If you’ve been following U.S. power industry news for the last few years, you would be forgiven for believing that coal is about to surrender its long-term hold on the electricity sector. Utility after utility has announced plans to retire hundreds and even thousands of megawatts of coal-fired capacity, and to pull the plug on coal plants under development. In the absence of Congressional action, some analysts have even questioned whether just the threat of tighter EPA regulations could be enough to encourage utilities to shut down substantial amounts of coal generation.
But the U.S. Energy Information Administration (EIA), in its 2011 Annual Energy Outlook released this week, is less sanguine about coal’s imminent demise. Although proposed EPA regulations on air emissions, coal ash, and water intake could make a major dent in coal’s market share, the report says, they won’t be enough to end coal’s reign as the largest source of electricity—at least not without a price on carbon dioxide.
Still, according to the EIA, if electricity prices stay low (as they are expected to, thanks to predicted low natural gas prices) and at least some of the proposed EPA regulations enter into force, utilities could decide that for many coal plants, a graceful retirement makes more sense than investing in costly retrofits. This is especially the case for small, old, and inefficient units.
How would this work? The Clean Air Transport Rule, which the EPA proposed in July 2010, could require coal plants to install flue gas desulfurization (FGD) scrubbers to reduce sulfur dioxide emissions and catalytic convertors to reduce nitrogen oxide emissions. The Utility Boiler Maximum Available Control Technology (MACT) rule could mean that coal plants have to install fabric filters or baghouses and activated carbon injection (ACI) systems to reduce emissions of mercury, particulate matter, and other metals and acid gases.
All of these emissions control systems come at a cost. In analysis published last year, the Brattle Group estimated that installing scrubbers would add 0.8 to 3.4 cents per kilowatt-hour to coal plants’ costs, and installing SCR and/or ACI in addition would mean a total cost increase of 1.2 to 4.6 cents per kilowatt-hour. Other regulations that the EPA has discussed could require plants to install cooling towers and close or retrofit coal ash storage impoundments, further adding to costs.
These proposed regulations are not final yet, and there is still substantial uncertainty surrounding the details of their requirements and the timing of their implementation. But utility owners must assign some probability to strengthened EPA regulations when making investment decisions for the future.
So how many coal plants could actually be at risk of retirement? At the moment, of the 316 gigawatts of installed coal capacity in the U.S., 52 percent does not have scrubbers, 57 percent does not have selective catalytic converters, and almost none have baghouses or ACI. For some plants, especially newer, more-efficient plants, owners will be able to justify plant retrofits. For others, EPA regulations will hasten their retirement.
In the Annual Energy Outlook 2011, the EIA estimates that varying scenarios with EPA regulation could mean between 14 and 73 gigawatts (GW) of coal plant retirements by 2035, compared to 9 GW in a baseload scenario with no additional EPA regulation. These estimates are similar to others published over the last year from Brattle, NERC, and ICF International. (See Table.)
Estimates of Coal Capacity Projected to Retire or “At Risk” due to Proposed EPA Regulations
|Study||Capacity of Coal-Fired Generation|
|EIA, April 2011||9-73 GW by 2035|
|Brattle, December 2010||50-65 GW by 2020|
|NERC, October 2010||10-35 GW by 2018|
|ICF, October 2010||75 GW by 2018|
In all of the EPA regulation scenarios it evaluated, the EIA found that coal’s share in the U.S. electricity mix declined, with renewable energy and natural gas playing larger roles. But even in the scenario with the most aggressive EPA regulation combined with low natural gas prices, the EIA found that while coal’s share declined from 43 percent of generation in 2009 to 34 percent by 2035, it maintained a narrow lead as the largest source of electricity. Only in a scenario that assumed a rising price on carbon dioxide beginning at $25/ton in 2014 did the EIA find that coal’s share slipped from first to third place, behind natural gas and renewable energy. (See Figure.)
While on the surface these might seem like surprising findings, given the share of the U.S. coal fleet that could be retired with increased environmental requirements, it’s important to remember that a lot of these retirements would be of older, smaller units that already see very little active service. With retrofits, newer and larger plants could actually see increased utilization—unless a price on carbon or EPA regulation of greenhouse gases increases the cost of actually combusting coal.