Coal: The Next Chapter

coal

The new administration in Washington, D.C., has a sharply different vision for the development and use of our nation’s abundant energy resources, including coal. These riches are seen as a strength, not something to be kept in the ground. They are viewed as a means to achieve energy independence and provide energy security.

Change Begins Early Under Trump

Less than one month into the new administration, Congressional Review Act legislation revoked the Department of the Interior’s “Stream Protection Rule” (SPR). This rule would have restricted access to coal reserves, increased mining costs, eroded federal and state tax revenues, and resulted in the loss of high numbers of well-paying jobs. Notably, the absence of the SPR does not increase coal mining’s risk to the environment; effective state programs overseen by the Interior Department are already in place.

President Trump’s executive order on energy independence and economic growth, signed a little more than two months into his presidency, mitigated a threat to the use of coal for electricity generation. That order directed an immediate reevaluation of the Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) for greenhouse gas reductions from the power sector. The Energy Information Administration’s Annual Energy Outlook 2017 shows that 240 million tons of annual coal production (as of 2040) will be maintained without the CPP. As to the CPP’s environmental impact, even the EPA acknowledged it would be negligible.

These policy actions, and better market conditions, are resulting in a more optimistic view of the coal industry, including by investors. Improvements include a strong market for metallurgical coal, increased export opportunities, and higher natural gas prices, which means more coal-based generating units are running more often than a year ago.

Challenges Persist

Notwithstanding the turn for the better, there are ongoing barriers to a longer-term path of sustainability for the coal industry. Addressing these barriers is important to the power sector.

Fuel diversity and choice are necessary to maintain a robust, competitive fuels marketplace that keeps electricity prices affordable for consumers, enhances grid reliability, and supports energy security. Coal is indispensable to the power sector’s ability to fulfill these objectives. Its price level and price stability over time have been key to affordable electricity.

However, the U.S. coal fleet has been reduced by about 50,000 MW in the past several years due to plant closures to comply with EPA regulations. More coal retirements are likely to occur due to lopsided policies for building new electricity generation sources, New Source Performance Review issues inhibiting improvements to existing coal plants, and market structures that do not incorporate the value of coal’s dispatchable 24/7 generation capability and its ability to store fuel inventory on-site.

A 2014 IHS Energy study showed the diversity of a U.S. generation fleet anchored by coal saves Americans $93 billion annually and reduces by half the potential variability of monthly power bills. What will happen to natural gas prices with coal less available? The marketplace should have concern about that dynamic.

Source: Power Mag

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