Industry insiders didn’t need Platts to tell them the market remains weak. What they did learn, if they didn’t know already, is that anemic demand is not the only challenge; the Obama Administration is another. The consensus view, widely expressed at the two-day conference, was that the nation’s electricity grid and the economy it supports would be seriously damaged from further coal capacity retirements triggered by Environmental Protection Agency’s (EPA) greenhouse gas regulations.
Rick Whiting, president of Kinder Morgan Resources, summed up conditions pretty well: “Regulations have had an unprecedented impact on every aspect of the coal value chain — all against the background of weak market conditions and competition from subsidized renewable fuels.”
Like the industry itself, Whiting’s company endures today while preparing for tomorrow. Confident of growing export demand for U.S. coal, Kinder invested $413 million in upgrades at three ports on the Gulf and the eastern seaboard. “Demand will be awesome” when global markets turn up, said Whiting. Meanwhile, he added, “if we can’t be winners in the current environment, we’ll be survivors.”
EPA’s 2010 MATS rule will force the retirement of roughly 60 gigawatts of coal-based generation by 2020, most of this will be lost by 2016. That has not only decked producers, but has left the grid reeling, said several speakers at the event. “If they [EPA] force even more retirements there could be huge economic consequences,” said Bruce Braine, American Electric Power’s senior policy analyst. EPA’s coming greenhouse gas controls for existing capacity should acknowledge the emissions reductions already made, he said. “We’ve already cut our CO2 emissions by 31%, so we’re telling EPA: ‘We gave at the office.’”
Len Peters, Kentucky’s senior environmental official, said states want similar consideration for their emissions reductions when EPA provides them with guidance for existing plants. The commonwealth will soon launch a major reforestation program to mitigate GHG emissions, adding to the significant reductions already recorded from devastating coal plant closures that Peters said have left 10,000 Kentuckians jobless in the past year alone.
Several speakers said the Arctic Vortex was an ominous sign of a future with less coal. Almost 90% of AEP’s coal-fired capacity slated for retirement in 2015 proved essential for heating homes in the frigid Northeast this January. Michael Shinn, general manager at SCANA Corp., said erratic gas deliveries during January left his South Carolina company scrambling for coal and warning of “transmission issues” to come.
One reason utilities rationed their coal burn is the shifting loyalties of railroads from coal to oil and gas, making timely deliveries more difficult than ever. “The railroads don’t have surge capacity, and coal is not their first love anymore,” said Emily Medine, principal at Energy Ventures Analysis. The result leaves utilities no good option but to maintain higher stockpiles as they did 15 years ago.
If the administration requires further evidence of the perils of abandoning an “all of the above” energy policy, it need look no further than Germany. There, greens led the charge for renewables that put German industry in the red. Erich Schmitz, managing director of the German Coal Importers Association, said a pioneering European Union effort to convert base load power to renewable fuels has left Deutschland’s economy reeling, the government in full retreat and coal imports topping 50 million tons last year.
Germany may have learned its lesson. With 8,000 megawatts of new, efficient coal capacity coming online, coal could be the comeback fuel that in a few years generates almost half of the nation’s electricity. When will our government learn its lesson?
Luke Popovich is a spokesperson for the National Mining Association, the industry’s trade group based in Washington, D.C.