POWER October 2012 - 58

THE FUTURE OF COAL
Are Economics Trumping Regulation?
The fate of coal-fired generation remains fluid as owners weigh environmental
rules, the effect of low natural gas prices, and the shifting cost of investing
in emissions control technology. An analysis of generating unit data suggests
that smaller, older, less-efficient, and less-frequently dispatched assets
are most vulnerable to retirements. Recently accelerated retirement
dates for some units indicate that economic factors are a more important
determining factor than pending environmental mandates.
By David Wagman
T
wo of the nation's largest consumers
of coal for electric power generation
said in July that their cost to comply
with U.S. Environmental Protection Agency
(EPA) emissions rules will be less than they
initially thought.
Four other utilities announced plans either
to close coal-fired generating units or invest
in emissions control equipment to meet the
pending EPA rules. And an independent
power producer whose generating capacity
is largely fueled by natural gas said that
economics-not environmental rules-will
continue to favor natural gas over coal and
spur retirements among coal-fired units.
" Coal plant retirement should increase significantly
from today's announced levels as
companies re-evaluate the economics of their
compliance decisions, especially since the more
costly environmental rules like once-through
cooling and coal ash disposal are still in their infancy
in Washington, " said Jack Fusco, Calpine
CEO during an earnings conference call.
The news in recent months suggests that the
cost of complying with myriad EPA rules (see
" THE BIG PICTURE: Regulation Road " on
p. 10 for an overview) remains unsettled. Estimates
vary as to how many generating units ultimately
may be retired and whether or not their
loss will affect reliability. Complicating things
is the continued low cost of natural gas that is
putting competitive pressure on coal-fired units.
Indeed, Jeffrey Immelt, CEO of General
Electric, was quoted by the Financial Times
newspaper in late July as saying that gas-fired
generation is becoming " permanently cheap. "
The pressure exerted by low-cost natural gas
affects the prospects not only of coal-fired generation,
but also of nuclear generation. " It's just
hard to justify nuclear, really hard, " Immelt was
quoted as saying. " Gas is so cheap and at some
point, really, economics rule. "
Fusco echoed Immelt's comments during
his July quarterly earnings conference call with
analysts. He said that although many coal-unit
retirements have been attributed to pending
58
environmental rules like the Mercury and Air
Toxics Standards (MATS), " a closer look at
the facts suggest that retirement decisions may
have nothing to do with environmental regulations
at all and everything to do with economics
brought about by sustainable lower natural gas
prices. " He continued, " In the current natural
gas price environments, coal plants are financially
challenged even before considering the
installation of expensive environmental retrofits "
like scrubbers, selective catalytic reduction
(SCR) systems, baghouses, and flue gas
desulfurization (FGD) equipment.
What's more, Susan Tierney, a former Department
of Energy official and managing
principal with Boston-based Analysis Group
Inc., told POWER in an interview, " The bright
signal is that if units that are inefficient or uncontrolled
were to be retired due to EPA rules,
they would do so in a couple of years. " Instead,
the fact that many generating units are
retiring in advance of EPA compliance deadlines
suggests that current economics rather
than environmental rules may be the dominant
deciding factor. (Tierney wrote " Why Coal
Plants Retire: Power Market Fundamentals as
of 2012 " for the July/August issue of COAL
POWER, at www.coalpowermag.com.)
Revising Compliance Costs
Then, too, compliance costs are being recalculated
by some of the nation's most coal-dependent
power generators. In late July, Nick
Akins, CEO of American Electric Power
(AEP), told analysts the utility was revising
down the cost of complying with EPA regulations.
" When we first started this process,
we were looking at $8 billion, and it's come
down to just over $6 billion, " Akins said,
adding that the utility expects its compliance
expense " to continue to be refined. "
Akins said that installing scrubbers on
AEP's coal units posed a " relatively high
hurdle " and that " in some-in many cases-
it's already done. In some cases, it continues
to be an evaluation. " Akins referred to a rewww.powermag.com
port
released in May by the Electric Power
Research Institute (EPRI), which suggested
that compliance costs could be reduced by
as much as $100 billion industry-wide if environmental
regulators offered flexibility in
complying with emission rules.
In the report, " Prism 2.0: The Value of Innovation
in Environmental Controls, " EPRI
examined the potential impact on the existing
generation fleet of several current and pending
EPA regulations:
■ MATS rule with compliance by 2015.
■ Clean Water Act (CWA) 316(b) for cooling
water intake structures with compliance
by 2018. (This was modeled as requiring
closed-cycle cooling on facilities with intake
flow of greater than 125 million gallons
of water a day.)
■ Resource Conservation and Recovery
Act (RCRA) regulation on coal combustion
residuals with compliance by 2020.
(This rule was modeled under subtitle D
of RCRA, or as nonhazardous wastes.)
■ Updated National Ambient Air Quality
Standards (NAAQS) on sulfur dioxide
(SO2
) and nitrogen oxides (NOx
) by 2018.
The EPRI analysis found that installing a
suite of new emissions controls would cost
the U.S. economy up to $275 billion between
2010 and 2035 in present value terms
if the current course is followed. EPRI said
that by providing a flexible path, the overall
cost could be reduced by $100 billion while
achieving the same level of compliance.
A second major coal consumer-Southern
Co.-also revealed it has recalculated its
compliance costs. CFO Art Beattie told analysts
the utility previously estimated its cost
to comply with the EPA's MATS rule alone
could reach $2.7 billion between 2012 and
2014. Southern said that this amount could
fall by anywhere from $500 million to $1
billion, depending largely on the number of
baghouses in its final compliance strategy.
POWER | October 2012
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POWER October 2012

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