For decades, coal has been the dominant energy source for generating electricity in the United States. EIA’s Short-Term Energy Outlook (STEO) is now forecasting that 2016 will be the first year that natural gas-fired generation exceeds coal generation in the United States on an annual basis. Natural gas generation first surpassed coal generation on a monthly basis in April 2015, and the generation shares for coal and natural gas were nearly identical in 2015, each providing about one-third of all electricity generation.
The recent decline in the generation share of coal, and the concurrent rise in the share of natural gas, was mainly a market-driven response to lower natural gas prices that have made natural gas generation more economically attractive.
Environmental regulations affecting power plants have played a secondary role in driving coal’s declining generation share over the past decade, although plant owners in some states have made investments to shift generation toward natural gas at least partly for environmental reasons. Looking forward, environmental regulations may play a larger role in conjunction with market forces. Owners of some coal plants will face decisions to either retire units or reduce their utilization rate to comply with requirements to reduce carbon dioxide emissions from existing fossil fuel-fired power plants under the Clean Power Plan, which is scheduled to take effect in 2022 but has recently been stayed by the Supreme Court pending the outcome of ongoing litigation.
And who would have thought:
Beyond the growing market share for natural gas-fired generation over the past decade, coal’s generation share has also been reduced by the growing market share of renewables other than hydroelectric power, especially wind and solar. Unlike the growth of natural gas-fired generation, which has largely been market-driven, increased use of nonhydro renewables has largely been driven by a combination of state and federal policies. The use of renewable energy sources such as wind and solar has also grown rapidly in recent years so that generation from these types of renewables is now surpassing generation from hydropower.
Here’s an idea … instead of spending all of their time just complaining about U.S. Environmental Protection Agency rules, a couple of groups in West Virginia have put their heads together to come up with recommendations for how the state could comply with EPA’s proposed Clean Power Plan. You can read the new report — just out this morning — from the West Virginia College of Law’s Center for Energy and Sustainable Development and Downstream Strategies here.
Achieving compliance with the Clean Power Plan presents a number of challenges for West Virginia. The state’s heavy reliance on coal-fired electricity generation and the importance of the coal industry in the state economy mean that West Virginia will bear a disproportionate impact from the proposed rule as less coal is burned at power plants within the state, and as other states that have historically imported West Virginia coal reduce their consumption. Burning less West Virginia coal at power plants—both within West Virginia and around the country—means fewer coal mining jobs and reduced severance tax revenue for the state and municipalities. While these challenges appear stark in the face of carbon pollution mandates, they have persisted in West Virginia for decades and in recent years have grown increasingly more pressing as market forces converged with increasingly stringent environmental regulations. West Virginia is uniquely positioned to adapt to these changes and meet the many challenges facing the Mountain State. While West Virginia power plants must reduce coal consumption to comply with the Clean Power Plan, the state’s utilities can at the same time make new investments in other energy resources developed in West Virginia.
Policymakers in West Virginia can mitigate the negative impacts of the Clean Power Plan and take advantage of the opportunities it presents by utilizing the full flexibility provided by the rule to shape a strategy for West Virginia that reflects its unique circumstances and leverages its strengths. West Virginia is fortunate in that it has tremendous energy resources in addition to coal, and these other resources—including natural gas, renewable energy (wind, solar, hydropower), and energy efficiency—are relatively untapped. Implementing the legislative and regulatory policy recommendations in this report would create a climate that promotes new investment in renewable and distributed generation technologies, energy efficiency, and natural gas–fired generation. By spurring innovation and diversifying the state’s electric power sector, Clean Power Plan compliance would reduce carbon pollution and provide West Virginians with energy savings and new economic opportunities.
Gazette photo by Lawrence Pierce of the Kanawha River Plant in Glasgow, W.Va.
There’s been a fair amount of hand-wringing about the planned closure by American Electric Power’s Appalachian Power subsidiary of the Kanawha River, Philip Sporn and Kammer power plants (see especially Daily Mail stories here and here). Several years after the company’s decisions were announced, all this consternation led staff over at the state Public Service Commission to ask the PSC to investigate the closures.
Lawyers for Appalachian Power responded initially by pointing out that they have actually already provided the commission with a great deal of information on the matter as part of several previous cases. That wasn’t good enough for the PSC, and commissioners ordered the power company to provide more details. Appalachian lawyers did that yesterday, providing this 90-page filing.
Among the more interesting parts of Appalachian’s response:
— Almost all of the operating employees of the Disposition Units have been reassigned or have retired or taken severance.
— Compliance with the MATS Rules would require significant construction work. It might be possible for Disposition Units to meet the requirements of the MATS Rule by constructing Selective Catalytic Reduction (“SCR”) and Flue Gas Desulfurization (“FGD) systems … The installation of SCR and FGD systems would require installation of material handling systems, wastewater treatment systems, Absorber vessels, new ductwork, new stack exhausts, and numerous other systems. APCo has not undertaken any design work for SCR or FGD systems for the Disposition Units because the costs were deemed to be prohibitive, in light of the age and condition of the units.
— Because of the time for the construction of such systems, any Disposition Units at which it was decided to construct these systems could not be returned to service for a minimum of approximately five ( 5 ) years from the date such construction projects were begun.
— The Company has not performed any detailed cost estimates because the order of magnitude of the costs was so tremendous that APCo deemed it imprudent, given the age and condition of the Disposition Units, to have its customers bear such costs, particularly over the comparatively short anticipated lives of any of the conversion or retrofit projects discussed above.
As the first full week of this year’s legislative session comes to an end, it’s more clear than ever that there’s little room up at our statehouse for facts. If you listened to the debate on the House floor yesterday as delegates took turns standing up for coal, you know what I’m talking about.
But seriously, the longer I watch West Virginia politics — especially politics surrounding coal and energy — the more that each debate over each issue seems to become more and more deprived of facts or data, let alone reasoned analysis of those facts and data.
… State records show that the 2009 law actually does little to hurt the coal industry and maybe even less to really promote alternatives like wind energy or solar power. West Virginia’s coal-heavy utilities say they have been — and will continue to be — able to meet the law without adding new renewable generation.
This story was based on annual reports that West Virginia’s two largest utilities filed with the state Public Service Commission (see here and here), and with an annual analysis that the PSC itself performed (see here). No one has really produced any facts or data or evidence of any kind that disputes this information. None.
It’s not surprising that career political consultants tried to use passage of this do-nothing “alternative” energy bill tried to re-label it as “cap and trade” so they could use it against now-Sen. Joe Manchin and Gov. Earl Ray Tomblin (see here and here). And you have to hand it to the Republicans — they campaigned against this bill, and in repealing it, they’re doing what they said that they would.
FirstEnergy Corp. (NYSE: FE) subsidiaries Mon Power and Potomac Edison, along with the majority of the parties to the companies’ generation transaction proceedings involving the Harrison Power Station, today filed a comprehensive settlement agreement with the Public Service Commission (PSC) of West Virginia, which, if approved, would be expected to reduce an average residential customer’s electric bill by about $1.50 a month.
We’ve got an initial crack at a story online here, and you can read the settlement agreement for yourself here. Previous coverage of this case is available here, here and here. Holly Kauffman, president of FirstEnergy’s West Virginia operations, said:
We appreciate the support of the parties in reaching this agreement, and look forward to implementing our cost-effective plan to provide our customers with electricity generated in the heart of our service territory. Having 100 percent ownership of the Harrison Power Station will help shield our customers from unpredictable spot market prices and help provide greater rate stability for years to come.
As a news consumer, I’m certainly wishing today that the great Pam Kasey had not left The State Journal, because Pam would be all over this story — and reading her coverage would let me steal lots of ideas for questions to ask in preparing a piece for tomorrow’s Gazette. But there are a few points to keep in mind:
— The deal still needs to be approved by the West Virginia Public Service Commission, and at least one party that’s been very opposed to the transaction — the West Virginia-Citizen Action Group — remains opposed.
— Initially, FirstEnergy had proposed a rate hike amounting to $63 million annually for Mon Power customers, to cover the costs of the Harrison Plant deal. Now, the company is agreeing to instead reduce rates by about $16 million a year, which amounts to $1.42 per month for residential customers. But those rates aren’t set in stone forever, and they could change starting in 2015, depending on any variety of factors.
— While perhaps at least temporarily improving the rate picture, the settlement does not really address the concerns from groups like the Sierra Club (which has tentatively approved the settlement) or WV-CAG that the plant transfer would further lock West Virginia into coal-fired power, at a time when a variety of factors are chipping away at coal and making it less competitive.
— FirstEnergy touts all kinds of things it’s going to do under the settlement — creating 50 new jobs in West Virginia, giving money to teach energy efficiency in our public schools, etc. — but the bottom line is that the energy efficiency improvements FirstEnergy is committing to here (reductions of 0.5 percent between 2013 and 2018) amount to not that great of a jump compared to what other states are doing.
We’ve had a few stories in the Gazette and on this blog about the recent proposals by FirstEnergy and American Electric Power to transfer greater ownership of some of their coal-fired power plants to their West Virginia-based subsidiaries (see here, here, here and here).
Now, there’s a new report out that presents some of the evidence and analysis questioning whether the state Public Service Commission should approve these proposals. The report, Mountain State Maneuver: AEP and FirstEnergy try to stick ratepayers with risky coal plant, was put together by Cathy Kunkel of Energy Efficient West Virginia and by energy consultant David A. Schlissel. Kunkel and Schlissel served as expert witnesses for citizen groups that intervened in the PSC cases to argue against the plant transfers.
In their report, they conclude:
These proposals will have the effect of shifting the risks of coal-fired power generation from merchant generators to captive ratepayers, while increasing both the cost and the risk for West Virginia consumers. They also raise concerns about the ability of holding companies to manipulate regulated subsidiaries …
… Neither proposal is in the best interest of the companies’ captive ratepayers in West Virginia, who would be locked into coal-fired generation, and its associated risks, for at least the next two decades. Furthermore, the FirstEnergy and AEP West Virginia companies would have excess capacity over the next several years – exactly the time period during which regional electricity market prices are projected to be low. Yet the West Virginia regulated subsidiaries have made no effort to negotiate a fair price for these plants or seek alternative options.
By James VanNostrand, Director, WVU College of Law Center for Energy and Sustainable Development
As reported by Ken Ward Jr. in the Charleston Gazette, a number of questions are being raised about FirstEnergy’s proposal to transfer ownership of 80% of the Harrison coal plant to Mon Power. The Harrison coal plant is a huge, 1984-megawatt (MW) facility built in the early 1970s in Haywood, West Virginia. Mon Power currently owns 20% of the plant, and the remaining 80% is owned by an unregulated FirstEnergy affiliate, Allegheny Energy Supply Company. Due to coal plant closings, Mon Power is purportedly 938 MW short of capacity, and is proposing to acquire the 1576 MW installed capacity in Harrison that it does not already own. (As part of the deal, Mon Power is proposing to sell 100 MW of capacity in its Pleasants Power Station to AE Supply, for a net capacity addition of 1476 MW.) Approval of the proposed deal is currently pending before the West Virginia Public Service Commission (PSC).
From this author’s analysis of the application to the PSC, the proposed deal is a bad one for Mon Power ratepayers (and the author is one such ratepayer), and should be rejected by the PSC. Perhaps the terms of the deal can be rehabilitated through conditions that the PSC could attach to its approval. As currently proposed, however, the application is sorely deficient, and fails to meet the “public interest” standard necessary for its approval. The deficiencies include the following:
The Proposed transaction would give Mon Power more capacity than it needs, thereby precluding any role for energy efficiency, natural gas-fired generation, or wholesale market purchases. As noted above, Mon Power claims to be 938 MW short of capacity in 2013, and the transaction would add 1476 MW of new capacity (1576 MW from Harrison, less 100 MW of Pleasant being sold). Thus, Mon Power’s capacity needs will be much more than filled by additional coal plant capacity. Given the excess capacity situation that would be created, there will be a strong disincentive for FirstEnergy to promote energy efficiency (which would simply exacerbate the excess capacity position). Moreover, there will be no room in Mon Power’s resource strategy for the possibility of including some natural gas-fired generation in its portfolio of resources. Finally, there will be no room in Mon Power’s resource strategy for wholesale market purchases, which are substantially cheaper than the Harrison plant acquisition. PJM wholesale prices are down 29% over the past year, due largely to cheap natural gas-fired generation, and wholesale prices are likely to remain relatively low for the foreseeable future. By filling its entire capacity needs (and then some) with the Harrison plant purchase, Mon Power will be precluded from pursuing other, cheaper options, such as energy efficiency, natural gas-fired generation, and purchases from the wholesale market. The Center for Energy and Sustainable Development has prepared a Discussion Paper on Integrated Resource Planning that highlights the reasons for a diversified portfolio mix, including natural gas-fired generation, renewable energy resources, and energy efficiency.
FirstEnergy completely ignores energy efficiency as an alternative, even for a portion of the needed capacity. FirstEnergy’s “Resource Plan” states that “demand side resource options are not a viable solution capable of meeting Mon Power’s obligations . . . [as they] do not address energy shortfalls as significant as the shortfall faced by Mon Power.” [Resource Plan, p. 56] Admittedly, energy efficiency programs cannot be ramped up quickly enough to make up a [claimed] capacity deficit of 938 MW. But energy efficiency, at 3-4¢/kWh, is substantially less than the 7.4¢/kWh that FirstEnergy is proposing to charge Mon Power customers for Harrison’s output. FirstEnergy needs to start treating energy efficiency as a resource, alongside supply-side options; this is a good proceeding to illustrate the comparative advantages of investments in energy efficiency versus buying an over-priced 40+ year-old coal plant. FirstEnergy has virtually no energy efficiency program offerings for its West Virginia customers, to help them manage their energy costs. First Energy’s energy efficiency programs in West Virginia were established to save 0.5% in 5 years, which is lower than the level being achieved in 40 other states. As far as actual results, FirstEnergy didn’t even reach 0.1% savings in the first year. The Center for Energy and Sustainable Development has prepared a Discussion Paper on Energy Efficiency that makes the case for increased investments in energy efficiency in West Virginia, and by FirstEnergy in particular.
The price for the Harrison plant acquisition is inflated far above what utility regulators ever would allow, by reference to generally accepted ratemaking principles. The net book value of the plant, based on “original cost depreciated” (the basis for ratemaking under the FERC Uniform System of Accounts, and followed by virtually every PUC in the country), is $574 million [$1.24 billion less $667.3 million in accumulated depreciation]. FirstEnergy is proposing to include an “acquisition adjustment” of $589.6 million that would more than double the acquisition cost of the plant for West Virginia ratepayers, to $1.163 billion. This “acquisition adjustment” is purportedly based upon “a purchase accounting fair value measurement component . . . related to the completion of the FirstEnergy/Allegheny merger in February 2011.” [Wise Testimony, p. 7] FirstEnergy claims that without PSC approval to include the unamortized portion of the acquisition adjustment in rate based until it is fully amortized, “Mon Power will not proceed with the transaction.” [Wise Testimony, p. 7] As a regulatory attorney for 22 years in the Pacific Northwest who has handled the regulatory approvals for 7 different merger deals in front of 6 different PUCs in the West, this author can represent that these “fair value adjustments,” also known as “goodwill” adjustments, are NEVER recovered from utility ratepayers. Regulatory ratemaking principles simply do not allow it; rates are based on original cost depreciated of rate base assets, not some “fair market value adjustment” based on some utility deciding to overpay to acquire another utility. There is no basis for ratepayers being burdened with FirstEnergy’s foolish decision to overpay to acquire Allegheny. Most regulatory approvals of mergers, and all 7 of the deals in which this author was involved, impose conditions precluding the utility from ever seeking to recover such acquisition adjustments in rates. While this author has not personally reviewed the order approving the FirstEnergy/Allegheny merger, it is my understanding that FirstEnergy agreed to such a condition in connection with receiving regulatory approval of the merger.
The numbers for the transaction defy common sense, apart from what generally accepted ratemaking principles or the Uniform System of Accounts require. The value of the 20% of the Harrison plant already owned by Mon Power on its books is $319/kW, while the proposed purchase price for the remaining 80% is $767/kW. This price disparity is inexplicable, given that there is nothing physically different in the four-fifths of the plant not owned by Mon Power versus the one fifth of the plant that Mon Power already owns. Are the electrons coming from the Allegheny Energy Supply side of the plant really worth 2½ times the value of the electrons from the Mon Power side of the plant? Try explaining that to the average FirstEnergy ratepayer in West Virginia.
The price for the Harrison plant acquisition is substantially overstated and does not reflect the current value of the plant. Recent, comparable coal plant transactions provide some guidance on what used coal plants are selling for these days. It is interesting that FirstEnergy claims an upward $589.6 million adjustment to the price of Harrison based on “accounting fair value” at the time of the FirstEnergy/Allegheny merger, yet does not want to consider what the Harrison plant’s fair market value might be today. Such an “accounting fair value” adjustment would go in the other direction, as Harrison is currently worth far less than the price being sought by FirstEnergy from Mon Power ratepayers. Based on recent transactions, even the original cost depreciated figure of $574 million is substantially higher than market value, and a bad deal for Mon Power customers.
In a transaction announced in March 2013, Dynegy is acquiring 4561 MW of super-critical coal capacity from Ameren for $825 million, or a cost per kW of $180.88
In a transaction announced in March 2013, Energy Capital Partners is acquiring 2868 MW of super-critical coal capacity and 1424 of natural gas-fired capacity from Dominion for $650 million, or a cost per kW of $130
In a transaction announced in August 2012, Riverstone Holdings is acquiring 2265 MW of super-critical coal capacity from Exelon for $400 million, or a cost per kW of $176.60
Under FirstEnergy’s proposed transaction price of $1.163 billion, the cost per kW is $785.91, or almost 5 times higher than the average per kW price from recent transactions. Even using original cost depreciated for Harrison of $574 million, the cost per kW would be $388, or almost 2½ times higher than the average per kW price from recent transactions. The market value of Harrison, based on the average price from the above recent transactions ($171.45 per kW) is $253 million.
There was a flurry of activity yesterday afternoon in the wake of FirstEnergy Corp.’s quarterly conference call with stock analysts, with hints from some citizen bloggers that the company was on the verge of dropping its proposal to transfer the Harrison Power Station to its West Virginia subsidiary, Monongahela Power.
StopPathWV’s headline read “Harrison is no longer critical.” Bill Howley initially labeled his Power Line post, “CEO Alexander May Pull Plug on Harrison Scheme,” and wrote:
Tony seems to be sending signals that FirstEnergy may be dropping their Harrison power plant transfer to Mon Power.
Our financial plan is structured to improve the balance sheet, enhance liquidity and maintain investment-grade credit metrics. The plan initially focuses on reducing debt at our competitive companies, primarily FES and Allegheny Supply, by at least $1.5 billion. The proceeds of the Harrison-Pleasants transaction in West Virginia combined with asset sales are expected to be sufficient to fund the debt reduction. The assets we intend to sell are primarily our competitive hydro fleet, which includes nearly 1,180 megawatts that were initially in our plans to be sold in 2015.
As Keryn Newman’s StopPathWV blog (which has been following all of this very closely) said back in February:
It’s not “to help ensure reliable power for our Mon Power and Potomac Edison customers in West Virginia for many years to come,” it’s to raise desperately-needed corporate cash that West Virginia’s captive ratepayers will be stuck repaying for years to come. Let’s at least be honest about it, shall we, FirstEnergy?
FirstEnergy’s Harrison Power Station near Haywood is among the state’s largest coal-fired power plants. Ohio-based FirstEnergy wants to sell the plant to a West Virginia subsidiary, and Mountain State customers would fund the purchase through increased electricity bills. (FirstEnergy photo)
In its petitions for West Virginia and Virginia approval to transfer parts of the Amos and Mitchell coal-fired power stations from Ohio subsidiaries to Appalachian Power, AEP announced May 1 that federal regulators have no objection.
And in the other power plant sale case, involving FirstEnergy’s Harrison Power Station, a huge collection of testimony from PSC staff, the consumer advocate and various intervening parties hit the commission on Friday. You can read it all yourself by visiting the PSC’s website and searching for Case 12-1571-E-PC.
Also over at the State Journal, Pam Kasey wrote up one story that focused on the filing from PSC consumer advocate Byron Harris. Pam reports:
Cynical observers have suggested this proposal, and a similar proposal from Appalachian Power, are motivated for the two Ohio-based utility companies by a desire to move coal-fired power assets out of their Ohio utilities’ portfolios, where deregulation now forces them to compete, to West Virginia’s regulated market where the commission will guarantee the companies a return from ratepayers for the coming several decades.
“The transaction represents an effort to bail out the companies’ unregulated affiliates,” said PSC Consumer Advocate Byron Harris flatly in his testimony.
An alternative plan with energy efficiency and demand response, plus purchases from the market as needed, would cost $510 million less through 2034 than the proposal, in Schlissel’s analysis.
“Obtaining needed capacity and energy from the Harrison plant through the proposed (generation resource transaction) is the most expensive option,” he said.
Mon Power could care less what coal the company uses, as long as it is cheapest and meets the company’s needs, not those of WV … So, if the WV PSC approves the FE Harrison plant scheme, the Harrison plant will not operate any differently from the way it operates now, when 80% of the plant sells power on the open market using FE’s non-utility generating company.
FirstEnergy’s Harrison Power Station near Haywood is among the state’s largest coal-fired power plants. Ohio-based FirstEnergy wants to sell the plant to a West Virginia subsidiary, and Mountain State customers would fund the purchase through increased electricity bills. (FirstEnergy photo)
Make no mistake, Appalachian Power is committed not only to enhancing energy efficiency, but to diversifying our fuel sources. We are today and intend to continue making investments on both those fronts. However, neither of those goals should deter us from pursuing the best short- and long-term interests of our customers. Appalachian Power has a responsibility to provide power to customers in the most reliable manner at the best possible cost. The proposed transfer of Mitchell and Amos plants does just that.
My story, of course, had described the growing controversy over this issue this way:
Public Service Commission staff members and the agency’s consumer advocate already are raising serious questions about the proposals. Also, a growing number of various interest groups, from environmental organizations to gas industry lobby groups, have intervened in the two cases pending before the PSC.
A growing number of critics say the deals would lock West Virginia into relying on coal, a polluting fuel whose role in U.S. electricity production is in decline as world energy markets are in flux. The proposals are shaping up to be a major fight over the future of coal — and over a variety of other important energy issues, from efficiency and reliability to global warming.
“We’re at a turning point,” said Bill Howley, a Calhoun County resident who follows energy issues and advocates changes to the system on a blog called The Power Line.
If you’re interested in this issue, one of the things you definitely want to do is keep up with Bill’s blog, which can be accessed here. It isn’t always the sweet, moderate language we use here on Coal Tattoo, but Bill certainly gets right to the heart of things. For example, in one recent post, he explained:
If you can’t dazzle them with brilliance, baffle them with BS. That seems to be AEP’s approach to dumping its coal-fired dinosaurs on WV rate payers.
And in another recent piece, Bill reported on the demise (again) of legislation to require more comprehensive planning by the state’s utilities:
For the second year in a row, Bill Raney and the WV Coal Association butted in on a Legislative conversation about keeping electric rates lower for West Virginians. For the second year in a row, the coal industry manipulated and fear-mongered and got its pet legislators (both Republicans and Democrats) to kill bills that would have made a real difference for WV businesses and citizens.
One thing is crystal clear – WV’s coal industry sees lower electric rates as a clear threat to their profits. The industry wants to hold back the entire state in its desperate battle against declining productivity, rising production costs and declining demand for its product.
And it’s also worth checking out this post, in which Bill discussion who the real enemies of West Virginia’s coal industry are:
Wyoming’s sub-bituminous coal does not have the heat content of Appalachian Basin coal, but even with high transportation costs, Wyoming coal is out-competing WV steam coal in the US in a growing number of electricity markets.
Appalachian Basin coal is also facing serious competition from high sulfur, strip mined coal in southern Illinois. Now that the Cheney administration set aside the Clean Air Act, obsolete power plants, like WV’s John Amos plant and the Harrison Power Station, have been able to add stack scrubbers. These plants can now burn high sulfur coal again and still generate legal limits of sulfur and nitrogen emissions. And more and more of that high sulfur coal has been coming from strip mines in southern Illinois and western Kentucky.
So the real enemies of WV coal are not the phantoms of the WV Coal Association’s fevered imagination. The real enemies of the WV coal industry are in the industry itself. And, oh yeah, many of them, like Arch Coal and Alpha Natural Resources, are producing coal in Wyoming and Montana while they play WV politicians and coal miners for chumps.
The coal-fired Plant Scherer in operation at Juliette, Ga. (AP Photo/Gene Blythe, File)
In some ways, we should probably see the latest op-ed commentary from West Virginia University’s mining engineering professor, Syd Peng, as a major victory for science and truth. Unlike just about all of West Virginia’s political leaders, Professor Peng seems to have given up on trying to pretend that the overwhelming science on climate change doesn’t exist:
There are legitimate reasons to be worried about climate change. Global energy consumption is so great and rising so fast that human activities are linked to climate change. Sea levels are rising, storms are becoming more frequent and stronger, and large parts of the United States and other countries are now subject to extreme drought, resulting in less food production.
But to get to that part of his commentary, you have to first read through this:
With its ambitious plans for promoting energy efficiency and expanding the use of renewable energy sources in the fight against global warming, the Obama administration has climbed aboard the biggest bandwagon in energy policy. But the idea that a modern economy can forgo the use of fossil fuels and nuclear power because a combination of conservation and “clean” energy sources can take their place is absurd.
The biggest bandwagon in energy policy? Conservation and “clean energy” are absurd?
Well, we’ve been through the debunking of Dr. Peng before on this blog (see here and here), and this offering is in many ways similar to his early efforts. In attacking conservation as pointless and deriding a move toward renewable energy as “absurd,” Peng cites no data or studies. We’re just supposed to believe it because, well, he says so. And plenty of West Virginians — and especially our state’s policymakers — will do just that, because Professor Peng’s views play into our love of coal and our opposition to change. But for those who want to look a little closer at this, here are just a few things to think about.
… Energy efficiency measures — such as advanced buildings and industrial processes— and high-efficiency appliances, lighting, and motorsreduce demand for electricity by 35 percent below the Reference case by 2030.
And what about Professor Peng’s notion that replacing our current energy system with renewable sources is “absurd.” Well, again, he doesn’t cite any data or studies or evidence. But there are plenty of pretty smart people who think he is simply wrong about this.
For example, Stanford researcher Mark Z. Jacobson and University of California-Davis researcher Mark A. Delucchi, conclude in this paper:
… Producing all new energy with [wind, water and solar[ by 2030 and replacing the pre-existing energy by 2050. Barriers to the plan are primarily social and political, not technological or economic.
In this Nov. 13, 2012 photograph, workers’ vehicles fill the parking lots at Mississippi Power’s Kemper County energy facility near DeKalb, Miss. The plant, still under construction, is designed to use a soft form of coal called lignite in a gasification process to generate power. (AP Photo/Rogelio V. Solis)
Earlier today, Southern Company’s Georgia Power announced another in a long line of retirements from the nation’s aging fleet of coal-fired power plants:
Georgia Power expects to request approval from the Georgia Public Service Commission (PSC) to decertify and retire 15 coal- and oil-fired generating units totaling 2,061 megawatts (MW), the company announced today.
The request to decertify units 3 and 4 at Plant Branch in Putnam County; units 1-5 at Plant Yates in Coweta County; units 1 and 2 at Plant McManus in Glynn County; and units 1-4 at Plant Kraft in Chatham County, will be included in Georgia Power’s updated Integrated Resource Plan (IRP) that will be filed with the PSC on Jan. 31.
Units 3-4 at Branch, units 1-5 at Yates and units 1-3 at Kraft are coal-fired generating units. Kraft Unit 4 is oil- or natural gas-fired, and McManus units 1-2 are oil-fired.
Georgia Power said:
Several factors, including the cost to comply with existing and future environmental regulations, recent and forecasted economic conditions, and lower natural gas prices contributed to the decision to close these units.
Additionally, the company will ask for decertification of Boulevard 2 and Boulevard 3 combustion turbine generating units in Savannah upon approval of the IRP, due to the costs to repair and operate the units.
And CEO Paul Powers added:
We recognize the significant impact that these retirements will have on the local communities and we took that into account when making these decisions. These decisions were made after extensive analysis and are necessary in order for us to maintain our commitment to provide the most reliable and affordable electricity to our customers. We are in the midst of a significant transition in our fleet that will result in a more diverse fuel portfolio – including nuclear, 21st century coal, natural gas, renewables and energy efficiency – to ensure we maintain our commitment for generations to come.
The announcement reminded me of a recent Associated Press story, which the AP had dubbed “Southern’s Big Bet“:
In the woods of east Mississippi, a subsidiary of Atlanta-based Southern Co. is pouring billions of dollars into construction of a power plant that burns coal but would emit less carbon dioxide. It’s a response to looming federal limits on carbon emissions as regulators try to curtail global warming.
Each day, as 2,600 construction workers toil away at Plant Ratcliffe in Kemper County, the big bet becomes more expensive. The projected cost is at least $2.8 billion, almost half a billion dollars above original expectations, and some estimates say it will go higher.
Fossil fuels remain the principal sources of energy worldwide, though renewables grow rapidly. Demand for oil, gas and coal grows in absolute terms through 2035, but their combined share of the global energy mix falls from 81% to 75% during that period.
And there’s this, which will sound familiar to folks in Appalachia:
The unlocking of unconventional resources portends a very bright future for natural gas, which nearly overtakes coal in the primary energy supply mix by 2035.
The United States will overtake Saudi Arabia and Russia as the world’s top oil producer by 2017, the West’s energy agency said on Monday, predicting Washington will come very close to achieving a previously unthinkable energy self-sufficiency.
The International Energy Agency (IEA) said it saw a continued fall in U.S. oil imports with North America becoming a net oil exporter by around 2030 and the United States becoming almost self-sufficient in energy by 2035.
“The United States, which currently imports around 20 percent of its total energy needs, becomes all but self-sufficient in net terms – a dramatic reversal of the trend seen in most other energy importing countries,” it said.
But what’s probably far more important is what IEA Executive Director Maria van der Hoeven tried to explain in the agency’s news release:
North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world, yet the potential also exists for a similarly transformative shift in global energy efficiency. This year’s World Energy Outlook shows that by 2035, we can achieve energy savings equivalent to nearly a fifth of global demand in 2010. In other words, energy efficiency is just as important as unconstrained energy supply, and increased action on efficiency can serve as a unifying energy policy that brings multiple benefits.
Why? Fatih Birol, IEA Chief Economist and the WEO’s lead author, explains:
Our analysis shows that in the absence of a concerted policy push, two-thirds of the economically viable potential to improve energy efficiency will remain unrealised through to 2035. Action to improve energy efficiency could delay the complete ‘lock-in’ of the allowable emissions of carbon dioxide under a 2oC trajectory – which is currently set to happen in 2017 – until 2022, buying time to secure a much-needed global climate agreement. It would also bring substantial energy security and economic benefits, including cutting fuel bills by 20% on average.
There’s a new report out today from the U.S. Government Accountability Office that provides some helpful breakdowns of information about power plant retirements, new EPA regulatory proposals, grid reliability and other matters. Here are a few of the highlights:
— It is uncertain how power companies may respond to four key Environmental Protection Agency (EPA) regulations, but available information suggests companies may retrofit most coal-fueled generating units with controls to reduce pollution, and that 2 to 12 percent of coal-fueled capacity may be retired. Some regions may see more significant levels of retirements. For example, one study examined 11 states in the Midwest and projected that 18 percent of coal-fueled capacity in that region could retire. EPA and some stakeholders GAO interviewed stated that some such retirements could occur as a result of other factors such as lower natural gas prices, regardless of the regulations. Power companies may also build new generating units, upgrade transmission systems to maintain reliability, and increasingly use natural gas to produce electricity as coal units retire and remaining coal units become somewhat more expensive to operate.
— Available information suggests these actions would likely increase electricity prices in some regions. Furthermore, while these actions may not cause widespread reliability concerns, they may contribute to reliability challenges in some regions. Regarding prices, the studies GAO reviewed estimated that increases could vary across the country, with one study projecting a range of increases from 0.1 percent in the Northwest to an increase of 13.5 percent in parts of the South more dependent on electricity generated from coal. According to EPA officials, the agency’s estimates of price increases would be within the historical range of price fluctuations, and projected future prices may be below historic prices.
— Regarding reliability, these actions are not expected to pose widespread concerns but may contribute to challenges in some regions. EPA and some stakeholders GAO interviewed indicated that these actions should not affect reliability given existing tools. Some other stakeholders GAO interviewed identified potential reliability challenges. Among other things, it may be difficult to schedule and complete all retrofits to install controls and to resolve all potential reliability concerns associated with retirements within compliance deadlines.
We published a story in today’s Gazette print edition (it’s online here) about an issue that’s been mostly ignored by other mainstream media, despite the endless amounts of coverage devoted to the June 29 “derecho” storm and its lingering power outage impacts across West Virginia. Here’s the bottom line:
As West Virginians deal with the aftermath of a series of thunderstorms that swept through the state over the last two weeks, state regulators are quietly considering the first-ever targets for how utilities should minimize power outages and quickly get electricity back on for their customers.
But officials from the state Public Service Commission’s staff and Consumer Advocate Division are concerned that plans proposed by the industry will do little to really improve the reliability of West Virginia’s electrical system.
Just last month, PSC staff warned commissioners that utility proposals would simply require companies “to complete work which was neglected for the past ten years.”
“Very little, if any improvement over the current issues causing outages will change and the infrastructure will continue to deteriorate,” wrote Donald E. Walker, a technical analyst with the PSC staff’s engineering division.
Luckily, we have a couple of citizen journalists here in West Virginia who have been digging through PSC filings and asking tough questions about electrical reliability issues in the wake of the storms. Heck, I stole most of today’s story from them. Just a couple examples of the interesting blogging that’s been done.
Here is the second major WV blackout in three years. AEP and FirstEnergy get rate payer subsidies from FERC for giant interstate transmission projects, while WV politicians and PSC allow the same power companies to run our WV distribution system into the ground. There really isn’t much more to say.
President Barack Obama at TransCanada Stillwater Pipe Yard in Cushing, Okla., Thursday, March, 22, 2012. (AP Photo/Pablo Martinez Monsivais)
President Obama gave three major speeches this week about energy policy, all part of an energy tour that finished up today with this:
Standing in front of a row of pipes, President Barack Obama pledged on Thursday to accelerate approval for part of the Keystone XL pipeline, seeking to deflect criticism that his rejection of the full project helped create a climate for high gasoline prices.
For our purposes, the thing I wanted to point out is that none of the three sets of remarks (see here, here and here) mentions coal. Here’s what the president did say:
We don’t want to be vulnerable to something that’s happening on the other side of the world somehow affecting our economy, or hurting a lot of folks who have to drive to get to work. That’s not the future I want for America. That’s not the future I want for our kids. I want us to control our own energy destiny. I want us to determine our own course.
So, yes, we’re going to keep on drilling. Yes, we’re going to keep on emphasizing production. Yes, we’re going to make sure that we can get oil to where it’s needed. But what we’re also going to be doing as part of an all-of-the-above strategy is looking at how we can continually improve the utilization of renewable energy sources, new clean energy sources, and how do we become more efficient in our use of energy.
That means producing more biofuels, which can be great for our farmers and great for rural economies. It means more fuel-efficient cars. It means more solar power. It means more wind power — which, by the way, nearly tripled here in Oklahoma over the past three years in part because of some of our policies.
We want every source of American-made energy. I don’t want the energy jobs of tomorrow going to other countries. I want them here in the United States of America. And that’s what an all-of-the-above strategy is all about. That’s how we break our dependence on foreign oil.
How can ratepayers and utilities best keep electricity prices affordable?
Coal is often touted as a source of low-cost electricity, but some believe that coal’s negative environmental impacts outweigh any such benefits.
Our analysis examines three different aspects of the cost of coal: coal’s impact on retail electricity prices, the estimated future cost of generating electricity with coal, and costs of coal generation not included in the retail price. By tracing changes in electricity prices in states that changed their energy portfolios we show that using more coal does not actually make power less expensive. States that reduced their use of coal-fired generators have not seen electricity prices rise, and states that increased coal use have not seen prices drop.
Also, the estimated “levelized cost” of constructing and operating a new coal plant today is more expensive than generating the same amount of power from a new hydro or natural gas plant, and is comparable to the cost of wind power. Finally, the cost estimates for coal-generated power fail to factor in the “externalized costs” of pollution cleanup, medical bills, and environmental damages borne by the taxpayers and the public. When these costs are included, coal-fired power is more expensive than all the other generation types we examined.
It is a myth that switching to safe, renewable energy would mean an unreliable U.S. power supply that also is too expensive to afford.
The report, prepared for the institute by Synapse Energy Economics, explains the benefits of a future energy system based less on coal and more on efficiency and renewables:
— Due in part to a significantly increased emphasis on energy efficiency, power sector carbon dioxide (CO2) emissions by 2020 would fall 25 percent below 2010 levels; by 2050, such pollution would be 81 percent below 2010 levels. Under status quo trends, CO2 emissions would grow 28 percent from current levels by 2050.
— The steep health and environmental (including water use) impacts of coal-fired electricity are dramatically reduced and, by 2050, eliminated altogether when all such facilities are retired. For example, over 50,000 premature deaths are avoided relative to status quo trends linked to pollution from coal-fired plants.
— The construction and operation of the new power plants in the first decade would create roughly 3.1 million new job-years – the equivalent of 310,000 people employed for the entire decade.
— Natural gas use in 2050 would be reduced 28 percent from projected levels for 2050.
— By retiring about one quarter of the existing fleet of nuclear power reactors and not building any new ones, the risks associated with nuclear power generation and the nuclear fuel cycle are reduced considerably.
Civil Society Institute President Pam Solo said:
U.S. policymakers and others who assume that a safe, renewable energy future – including an end to reliance on coal-fired electric power and a sharply reduced reliance on nuclear power and natural gas – is impractical and too expensive for the U.S. to achieve are wrong. The truth is that America can and should embrace a workable and cost-effective future that is built on safe, renewable energy. Not only is it feasible and less expensive to do so, but we really have no other choice as a nation, given the concerns about coal emissions, natural gas ‘fracking,’ and nuclear reactor safety.
Synapse Energy Economics President Bruce Biewald said:
The results of our new analysis are very encouraging. We find that a transition to efficiency and renewable energy for our electricity is likely to be less expensive than the business-as-usual status quo approach. There are indications now that the cost of replacing coal with clean energy is falling. The current and projected price of coal has increased, and the price of photovoltaic systems has fallen sharply since 2009, a result of unprecedented growth in this sector globally. Further, the financial community is placing higher risk premiums on technologies with carbon emissions, making renewable energy and efficiency more attractive.
This May 12, 1998 file photo shows exhaust stacks at the San Juan Generating Station northeast of Shiprock, Ariz. (AP Photo/Gallup Independent, Guy Jacobs, File)
Here’s the first sentence of the news release issued yesterday by the International Energy Agency:
Without a bold change of policy direction, the world will lock itself into an insecure, inefficient and high-carbon energy system, the International Energy Agency warned as it launched the 2011 edition of the World Energy Outlook (WEO). The agency‟s flagship publication, released today in London, said there is still time to act, but the window of opportunity is closing.
IEA Executive Director Maria van der Hoeven said:
Growth, prosperity and rising population will inevitably push up energy needs over the coming decades. But we cannot continue to rely on insecure and environmentally unsustainable uses of energy … Governments need to introduce stronger measures to drive investment in efficient and low-carbon technologies. The Fukushima nuclear accident, the turmoil in parts of the Middle East and North Africa and a sharp rebound in energy demand in 2010 which pushed CO2 emissions to a record high, highlight the urgency and the scale of the challenge.
In the New Policies Scenario, cumulative CO2 emissions over the next 25 years amount to threequarters of the total from the past 110 years, leading to a long-term average temperature rise of 3.5°C. China‟s per-capita emissions match the OECD average in 2035. Were the new policies not implemented, we are on an even more dangerous track, to an increase of 6°C.
“As each year passes without clear signals to drive investment in clean energy, the „lock-in‟ of highcarbon infrastructure is making it harder and more expensive to meet our energy security and climate goals,” said Fatih Birol, IEA Chief Economist.
The WEO presents a 450 Scenario, which traces an energy path consistent with meeting the globally agreed goal of limiting the temperature rise to 2°C. Four-fifths of the total energy-related CO2 emissions permitted to 2035 in the 450 Scenario are already locked-in by existing capital stock, including power stations, buildings and factories. Without further action by 2017, the energy-related infrastructure then in place would generate all the CO2 emissions allowed in the 450 Scenario up to 2035.
Delaying action is a false economy: for every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions.
Renewables increase from 13% of the mix today to 18% in 2035; the growth in renewables is underpinned by subsidies that rise from $64 billion in 2010 to $250 billion in 2035, support that in some cases cannot be taken for granted in this age of fiscal austerity. By contrast, subsidies for fossil fuels amounted to $409 billion in 2010.
Between 2007 and 2011, carbon emissions from coal use in the United States dropped 10 percent. During the same period, emissions from oil use dropped 11 percent. In contrast, carbon emissions from natural gas use increased by 6 percent. The net effect of these trends was that U.S. carbon emissions dropped 7 percent in four years. And this is only the beginning.
In August, the American Economic Review—the country’s most prestigious economics journal—published an article that can only be described as an epitaph for the coal industry. The authors conclude that the economic damage caused by air pollutants from coal burning exceeds the value of the electricity produced by coal-fired power plants. Coal fails the cost-benefit analysis even before the costs of climate change are tallied.