus that having a known carbon price is essential for the development of new coal plants, which are going to be needed no matter how quickly other generation sources can be developed.
Finally, the electrification of the US transportation sector, combined with the commercialization of large scale CCS technologies (as well as enhanced oil recovery in some regions) create the potential for a vibrant future where we simultaneously obtain energy security through using our most abundant domestic energy resource and meet both existing and emerging environmental challenges.
