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Coal Plants Are Victims of Their Own Economics

18 February 2013 11:48 am
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On the decline. In region after region, utilities are shutting down coal plants like this one and instead generating electricity from natural gas.

BOSTON—During the presidential campaign last fall, a single message was repeated endlessly in Appalachian coal country: President Barack Obama and his Environmental Protection Agency, critics said, had declared a "war on coal" that was shuttering U.S. coal-fired power plants and putting coal miners out of work. Not so, according to a detailed analysis of coal plant finances and economics presented here yesterday at the annual meeting of AAAS (which publishes ScienceNOW). Instead, coal is losing its battle with other power sources mostly on its merits.

Although the United States has long generated the bulk of its electricity from coal, over the past 6 years that share has fallen from 50% to 38%. Plans for more than 150 new coal-fired power plants have been canceled since the mid-2000s, existing plants have been closed, and in 2012, just one new coal-fired power plant went online in the United States. To investigate the reasons for this decline, David Schlissel, an energy economist and founder of the Institute for Energy Economics and Financial Analysis in Belmont, Massachusetts, dove deeply into the broader economics of the industry and the detailed finances of individual power plants.

Schlissel, who serves as a paid expert witness at state public utility board hearings for both utilities and advocacy groups that oppose coal plants, found several reasons for coal’s decline. Over the past decade, construction costs have risen sharply, he said. For example, when the Prairie State Energy Campus in southern Illinois, which opened last year, was first proposed, its then-owner, Peabody Energy, said it would cost $1.8 billion to build. Instead it cost more than $4.9 billion, Schlissel said.

In addition, since the mid-2000s, the price of natural gas has plummeted, and Schlissel found that when coal-fired power has to compete with natural gas on its economic merits, it struggled. For example, profits from the subset of the nation’s coal-fired power plants that sell electricity on the open market plummeted from $20 billion in 2008 to $4 billion in 2011, Schlissel said.

And at the giant, 1.6 GW Victor J. Daniel Electric Generating Plant in Escatawpa, Mississippi, which is run by Mississippi Power and Gulf Power, has two coal-fired generator and two natural-gas-powered generators. In 2006, the plant got most of its power from the coal generators, which produced 80% of the power they could have if they had been running around the clock at full capacity. Meanwhile, the plant’s two natural-gas-fired generators produced just 30% of the power they were capable of. By 2012, those percentages were reversed: the coal generators produced just 25% of their possible power, while the natural-gas generators produced 84%. These trends indicate that the company profited by burning natural gas more and coal less, Schlissel said.

Coal is also struggling because many power plants that burn it are aging to the point that more parts break and they’re becoming expensive to maintain, Schlissel says. Sixty percent of the nation’s coal plants are more than 40 years old, and the median age of coal plants retired in 2012 was 53 years. If the plants aren’t going to produce electricity for long, the cost of installing expensive scrubbers to comply with long-pending, but newly implemented environmental regulations can be difficult to justify. "It’s like hip transplants for coal plants," he said.

"I don’t think there’s any question" that coal is losing on its economic merits, says Melissa Ahern, an economist at Washington State University, Spokane, who wasn’t involved in the study. In addition to the factors Schlissel cited, she adds that the costs of shipping coal by train, barge and truck are large and rising, which adds significantly to the fuel’s cost. Aside from that caveat, she adds, that "utilities have incentives to move to natural gas if they can."

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