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ctober 2012Electricity CurrentsA survey of current industry news and developments
Blame Economics, Not EPA, for Coal’s Predicament
In Electricity Currents This Month:
Blame Economics, Not EPA, for Coal’s
Predicament . . . . . . . . . . . . . . . . . . . . . . . . . 1
Jevons ‘Rebound’ Theorists Draw Rebuffs
from Efficiency Proponents . . . . . . . . . . . . . . 1
Lack of Viable Options Leaves Japan in
Muddle on Nuclear Policy . . . . . . . . . . . . . . . 3
Electricity Currents is compiled from the
monthly newsletter EEnergy Informer pub-
lished by Fereidoon P. Sioshansi, President
of Menlo Energy Economics, a consultancy
based in San Francisco. He can be reached
As the November election approached, everything in
Washington and beyond was viewed from the highly
polarized and politicized perspective of both parties
trying to milk the issues for all they can. The recent
demise of coal was no exception. And though the
election outcome has now been determined, the fracture
points revealed during the campaign are likely to be
with us for some time.
Long considered the fuel of choice for power
generation in the U.S. – as in many other countries –
coal has been gradually losing market share, mostly to
natural gas. Coal’s downward trend, however, has
accelerated in the past couple of years with gas prices at
historically low levels. Although the figures fluctuate
seasonally and depend on temperature and load, in the
past few months power generation from natural gas has
been running at near parity with coal, something few
observers could have imagined even a decade ago.
There are several explanations for this, chiefly the
relative cost advantage of natural gas at its currently
Continued on page 5
, Vol. 25, Issue 8 1040-6190/$–see front matter
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evons ‘Rebound’ Theorists Drawebuffs from Efficiency Proponents
Like any perennial debate, the one
bout the rebound effect simply refuses
o go away, on matter what new
nformation or perspective is injected into
he debate. The basic argument is that
f you replace an inefficient car, or
ightbulb, or refrigerator with a more efficient
ne – everything else being equal – the
ypical consumer will drive farther, use more
ight, and buy bigger fridges, thereby
irtually canceling any energy efficiency
ains. Those who subscribe to this theory
laim that making appliances and other
lectricity-consuming devices more efficient is
ostly counter-productive because
consumers will simply use more.
1
O
Not surprisingly, the government’s new policy
came under attack by both sides. Anti-nuclear
groups said the phase-out deadline was too long
and had too many loopholes. The utilities,
represented by the Federation of Electric Power
Companies (FEPC), said it would hurt the
country’s economy by jeopardizing its energy
future. The head of FEPC, Makoto Yagi,
criticized the policy as ignorant of the impact it
would have on utilities. ‘‘Therefore, we strongly
ask that the Government of Japan address
challenges, and also review the practicality of the
new energy policy.’’
Blame Economics, Not EPA
Continued from page 1
ctober 2012, Vol. 25, Issue 8
The head of the new Nuclear Regulatory Agency
(NRA), Shunichi Tanaka, said new standards would
be established to restore public confidence –
something that has always been sorely lacking.
Emphasizing the agency’s new independence,
Toyoshi Fuketa, one of the new NRA
commissioners, said, ‘‘We only check the risk
involved with a reactor. It is not our concern
whether a reactor is needed (to serve the load) or
not.’’ That would constitute a welcome change in
policy. &
http://dx.doi.org/10.1016/j.tej.2012.10.005
, for Coal’s Predicament
low prices but also environmental benefits,
including the fact that natural gas emits roughly
half as much carbon into the atmosphere as coal
for an equivalent unit of generation.
According to the Energy Information
Administration’s latest data, natural gas power
generation rose 34 percent between January and
June 2012 relative to the same period in 2011; coal
generation declined 20 percent in the same period.
Clearly natural gas is gaining ground at the
expense of coal. Tightening regulations on coal is a
factor, but natural gas’ cost advantage speaks
volumes.
The Republicans, who – broadly speaking – are
not fond of big government or regulation,
especially environmental regulation, blame the
Obama Administration, especially the
Environmental Protection Agency (EPA), for coal’s
predicament. An analysis by the American
Coalition for Clean Coal Electricity – you can guess
the group’s orientation – concluded that 31 GW of
coal plants, roughly 10 percent of U.S. installed
capacity, may be shut down as a result of
tightening regulations and changing economics of
electricity generation. It was a perfect subject for
TV sound bites and negative TV attacks on the
incumbent administration, but it was mostly
untrue, as were many other messages propagated
for political gain during the recently concluded
election season.
True, the EPA has been gradually tightening
regulations on coal-fired plants, and these will, in
time, make coal plants more expensive to build
and operate in the future. For example, a pending
new requirement, expected to go into effect in
March 2013, will put new restrictions on mercury
emissions – something that is equally bad for
humans, whether they are Republicans or
Democrats. Another EPA proposal, expected to
take effect in April 2013, will require new coal-
fired plants built after the deadline to be equipped
with carbon capture and storage (CCS) capabilities,
which will make them significantly more
expensive to build and operate.
The fate of these EPA proposals – whether they
will take effect, or be postponed, watered down or
scrapped – is anybody’s guess. But it is fair to say
that the likelihood of more stringent regulations
was far less likely under a Republican
Administration than a Democratic one if you went
1040-6190/$–see front matter 5
6
by the rhetoric of the two parties. With Obama
having won reelection, at least that small part of
the puzzle is no longer a mystery.
What the EPA proposals have done, however, is
to introduce a new element of uncertainty on the
future of coal. Many developers and investors are
less likely to want to build new coal fired units not
knowing if, when, and how new restrictions may
take effect and what their ultimate cost
implications may be.
The April 2013 deadline, in particular, has
prompted a number of entities with plans to build
coal-fired plants to try and start construction prior
to the deadline. Any plants built after April 2013
may be subject to new restrictions, making them
uneconomic, especially compared to low-cost
natural gas, currently selling at around $2.80 per
million BTUs.
While estimates vary, many experts believe that
building new coal plants will not make economic
sense – with or without EPA regulations – so long
as natural gas prices are below $4 per million
BTUs. In other words, natural gas prices have to
rise to roughly twice today’s level for coal to
become economic.
Amory Lovins, the energy efficiency guru, famou‘‘we should mandate inefficient
1040-6190/$–see front matter
One can, of course, speculate about how long
the current low natural gas prices will last. If you
are of the opinion that, within a few years, natural
gas will trade above $4 per million BTUs, and you
also assume that EPA’s proposed rules on
mercury, carbon emissions, fly ash, etc., will
be shelved, then building new coal-fired plants
ahead of that April 2013 deadline may be a
good bet.
Viewed from a longer-term perspective, coal’s
future in a carbon-constrained world, especially in
developed countries, does not look overly
promising. As noted by Sierra Club’s Sanjay
Narayan, ‘‘At some point, (investors & generating
companies) have to accommodate the world that is
changing around them.’’
This may be difficult to explain to coal miners
who’re about to lose their jobs because of falling
demand or rapidly changing climate. On the other
hand, we all know what happened to industries
and businesses that did not accommodate the
world that changed around them – think of
Kodak. &
http://dx.doi.org/10.1016/j.tej.2012.10.003
sly wrote that if Jevons’ argument is correct,equipment to save energy.’’
The Electricity Journal
