Coal

[UtahFanSir]

I’m putting this note in politics, but its really information that we all need to know. Kinda like facts, but also projections that are reasonable.

A good friend of mine is a research director for NextEra Energy Insight. I used to work for him when we were both at CERA, Cambridge Energy Research Associates, now part of IHS. He just released an extensive piece on coal-natural gas competition in power generation. Here are his key insights:

1. Coal-fired power generation output in the U.S. slipped to a four-decade low in 2016 and, from a plant utilization rate basis, registered its worst year in modern history. Low gas prices are mostly to blame, as cheaper gas-fired generation has been displacing coal.

2. The recovery in natural gas prices in 2H16 and into 2017 has allowed coal to recapture market share. Based on historical relationships, coal could grab more than 3 percent of total U.S. power generation back from gas–or the equivalent of just over 3 Bcf/d of foregone gas use in the power sector –if gas prices were to rally from recent levels and average $3.50/MMBtu in 2017.

3. But this upswing in coal output could prove ephemeral. A wave of new pipeline capacity from the Marcellus/Utica regions, plus growing gas production from oil wells, appears to be on track to cause gas production to again outpace demand growth as early as 2018, pushing gas prices lower and idling coal once more.

Coal is struggling for a host of reasons. The POTUS can only slow its decline in importance in energy contribution to the US. I actually think it better for the country to invest in the next thing. But pandering for votes is what politicians do. Here is my take…

When I worked for an oil company, I was for a time around a decade ago an industry advisor on a National Petroleum Council’s major report on the future of natural gas fundamentals. The work is done at the behest of and for the office of the president of the US. On that work, I met a guy who was a coal expert for a major Eastern US power utility grounded in coal power generation. He told me then that coal costs were rising quickly because the cheap and easy deposits in the Consuming East were gone, stripping ratios were rising quickly, and machinery technology to strip overburden had reached it maximum size. In the meantime, natural gas prices were breaking new records and that fielded a massive boom in gas development from shale.

Beginning in the early-1990s (and for the next decade), I also did power development, in effect selling our company gas as electricity in some markets around the globe, including in the US. About that time, GE, Westinghouse, Siemens, etc. were perfecting the aero-derivative gas turbine for power generation. Laws/regulations that prevented or limited the use of natural gas in power generation were removed, and changes to the public utilities regulator act allowed for market-based generation to be sold to utilities at avoided costs and for self generation. These developments were critical in the beginning of coal and natural gas fuel competition. For one, utilities now were under competition, and deregulating. But the biggest development was the economy  of scale for a power plant moved from 600 MW installed central power plants to 60 MW. As combined cycle gas-fired power generation matured over just a few years, the heat rate (read thermal efficiency) were nearly double that of coal, emissions were half (more than actually), installed costs were 40% that of coal, and as high spot natural gas prices did their work, supply began to explode.

At the same time as all of these developments, the coal generation fleet in the US was aging and moving toward what is called ‘useful life’. In 2013, more than half—51%—of the US’s electricity generating capacity was built before 1980. About 74% of all coal-fired power plants are at least 30 years old, and the average life of such plants is just 40 years, according to the National Association of Regulatory Utility Commissioners. Given EPA emissions regulations–that I think are appropriate–it’s likely the coal plants will be replaced with natural gas when they’re mothballed. As a side note, the American Clean Skies Foundation was formed in 2007 (as natural gas supply was rocketing) and during its initial years, the foundation was chaired by the late Aubrey McClendon, the former CEO and chairman of Chesapeake Energy, which provided funding. Chesapeake was one of the most aggressive developers of natural gas from shale. Anyway, this foundation advocated for a cleaner, low-carbon environment through the expanded use of alternative energy sources and energy efficiency. Specifically, the promotional materials by this foundation at that time were decidedly anti-coal. Natural gas versus coal competition.

Bottom line: Utilities had a choice. Refit old coal plants with degrading coal reserves and dodgy emissions issues, or replace that rate base with new shiny, cheaper, cleaner, smaller gas turbines. Utilities spoke. Nearly 18 gigawatts (GW) of electric generating capacity was retired in 2015, a relatively high amount compared with recent years. More than 80% of the retired capacity was conventional steam coal. The retired coal-fired generating units in 2015 were older and smaller in capacity than the coal generation fleet that continues to operate.

What Donald Trump is doing is giving false hope to miners and allowing mine owners to squeeze a bit more out of their aging assets. Looking back like this will not make America Great Again.

[Guba]

Even mines that produce high grade coking coal for steel production face heavy competition from mines in Australia and China. In addition demand has been declining for coking coal as well. I have been doing some research on the decline of rural northern Japan and a large component of that decline is directly related to the collapse of coal prices leading to the closure of many coal mines. It is a trend being played out all over the world.

[Riot West]

Finally! A post that made me feel smarter after reading for once! Thanks, UtahFanSir!

[PlainsUte]

Just you wait for the Trump led resurgence in American buggy whip and slide rule production!!

In addition to the combined-cycle nat gas fired plants taking over coal-fired generation, the uptick in renewable sources requires fast-response generating units that can fill gaps from wind-lulls and cloudy/sunset periods. Gas turbine generators are perfect for that role, at least until better storage solutions come around. There is no coal-fired alternative to gas turbines.

[Utahute72]

The So-called renewable energy sources are a will-o-wist. They will never be able to adequately replace other methods of power generation in for foreseeable future. So we are left with the option of how go generate power. I really think we need to look at a combination of natural gas, nuclear and coal. All of these technologies can be made effective and with reduced environmental impacts. Over on a scientific chat board we’ve been having an interesting discussion on power generation, exploring some methods of impact reduction. Simple efforts like stack recovery not only reduce environmental impact, but improve operating cost. The key is using incremental improvement to not only maintain profitability, but reduce impacts in a measured manner.

[PorterRockwell]

I don’t know if renewables can replace coal or not. Coals days are clearly numbered though. It cannot compete cost wise with natural gas it has the stigma of being dirty and the mining process is anything but environmentally friendly.

We humans are capable of some surprising and amazing things when we set out minds to it.

[PlainsUte]

The idea of renewables is not to completely replace fossil fuel and nuclear but to have those technologies provide base load and the renewables covering the variable load and reducing the need for ADDING fossil fuel plants as the demand grows (with population and GDP growth).  In the Plains states wind is providing 35% of the power which is a hell of a lot.  With fast start natural gas plants complementing that the grid operator thinks that wind+solar can now get to more than 60-70% with no impact on voltage reliability.  In this part of the country solar power is strongly correlated with peak load (when it is hot and A/C is running nonstop it is also sunny, and vice versa), so solar make sense for future growth.   As I mentioned in another thread, coal is too slow to start and stop it is wasteful to any coal beyond baseload (what you need to run the grid in the middle of the night); with more renewables and nat gas plants coming online, I can’t see another coal plant being added to the grid in my lifetime.