Salem Harbor Power Station. Plant owner Dominion has announced plans to close the
750 MW coal/oil facility mid-decade upon implementation of EPA's new pollution rules.
Several factors are combining to spell a relatively speedy decline of coal fired electricity in the U.S. The biggest: four new EPA pollution control rules about to take effect, which will eliminate a fifth of existing U.S. coal generation capacity.
These new rules are unrelated to EPA's new-found powers to pursue CO2 emissions. Rather, they are directed at more traditional definitions of pollution, mainly from coal power plants:
- The "Transport" rule to update and deepen control of SOx and NOx
- The Hazardous Air Pollution (HAP) rule, directed primarily at mercury emissions from coal
- The coal combustion residue rule, aka " coal ash"
- The water quality / aquatic impact rule
These rules are in the late stages of development at EPA and will need to be be implemented (with grace periods) at existing plants over the next 5 years or so. The fundamental implication is that these plants will need extensive and expensive upgrades of environmental controls. Most of these controls are on smokestack emissions -- a third of coal plants have no significant pollution controls. The water rule requires fish screens and, in some cases, cooling towers.
Industry watchers predict that this collection of new regs will create compliance costs of a couple hundred billion dollars at the existing fleet of coal plants. Eventually the upgrades will lead to an increase in the cost of power from these plant of 20-30%. The industry is forecasting the closure of 50-100 GW of capacity at plants where upgrades will be uneconomic, or about 22% (midpoint) of current coal nameplate capacity.
EPA forecasts that total costs of its four rules will be about half of what industry is predicting -- specifically, a hundred billion dollars in capital costs, and 7% higher electricity prices when the costs are divided over all electricity produced. EPA also disputes that all the coming closures should be attributed to its rules; many of the plants on the bubble are (like Salem Harbor) 50-60 years old.
Other factors will drive generation capacity from coal:
- For the first time, since mid 2010 natural gas-fired electricity has been cheaper than coal at dispatch according to analysts at Deutsche Bank; the low real and relative price of NG is a new and powerful trend, driven by expanding U.S. NG reserves.
- Projections for a voracious appetite in China for coal leads many to expect that the price of coal will increase over time relative to NG, even if it's not U.S. coal per se going to China.
- New NG power plants in the U.S. are clearly the path of least resistance in terms of regulatory permits (time and cost) and interest group involvement.
With economics, adequate supply, and ease of development all pointing to natural gas, it's possible that nearly all new power plants in the coming decade or two will be NG -- combined cycle for baseload and single cycle for intermittent supply.
In its 2011 Annual Energy Outlook, the EIA forecasts that coal plants will only account for 11% of new nameplate capacity between 2010 and 2035. But a majority of the new coal capacity that EIA envisions over this 25-year period is under development now. It anticipates only 10 gigawatts of new coal plant capacity -- the equivalent of a dozen very large plants -- between 2016 and 2035. Natural gas is projected to account for 60% of new capacity construction through 2035, and new renewable sources are projected to account for 25% of capacity. Renewables are notorious for having rated capacity far higher than what they typically deliver. Excluding renewables, NG is projected to account for over 80% of new capacity. The small remainder comes from new nuclear plants. Southern Company, you go girl!
Coal has been the dominant fuel for U.S. power throughout the electricity age, peaking at 56% of production in the mid 1980's. Until the latest recession, coal was still producing 50% of all power. EIA's 2011 base case expects coal to continue as the dominant fuel in 2035, with its share falling to 43%. But EIA projects far fewer plant shutdowns following the EPA rules than does industry. If industry expectations pan out, the additional closures would subtract about a half-dozen additional points of coal share from EIA projections.
Even in decline, under either shut-down scenario, coal retains much its "market share" dominance despite a near building moratorium. Why? Recent and projected demand growth rates are all of 1% per year, a rate that yields limited need for new plants of any type. Low demand growth, and obvious rewards from utilizing remaining plants as hard as possible -- particularly after billion dollar retrofits -- will keep coal important for the foreseeable future.