By Betsy B. Monseu
July 3, 2017 - The new administration in Washington, D.C., has a sharply different vision for the development and use of our nation’s abundant energy resources, including coal. These riches are seen as a strength, not something to be kept in the ground. They are viewed as a means to achieve energy independence and provide energy security.
Change Begins Early Under Trump
Less than one month into the new administration, Congressional Review Act legislation revoked the Department of the Interior’s “Stream Protection Rule” (SPR). This rule would have restricted access to coal reserves, increased mining costs, eroded federal and state tax revenues, and resulted in the loss of high numbers of well-paying jobs. Notably, the absence of the SPR does not increase coal mining’s risk to the environment; effective state programs overseen by the Interior Department are already in place.
President Trump’s executive order on energy independence and economic growth, signed a little more than two months into his presidency, mitigated a threat to the use of coal for electricity generation. That order directed an immediate reevaluation of the Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) for greenhouse gas reductions from the power sector. The Energy Information Administration’s Annual Energy Outlook 2017 shows that 240 million tons of annual coal production (as of 2040) will be maintained without the CPP. As to the CPP’s environmental impact, even the EPA acknowledged it would be negligible.
These policy actions, and better market conditions, are resulting in a more optimistic view of the coal industry, including by investors. Improvements include a strong market for metallurgical coal, increased export opportunities, and higher natural gas prices, which means more coal-based generating units are running more often than a year ago.
Notwithstanding the turn for the better, there are ongoing barriers to a longer-term path of sustainability for the coal industry. Addressing these barriers is important to the power sector.
Fuel diversity and choice are necessary to maintain a robust, competitive fuels marketplace that keeps electricity prices affordable for consumers, enhances grid reliability, and supports energy security. Coal is indispensable to the power sector’s ability to fulfill these objectives. Its price level and price stability over time have been key to affordable electricity.
However, the U.S. coal fleet has been reduced by about 50,000 MW in the past several years due to plant closures to comply with EPA regulations. More coal retirements are likely to occur due to lopsided policies for building new electricity generation sources, New Source Performance Review issues inhibiting improvements to existing coal plants, and market structures that do not incorporate the value of coal’s dispatchable 24/7 generation capability and its ability to store fuel inventory on-site.
A 2014 IHS Energy study showed the diversity of a U.S. generation fleet anchored by coal saves Americans $93 billion annually and reduces by half the potential variability of monthly power bills. What will happen to natural gas prices with coal less available? The marketplace should have concern about that dynamic.
The buildout of renewables generation continues, spurred by polices, including attractive tax incentives and subsidies. With electric load growth low, flat, or negative in some regions, coal and other generation sources are being pushed out, unable to compete with “free.” More recently, subsidies for nuclear plants are further complicating the electricity markets and negatively affecting coal generation.
Coal Remains Important
Recent issues and decisions regarding reliability continue to demonstrate the importance of coal to grid reliability, and the risk associated with reduced fuel diversity and increased reliance on non-coal power generation.
California has moved away from coal to renewables and natural gas. Southern California Gas Co. in late April warned that it might not be able to meet electricity demand during upcoming peaks due to continued restrictions on its Aliso Canyon gas storage facility, in the aftermath of a leak there in the latter part of 2015. Within days, the California Independent System Operator issued a “Stage 1 Emergency” notice that it could not meet operating reserve requirements for a 2-hour period.
In the Northeast, another region that has moved away from coal, the B.L. England coal units scheduled for shutdown in May were ordered by PJM to continue operations for two years to protect reliability in that region.
And in Oklahoma, the Department of Energy issued an emergency order in April for the Grand River Dam Authority to continue operation of a coal-fueled unit to maintain grid reliability there.
With investments of $111 billion made through 2015 for emissions reductions, 90% of the U.S. coal fleet is equipped with advanced emissions controls and operating cleaner than ever. Protecting these plants and investments, not stranding them, must be a policy priority.
President Trump and key Cabinet members have declared the federal “war on coal” over. They have pledged to level the playing field. Writing the next chapter for coal has begun, and it must continue with urgency.