Govt electricity supply report ‘will not save US coal’

The green lobby needn’t have worried. The final report published a week ago gives coal miners little to cheer about.

The decline of coal-fired electricity generation in the US – at just 30% of the total already the lowest on record – illustrated starkly by the graph below is only set to continue. There isn’t a single new commercial coal-fired plants in the planning stage in the entire country.

The report’s main finding has been an established reality for a long time: “The biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas-fired generation,” according to the report.

The report also states that other technologies besides fossil fuels can provide baseload generation and concludes that the energy markets “are currently functioning as designed – to ensure reliability and minimize the short-term costs of wholesale electricity.”

The report goes on to say that despite the retirement of 11% of generating capacity available in 2002, the system today has more dispatchable capacity capable of operating at high utilization rates than it did in 2002, with the significant addition from natural gas, wind and solar generation.

A research note by Moody’s Investor Services expects ongoing coal plant retirements and coal substitution by natural gas and renewables.

“This trend will continue to challenge the US coal miners, particularly those focused on supplying thermal coal to domestic utilities, such as Cloud Peak Energy Resources, Murray Energy Corporation and Armstrong Energy,” says Moody’s.

Moody’s does not believe that the call in the report for further study of variable renewable energy (VRE) impact on grid management assessment “signals a brighter future for coal.”:

The report predicts 37,800 megawatts of coal retirements by 2022, tapering off to another 4,400 megawatts of retirements by 2030. With almost 20,000 megawatts of additional natural gas capacity coming online by 2020 to replace retiring coal-fired generation, we don’t expect a material and rapid change that would reverse coal’s fortunes.

With respect to concrete policy recommendations and solutions, the report falls short of recommending anything specific and does not promote coal-fired generation as irreplaceable for grid reliability. Instead, the report suggests pricing mechanisms for grid-reliability services that are fuel and technology neutral, and urges research and developments efforts focused on new-generation technologies and improved VRE integration, among other things. The report does call for reduced regulatory compliance costs across the grid infrastructure, including the coal-fired capacity. While this might extend the life of some coal plants, we expect the benefit to the coal industry to be marginal, if any.

Although biomass generation is not specifically addressed in the report, we note that biomass (specifically wood pellets) is a renewable resource that has been extensively incentivized by policy makers in Europe to ensure grid reliability while transitioning to VRE power sources. Biomass can be co-fired with coal in conventional coal plants, or alternatively, coal plants can be converted to biomass use, in order to retain baseload generation and simultaneously reduce coal consumption in favor of renewables.

Although US policy to ensure grid reliability remains uncertain, we do not view coal as the likely candidate to resolve the complex energy challenges of the future. Technology enhancements and alternative energy sources appear to be the keys to reliable power generation that is also cost-effective and environmentally friendly. Advancements in carbon capture and storage (CCS) technologies could change that, but so far, CCS has not been economically viable on a large scale.