Unlikelihood 0f Appalachian Thermal Coal Revival Amidst So Many Combined Cycle Natural Gas Plants Under Construction (and the reported planned withdrawal of proposed coal and nuclear bailouts)

Unlikelihood of Appalachian Thermal Coal Revival Amidst So Many Combined Cycle Natural Gas Plants Under Construction (and the reported planned withdrawal of proposed coal and nuclear bailouts)

The Trump administration plan to revive Appalachian coal by monetizing it through government subsidy was said to be justifiable by concerns about fuel security (90 days of fuel on-site).  Different versions have been floated about reviving coal: WV governor and billionaire coal company owner Jim Justice’s suggestion for an eastern coal subsidy to keep mines open and stave off bankruptcies, Energy Secretary Rick Perry’s Grid Reliability study intention of supporting energy security path to prop coal backfired a bit as the study suggested grid reliability was adequate, and Perry’s Murray Energy-approved plan to subsidize coal plants with 90 days of fuel on-site.

Meanwhile the Appalachian and nearby Midwest and Atlantic Coast regions continue a large buildout of efficient combined-cycle natural gas plants. According to Kallanish Energy, there are 29 gas plants in various stages of planning and construction in the Appalachian region. These plants are fairly close to the gas source and now with good pipeline access to different areas. Being close to fuel source makes the plants more economic with the Appalachian basis differential keeping Appalachian natural gas locally cheaper.  

The planned coal and nuclear bailout was touted to be justified by national security concerns and evoke wartime emergency powers rules from 1950. However, recent leaks have suggested that cost and legal difficulties will influence the administration to drop the plan. There are some, though likely few or none in the current administration, who might favor some form of nuclear energy bailout to keep low carbon energy sources afloat but who reject coal bailouts. Basically, utilities concluded that there is no credible threat to fuel security due to scheduled retirements of coal and nuclear plants. Even the American Petroleum Institute opposes the bailout. Some nuclear energy companies even oppose it. While fuel on-site can potentially help during polar vortices the reality is that it often doesn’t. Some equipment at coal plants apparently froze up during the last polar vortex. Frozen on-site coal is also sometimes a problem that can negatively affect equipment. Hurricane Harvey flooded some on-site coal supplies at power plants and winds at tropical storm strength have shut down coal plants while not affecting wind turbine operation in the same region. Again, with Hurricane Florence in the Carolinas, some coal and gas plants shut down while solar power remained operational. Nuclear plants are subject to unscheduled outages for maintenance which also can be weather-related. I think the bottom line here is that coal and nuclear are not as resilient and secure as some think, especially compared to natural gas which is generally not affected by weather. It can, however, be affected by pipeline flow interruptions and price spikes in polar vortices – with the price spikes being the main reason coal is used more in these cold weather events.

However, some industry execs praised the effort to prop up coal and nuclear in the name of grid reliability and resiliency. Exelon Energy CEO Christopher Crane said in June at the Edison Electric Institute’s annual convention that “getting the market design right and looking at the resiliency is really a requirement that we need federal intervention on” referring to the increasing amounts of natural gas and renewables on the grid. He noted that utilities don’t currently have resource planning at the national level. However, it can be argued that they do on a regional level as some regional utility operators like PJM Interconnect, which represents 30% of U.S. power generation, have done broad reliability and resiliency analyses. They actually predicted grid reliability up to 86% natural gas. Currently gas an coal are fairly even in that region with about 30% each. So, I am guessing the need to incorporate coal into reliability and resiliency planning differs a bit by region but overall it does not seem to be a big problem. In Western states like California where solar is huge or in the Midwest where wind is a big part of generation the issue in the future is mainly backing up intermittence with more reliable baseload generation, which csan be provided by natural gas, coal, hydro where applicable, and/or nuclear.

There was also an announcement from the DOE back in March about funding for small modular coal plants, possibly as peaker plants, but it is hard to see how these could really compete with natural gas peakers. The DOE spokesman touted these types of plants as a way to bring coal back so it sounds like the politics of reviving coal is involved. The question is: why do it with coal when you can do it with cleaner, less carbon intensive, more efficient, and cheaper natural gas?

The price of natural gas relative to the price of coal is not expected to change much in the coming years so coal won’t revive under market conditions. Metallurgical coal for export is currently the continued plan for met coal producers while thermal coal producers will continue to contract. Even if steel production increases in the U.S. due to tariffs that will only benefit met coal producers. The EIA predicts U.S. consumption of coal will drop by about 6% in 2019 relative to 2018. The drop in 2018 is expected to be about 4% so this is a slightly bigger drop than in previous years. Exports are forecast to drop about 8% in 2019 relative to 2018 – they had risen by quite a bit, nearly 50%, from 2016 to 2018. Nearly all of the drop is in the electric power sector. Electric Power Sector Coal Inventories are predicted to rise a percent or so in 2019 relative to 2018 but have dropped considerably from 2016-2018. They are expected to remain pretty steady over the next few years.

Bottom line is that paying coal companies to store more coal than they currently do at coal power plants probably won’t really add to our energy security and it seems likely none of the extra stored coal would be used.

References:

Appalachia has 29 gas-fired power plants in various development stages – by Kallanish Energy, Oct. 11, 2018

Trump Administration to drop Its Emergency Coal, Nuclear Bailout Plan – by Jeff St. John, in Green Tech Media, Oct. 16, 2018

Everybody hates Trump’s coal and nuclear bailout plan – by Mark Hand, in Think Progress, July 7, 2018

Breaking Down the Opposition to DOE’s Emergency Coal and Nuclear Bailout Plan – by Jeff St. John, in Green Tech Media, June 1, 2018

Exelon CEO: ‘We Need Federal Intervention’ on Grid Resilience – by Julia Pyper, in Green Tech Media, June 6, 2018

Trump’s Energy Department pursuing small coal power plants – by Amy Harder, in Axios, March 7, 2018

Energy Information Administration (EIA) – Short-Term Energy Outlook – Coal, Oct. 10, 2018