Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on March 30, 2014
The Losing Economics of Investing in Aging Coal Plants
Noah Long, Legal Director, Western Energy Project, Energy & Transportation Program; and Clean Energy Counsel, Land & Wildlife Program, San Francisco
This entry is the first of a two-part follow up to the blog I wrote last fall. This first entry focuses on the national story, the next entry will focus on coal in the west.
Across the United States, economics are increasingly favoring investment in renewable energy at the expense of dirty coal energy. As the price of solar dips below coal and even natural gas in some instances, the domestic demand for coal wanes and a growing number of companies are eager to get out of their investments in aging coal plants that cost more than they’re worth to upgrade and, in a growing number of instances, just to keep running.
As the nation’s coal power plants age, they become more expensive to maintain. The costs associated with making long-term investments in an aging coal plant, including replacing breaking parts and upgrades like scrubbers and other pollution controls, often exceeds the economic viability of coal in the long-term. Meanwhile, the natural gas prices remain low, ample wind and solar energy provides cost-effective alternatives, and energy efficiency, always the lowest-cost resource, reduces demand. Further public health protections and the first federal standards limiting carbon pollution from power plants—a key driver of climate change—are also on the horizon, all making dirty coal a shaky investment proposition.
Electricity Customers and Tax Payers Share Financial Risk of Coal Investment
Electricity customers bear the burden of long-term gambles made by utilities that coal will remain a viable energy investment. When deciding whether it makes economic sense to upgrade coal plants or retire them, utility regulatory boards are weighing utilities’ bids to pass these growing costs on to customers.
Recent examples of failing coal plant economics include:
- In Illinois, coal plant owner Ameren Corp. recently had to pay a company, Dynergy, to take five coal plants off its hands – they couldn’t give away these plants for free. And there’s no guarantee Dynergy plans to invest to keep the coal plants up and running either. They’ve already announced plans to shut at least one of the units.
- In Michigan, when a coal plant when on the auction blocks, no bidders offered to purchase the Upper Peninsula coal plant.
- Recently, the Washington Utilities and Transportation Commission told Puget Sound Energy it needed to reconsider its bid to continue investing in a Montana coal plant rather than decommissioning it, citing the financial risk involved as natural gas prices continue to plummet. The utility board pointed out that the likelihood of new emissions standards for coal plants from the U.S. Environmental Protection Agency may also reduce the cost effectiveness of doubling down on the Colstrip plant in Montana.
- In Oregon, PacifiCorp is facing a similar questioning from the utility board about whether ratepayers should be on the hook to finance for its plan to invest billions to upgrade its fleet of coal plants.
Even though companies are paying to have others take over their coal plant portfolios and utility boards are examining what costs should be borne by electricity customers, the public may still be on the hook for long-term investments in the fossil fuel. As a report by CTBA made clear, the coal industry actually cost Illinois taxpayers $19.8 million in 2011 when revenues, subsidies and the expenses of regulation were netted out. And that cost doesn’t include the environmental and public health costs from related air and water pollution and climate change that are borne by the public.
Coal’s Shrinking Market Share as Clean Energy Becomes More Economical
Internationally, financial support for new coal-fired plants is quickly fading. Last June, the U.S. Export-Import Bank, the World Bank and the European Investment Bank –lending organizations that had formerly invested billions of dollars into coal plants around the world – pulled out of financing overseas coal plants except in special circumstances.
Coal’s share of America’s energy market is also way down from just a few years ago. Investors already expected another bleak year for the U.S. coal industry – but 2014 may be the record-setting worst year for coal producers, according to a new report by ICF International.
Looking ahead, nearly a quarter of the nation’s coal fleet could be retired by end of the decade. Of 536 coal-fired plants in U.S., 84 have already announced retirement and Bloomberg New Energy Finance estimates that 146 units more may retire by 2020. Coal’s contribution to the U.S. energy supply also is falling. Coal accounted for 39 percent of total U.S. electricity generation last year, down from about 50 percent from 2003-2008 and a rebound from a record low 37 percent in 2012.
The natural gas boom has certainly played a big role in coal’s shrinking market share, but the lower cost of clean energy is also a growing trend. In fact, solar energy is making headlines for its record-low prices, including in Texas. Austin Energy (a city-owned utility) is about to sign a 25-year power purchase agreement with Sun Edison for 150 megawatts of solar power at “just below” 5 cents per kilowatt-hour (kWh). In comparison, the municipal utility estimates that natural gas would cost 7 cents per kWh and coal would cost 10 cents per kWh – meaning solar is the most affordable source of energy available for the utility, in addition to being the cleanest option. And the utility can lock in that price for 25 years through this contract, a winning proposition given the volatility predicted on the horizon for the other energy options.
As coal plants become more financially untenable and renewable energy continues to become more economical, long-term investments in clean energy is quickly becoming the smart economic choice for investors, electricity customers, and the planet.
16 Comments on "The Losing Economics of Investing in Aging Coal Plants"
Davy, Hermann, MO on Sun, 30th Mar 2014 5:55 pm
The economics of gas and AltE is not going to stay so sweet. We need to really watch ourselves with gas due to its central role in fertilizers, industrial chemicals and home heating. Wasting gas on transport and electric when we have these other needs is dangerous if we see a reduction in gas supply which is likely. I am so happy about the solar economics turning competitive. But folks do you think that is going to last? An industry that is complex, global, energy intensive production, and capital intensive will be at risk with an economy on the knife edge of correction or contraction. The excess capacity coming out of China will not last. China is in a debt unwind and we will see excess capacity in a whole range of Chinese industries correct. If we are lucky we can build out significant solar while the times are good. If we do not watch it we will retire enough coal and Nuk capacity to find one day and unstable grid or worse. I am all for mothballing inefficient plants and unsafe nuk plants. Yet, let us be careful with the industry that we do not cripple it. We need all the tools at our disposal to negotiate a soft landing in the coming decent
rockman on Sun, 30th Mar 2014 6:05 pm
“The Losing Economics of Investing in Aging Coal Plants”. Apparently not universally true. It the report below they don’t mention expanding the coal burning capacity of this “aging coal plant” but it seems like a possibility once the sequestering starts and NG prices increase. Given the tremendous abundance of US coal in a world of diminishing oil/NG reserves we might see the lives of a number of those old plants extended. Won’t be cheap but there may not be other options. If I owned one of those old plants I would be lining up for a shot at that gov’t tit like those Texans did. LOL.
A $400 million CO2 pipeline is currently being built from a power plant in Ft Bend County, Texas to the West Ranch Field 80 miles away. The short story on the W.A. Parish power plant:
“Now, this power behemoth, the biggest power plant in Texas and second biggest fossil fuel-burning plant in the nation, is planning to build one of the country’s more innovative pollution control projects. It will use some of its pollution to pump oil out of the ground. Plant owner NRG said it will begin construction next year of its “carbon capture” system. The system will be installed on one of the plant’s four coal-burning power generation units (four other units burn natural gas). “This will be the first commercial-scale carbon capture on a power plant in the United States,” said Jeff Baudier, CEO of Petra Nova, NRG’s wholly-owned carbon capture business. Here’s how it’s suppose to work: the W.A. Parish plant burns some 36,000 tons of coal a day, producing tons of carbon dioxide, a major greenhouse gas linked to climate change.” The rest at: http://stateimpact.npr.org/texas/2012/0 … -pump-oil/
Half of the plant’s capacity comes from coal and their other half from NG. With the new rules they can sub the now cheaper coal for the increasingly costlier NG. This should allow Texas to easily retain the title of the LARGEST COAL CONSUMING STATE IN THE US. And if we were our own country (which we are in the minds of many Texans) we would rank 11th in the world.
Boat on Sun, 30th Mar 2014 6:35 pm
Davy
The US Nat Gas market has been priced depressed for years because of fracking oversupply. I don’t see that changing. I don’t see that as living on a knif edge. There are a lot of Nat plays that won’t get any attention unless the price goes to $6-7. This is still cheap compared to what say Japan or Europe pays. If the Eagle Ford play develops in Mexico quickly the price of Nat Gas may go so low fracking might have to slow production to wait for a higher price. I don’t think its the other way around. It seems there is plenty of product in North America anyhow and plenty of room for Nat gas growth in the decades to come.
In the meantime this gives renewables and other technologies time to continue to develop and become more efficient, cost competitive and compete even with a low price of Nat gas. This may be the wrong place to post such an optimistic view.
The headwinds of the future are war and overpopulation of other countries but North America seems poised to compete for jobs, energy supply and the life style we are accustomed to.
Kenz300 on Sun, 30th Mar 2014 7:24 pm
Quote —- “Austin Energy (a city-owned utility) is about to sign a 25-year power purchase agreement with Sun Edison for 150 megawatts of solar power at “just below” 5 cents per kilowatt-hour (kWh). In comparison, the municipal utility estimates that natural gas would cost 7 cents per kWh and coal would cost 10 cents per kWh – meaning solar is the most affordable source of energy available for the utility, in addition to being the cleanest option. ”
———————
The price of oil, coal and nuclear keeps rising and causing environmental damage…………..
The price of wind and solar keeps dropping…….
The energy transition tipping point is here – SmartPlanet
http://www.smartplanet.com/blog/the-take/the-energy-transition-tipping-point-is-here/?tag=nl.e660&s_cid=e660&ttag=e660&ftag=TRE4eb29b5
rockman on Sun, 30th Mar 2014 7:57 pm
“The US Nat Gas market has been priced depressed for years because of fracking oversupply.” There are reasons for low NG prices. But we are not oversupplied with NG: we only produce 93% of the NG we consume.
Boat on Sun, 30th Mar 2014 8:25 pm
rockman
I think this chart describes a different view than yours.
http://www.eia.gov/forecasts/aeo/er/executive_summary.cfm
We are just in a transition phase. It seems within 3 years we will export as much as we import. And then the trend will continue.
rockman on Sun, 30th Mar 2014 9:28 pm
Boat – I don’t have a view…just the numbers from the EIA: the US has no excess NG to export today. We currently import 7% of the NG we consume. Not an opinion or view…just cold hard numbers. If the situation changes in the future so be it. But this ain’t the future yet. LOL. If we export 1 cubic foot of NG to anyone right now it will either be taken away from a US consumer or we’ll have to import it from someone else. The push to export NG has nothing to do with having an excess amount in the US. It’s all about selling it for the max profit.
rockman on Sun, 30th Mar 2014 9:39 pm
And BTW: “It seems within 3 years we will export as much as we import.”. FYI: when you are exporting as much NG as you are importing you are not a NG exporter…it’s a zero sum game at that point. And how long before the US becomes a net NG exporter according to these Masters of the Crystal Ball? Of course that will depend on how much the US increases/decreases their consumption AND how much NG increases/decreases NG production in the US AND how much demand increases/decreases for exporter US NG. And all of those factors will be strongly influenced by the price of NG years down the road.
No problamo…easy call. LOL.
Boat on Sun, 30th Mar 2014 10:50 pm
It is just an opinion. I just think the ng supply and it’s positive influence is not living on the knife edge like Davy was pointing out. I don’t fear ng going into trucking and electric markets and setting us up for disaster. I assume when you said no problemoo… you were being sarcastic. My crystal ball reads in caps and bold. No problem.
Kenz300 on Sun, 30th Mar 2014 11:23 pm
Climate Change —— The world needs to stop building any more coal fired power plants and begin shutting down the oldest ones.
rockman on Mon, 31st Mar 2014 1:09 am
Boat – Perhaps I misunderstood you. You don’t think the EIA stats showing the US consumes more NG than we produce is an “opinion”, do you? That’s all I was getting at.
Boat on Mon, 31st Mar 2014 1:42 am
rockman
The chart clearly shows we are a net importer of Nat Gas in the US currently.
Maybe over supply isn’t the right technical term for low prices.
The chart also shows in it’s crystal ball a huge growth factor of ng in the near future.
You don’t seem to be to big on fracking and production in Mexico. Once again it’s just my opinion that Mexico will have huge amounts of fracking over the next 15 years. This will also keep our ng prices low over a long term.
http://www.rigzone.com/news/oil_gas/a/131314/US_Energy_Companies_Poised_to_Benefit_from_Mexico_Energy_Reform/?pgNum=0
Davy, Hermann, MO on Mon, 31st Mar 2014 2:34 am
Boat, we always get back to our financial system and the systematic risk. This whole NatGas thing is contingent on a healthy economy. It is my opinion this economy is on the Knife edge of correction. You are so upbeat about the US gas supply and rightly but this situation could turn on a dime with a financial situation. This situation would not have to be severe it only needs to be a correction to slow drilling activity enough to cause a supply issue. The big problem with the US NatGas is the red queen syndrome which takes sustained economic activity.
rockman on Mon, 31st Mar 2014 6:18 pm
Boat – Got you…I know what your opinion is now. I don’t have a strong opinion either way as to whether the US will or won’t have surplus NG to export years down the road. Too many variables to predict IMHO. All I do know is the fact that we don’t have it today. And that was the only point I was making. Back in early ’08 lots of very knowledgeable insiders in the oil patch predicted huge amounts of surplus NG…when NG was selling for $10+/mcf. And then in a year or two prices fell almost 80% and 75% of the rigs going after NG stopped drilling.
And I’m nearly as smart as all those folks that had so poorly predicted the future of NG prices and supplies. That’s why I tend to leave predicting to such experts.
bobinget on Mon, 31st Mar 2014 10:11 pm
When operators closes old coal burners, who gets stuck with the liability lawsuits? Coal continues to sicken, kill many more then asbestos ever aspired to.
Because it can’t be determined which plant generated
what. Looks just like asbestos, only 10 times bigger.
Guess we best leave this up to TV lawyers.
One more question; can politicians be sued for mal-practice when it comes down AGW’s last days of civilization?
Good time to be a TV lawyer.
Kenz300 on Tue, 1st Apr 2014 5:21 am
Quote — “Internationally, financial support for new coal-fired plants is quickly fading. Last June, the U.S. Export-Import Bank, the World Bank and the European Investment Bank –lending organizations that had formerly invested billions of dollars into coal plants around the world – pulled out of financing overseas coal plants except in special circumstances.
Coal’s share of America’s energy market is also way down from just a few years ago.”
——————————–
Time to move away from fossil fuels………..
Fossil fuels = Climate Change
Around the world governments and industries are moving away from fossil fuels………