Ten years ago, U.S. utility industry experts would not have expected coal to rank second to natural gas in electricity generation, but that is what happened in the United States in April 2015. Gas generators’ share of electricity generation for the month was about one percentage point more than the share for coal-fired plants. According to the Energy Information Administration’s Electric Power Monthly, gas-fired plants produced 92,516 gigawatt hours in April, compared with 88,835 gigawatt hours of coal-fired generation—4 percent more.[i] Whether this is a one-time phenomenon or a new trend will be determined in the months to come as April tends to be a slow month for electricity demand allowing many coal-fired plants to undergo maintenance.
But, this phenomenon is exactly what the Obama administration wants and to which many of its regulations are aimed. The administration would like to end coal and instead use renewables to generate electricity. But, as forecasters tell us, that goal is a fantasy—certainly in the next 25 years and if electricity is to remain affordable. But, the administration is trying hard to produce policies that will make renewables king despite China, India, and other parts of the world relying on coal for most of their energy needs and despite the higher costs American energy consumers will have to pay.
EPA Regulations and Coal-Fired Plants
Generation from coal-fired power plants declined 18.9 percent in April 2015 from April 2014 levels, while generation from natural gas-fired plants increased 20.6 percent. Many believe that this change is due to low natural gas prices and regulations designed to shutter coal plants, which certainly are factors. The Energy Information Administration expects forty gigawatts of additional coal-fired capacity to shutter due to EPA’s Mercury and Air Toxic Standards and another 50 gigawatts to shutter due to EPA’s so-called “Clean Power Plan.”[ii] These combined regulations along with increasing natural gas prices will raise residential electricity prices 16 percent by 2030,[iii] according to the EIA. That is because replacing existing coal-fired plants with either natural gas or renewable plants will increase generating costs.
A recent study (and its update) by the Institute for Energy Research shows that the least cost new technology (combined cycle natural gas) will still cost over $30 per megawatt hour more than generating electricity from an existing coal plant that only costs $38.4 per megawatt hour, on average, to run.[iv] This is because most of the coal-fired power plants in the United States already have most of their capital costs paid and only need to cover fixed and variable operations and maintenance expenses. Consumers who have – in essence – already paid for the plants, end up paying very low rates for electricity from existing coal plants. That is, unless federal regulations force the premature closure of low cost plants.
Since, as the report shows, wind costs more than natural gas to generate electricity, using new renewable energy, which EPA’s “Clean Power Plan” is designed to do, will make electricity even more expensive to consumers than if natural gas was the chosen fuel. According to EIA’s analysis of the Clean Power Plan, central station wind and solar power plants almost reach President Obama’s goal of 20 percent electricity from renewable sources by 2030.[v] Besides being costly, renewable energy is also unreliable since it is dependent on the wind blowing and the sun shining; and storage technology to capture their output when the wind and sun are available is inadequate. This consideration is so important when assessing electrical generation performance that the EIA separates “dispatchable” sources from “non-dispatchable” sources in the assessment of the levelized cost of new generation sources analysis. As Bill Gates indicates, the cost of decarbonization using today’s technology is “beyond astronomical.”
Europe has gone the renewable route and found disaster, which should serve as an example to this Administration. Germany has spent $440 billion (€400 billion) on its Energy Transition to renewable energy and expects a cost of up to $1.1 trillion (€1 trillion) by 2040. Since the United States generates almost seven times the amount of electricity as Germany, it could cost $2 trillion to meet Obama’s goal. Further, Germany is losing its manufacturing industry due to high and rising energy costs, forcing the industries to locate overseas.
Through decades of experience, European countries have found that renewable energy cannot exist without subsidies and that even a modest proportion of wind- and solar-generated electricity prevents gas- and coal-powered plants from recovering their fixed costs, which has led to the shuttering of a reliable gas-fired power plant in Germany.[vi] In order to back-up its renewable power plants, Germany uses coal, which produced almost 40 percent of its electricity during the first 10 months of 2014—about the same share as in the United States.[vii]
Coal Is Still King
A recent study notes that “we are witnessing a global renaissance of coal driven by poor, fast-growing countries that increasingly rely on coal to satisfy their growing energy demand.”[viii] This “global renaissance of coal” goes beyond China to countries like India, Indonesia and Vietnam. Piyush Goyal, India’s Minister of State for Power, Coal, and New and Renewable Energy, for example, intends to double his nation’s coal production by the year 2019 to meet domestic energy requirements.[ix] The International Energy Agency’s coal forecast indicates that global demand for coal is expected to continue to increase, surpassing 9 billion tons by 2019.[x]
The reason for this major use of coal is to provide electrification to millions that are without it. For example, an estimated 400 million Indians–roughly 31 percent of the country’s population–lack access to electricity. And those that have access regularly experience rolling blackouts, power outages, and curtailments. India is the third largest consumer of electricity in the world, behind the United States and China.[xi] Coal-fired plants in India account for 60 percent of the country’s installed generation capacity.[xii] The nation also ranks as the third largest in coal production. With a greatly expanding population (India’s population grew by over 200 million between 2004 and 2012), it needs coal to supply the needs of its citizens.
Furthermore, the drive by developing countries to develop low cost electricity is essential to an improvement in public health. The World Health Organization estimates the some 3 billion people worldwide cook or heat their homes “on open fires or traditional stoves,” causing an estimated 4.3 million deaths per year from indoor air pollution.[xiii] People in these countries seek electricity as a means out of grinding poverty.
The Obama Administration is driving coal out of this country’s mix of generating fuels due to its onerous regulations. For the first time this past April, coal’s generation share was surpassed by natural gas. Whether this will continue or not in the near future is yet to be seen. But, if the Obama Administration has its way, it will definitely be the trend in the long term. And, while one of our lowest cost generating technologies will be shuttered, other countries will have access to low cost power and all of its benefits.
[i] Energy Information Administration, Electric Power Monthly, June 2015, http://www.eia.gov/electricity/monthly/pdf/epm.pdf
[ii] Energy Information Administration, Analysis of the Impacts of the Clean Power Plan, May 22, 2015, http://www.eia.gov/analysis/requests/powerplants/cleanplan/
[iii] Institute for Energy Research, How to Kill the Coal Industry: Implement EPA’s “Clean Power Plan”, May 26, 2015, https://www.instituteforenergyresearch.org/analysis/how-to-kill-the-coal-industry-implement-epas-clean-power-plan/
[iv] Institute for Energy Research, The Levelized Cost of Electricity from Existing Generation Resources, June 2015, https://www.instituteforenergyresearch.org/wp-content/uploads/2015/06/ier_lcoe_2015.pdf
[v] Institute for Energy Research, July 7, 2015, https://www.instituteforenergyresearch.org/analysis/obama-ignores-costs-of-lofty-renewable-goals-and-epas-climate-rule/
[vi] Wall Street Journal, Obama’s Renewable Energy Fantasy, July 5, 2015, http://www.wsj.com/articles/obamas-renewable-energy-fantasy-1436104555
[vii] Green Tech Media, A Snapshot of Germany’s Electricity Mix: Solar Capacity Reigns, but Coal Generation Sustains, December 23, 2014, http://www.greentechmedia.com/articles/read/germanys-energy-transition-explained-in-6-charts
[viii] Drivers for the renaissance of coal, June 2015, http://www.pnas.org/content/early/2015/07/01/1422722112.abstract
[x] Greenwire, Fuel use “unsustainable” in current form, December 14, 2015, http://www.eenews.net/greenwire/stories/1060010573
[xi] The Energy Collective, A Solution for Rural India, June 4, 2015, http://www.theenergycollective.com/charlie-hewitt/2235911/solar-microgrids-solution-rural-india
[xii] Government of India, Energy Statistics, 2014, http://mospi.nic.in/mospi_new/upload/Energy_stats_2014.pdf