A Risky Propositions3.amazonaws.com/zanran_storage/ · vi A RISKY PROPOSITION: THE FINANCIAL...

A Risky Proposition

The Financial Hazards of New Investments in Coal Plants

Barbara Freese

Steve Clemmer

Claudio Martinez

Alan Nogee

Union of Concerned Scientists

M A R C H 2 0 1 1

A Risky Proposition


A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S ii A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S iiiii U N I O N O F C O N C E R N E D S C I E N T I S T S

© 2011 Union of Concerned Scientists All rights reserved

Barbara Freese is a senior policy analyst/advocate with the UCS Climate and Energy Program.

Steve Clemmer is director of energy research and analysis for the UCS Climate and Energy Program.

Claudio Martinez is a risk analyst with the UCS Climate and Energy Program.

Alan Nogee is the director of climate and energy strategy and policy for the UCS Climate and Energy Program.

The Union of Concerned Scientists (UCS) is the leading science-based nonprofit working for a healthy environment and a safer world.

More information about UCS and the Climate and Energy Program is available on the UCS website at www.ucsusa.org.

This report is available on the UCS website (www.ucsusa.org/publications) or may be obtained from:

UCS Publications2 Brattle SquareCambridge, MA 02138-3780

Or, email [email protected] or call (617) 547-5552.

Printed on recycled paper

Design: Mary ZyskowskiFront cover photo: ©iStockphoto.com/mbbirdyBack cover photo: ©Zen Sutherland Photography

A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S ii A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S iii

Contents

v FIGURES AND TABLES

vi ACKNOWLEDGMENTS

vii EXECUTIVE SUMMARY

PART ONE

1 Background: The Changing Outlook for Coal

1 TheNeedforUrgentActiontoAddressClimateChangeIsNowIndisputable”

2 DeepEmissionsCutsAreRequiredfromtheCoalSector

2 FederalProjectionsofNewCoalPlantsPlummet

3 WidespreadRetirementsExpectedamongExistingPlants

6 ExcessGeneratingCapacityFacilitatesCoalPlantRetirements

7 GrowingOppositiontoCoal

PART TWO

8 Eroding Markets for Coal Power: The Impacts of Energy Efficiency, Renewable Power, and Natural Gas

8 EnergyEfficiency

9 RenewablePower

11 CompetitionfromNaturalGas

PART THREE

13 Fuel Prices at Risk

13 TheThreattoU.S.CoalPricesfromVolatileGlobalMarkets

15 NewDoubtsabouttheSizesofU.S.andGlobalCoalReserves

18 OtherProduction-CostIncreasesAhead

PART FOUR

19 Carbon Risk: A Costly Problem in a Warming World

19 TheImpactofaCarbonCostonCoalGeneration

20 CarbonPricesStillontheHorizon

22 UncertaintiesaroundCarbon-CaptureRetrofits

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PART FIVE

25 Coal’s Damages—to Air, Water, Land, and Public Health—and the Costs of Reducing Them

25 TransportRule:PreventingThousandsofDeathsfromPollution-RelatedDiseases

26 AirToxicsRule:ProtectingChildren’sBrainDevelopment

28 AshRule:KeepingToxicContaminantsOutofGroundwaterandSurfaceWater

30 CoolingWaterRule:ReducingFishKillsandOtherStrainsonWaterBodies

31 RegulationofGlobalWarmingEmissions:TheEPA’sClimateProtectionMandate

32 NeedforLong-RangePlanningandRegulatoryOversightPriortoAnyRetrofits

PART SIX

33 Construction Costs: High and Volatile

33 SteepCostIncreases

34 PulverizedCoalPlantCosts

34 IGCCPlantCosts

36 PlantCostswithCCS

PART SEVEN

37 Harder-to-Get Financing

37 MajorBanksTryingtoLimitCarbonRisks,PressuredtoDoMore

37 DowngradedDebtRatingsfromExposuretoCoalRisk

38 CooperativeFundingDryingUp,MunicipalFundingQuestioned

PART EIGHT

39 Bottom Line: The Wrong Investment for a Changing World

39 TheHighCostofEnergyfromNewCoalPlants

40 NewCoalCostsMorethanManyCleanerOptions

41 CoalCompetingforDispatchintheMarket

42 TheDisappearingBaseloadAdvantage

42 ACleanerPathForward

45 Conclusion

47 REFERENCES

A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S iv A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S v

FIGURES

viii FigureES.1.U.S.CO2EmissionsfromEnergyUsebySource,2009

x FigureES.2.DecliningFederalProjectionsofNewCoalPlantsthrough2030

xi FigureES.3.WindPowerGrowingatRecordPace

xii FigureES.4.AverageWeeklyCoalSpotPrices

xiv FigureES.5.LevelizedCostofElectricityforVariousTechnologies

3 Figure1.U.S.CO2EmissionsfromEnergyUsebySource,2009

4 Figure2.DecliningFederalProjectionsofNewCoalPlantsthrough2030

5 Figure3.U.S.ElectricGeneratingCapacitybyIn-ServiceYear

10 Figure4.WindPowerGrowingatRecordPace

14 Figure5.AverageWeeklyCoalSpotPrices

15 Figure6.U.S.CoalProduction

17 Figure7.ChangesinU.S.CoalMineLaborProductivity

22 Figure8.CO2AllowancePriceForecastsComparedwithPreviouslyModeledScenarios

23 Figure9.RelativeCostIncreasesfromAddingCarbonCapturetoCoal-FiredPowerPlants

34 Figure10.PowerPlantConstructionCosts

35 Figure11.PulverizedCoalPlantCapitalCosts:ActualProjectsvs.Studies

40 Figure12.IncreasingLevelizedCostofElectricityfromNewPulverizedCoalin2015

41 Figure13.LevelizedCostofElectricityforVariousTechnologies

43 Figure14.FuturePowerGenerationunderUCSBlueprint

44 Figure15.FuturePowerGenerationunderEPRIModel

TABLES

6 Table1.CoalPlantRetirementProjections

27 Table2.SelectedAirPollutionControlCosts

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ThisreportwasmadepossibleinpartthroughthegeneroussupportofOakFoundation.

Wewouldliketothankthefollowingindividualsfortheirinsightfulcommentsonourdraftreport:AbigailDillen,LisaEvans,LeslieGlustrom,LisaHamilton,RichardHeinberg,LucyJohnston,NancyLange,BruceNilles,CarlPope,DavidSchlissel,ReedSuper,andRobertUkeiley.

TheauthorswouldalsoliketothankUCSstaffmembersfortheirhelpfulcontributionstothereport,includingRachelCleetus,JeffDeyette,BrendaEkwurzel,ElizabethMartin,LonPeters,JulieRinger,JohnRogers,andLexiSchultz.WegivespecialthankstoEthanDavisforhisworkonthereports’quantitativecostanalysesandfigures.

WethankStevenMarcusformakingthereportmorereadable,MaryZyskowskifortheattractivedesignandlayout,andBryanWadsworthandHeatherTuttleforoverseeingthereport’sproduction.

Theopinionsandinformationexpressedhereinarethesoleresponsibilityoftheauthors.

Acknowledgments

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children’sbraindevelopment;theycreatevastquantitiesoftoxicash,whichrequirecarefulhandlinginordertopreventleakage;andtheirhugecooling-waterwithdrawalsstrainourincreasinglyvulnerablewaterbodies.Expectedregulationswouldreducemanyofthesecostlyharms,butasseveralrecentfinancialanalysespointout,muchofthenation’scoalfleetisalreadyold,inefficient,andripeforretirement.Ratherthanretrofitthem,itmakesgreatereconomicsensetoclosethem. Finally,thereistheunavoidablefinancialriskassociatedwithcoal’scriticalroleindestabilizingtheglobalclimate.Giventheincreasinglydirenatureofglobalwarming,climatelegislationisstillwidelyexpectedintheyearsahead,withinevitablecostimplicationsforcoalplants. Combined,thesetrendsanddevelopmentscreaterisksthatnooneconsideringalong-terminvestmentinneworexistingcoalplantscanaffordtoignore.Theyalsocreateuniqueoppor-tunitiestoinvestinsteadinthecleanertechnologiesthatwillbeingrowingdemandaswetransitiontowardamoremodern,flexible,diversified,andsustainableenergysystem.

“The need for urgent action to address climate change is now indisputable.” Thiswarningwaspartofa2009jointstatementbytheU.S.NationalAcademyofSciencesanditscounterpartacademiesfrom12othernations,urgingworldleaderstotakeactiontoslowglobalwarming(NAS2009).Already,thecli-mateischanging,bothfasterandinmoredangerouswaysthancomputermodelshadprojected,andmuchworseliesaheadifwefailtomakedeepcutsinourglobalwarmingemissions(NRC2010a).

Deep emissions cuts are needed from coal plants. Coalpoweristhenation’slargestsourceofCO2,emittingmorethanallofourcars,trucks,andothermodesofsurfacetransportationcombined(FigureES.1,p.viii).Asthesourceofone-thirdofenergy-relatedCO2emissions,coalplantsmustbeaprimarysourceofthereductionsweneedtoprotecttheclimate.Indeed,reducingemis-sionsfromcoalplantsisaparticularlycost-effectiveapproachtoclimateprotection(Cleetus,Clemmer,andFriedman2010).

AcrosstheUnitedStates,theelectricpowersectorisplacingnewbetsonanoldtechnology—coal-firedpowerplants.Utilitiesandotherelectricityproduc-ersarepoisedtoinvestheavilyinretrofittingtheir

oldplantsorinbuildingnewones.Eachmajorretrofitornewplantrepresentsanenormouslong-termfinancialcommitmenttocoalpower.Butasdiscussedinthisreport,currenteconomic,technological,andpolicytrendsmakesuchcommitmentsexceedinglyrisky. Demandforcoalpowerisbeingsteadilyerodedbycompe-titionfromenergyefficiencyandrenewableenergy,whicharebenefitingfromrisingpolicysupport,growingpublicinvest-ment,advancingtechnologies,andoften-fallingprices.Coalpoweralsofacesmuchstrongercompetitionbothfromnewandexisting(thoughunderutilized)naturalgasplants,whichcantakeadvantageoftoday’srelativelylowgasprices. Coalprices,bycontrast,areontherise.Havingspikedin2008inresponsetoglobalcoaldemand,theyareclimb-ingagainwiththeglobaleconomicrecovery.Thereisgrowingconcern,moreover,thattheycouldbedrivenmuchhigherbysoaringdemandfromChinaandIndia,aswellasbyfallingproductivityacrossallU.S.coalfieldsandbyshrinkingreserveestimates.Constructioncostsforcoalplants,whichskyrocketedintheyearspriorto2008,remainhigh,andalltheserisksmakethefinancingoflong-termcoalinvestmentsbothharderandcostlier.Coalplants,newandold,arelosingthecostadvantagestheyoncehad,andtheylacktheoperationalflexibilitythatwillbeincreasinglyvaluableasthepowergridevolvestointegratemoresourcesofcleanbutvariablerenewablepower. Inadditiontotheseongoingstructuralchanges,whicharemakingcoalpowerincreasinglycostlyandlesscompetitive,coalpowerfacesthefinancialrisksposedbyitsmanyenvironmentalimpacts.Thecontinuingdamagesthatcoalpowerposestoourair,land,andwater—andourhealth—areamajorfinancialliabilitythatremainsunresolved.Coalplantsemitairpollutantsthatstillkillthousandsofpeopleyearly,costingsocietyover$100billionperyear,byoneestimate(CATF2010).Theseplantsarealsoaleadingsourceofmercury,whichthreatens

Executive Summary

viii U N I O N O F CO N C E R N E D S C I E N T I S T S A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S viii A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S ix

arestillnocoal-firedpowerplantsusingCCSonacommercialscale.DesignestimatesindicatethatCCScouldincreasethecostofenergyfromanewpulverizedcoalplantby78percent,andcostswouldbeevengreaterifCCSwereaddedasaretrofit(ITFCCS2010).ItisalwayspossiblethatfutureadvancesinCCStechnologywilldrivesuchcostsdownsubstantially,buttheCCSprojectsunderdevelopmenttodayhavefacedseriouscostoverrunsanddelays.Moreover,thefallinnaturalgasprices,concernoverfuturecoalsuppliesandprices,andthefailureofthe111thCongresstopassclimatelegislation—whichwouldhaveputapriceoncarbonandestablishedmas-sivesubsidiesforCCS—mayfurtherdelayCCSdevelopment.

Many of the nation’s coal plants are old, inefficient, and ripe for retirement. Seventy-twopercentofpresentU.S.coalcapac-ityisalreadyolderthan30years—theoperatinglifetimeforwhichcoalplantsweretypicallydesigned—and34percentofthenation’scoalcapacityismorethan40yearsold(Bradleyetal.2010).Olderplantsbecomeincreasinglyinefficientandunreliable,andtheyfacehighmaintenanceandcapitalcostsiftheyaretocontinueoperatingeconomically.Andbecausetheywerebuiltbeforemodernpollutioncontrolswererequiredandoverthedecadesmanyhaveavoidedaddingthosecontrols,

A future price on carbon still threatens coal investments. The111thCongressfailedtopassacomprehensiveclimatebill,andthe112thCongressisevenmoredeeplydividedontheissue,therebyperpetuatinguncertaintyoverthetimingandnatureoffutureclimatepoliciesandtheirimpactsoncoalplants.However,thegrowingurgencyofglobalwarmingmeansthatCongresswillfacesustainedpressuretotackletheprob-lemagain,perhapsrepeatedlyovertheyears,untilthenationisoffthedangerouspathitiscurrentlytraveling(unlessotherfactors,suchasasteepdeclineincoalusedrivenbytheotherrisksdiscussedinthisreport,succeedinslashingourcarbonemissions).Becauseapriceoncarbonwouldhelptostimulateprivate-sectorinnovation,itremainsalikelyelementofsuchfutureclimatepolicies;andasthesourceofpowerthathasthehighestcarbonemissions,coalwouldtherebybedisadvantagedcomparedwithcleanertechnologies.

Carbon-capture retrofits cannot be counted on to cut emis-sions affordably. Whileprojectstodemonstratethepotentialofcarboncaptureandstorage(CCS)areimportant,itwouldbefinanciallyrecklesstomakecoal-plantinvestmentsbasedontheassumptionthatCCSretrofitswillprovideanaffordablewayforthoseplantstoavoidafuturepriceonCO2emissions.There

Figure ES.1. U.S. CO 2 EMISSIONS FROM ENERGY USE BY SOURCE, 2009

Coal Plants33.2%

Other Electricity Generation 5. 0%

Residential 6.2%

Commercial 3.9%

Industrial 15.4%

Surface Transportation 32.9%

Aviation 3.3%

More CO2 is emitted from coal plants than from any other technology or sector, including all modes of surface transportation combined (EIA 2011a). (Power plant emissions are presented under coal plants and other electricity generation, rather than under the residential, commercial, and industrial sectors where the power is consumed.)

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costs,butitisstartingtoreflecttheeconomicrealitiesthathavealreadyledtotherecentcancellationorrejectionofabout150coalplantproposalsnationwideandthatthreatentheremainingcoalplantproposalsaswell.

Demand for coal power will continue to fall as the nation turns to cleaner options. Coalprovidedalmost53percentofU.S.powerdemandin1997,butmarketsharedroppedtolessthan46per-centinthefirsthalfof2010.Giventhestronggrowthofcompet-ingcleanertechnologies,thisdecreaseislikelytocontinue.

• Energy efficiency hasenormouspotentialtocutpower demand—by23percentbelowprojectedlevelsby2020and byevenmoreifthetechnologyisassumedtoadvance (Goldstein2010;Granadeetal.2009).Thatpotentialis beginningtoberealized,as27statesatpresent—double thenumberin2006—haveadoptedorhavependingenergy efficiencyresourcestandardsthatovertimecangreatly reduceelectricdemand(ACEEE2010a).Statespendingon ratepayer-fundedelectricity-andgas-efficiencyprograms nearlydoubledbetween2007and2009,risingfrom $2.5billionto$4.3billion(ACEEE2010a).Andnewfederal appliancestandardsformorethan20consumerproducts willhelpreduceconsumerdemandforyearstocome.

• Renewable poweriscapturingagrowingshareofthe marketfromcoal,andithasthepotentialtogomuch further.Whilenon-hydrorenewablepowerprovided 3.6percentofU.S.generationin2009,theEIAprojects thatitwillincreaseto11.7percentby2030,primarily becauseofexistingstatepoliciesandfederalincentives(EIA 2010a).Federalresearchalsoconcludesthatwecouldmeet nearlyaquarterofourpowerneedswithrenewablepower by2025withnosignificantimpactonconsumerprices atthenationallevel(Sullivanetal.2009).Windalone couldmeet20percentofdemandby2030(EERE2008),

olderplantsaregenerallyfarmorepollutingthannewonesandfacesignificantretrofitcostsasaresult. Coalplantoperatorsinvariouspartsofthecountry—includingColorado,Delaware,Georgia,Illinois,Indiana,Minnesota,NorthCarolina,Ohio,andPennsylvania—havealreadyannouncedtheretirementofdozensoftheiroldestplants(Bradleyetal.2010).ByDecember2010,12gigawatts(GW)ofcoalplantretirementshadalreadybeenannounced(Salisburyetal.2010).Financialandindustryanalystsexpectthewaveofretirementstogrow.InthewordsofaCreditSuisseanalyst,“alargechunkoftheU.S.coalfleetisvulner-abletoclosuresimplyduetocrummyeconomics”(Eggersetal.2010).Inannouncingtheclosureofthreeofitsoldercoalunits,ExelonCorp.noted,“theseagingunitsarenolongerefficientenoughtocompetewithnewresources”(Power-GenWorldwide2009).

Excess generating capacity in the United States will facilitate coal retirements. Thenationcurrentlyhasamplegenerat-ingcapacity,whichcanhelpitaccommodatetheprojectedcoalplantretirementsandstillmaintainthereliabilityofthepowersystem(Bradleyetal.2010;ShavelandGibbs2010).Onerecentanalysisfoundthatthepowersector“isexpectedtohaveover100GWofsurplusgeneratingcapacityin2013”(Bradleyetal.2010).

New coal plants are not economic, even under current policies. Theeconomicoutlookfornewcoalplantsisverydifferentfromwhatitwasjustafewyearsago.1Whenmostnewplantprojectsinthepipelinetodaywereannounced,theU.S.EnergyInformationAdministration(EIA)computermodelpredictedalargeamountofnewcoalplantconstructionintheyearsahead(FigureES.2,p.x).ButnowthesamemodelnolongerprojectsanynewcoalplantswithoutCCScomingonlinethrough2030(apartfrom11.5GWofnewcoalplantsthattheEIAcountsasalreadyunderconstructionandassumeswillbecompleted).TheEIA’smodelinghashistoricallyunderestimatedcoalplant

1 While many of the new coal plants announced over the last few years were subsequently cancelled or blocked (largely as a result of the economic and policy trends discussed in this report), dozens of proposals are still on the table. The Sierra Club maintains a database of coal-fired power plant proposals around the country. As of January 2011, it lists 149 coal projects as recently cancelled or rejected, 50 plants as active or upcoming, 26 plants as progressing (some of which have been completed), and 18 plants with uncertain status (Sierra Club 2011).

Coal is no longer a reliably low-cost fuel, in

part because it is increasingly vulnerable to

volatile global markets.

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gascombined-cycleplants,manybuiltinjustthelast decade.Theseplantsarestillgreatlyunderused,operating at42percentofcapacityin2007(Kaplan2010)andat only33percentin2008(Bradleyetal.2010).Moreover, gasprices—andpriceprojections—havefallensignificantly, partlyasaresultoftechnologicalbreakthroughsin drillingthathavethepotentialtodramaticallyincrease domesticgasproductionforyears(aslongastheindustry canresolvegrowingconcernsoverimpactsonwaterand newquestionsaboutmethaneleakageduringproduction). Rampinguptheuseofexistinggasplantscouldallowthe nationtosubstantiallycutitscoal-basedelectricity generation(Casten2010;Kaplan2010).Moreover,new

andindeedwindcapacityhasbeenaddedtothegridat aremarkablepaceoverthelastfewyears(FigureES.3). Bothphotovoltaic(PV)andconcentratingsolarpower (CSP)areseeingdramaticgrowthintheirmarketsharesas well,withmajornewprojectsmovingforwardandprices forsolarpanelsfallingmarkedly.Newrenewablecapacity willcontinuetoenterthesystem,evenwithoutfurther policychanges,asaresultoftherenewableenergy standardsalreadyadoptedby30statesandadvancesin renewabletechnology.

• Natural gasrepresentsanothermajorthreattocoalpower. Thenationhasmorethan220GWofefficientnatural

Figure ES.2. DECLINING FEDERAL PROJEC TIONS OF NEW COAL PLANTS THROUGH 2030

In its Annual Energy Outlooks (AEOs), the EIA’s projections of unplanned coal capacity coming into service by 2020, 2025, and 2030 have dropped dramatically. In 2006 the EIA projected 145 GW of new coal by 2030 (the equivalent of about 240 new plants of 600 megawatts). But the agency now projects only 2 GW by 2030, consisting entirely of advanced plants with CCS technology that are inputs to the model based on the assumed response to federal subsidies. Planned capacity additions—plants that the EIA understands to be under construction already—are not reflected (EIA 2006, 2007, 2008a, 2009a, 2010a, 2011a).

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arecurrentlylessexposedtoglobalmarkets,butthepriceforaone-monthcontractforPowderRiverBasincoalstillrose67percentbetweenOctober2009andOctober2010(Jaffe2010).Moreover,PowderRiverBasincoalproducersareseek-ingtobuildtransportationinfrastructuretoexpandtheirreachtoAsianmarkets,potentiallysubjectingWesterncoaltopricespikessimilartothoseexperiencedintheeasternUnitedStates.Chineseofficialshaveannouncedplanstocaptheirowncoalproduction,puttingevengreaterupwardpressureonglobalandU.S.coalprices(Reuters2010a). Newquestionsarealsobeingraisedaboutjusthowmucheconomicallyrecoverablecoalexists,bothintheUnitedStatesandelsewhere.Officialreserveestimatesarebasedondecades-olddataandmethods.Moremodernassessmentsarefindinglesseconomicallyrecoverablecoalthanwascommonlythought,includinginWyoming’simportantGillettecoalfield(Luppensetal.2008).ThefactthatproductivityatU.S.mineshasbeendroppingforyears,notonlyinthemorematureanddepletedeasterncoalfieldsbutalsointhenewerminesofthe

gasplantscouldbebuiltatarelativelylowcostandexisting coalplantscouldberepoweredtoburnnaturalgas.While environmentalconcernsorotherfactorsmaydrivegas pricesbackup,would-becoalinvestorscannotignorethe competitivethreatfromgas.“Coalislosingitsadvantage incrementallytogas,”agasanalystwithBarclaysCapital recentlytoldtheNew York Times,andanenergyanalyst withCreditSuissesaidthattheshiftfromcoaltogas“has thepotentialtoreshapeenergyconsumptionintheUnited Statessignificantlyandpermanently”(Krauss2010).

U.S. coal prices are rising and could be driven much higher by soaring global demand and shrinking reserves. Coalisnolongerareliablylow-costfuel,inpartbecauseitisincreasinglyvulnerabletovolatileglobalmarkets.EasternU.S.coalspotpricesspikedin2008(FigureES.4,p.xii),mainlyinresponsetotherisingpriceofcoalininternationaltrade,andpricesareclimbingagainasrapidlyrisingcoaldemandinChinapushesglobalcoalpriceshigher.WesternU.S.coalproducers

Figure ES.3. WIND POWER GROWING AT RECORD PACE

U.S. wind power capacity expanded by over 50 percent in 2008 alone and continued to expand in 2009 despite the recession (Wiser and Bolinger 2010).

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courtordersrequiringittoimplementexistingstatutorystan-dards).Plantsfacecostsassociatedwith:

• Preventing thousands of deaths from heart and lung disease. Coalpowerisamajorsourceofsulfurdioxide(SO2)and nitrogenoxide(NOX)emissions,whicharetransported downwindandcauseozoneandparticulatepollutionthat shortenthelivesofthousandsofAmericansyearly;these emissionshavebeenestimatedtoimposeannualcostson societyofmorethan$100billion(CATF2010).TheEPA’s proposedCleanAirTransportRulewouldpreventmanyof theseprematuredeaths,asoldanduncontrolledplants wouldfinallyberequiredtoinstallcontrolsonSO2andNOX.

• Protecting children’s brains from impairment.Coalpower isthesourceofatleasthalfofU.S.emissionsofmercury,a

west,pointstolikelyhighercoalproductioncostsahead—incontrasttothelowerproductioncostsexpectedfornaturalgas.Newstudiesthatprojectfuturecoalproduction,includ-ingsomethatmakeprojectionsbyfittingabellcurvetopastproductionlevels(ananalyticmethodthatremainscontrover-sial),predictthatwearemuchnearertopeakcoalproductionthantraditionalreserveestimatessuggest(HeinbergandFridley2010;PatzekandCroft2010;Rutledge2010;EWG2007).Coalpricesinsomemarketsmayalsoriseinresponsetoeffortstoreducethedamagecausedbymountaintop-removalmining.

Coal plants also face costs associated with reducing their non-climate environmental impacts. Becausecoalplants,especiallyolderones,causegraveharmtotheenvironmentandpublichealth,theU.S.EnvironmentalProtectionAgency(EPA)isdevelopingmoreprotectiveregulations(largelyinresponseto

Figure ES.4. AVERAGE WEEKLY COAL SPOT PRICES

Coal prices spiked dramatically in 2008, largely in response to the influence of global coal demand on U.S. coal markets, particularly in Appalachia (EIA 2010e). Prices in most basins are rising again with the economic recovery.

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n Central Appalachian Northern Appalachian Illinois Basinn Powder River Basinn Uinta Basin

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reboundedquickly,andexpertsprojectthattheywillremainhighbyhistoricalstandards(IMF2010).

Coal project financing may be harder to obtain and may cost more. Thetrendsdiscussedaboveincreasetheriskthatcoalinvestmentprojectswillfailtoobtainthefinancingtheyneedorthattheywillhavetopaymoreforitthanplanned.Thefinancialcommunityisbecomingincreasinglywaryoftherisksassociatedwithnewinvestmentsincoal.Aseriesofutilitiesandotherpowerproducershaveseentheircreditratingsandoutlooksdowngraded,inpartbecauseoftheratingsagencies’concernsaboutcoalconstructionorretrofitcosts.

New coal plants cost more than cleaner options. Thetradi-tionalcostadvantagethatcoalpowerenjoyedovercleanerenergyhaslargelydisappearedwithrespecttonewplants.FigureES.5(p.xiv)comparesthelevelizedcostsofelectric-ity2fromnewcoalplantstothoseofothernewsourcesofpower,bothwithandwithoutincentivesandusingarangeofassumptionsdescribedinPart8(andinAppendixA,whichisavailableonline).Powerfromnewcoalplantsclearlycostsmorethanpowerfromnewgasplants,windfacilities,andthebestgeothermalsites,andmuchmorethaninvestinginenergyefficiency.Wheneithercarbonpricesorincentivesarefactoredin,powerfromnewcoalplants(withorwith-outCCS)becomesevenlesscompetitive,costingmorethanpowerfrombiomassfacilitiesorfromthebestsolarthermalandsolarphotovoltaicsites.Thesecomparisonsreflectarangeofcoalprices(butdonotfullyrepresenttheriskthatcoalpricescouldrisesteeplyduetovolatileglobalmarketsandothercauses)andtheyincorporateconservativeassumptionsaboutfallingpricesofrenewabletechnology. Inadditiontolosingtheircostadvantage,coalplants’rela-tivelackofoperationalflexibilitymakesthempoorlysuitedforthegridoftomorrow,whichwillsurelyincludegreaterquanti-tiesofvariablesources—windandsolarpower,forexample—andplaceapremiumonotherpowersources,suchasnaturalgas,thatcanrampupordownquicklyasneeded.

potentneurotoxinthatthreatensfetalandinfantbrain development.TheEPA’sforthcomingAirToxicsRule, limitingmercuryandothertoxicemissions,wouldrequire uncontrolledplantstoinstallcontrolsonthesepollutants.

• Keeping toxic coal ash from contaminating the water. Coal ashcontainsmanytoxiccomponentsandiscurrentlystored inwaysthatcanresultbothincatastrophicreleases(such astheKingston,TN,ashspillof2008)andinslowleakage intogroundandsurfacewaters.ProposedEPAruleswould requiresaferashhandlingandpotentiallyobligemany plantstoconvertfrom“wet”handlinginsurfaceimpound- mentsto“dry”handlinginlinedlandfills;plantscouldalso berequiredtoaddnewwatertreatmentsystemsinorderto keeptoxinsoutofourwatersuppliesandecosystems.

• Reducing fish kills and protecting water bodies. Coalplants usevastquantitiesofwaterfromadjacentrivers,lakes,and bays,takingaheavytollonaquaticlifeasaresult.TheEPA isconsideringnewrulesthatwouldrequiremorecoal(and otherthermalpower)plantstoinstallcoolingtowersthat wouldgreatlyreducetheamountofwatertheywithdraw andthethermalpollutiontheydischarge.

Retrofittingcoalplantswithpollutioncontrolsandothertechnologiescouldgreatlyreducetheseenvironmentalandhealthdamages,andtheretrofitswouldcostmuchlessthanwhatthedamagescurrentlycostsociety.However,theretrofitcostswouldbesubstantialformanyplants,particularlytheoldestanddirtiest.Thelimitedremainingusefullifeofmanyoldercoalplantswouldmakesuchinvestmentsdifficult,ifnotimpossible,torecover,makingretirementthebetterfinancialoption.

Major coal projects face high and unpredictable construc-tion costs. Coalplantconstructioncostsroseatarapidrateintheyearsleadingupto2008,contributingtothecancellationofmanyproposedfacilities.Despitethesubsequentrecession,constructioncostshaveremainedhigh(IHSCERA2010),andsomecoalplantprojectswerestillannouncingsubstantialcostincreasesin2010.Muchoftheconstruction-costincreasewasdrivenbyrisingglobalcommoditycosts.Whilethesecommod-itypriceswentbackdownwiththeglobaleconomiccrisis,they

2 Levelized cost of electricity (LCOE) is an economic assessment of the cost of energy generation of a particular system. LCOE includes all of the costs over the system’s lifetime, such as capital expenditures, operations and maintenance, fuel cost, and cost of capital, discounted to a net present value. The LCOE is the price at which energy must be sold for the project to break even.

xiv U N I O N O F CO N C E R N E D S C I E N T I S T S

A costly history threatens to repeat itself. Whenconsideringlong-terminvestmentsincoaltoday,itishelpfultorememberanearliereraofpower-sectorinvestmentsthatdidnotendwell.Inthe1970s,utilitiesinvestedmassivelyinbothcoalandnuclearplantswhileignoringthesweepingchangesthatwereincreasingthecostsof,anddecreasingthedemandfor,suchplants.Theresultwasstaggeringfinanciallossesaroundthecountryasscoresofplantswerecancelledafteryearsofspend-ing.Wecanavoidrepeatingthatcostlyhistorybyrecognizingthatchangesunderwaytodayaremakinglong-terminvest-mentsincoalpoweranunacceptablyriskyproposition.

We can dramatically reduce our dependence on coal power.Long-terminvestmentsincoalwouldbelessriskyifthenationhadnochoicebuttocontinuewithitscurrentlevelofcoaluse,nomatterhowhighthecosts.Butthatisnotthecase.StudiesbytheUnionofConcernedScientistsandothersshowthatwecouldinfactreplacemostofourcoalpowerusingrenewableenergy,demandreduction,andnaturalgaswithinthenext15to20years,withadditionalreductionsincoalpowerafter-ward(Keithetal.2010;Specker2010;Cleetus,Clemmer,andFriedman2009).Andtheoverallbenefitsoftransitioningtoacleanerenergysystem—savinglives,protectingairandwater,andhelpingusavoidsevereclimatechangeswhilestimulatingtechnologicalinnovationandbuildingnewclean-energyindus-tries—wouldbetremendous.

Figure ES.5. LEVELIZED COST OF ELEC TRICIT Y FOR VARIOUS TECHNOLOGIES

All projections assume newly built installations coming online in 2015 and represent levelized costs over a 20-year period. A range of capital costs is assumed for all technologies; a range of fuel costs is assumed for coal, natural gas, and biomass; and a range of capacity factors is assumed for wind, solar, natural gas, and nuclear power. A range of CO2 prices is taken from Synapse projections (discussed in Part 4). Current tax incentives for wind and biomass are assumed to be extended to 2015.

n Total Costs with Incentivesn Total Costs without Incentivesn Low CO2 Costsn Mid CO2 Costsn High CO2 Costs

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P A R T O N E

BackgroundThe Changing Outlook for Coal

Scientificconcernoverglobalwarmingcontinuestogrow,andtheneedforsteepreductionsincarbonemissionsisnowwidelyrecognizedwithinthesciencecommunity.Whilethe111thCongressfailedtopassalawlimiting

heat-trappingemissions,thefactthattheclimatethreatisbothgraveandgrowingmeansthatCongresswillbeundersustainedpressuretotackletheproblemagain,perhapsseveraltimes,dur-ingtheoperatinglifetimeofalong-terminvestmentincoal.Coalplants,asthenation’slargestsourceofglobalwarmingemissions,wouldsurelybetargetedbyanyfutureclimatelaws. Meanwhile,evenwithoutapriceoncarbon,theeconomicoutlookfornewcoalplantshasalreadychangeddramaticallyunderU.S.EnergyInformationAdministrationprojections.Asforexistingcoalplants,manyareseveraldecadesold,highlypolluting,andfacingtheprospectoffinallyhavingtoinstalltechnologiestoreducethesubstantialdamagetheydototheair,water,land,andpublichealth.Industryanalystsarethereforeprojectingawaveofcoalplantretirementsahead—indeed,suchawavehasalreadybegun—madepossiblebythefactthatthenation’selectricgridhassubstantialsurplusgeneratingcapacity.

“The Need for Urgent Action to Address Climate Change Is Now Indisputable”Nooneplanningalong-terminvestmentincoalcanaffordtobeunawareofthescientificevidencethatshowshowurgentlyanddeeplyweneedtoreduceourcarbonemissions.Basedonitsmostcomprehensivesurveyofclimateresearchtodate,theNationalAcademyofSciences(NAS)releasedinMay2010aseriesofcongressionallyrequestedreportsthatconcludedyetagainthattheearthiswarming,thatemissionsfromtheburn-

ingoffossilfuelsarelargelytoblame,thatthiswarmingposesawiderangeofseriousriskstosocietyandnaturalsystems,andthat“thereisanurgentneedforU.S.actiontoreduce[greenhousegas]emissions”(NRC2010aand2010b).3ThisconclusionreaffirmedtheNationalAcademy’s2009jointstatement,withitscounterpartscientificacademiesof12othernations,bluntlystating,“theneedforurgentactiontoaddressclimatechangeisnowindisputable”(NAS2009).Inthisspirit,theNAShasspecificallyrecommendedthattheUnitedStates“acceleratetheretirement,retrofitting,orreplacementof[greenhousegas]emission-intensiveinfrastruc-ture”(NRC2010b). Ourclimateisalreadychangingindangerousways,withmorefrequentandseveredroughts,heatwaves,anddown-pours,amongothermanifestations.Andclimatechangeposesbothdirectandindirectthreatstopublichealth,suchasthroughheat-andweather-relatedstresses,respiratoryill-nesses,insect-bornediseases,andcontaminationoffoodandwater(APHA2010;NIH2010;EPA2009e).Inrecognitionofthesethreats,thenation’sleadingpublichealthgroupshaverecentlyaddedtheirvoicestothecallforlawsthatwouldlimit

3 In 2009, allegations of scientific misconduct were made against certain U.S. and U.K. climate scientists, based on stolen and misinterpreted email correspondence. These allegations, which were given broad media coverage, created confusion in some nonscientific circles about the certainty of the science behind researchers’ global warming conclusions. Subsequent investigations that exonerated these scientists of misconduct, and reaffirmed the strength of the underlying climate science, received far less coverage (Oxburgh et al. 2010; Penn State 2010; Russell et al. 2010). In actuality, the fundamental science underlying climate concerns, based on multiple independent lines of evidence and the work of thousands of scientists, is robust and was never in doubt.

2 U N I O N O F CO N C E R N E D S C I E N T I S T S A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S 2 A R I S K Y P R O P O S I T I O N : T H E F I N A N C I A L H A Z A R D S O F N E W I N V E S T M E N T S I N COA L P L A N T S 3

heat-trappingemissions(APHA2010).Manyofthechangestotheworldaroundusareunfoldingfasterthanscientistsprojectedjustafewyearsago(NAS2009;Rosenzweigetal.2008;Rahmstorfetal.2007;Stroeveetal.2007).Inaddi-tion,thedatashowthatmuchworseliesaheadifwedonotchangecourse(Meinshausenetal.2009;Solomonetal.2009).Indeed,wemaybeveryclosealreadytotriggeringnaturalamplificationmechanismsthatcouldcauseirreversiblechangeswithcatastrophicconsequences(NRC2010a).

Deep Emissions Cuts Are Required from the Coal SectorMostclimateexpertsagreethatinordertohaveareasonablechanceofavoidingthemostsevereimpactsofglobalwarm-ing,wemustpreventaverageglobaltemperaturesfromrisingmorethantwodegreesCelsius4abovepreindustriallevels(UCS2008;ClimateChangeResearchCentre2007).TheCopenha-genAccord,negotiatedatameetingofworldleadersinDecem-ber2009,formallyembodiesthisgoal(UNFCCC2009).However,thereisnoguaranteethatatwo-degreewarmingwouldbesafe,andsomeprominentscientistsnowthinkthatallowingeventhatmuchwarmingwouldbea“recipeforglobaldisaster”(Hansen2008).TheCopenhagenAccordexplicitlycallsforreassessmentofthetwo-degreetargetandconsiderationofa1.5-degreetargetby2015(UNFCCC2009). Eventhetwo-degreelimitwouldrequireambitiousreductionsinheat-trappingemissionsby2020andbeyond.Theabove-mentionedNationalAcademyofSciencesjointstatementnotesthat,“limitingglobalwarmingto2degreesCwouldrequireaveryrapidworldwideimplementationofallcurrentlyavailablelow-carbontechnologies”(NAS2009).Tohaveareasonablechanceofachievingthatlimit,industrializednationstakencollectivelywouldhavetoreduceemissionsto25to40percentbelow1990levels(or35to48percentbelow2005levels)inthenext10years(IPCC2007).TheUnionofConcernedScientistsrecommendsthattheUnitedStatesreduceemissionsbyat least35percentbelow2005levelsby2020,basedontheworkoftheIntergovernmentalPanelonClimateChange(IPCC)andotherstudies(Baeretal.2008;denElzenetal.2008).UndertheCopenhagenAccordtheObamaadministrationsetalesserbutstillambitioustargetofreducingU.S.emissions“intherangeof17percent”by2020(pendinglegislativeaction)(Stern2010).

Evendeeperemissionscutsbeyond35percentareneededintheyearsfollowing2020—intherangeofatleast80percentby2050(NRC2010b;Luersetal.2007).TheUnitedStatesandotherdevelopedeconomiesagreedforthefirsttime,atthe2009G8Summit,thatdevelopedcountriesshouldcuttheirheat-trappingemissionsby80percentormorefrom1990levelsby2050(G82009). Theselonger-termreductionsarepossiblebutrequireanimmediateandsustainednationalcampaigntomoveawayfromhigh-carbon-emittingenergy.BecausecoalplantsaloneaccountformorethanathirdofallU.S.CO2emissionsfromenergyuse—theyemitmorethanallofthenation’scars,trucks,andtrainscombined(Figure1)—wecannotachievethereductionsweneedwithoutslashingcarbonemissionsfromcoalpowerintheyearsahead.Evenifthecoalpowersectoronlymadeitspro-portionalshareofreductions,itwouldfacereductionsofatleast17percentinthenextdecadeandmorethan80percentoverfourdecades.Butasmanystudieshaveshown(someofwhicharediscussedinParts4and8),ifsocietyfollowsanythingresem-blingaleast-costpath,adisproportionateshareoftheemissionsreductionswillbeachievedbyshiftingawayfromcoalpower. Thesescientificrealities,whicharedrivingpolicyresponseselsewhereintheworld,willkeepfuelingdemandsforstrongerpoliciesintheUnitedStatesaswell—includingalawthatputsapriceoncarbon,whichwouldhavefinancialimplicationsforcoalthatwediscussinPart4.Butevenwithoutsuchapriceinplace,theeconomicprospectsbothofoldcoalplantsandproposednewplantshavealreadychangedprofoundly.

Federal Projections of New Coal Plants PlummetOneofthemostcommonlycitedsourcesofinformationaboutthenation’senergysectoristheEnergyInformation

4 This is equivalent to about 3.6 degrees Fahrenheit. We have already warmed by 1.7 degrees Fahrenheit above preindustrial levels (Arndt, Baringer, and Johnson 2009).

Apart from plants already under construction,

the EIA’s model no longer projects the

construction of any new coal plants through

2030 without carbon capture and storage (CCS).

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Administration(EIA)—anindependentagency,withintheU.S.DepartmentofEnergy,thatisthesourceofofficialfederalenergystatisticsandanalyses.TheEIApublishesanAnnualEnergyOutlook(AEO)thatmakeslong-termforecasts,basedonhighlydetailedcomputer-basedeconometricmodeling,aboutU.S.energymarkets.Asamatterofmethodology,theAEOreference-caseforecastassumesimplementationofexist-inglawsandregulationsonly.Theseannualforecaststhereforedonotfactorinafuturepriceoncarbon(discussedinPart4),nordotheyreflectmanyofthepollutioncontrolupgradesthatexistingplantsface(discussedinPart5). Justafewyearsago,whenmanyplantsinthepipelinetodaywerefirstannounced,theEIAforesawarobustfuturefornewcoalplants.IntheAEO2006,theEIA’smodelpro-jectedtheconstructionof145gigawatts(GW)of“unplanned”newcoalcapacityby2030,ortheequivalentofabout240newcoalplantsof600MWinsize(inadditiontothe9.3GWof“planned”capacity,whichtheEIAputintothemodeltoreflectnewcoalprojectsthatitunderstoodtobeunderconstructionandthatitassumedwouldbecompleted)(EIA2006).Whilecritics,includingtheUnionofConcernedScientists,pointedoutthattheseforecastswerebasedoninap-propriatelylowcoal-plantconstruction-costassumptions,and

thattheydidnotreflectcarbonregulatoryrisk,backersofnewcoalplantspointedtothesefederalprojectionsasevidenceoftheeconomicwisdomofbuildingmorecoalcapacity. ButintheEIA’sAEO2011(EarlyRelease),thosehundredsofprojectedcoalplantshavevanished,areflectionoftheprofoundeconomicchangesthathaveoccurredsince2006.Apartfrom11.5GWofplantsalreadyunderconstruction,theEIA’smodelnolongerprojectstheconstructionofany newcoalplantsthrough2030withoutcarboncaptureandstorage(CCS)(EIA2011a)(seeFigure2,p.4).Only2GWofcoalpowerwithCCSareprojectedby2030,whichreflectnewplantsthattheEIAassumedwouldbestimulatedbyexistinggovernmentsubsidies(EIA2011a).

Widespread Retirements Expected among Existing PlantsAlargepercentageofU.S.coalplantcapacityhasreachedorexceededitsoriginallyassumedusefullifetime.Seventy-twopercentofU.S.coalplants(bycapacity)areolderthan30years,34percentareolderthan40years,and14percentareolderthan50years(Bradleyetal.2010).Only1percentare10yearsoldorless,andonlyafewnewplantsarenowinthepipeline.AsFigure3(p.5)shows,however,thenationdoeshavesubstantialnewlybuilt

Figure 1. U.S. CO 2 EMISSIONS FROM ENERGY USE BY SOURCE, 2009

More CO2 is emitted from coal plants than from any other technology or sector, including all modes of surface transportation combined. (Power plant emissions are presented under coal plants and other electricity generation, rather than under the residential, commercial, and industrial sectors where the power is consumed.)

Coal Plants33.2%

Other Electricity Generation 5. 0%

Residential 6.2%

Commercial 3.9%

Industrial 15.4%

Surface Transportation 32.9%

Aviation 3.3%

Source: EIA 2011a


energycapacityintheformofnaturalgasplants(whichhavebeengreatlyunderutilizedinrecentyears,asdiscussedinPart2)and,increasingly,windpowerandotherrenewablesources. Theadvancedageofsomanycoalplantspresentstwoprob-lems.First,theyrequireadditionalinvestmentsjusttokeeprun-ning.After30yearsofoperation,theavailabilityofacoal-firedboilerdeclinessharplyandtheplantfaceshigherratesofforcedoutages;largecapital-improvementprojects,whichoverhaulorreplacekeyplantcomponents,aretypicallyneededtoextendtheplant’soperatinglife.5Suchprojectsarenotonlycostlybutcanalsorequireextendedplantshutdowns(Slat2010). Second,manyolderplantslackmodernpollutioncontroltechnologies,sotheytypicallyposemuchgreaterthreatstoair,

water,land,andpublichealth(andsomewhatgreaterclimateimpacts,giventheirlesserfuelefficiency)thandonewplants.Thesehighlypollutingplantsfacetheprospectofnewandmoreprotectiveregulatorystandards(discussedinPart5),whichwouldforcetheirownerstodecidewhethertoretirethemorfinallyinvestinpollutionreductiontechnologies.Severalclosuresofoldcoalplantsaroundthecountryhave

Figure 2. DECLINING FEDERAL PROJEC TIONS OF NEW COAL PLANTS THROUGH 2030

In its Annual Energy Outlooks (AEOs), the EIA’s projections of unplanned coal capacity coming into service by 2020, 2025, and 2030 have dropped dramatically. In 2006 the EIA projected 145 GW of new coal by 2030 (the equivalent of about 240 new plants of 600 megawatts). But the agency now projects only 2 GW by 2030, consisting entirely of advanced plants with CCS technology that are inputs to the model based on the assumed response to federal subsidies. Planned capacity additions—plants that the EIA understands to be under construction already—are not reflected.

5 Much of the litigation under the Clean Air Act’s New Source Review program has involved coal plant operators that failed to obtain preconstruction permits before replacing major plant components. Among the plant components that required upgrading have been economizers, reheaters, primary and secondary superheaters, waterwalls, cold end air heaters, and boiler floors. See U.S. v. Ohio Edison Co., 276 F. Supp. 2d. 829 (S.D. OH 2003).

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Sources: EIA 2006, 2007, 2008a, 2009a, 2010a, 2011a


alreadybeenannouncedbyProgressEnergy,Xcel,Duke,TVA,andExelon,amongothers(Bradleyetal.2010).Xcel’sanalysisoftwoagingcoalunitsinMinnesotashowedthatmakingtheneededlife-extensionandpollutioncontrolinvestmentswouldcostmorethanrepoweringthemwithnaturalgasundereachofthe10scenariosexamined,includingahighgaspricescenario(XcelEnergy2010). Thescaleandimplicationsoftheforthcomingwaveofcoalplantretirementsarethesubjectofintensespeculation,witharesultingflurryofnewscenariosandestimates—someofwhicharelistedinTable1(p.6)—fromconsultingfirms,investmenthouses,andothers.TheseestimatesallreflecttheimpactoftheU.S.EnvironmentalProtectionAgency’s(EPA’s)forthcomingairregulationsonthenation’sagingcoalfleet,andsomealsoincludeexpectedashandcooling-waterregula-tions(allofwhichisfurtherdiscussedinPart5).Thecurrentandprojectedlownaturalgasprices(discussedinPart2)arealsoamajorfactorintheseobservers’analyses. Thegigawattsofcoalplantcapacityexpectedtoberetiredinthenextfewyearsvariessubstantiallyfromoneanalysisto

another,withnotablecongregationintheneighborhoodof40to60GW.(Bywayofcomparison,thesizeoftheexistingfleetofcoalplantsisabout313GWofnetsummercapacityand337GWofnameplatecapacity(EIA2010d).6)However,someoftheanalysesconcludethatamuchlargershareofthefleetpotentiallyfacesretirement.TheDeutscheBankanalysis,forexample,projectsthat60GWofcoalplantswillretireby2020,butitalsonotesthatanadditional92GWofcoalplantsare“ripeforretirement”(Mellquistetal.2010). Thedecliningeconomiccompetitivenessoftheagingcoalfleetisanimportantfactorinmostoftheanalyses.Accord-ingtoinvestmentbankCreditSuisse,“alargechunkoftheU.S.coalfleetisvulnerabletoclosuresimplyduetocrummyeconomics,whereweseecoalpricingatapremiumtonatural

Figure 3. U.S. ELEC TRIC GENERATING CAPACIT Y BY IN-SERVICE YEAR

Most of the nation’s coal plants are decades old, with many at or well beyond their expected operating lifetimes. However, the United States has added a large amount of new natural gas generating capacity in the last decade (much of which is currently underused), and the country has growing renewable power capacity as well.

1940

1950

1960

1970

1980

1990

2000

2008

NA

ME

PL

AT

E C

AP

AC

ITY

(M

W) 80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

n Other Renewablesn Hydron Nuclearn Other Gasesn Oiln Natural Gasn Coal

6 Nameplate capacity is the maximum output of a generator under specific conditions designated by the manufacturer (and is usually indicated by an actual nameplate attached to the generator). Net summer capacity is the expected maximum output of the coal fleet during summer peak demand after subtracting electricity use for station service or auxiliaries.

Sources: Ceres et al. 2010; EIA 2008d


gas…whenadjustingonanelectricityequivalentbasis.…Awfulenergymarginssuggesttousthatownersshouldbereevaluatingtheircoalfleetsduetopureenergyeconomicsbeforeeventakingontheburdenofa[capitalexpenditure]forenvironmentalcontrolequipment”(Eggersetal.2010).Coalplantretirementsareprojectedtohaveapositiveeconomiceffectonmanypowerproducers.TheCreditSuisseanalysis,entitled“GrowthfromSubtraction,”predictsthatamongtheseproducersthenewEPAregulationswillproduce“mostlywinnersandbiggerwinners”andhavetheeffectof“cullingtheherdofbadplants”(Eggersetal.2010).

Excess Generating Capacity Facilitates Coal Plant RetirementsFortunately,withprojectionsofextrageneratingcapacityonthegridforyearstocome,theUnitedStatesisnowinarela-tivelygoodpositiontohandleawaveofcoalplantretirements. Eachregionofthecountrymustmaintainenoughelectricgeneratingcapacitytomeetexpecteddemand,plusanaddi-tional“reservemargin”todealwithplantoutages,transmis-

sionfailures,unexpecteddemand,andotherfactors.Inmostregions,theminimumtargetreservemarginis15percentorless,butinrecentyearsactualreservemarginsaroundthecountryhavebeenwellabovethatthreshold,andin2013reservemarginsareexpectedtorangefrom22to46percent,dependingontheregion.AccordingtoarecentanalysisbyM.J.BradleyandAssociates,inaggregate“theelectricsectorisexpectedtohaveover100GWofsurplusgeneratingcapacityin2013”(Bradleyetal.2010). TheNorthAmericanElectricReliabilityCorporation(NERC)issuedanassessmentinlate2010oftheimpactoffourdifferentforthcomingEPAregulationsonreliability;itfoundpotentialforanimpact,dependingon“whethersuf-ficientreplacementcapacitycanbeaddedinatimelymanner”

Table 1. COAL PLANT RE TIREMENT PROJEC TIONS

A recent series of reports and presentations has attempted to predict the scale of coal plant retirements over the next few years. The reports vary in the factors they considered and the type of analysis, but all agreed that the aging U.S. coal fleet faces significant retirements ahead.

S O U R C E O F A N A L Y S I S

Black and Veatch (Griffith 2010)

Brattle Group (Celebi et al. 2010)

Charles River Associates (Shavel and Gibbs 2010)

Credit Suisse (Eggers et al. 2010)

Deutsche Bank Climate Change Advisors(Mellquist et al. 2010)

FBR Capital Markets (Salisbury et al. 2010)

ICF International (Fine Maron 2011)

Wood Mackenzie (Snyder 2010)

P R O J E C T I O N S

54 GW (in response to “pending” environmental regulations)

50–66 GW “vulnerable to retirement” by 2020

39 GW retired by 2015

60 GW assumed retired in base case by 2017 35 GW and 103 GW retirements considered on other scenarios

60 GW “expected” to retire by 2020 92 additional GW “inefficient and ripe for retirement”

45 GW retired in base case by 2018(30–70 GW range)

20% decline in coal fleet by 202012% decline in coal generation by 2020

“Nearly 50” GW by 2020

A large chunk of the U.S. coal fleet is vulnerable

to closure simply due to crummy economics.

— C R E D I T S U I S S E


BankshowsapathwaythatwouldreducepowersectorCO2

emissionsby44percentby2030. Inthelongerterm,theUnitedStatescanretireafarlargershareofitscoalfleetthanthoseprojectedintheseanalyses;indeed,doingsowouldbeacentralfeatureofmakingthedeepcutsinglobalwarmingemissionsthatweneed.Forexample,inamultiyearmodelinganalysisreleasedin2009,theUnionofConcernedScientistsshowedhowwecouldreducecoaluseby84percentby2030,replacingitmainlywithefficiencysav-ingsandmorerenewablepowerwhilesavingenergyconsumersmoney(Cleetus,Clemmer,andFriedman2009).WediscussthisstudyfurtherinPart8,alongwithotherresearchshowingthattheUnitedStatescouldretireitsoldcoalplantsatarapidpaceandstillmeetitsenergyneeds(Keithetal.2010;Specker2010).

Growing Opposition to CoalAmongtheveryrealbuthard-to-quantifyrisksfacedbythoseinvestingincoalisthelikelihoodthatpublicoppositiontocoalwillkeepbuilding,particularlyastemperaturesclimbintheyearsahead.Manynewcoalplantproposalshavealreadybeenstoppedbypublicopposition,drivenatleastinpartbyclimateconcerns.Andbecauseslashingthecarbonemissionsofexistingplantsiscriticaltoclimateprotection,activists—alreadymobilizedtoopposenewplants—canbeexpectedtoincreasinglyturntheirattentiontoclosingexistingplants.Thefailuretopassacomprehensiveclimatebillduringthe111thCongressmayjustsharpenclimateactivists’focusoncoalplants,giventhattheyarethebiggestcarbonpollutersandthemostobvioustargets. Butrisingoppositiontocoaluseisbasednotjustonclimateconcerns.Mountaintop-removalminingincreasinglydrawsprotestsandactsofcivildisobedience,includingattheWhiteHouseinSeptember2010,when1,000protestorsdem-onstratedand100werearrested(Reis2010).Andthethreatsposedbycoalash,madeevidentbythe2008ashspillinKingston,TN,havealsopromptedprotestsandheavycitizenturnoutatEPAhearingsaroundthecountrytocallforstricterashregulation. Inshort,thoseplanningtomakelong-terminvestmentsincoalpowershouldexpectgreaterscrutiny,morecontroversy,andstrongerlegalandpoliticaloppositionintheyearsahead.Thisoppositionposestheriskthatprojectsmaybedelayedorstoppedaltogether.

(NERC2010).TheNERCanalysisassumed33to70GWofplantretirements,butthesefiguresincluded30GWofsmall,oldoilandgasunitsretiredinresponsetotheEPA’sas-yet-unproposedcooling-waterrule.However,asthesubsequentCharlesRiverAssociates(CRAInternational)analysispointedout,thenumberofprojectedcoalplantretirementsnationwideissmallcomparedwiththerateatwhichtheUnitedStateshasaddedgeneratingcapacityinthepast.CRAInternationalalsofoundthatafterthe39GWofcoalretirementsitprojected,alloftheregionaltransmissionorganizationswouldstillhavesufficientresourcestomeetreservemarginrequirementsevenifnewadditionsintheplanningandsitepreparationstageswerenotincludedintheanalysis(ShavelandGibbs2010). Theseamplereservemarginsresultinnosmallpartfromthemanynewnaturalgasplantsthatcameonlineinthelastdecade(Figure3)butthathavebeenoperatingatjustafractionoftheircapacity.Theseplantscouldreplacethepowerlostfromsubstan-tialnumbersofretiringcoalplants,andlowerprojectednaturalgaspricesmakethisprospectevenmorelikely(seePart2).Inaddition,demanddroppedsubstantiallywiththerecession,withpowersalesin2009about5percentbelowtheir2007levels(EIA2010h).Whilethedemandforpowerbegantoreboundin2010,surplusgenerationcapacityisstilllikelytopersistforlongerthanwasexpectedbeforetherecession.AccordingtotheDeutscheBank’sanalysis,“thereisamplecapacity,strandedfromthe1998–2003‘dashtogas’overbuild[,]andtherecessionhasincreasedreservemargins,reducingpressureonaddingnewplantsinmanyregions”(Mellquistetal.2010).Theseanalystsassumethatatleasttwo-thirdsofthecoal-to-gasswitchtheyprojectcouldoccurbyincreasingtheuseofexistinggasplants;combinedwithgrowingrelianceonrenewablepower,Deutsche

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P A R T T W O

Eroding Markets for Coal Power The Impacts of Energy Efficiency, Renewable Power, and Natural Gas

Proposedandexistingcoalplantsarealsothreatenedbyincreasingcompetitionfromenergyefficiency,renew-ableenergy,andnaturalgas,whicharecuttingintothelong-termdemandforcoalpower.Coal’sshare

oftheU.S.electricitymarkethasalreadydroppedsignificantlysince1997,whenitaccountedfor53percentofthepowermix.Inthefirsthalfof2010,coalprovidedonly46percentofU.S.generation(and45percentin2009)(EIA2010c;EIA2010d).Giventhepolicysupportforcleanercompetingtechnologies,theirgrowth,andtheircostandperformanceimprovements,coal’smarketsharewilllikelycontinuetodecline.

Energy Efficiency Energyefficiencyhasenormouspotentialtoreduceelectric-itydemand.ArecentanalysisbytheMcKinseyCorp.foundthattheUnitedStatescouldreduceannualnon-transportationenergyconsumptionby23percentbelowprojectedlevelsby2020,usingonlymeasuresthatpaidforthemselvesandwithoutassumingapriceoncarbon(Granadeetal.2009).ANationalAcademyofSciencesstudyconcludedthatdeployingcur-rentlyavailabletechnologycouldreduceprojectedelectricityconsumptionfromcommercialandresidentialbuildingsby26percentby2020,andatcostswellbelowretailelectricityprices(NRC2009).Otherstudieshavemadesimilarfindings(Cooper2010;Cleetus,Clemmer,andFriedman,2009;Jamesetal.2009;Ehrhardt-MartinezandLaitner2008;Creytsetal.2007).Withmoreoptimisticassumptionsabouttechnologyimprovements,onerecentstudyconcludedthattheUnitedStatescouldcutenergyuseinallofitsformsby30percentby2020and88percentby2050(Goldstein2010).

TheUnitedStateshasnotyettakenadvantageofsuchpotentialsavingsfromefficiencybecausemarketbarriershavepreventedtheassociatedinvestmentsfrombeingmade.Butthesebarrierscanbeovercomebythekindsofpolicychangesincreasinglybeingadoptedbystateandfederalgovernments.7Theproliferationofnewstateenergyefficiencypoliciesoverthepastseveralyears“suggeststhatthenextdecademayseeadramaticandsustainedincreaseinoverallfundinglevels,andafundamentalredrawingoftheenergyefficiencymap,”concludeda2009LawrenceBerkeleyNationalLaboratoryreviewofstatepolicies(Barbose,Goldman,andSchlegel2009).Theseanalystsfoundupcomingincreasesinefficiencyinvestmentsnotonlyamongstatesthathavesupporteditforyearsbutalsoamongpopulousstates—includingIllinois,Maryland,Michigan,NorthCarolina,Ohio,andPennsylvania—thatuntilrecentlyinvestedlittlebuthavenowenactedaggressivenewpolicies. OneofthemoreeffectiveandpopularpolicymechanismsfordeployingenergyefficienttechnologiesistheEnergyEffi-ciencyResourceStandard(EERS),whichrequiresutilitiestoimplementprogramstoreduceenergydemandbyaspecifiedpercentageovertime.Currently,27stateshaveenactedanEERSorhaveonepending,abouttwiceasmanyasjustfouryearsago;severalstates,includingArizona,Illinois,Indiana,Massachusetts,Ohio,andVermont,requireannualsavingsthatrampupto2percentorhigher(ACEEE2010a).Overall

7 For a broader discussion of the barriers to energy efficiency and policy solutions, see the Union of Concerned Scientists report Climate 2030 (Cleetus, Clemmer, and Friedman 2009).


ingavoidedfuturecarboncosts)(EERE2008).Despiteitsvariableoutput,severalU.S.andEuropeanutilitystudieshaveshownthatwindpowercouldprovideupto25percentoftotalgenerationonutilityandregionalsystemsatmodestintegra-tioncosts(oflessthan$10/MWh,orroughly5to10percentofwindpower’swholesalecost)(WiserandBolinger2009;Holttinenetal.2007). Theinstallationofwindandsolarenergytechnologieshasexpandedatastrikingpace,withwindgrowingatanaver-ageannualrateof39percentbetween2004and2009andsolargrowingatanannualaveragerateof41percentoverthatperiod.In2007,forthefirsttime,theUnitedStatesaddedmorerenewablecapacity,mainlywind,thanitdidnonrenew-ablecapacity(EIA2009c).From2008to2009,morewindcapacitywasaddedtotheU.S.powersupplythaninthepreviousthreedecadescombined(Figure4,p.10)(WiserandBolinger2009).In2010,however,windinstallationsdroppedoffconsiderablyfromtherecentrecordpace,dueinlargeparttotherecessionaswellastoincreasedcompetitionfromlow-pricednaturalgas(AWEA2010a;AWEA2010b). Themarketshareofsolarphotovoltaic(PV)powerisalsogrowingrapidly,andthisoptionhasthepotentialtotransformtheenergygridassolarpanelpricescontinuetofall.PVinstal-lationsduringthefirsthalfof2010were55percenthigherthanin2009onanannualizedbasis(SEIA2010b).Californianowhas600MWofPVcapacityonline,aspartofapushtoinstall3,000MW(CPUC2010),andNewJerseyhas120MWunderdevelopment(Belson2009).Unlikemostother

spendingonratepayer-fundedgasandelectricefficiencyprogramsnearlydoubledbetween2007and2009,risingfrom$2.5billionto$4.3billion(ACEEE2010a).Suchaggressiveandsustainedinvestmentsinenergyefficiencycouldnotonlygreatlyreducetheneedfornewsourcesofgeneration(includ-ingcoal)butalsocutdemandforexistingpowerplants. Arenewedcommitmenttoenergyefficiencyatthefederallevelwillhelptodrivedemandreductionsnationwide.Forexample,theAmericanRecoveryandReinvestmentActof2009(ARRA)providedapproximately$17billioninincentivesforhomesandbusinessestoinvestinenergyefficiency(ACEEE2010b).Moreover,sinceJanuary2009theU.S.DepartmentofEnergyhasfinalizednewefficiencystandards,formorethan20householdandcommercialproducts,estimatedtocumulativelysaveconsumers$250billionto$300billionby2030(DOE2010).Thesearebillionsofdollarsthatwillnolongerneedtobespentoncoalpoweroranyotherkindofelectricitysupply.

Renewable PowerThepotentialofrenewablesourcestomeetafargreatershareofourelectricityneedsiswelldocumented.Themajorrenewableenergytechnologies—wind,solar,geothermal,bioenergy,andsmall-scalehydropower—havethepotentialtoproducemanytimesthecurrentU.S.powerdemand(Cleetus,Clemmer,andFriedman2009).Ofcourse,notallofthatpotentialispracti-callyrealizable,butnumerousstudieshaveconsistentlyfoundthattheUnitedStatescouldsignificantlyincreaserenewableenergygenerationinanaffordableandreliableway(ASES2007;Nogee,Deyette,andClemmer2007).ANationalRenewableEnergyLaboratory(NREL)studyrecentlyconcludedthatby2025theUnitedStatescouldmeet22percentofitselectric-ityneedsusingnon-hydrorenewablepower—upfromabout3.6percentin2009—withnosignificantimpactonconsumerpricesatthenationallevel(EIA2010b;Sullivanetal.2009).8Inaddition,a2009EIAstudyprojectedthatincreasingtheshareofrenewableelectricityto25percentnationallyby2025wouldlowerconsumernaturalgasbillsslightlycomparedwithbusinessasusual,therebyoffsettingslightlyhigherelectricitybills(EIA2009g). Accordingtoalandmark2008analysisbytheU.S.Depart-mentofEnergy,windpoweralonecouldmeet20percentofourelectricityneedsby2030withoutcompromisingreliabilityorraisingelectricratesbymorethan2percent(notconsider-

The next decade may see a dramatic and

sustained increase in overall [energy

efficiency] funding levels, and a fundamental

redrawing of the energy efficiency map.

— L A W R E N C E B E R K E L E Y N A T I O N A L L A B O R A T O R Y

8 The NREL analysis examined three proposed renewable energy standards, the most stringent of which would require 25 percent of retail power sales to derive from renewable power by 2025. However, because smaller utilities were exempted from this standard, the effective renewable requirement was only 22 percent by 2025.


50percentinthelasttwoyears,partlyduetonewlow-costmanufacturingfacilitiesinChina(Bradsher2010).AnalystsatDeutscheBankreport,“lookingatlearningcurves,weexpectmanyrenewabletechnologieswilllikelybeascheapasfossilfuel-firedpowergenerationon[alevelizedcostofelectric-ity]basiswithinthenext5–10years”(Mellquistetal.2010).WhiletheseanalystsfocusparticularlyonrapidlyfallingsolarPVprices,theynotethateventherelativelymatureonshorewindindustrysawturbinepricesfallin2010andthatpricesareprojectedtobe20percentlowerin2011thanin2009(Mellquistetal.2010). Evenwithoutsuchfallingprices,renewablepowerwouldseecontinuinggrowthdrivenbyfederaltaxcreditsandstate-levelrenewableelectricitystandards,whichrequireelectricitysupplierstoprovideaminimumpercentageoftheirelectricityfromrenewablesources.Already,29statesandtheDistrictofColumbiahaveenactedsuchstandards,anumberthathasmorethandoubledsince2004.Arecentanalysisprojectedthatiffullcompliancewiththesestatestandardswereachieved,it

powersources,onsitesolarPVprojectsbecomecompetitivewhencostsfallbelowretailratherthanwholesalepowerprices.Netmeteringpoliciesandinnovativefinancingmechanisms(suchasproperty-assessedcleanenergy,orPACE,financing),whichhelpreducethebarrierstowideruseofPV,arespreadingquickly(Rose2010;SEIA2010a). Otherrenewabletechnologiesarealsoseeingimpressivegrowth.Concentratedsolarpower(CSP)canfunctionaroundtheclockwhenpairedwithnewheat-storagetechnologies.ThisoptionistakingoffparticularlyinCalifornia,wherestateregu-latorsapprovedninenewprojectstotalingover4,000MWoverafour-monthperiodinlate2010(Kraemer2010).Onesuchproject,at1,000MW,willbethelargestintheworld(Hsu2010).Onanotherfront,in2009geothermalpowergrew26percentinnewprojectsunderdevelopment,with7,875MWofprojectsunderwayin15states(GEA2010). Renewablepowercontinuestobecomemorecompetitivewithfossilfuelsbecauseoftechnologicaladvances,economiesofscale,andotherfactors.Solarpanelpriceshavedroppedby

Figure 4. WIND POWER GROWING AT RECORD PACE

U.S. wind power capacity expanded by over 50 percent in 2008 alone and continued to expand in 2009 despite the recession.

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Annual U.S. CapacityCumulative U.S. Capacity

Source: Wiser and Bolinger 2010


ensstandardsforthesepollutants,aswellasunderanyfuturecarbon-costscenario.Naturalgasplantsalsohavethecapabilitytoincreaseorreducetheiroutputasmarketdemandfluctuates,whichcoalplantscannotefficientlydo.Thisflexibilitymakesgasplantsinherentlybetteradaptedtoagridontowhichagrowingnumberofvariablerenewableenergysourcesarebeingadded,pursuanttostatepoliciesandshiftingeconomics. Theprospectsforallpowersources,includingcoal,aregreatlyaffectedbynaturalgasprices.Whenpriceswerelow,inthe1990sandearly2000s,thepowersectorbuiltagreatmanyefficientnaturalgascombined-cyclepowerplantsdesignedtooperateasaround-the-clockbaseloadcapacity.10Whengas

wouldresultinsome76GWofnewrenewableenergycapacityby2025—orasmuchas97GWifthenewlyenhancedCalifor-niastandardandthevoluntarygoalsadoptedinsevenaddi-tionalstateswereincluded(Wiser2010).Federalsupporthasalsobeenimportant,withextendedtaxcreditsforrenewablegenerationextendedthrough2012aspartofthe2009ARRAlegislation.TheEIAprojectsthatthesetaxcredits,combinedwithexistingstate-levelstandards,willincreaserenewableenergy’sshareofelectricitygenerationto12.3percentby2020(EIA2010a). Inshort,whilecoalpowerisshrinkingandfacesnewregulatoryhurdlesandrisingcosts,renewablepowerisexpand-ingwithgrowingpolicysupport;moreover,costsarefallingformanyofthesetechnologies.Renewablepower’smarketsharewillthuscontinuetoincreasetoasubstantialfractionoftheU.S.powermarket,meetingelectricitydemandthatmightotherwisebefilledbycoal.

Competition from Natural GasNaturalgasplantsholdimportantadvantagesovercoalplants.Theyburncleaner,producinglessthanhalfthecarbonemis-sions,aboutone-tenththenitrogenoxides,andnegligibleamountsofsulfurdioxide,mercury,andparticulates.9ThusnaturalgaswillhaveanaddededgeovercoalastheEPAtight-

9 A federal analysis of power plant performance found that a new natural gas combined-cycle plant emitted 58 percent less CO2 per megawatt-hour than a new coal plant using subcritical technology and 55 percent less CO2 than a new coal plant using the more efficient supercritical technology (NETL 2007). 10 Baseload power is the term used for those sources of electricity that are run most of the time and at a steady rate. This is in contrast to peaking or interme-diate plants, which are turned on when demand reaches a certain point and ramped up and down as demand shifts, and in contrast with intermittent sources such as wind, which provide power only when available. Traditionally, coal, nuclear, hydroelectric (except in drought years), biomass, and geothermal plants have provided the baseload power, though lately natural gas combined-cycle plants have also been a source of significant amounts of baseload power in some parts of the country.

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Source: Wiser and Bolinger 2010


priceslaterincreased,muchofthenewnaturalgascapacitywasleftunderutilizedandthepowersectorlaunchedacoalplantbuildingspree,withannouncementsofover150proposednewcoalplantsatitsheight.Sincethen,naturalgaspriceshavefallen,contributingtothecancellationofsomeofthosenewcoalplantsandpromptingtheownersofseveraloldcoalplantstoannounceplanstoreplacethemwithnaturalgasunits(Smith2010). Naturalgaspricesareparticularlyhardtoforecast,butitisworthnotingthatwhileestimatedcoalreservesarebeingreducedandcoalpricesarerising(seePart3),theoppositeishappeningwithnaturalgas.IndustryexpertsrecentlyexpandedtheirestimatesofU.S.domesticgasresourcesbyadramatic39percentsincethelastestimatein2006,announcing“anexcep-tionallystrongandoptimisticgassupplypictureforthenation”(PotentialGasCommittee2009).Thisconfidenceresultedfromadvancesindrillingtechnology—horizontaldrillingandhydraulicfracturing—thatletdrillersreachtheformerlyinac-cessibleshalegassupplieslocatedinmanystates. Therearemanyunresolvedconcernsovertheimpactthathydraulicfracturingcanhaveonwaterqualityandsupply,however.Andtherearequestionsastowhethertheglobalwarmingimpactofmethaneleakedduringtheproductionofnaturalgasmoregenerallyhasbeenfullycounted(LustgartenandProPublica2011).Theseissues,andthepublicoppositiontoexpandeddrillinginsomeareas,coulddampenexpectationsaboutfuturegasproduction.Still,shalegasisviewedbymanyascausingadramaticimprovementintheoutlookfordomesticnaturalgasproduction.Thisincreaseinnaturalgasavailabilitycouldhavesignificantimplicationsforcoalpower,especiallywhencombinedwithclimate-protectionpolicies.A2010

The threat to coal from natural gas is particularly

great at present, given the many natural gas

plants built in the last decade that have been

operating at far below capacity.

analysisbyResourcesfortheFuturefoundthatexpandedpro-ductionofshalegas,combinedwithacap-and-tradeprogram,wouldreducecoalgenerationin2030bymorethanhalfcomparedwithbusiness-as-usuallevels(BrownandKrupnick2010). Thethreattocoalfromnaturalgasisparticularlygreatatpresent,giventhemanynaturalgasplantsbuiltinthelastdecadethathavebeenoperatingatfarbelowcapacity.Forexample,combined-cyclenaturalgasplantswereoperatingat42percentin2007(Kaplan2010)andatonly33percentin2008(Bradleyetal.2010).ACongressionalResearchServicereportestimatedthatbringingutilizationofthoseplantsto85percent,asistechnicallyfeasible,wouldbesufficienttocutcoalgenerationbynearlyathirdandreduceCO2emissionsby19percent(Kaplan2010).Anotherassessmentconcludedthatalmost70percentofthecoalfleetcouldbeidledbyfullyutiliz-ingthenaturalgascombined-cyclepotential(Casten2009).Theseandotherreportshaveacknowledgedthemanypracti-calbarrierstoawidespreadsubstitutionofgasforcoal(AspenEnvironmentalGroup2010).Still,theexistenceofsomanyunderusedgasplantswhengaspricesareprojectedtoremainrelativelylowrepresentsyetanotherpotentiallysignificantthreattocoalpower’smarketshare.


P A R T T H R E E

Fuel Prices at Risk

Coalhastraditionallybeenconsideredareliablylow-costfuel,butthepricevolatilityofthelastfewyearsshowsthatthisdistinctionhasalreadybeenerodedandthatmuchgreaterchangesmay

lieahead.Inpredictingfuturecoalprices,investorsmustconsidertherisksthatpricescouldbepushedfarhigherbyincreasedexposuretotheglobalmarket(particularly,risingcoaldemandfromAsia),bynewuncertaintiesaboutthesizeofcoalreserves(bothintheUnitedStatesandglobally),andbynewconstraintsonmining.

The Threat to U.S. Coal Prices from Volatile Global Markets SpotcoalpricesintheeasternUnitedStatesrosedramaticallyin2008(Figure5,p.14).11Thisshiftoccurredlargelyinresponsetotheriseintheglobaltradeincoal,towhichtheeasternU.S.marketswereparticularlyexposed(Freme2009;Victor2008).Globalcoalpricesalsorosesteeplyin2008—becauseofgrow-ingdemand,especiallyfromAsia,andofsupplyproblemsinothercountries(MufsonandHarden2008).Afterspikingin2008,spotpricesdroppedwiththerecession,largelybecauseofdecliningdemandforpowerdomesticallyandfallingsteelproductionglobally(EIA2009e). Asnations’economiesrecoverfromthewoesofthepasttwoyears,thesamekindsofglobalforcesaredrivingcoalpricesupwardagain.Chinaistheworld’slargestcoalconsumerandproducerbyfar,miningandburningaboutthreetimesasmuchastheUnitedStates(insecondplace)in2009(EIA2011b;EIA2010f).Chinaalsoswitchedfrombeinganetcoalexportertoanetimporterin2009(Rosenthal2010).China’scoaluse

hasrisenabout10percentannuallyforthelastdecade,anditnowaccountsforalmosthalfofglobalconsumption(Rudolf2010).Indiaaswellisincreasinglyrelyingonimportedcoaltomeetitsgrowingdemand,andCitigrouppredictsthatin2011ChinaandIndiacombinedwillincreasetheircoalimportsby78percent(SethuramanandSharples2010).SomeindustryanalystsdescribethecoaldemandintheAsia-Pacificregionasexperiencing“absolutelystupendous,fantasticgrowth,”whichtheyexpectwillbringabouta“seismicshift”intheglobalcoalmarkets(Gronewold2010). ThatseismicshiftcouldbeevenstrongergiventherecentannouncementbyChineseofficialsthattheyplantocaptheirnation’sdomesticcoalproductionat3.6billionto3.8billiontonnes(comparedwiththe2009productionof3.2billiontonnes),inparttopreventChinesereservesfromrunningdowntooquickly(Reuters2010a;Winning2010).Thismove,com-binedwithstill-soaringdemandforcoalinChina,couldhaveprofoundimplicationsforglobalcoalprices—whichinDecem-ber2010reachedtheirhighestpointintwoyears(SethuramanandSharples2010)—andforU.S.coalprices. U.S.coalpricesarealreadyrising,atleastpartlyinresponsetoglobalprices.Appalachianspotpriceshavebeenonan

11 Given long-term contracts (of one year or longer), most U.S. coal plants are buffered from the immediate effects of short-term spot price volatility, but they still feel the coal price trend. On a national-average basis, delivered prices of coal to electric utilities in 2009 were 43 percent higher than in 2005 (EIA 2009h). Delivered coal prices in 2009 were 8 percent higher than in the year before, even though 2009 demand for coal dropped by 10 percent in the power sector. The EIA attributes this rise mainly to the new contracts signed during the 2008 spike in spot prices. And notably, despite the global economic slowdown, the average price per ton of U.S. steam coal exports rose by 28 percent in 2009 (EIA 2009h).


years,evenwhilethesizeoftheU.S.coalfleetshrinksbecauseofplantretirements. U.S.coalplantsdependentonPRBcoalmustalsocontendwiththerisksassociatedwithlong-distancerailtransporta-tionandthebottlenecksthatcanthreatenreliabledelivery.In2005,heavyrainandsnow,twoderailments,andresultingtrackdamagereduceddeliveriesofPRBcoaltopowerplantsformonthsandcausedPRBspotpricestomorethandouble(NRC2007).Onelong-contemplatedrailprojectdesignedtoexpandPRBdeliveries(theDakota,Minnesota,andEasternRailroadexpansion)haseffectivelybeenputonhold,inpartbecauseofuncertaintyoverfutureU.S.coalpolicy(Dowd2010).Inaddition,thecostoflong-distancecoaldeliveriescanbesignificantlyaffectedbythepriceofdiesel,whichrosesteadilyin2010.

upwardtrajectorysincemid-2009(Figure5).Eveninthewest-ernUnitedStates,whichhistoricallyhasbeenlessexposedtoglobalmarkets,thepriceforaone-monthcontractforPowderRiverBasin(PRB)coalrose67percentbetweenOctober2009andOctober2010(Jaffe2010). Currently,limitedamountsofPRBcoalareshippedtoAsiaviaCanada,butPeabodyEnergy,thelargestU.S.coalproducer,admitsitis“planningtosendlargerandlargeramountsofcoal”toChina(Rosenthal2010).PeabodyisseekingtobuildaWestCoastterminalforthispurpose,andanAustraliancoalcom-panyisseparatelyexploringthepurchaseofasiteinWashing-tonStateforabulkcoalexportterminal(Learn2010).Ifsuchplansarerealized,thecoalplantsinthe34U.S.statesthatcur-rentlygettheircoalfromWyomingwillincreasinglybeforcedtocompetefortheirfuelwithChinaandIndia.ItisplausiblethatdemandgrowthinAsiacoulddriveupU.S.coalpricesfor

Figure 5. AVERAGE WEEKLY COAL SPOT PRICES

Coal prices spiked dramatically in 2008, largely in response to the influence of global coal demand on U.S. coal markets, particularly in Appalachia. Prices in most basins are rising again with the economic recovery.

Source: EIA 2010e

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therewasenoughcoaltomeettheEIA’sprojectionsofrisingdemandthrough2030—and“probably”enoughU.S.coaltolast100years—theauthorswarnedthat,“thedatathatarepubliclyavailableforsuch[long-term]projectionsareout-dated,fragmentary,orinaccurate.”Thustheycalledformorein-depthanalysesusingbetterdata(NRC2007). In2008,theU.S.GeologicalSurvey(USGS)providedjustsuchanin-depthanalysis—ofthecriticallyimportantGillettecoalfieldinWyoming’sPowderRiverBasin.Overtheyears,thenationhasseenadramaticshiftincoalproductionfromeastoftheMississippitothewest.AsFigure6shows,coalproductionintheeasthasbeenonagenerallydownwardslopefortwodecades,withgrowthinnationaldemandaccommodatedbyrisingproductioninthewest,mainlyfromthePRB.TheGil-lettecoalfieldisthemostproductiveinthenationbyfar—itisthesourceof37percentofU.S.coalin2006—andhometonineofthenation’s10mostproductivecoalmines(Luppensetal.2008). ItisthereforeparticularlysignificantthattheUSGSstudyshowedfarlesseconomicallyrecoverablereservesofcoalintheGillettefieldthanhadcommonlybeenassumed.Itsanalysis,whichdrewondatafromthousandsofdrillholesassociatedwithrecentcoal-bedmethanedevelopment,foundthatforthe

New Doubts about the Sizes of U.S. and Global Coal ReservesCoalpricescouldalsorisesignificantlyinthefutureifeconomi-callyrecoverablereservesturnouttobesmallerthanpreviouslyestimated.Foryears,AmericanshaveheardthattheUnitedStateshadenoughcoaltolast250years,orsomeotherhighfigure,sothatthoseinvestingincoalcouldaffordtoignoreitsnonrenewablenature.However,multiplestudieshavepointedoutthatthequalityofthedataunderlyingtheestimatesbothofU.S.andglobalcoalreservesissurprisinglypoor.Newerandmoredetailedassessments,togetherwithrecentproductiontrends,suggestthatthetrueamountsofeconomicallyrecover-ablecoalleftinthegroundcouldbefarlessthanpreviouslyestimated.Ifso,depletingreservescoulddriveupcoalpriceswellwithinthelifetimeofnewcoalinvestments. A2007reviewbytheNationalAcademyofSciencesfoundthatpresentestimatesofU.S.coalreservesarebasedondecades-oldmethodsanddataand,moreover,thatupdatedmethodsofanalysisinlimitedareas“indicatethatonlyasmallfractionofpreviouslyestimatedreservesareactuallyrecover-able”(NRC2007).Thestudyalsofoundthattheoften-quotedestimateofa250-yearsupplyofcoalatcurrentproductionratescouldnotbeconfirmed.Andwhilethestudyestimatedthat

Figure 6. U.S. COAL PRODUC TION

The nation has become increasingly dependent on coal from west of the Mississippi, particularly the Gillette coalfield of Wyoming’s Powder River Basin, as coal production in the east-ern United States has declined and the need for lower-sulfur coal has in-creased. However, USGS estimates of coal reserves based on new drilling data show less economically recover-able coal in the Powder River Basin than has been commonly assumed.

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Source: EIA 2010e

Source: EIA 2009b


higher-qualitybituminouscoal(foundmainlyinAppalachiaandtheIllinoisbasin)peakedin1990.IncentralAppalachiainparticular—whichincludesKentuckyandWestVirginia,thenation’ssecond-andthird-biggestminingstatesafterWyo-ming—totalproductionisprojectedtofallby2015toabouthalfofwhatitwasin1997,withadditionaldeclinesbeyond2015(Leer2010;McIlmoilandHansen2010). Whenconsideredbyheatcontentratherthantonnage,totalU.S.coalproductionwasactuallyhigherin1998thaninanyyearsince(BP2010;Heinberg2009;BP2008).Thisisbecausewesternsub-bituminouscoal,whilelowerinsulfur,isalsoconsiderablylowerinheatcontent.SowhilethenumberoftonsofU.S.coalannuallyminedhasgenerallybeenrising(withtheexceptionof2009,whenitdropped8.5percent),thenationisincreasinglyrelyingonlower-qualityfuel. Meanwhile,thelaborproductivityofU.S.mineshasbeendroppingsince2000.Priortothatyear,productivity(tonsminedperminer)hadbeenincreasingforyears,largelyduetoincreasedmechanizationandashifttowardsurfacemining.In2000,however,thistrendreversed(Figure7).By2008,coalmineswere15percentlessproductive,onanationalaver-age,thanin2000.ThedeclineoflaborproductivityhasbeensteepestintheagingcoalfieldsofAppalachia,witha29percentdropsince2000. EventhenewcoalfieldsofthePowderRiverBasin,onwhichthenationisincreasinglydependent,havesuffereda20percentdropinlaborproductivitysince2001(EIA2009f;EIA2002;EIA2000).Steadilyfallingproductivityisanindicatorthattheeasiest-to-minefuelsarebeingdepleted.Thistrend,alongwithalargeranalysisofglobalreservesandproductiondatabytheGerman-basedEnergyWatchGroup(EWG),ledtheEWGtopredictthattotalU.S.coalproductionintonswouldpeakbetween2020and2030(EWG2007). TheincreasingexposureofU.S.coalmarketstointerna-tionaldemand,discussedintheprecedingsection,meansthatinvestorsneedtofactorinthequalityofreserveestimatesinothercountriesaswell.TheEWGassessmentconcludedthatcoalreserveestimatesaroundtheworldwereofpoorqual-ityand“thatthereisprobablymuchlesscoallefttobeburntthanmostpeoplethink.”Theanalystsnotedthatsomenationshadrecentlyloweredtheirreserveestimatesdrastically(suchasGermany,whichin2004reduceditsestimatedhardcoalreservesby99percent).Asaresult,globalreserveestimatesare

sixcoalbedsevaluated,only10.1billionshorttons(6percentoftheoriginalresourcetotal)couldbeprofitablyminedat$10.47/ton(thepriceprevalentinJanuary2007)andonly18.5billionshorttonsatapriceof$14/ton(Luppensetal.2008).TheheadoftheUSGSteamthatconductedthestudytoldtheWall Street Journal,“Wereallycan’tsaywe’retheSaudiArabiaofcoalanymore”(Smith2009).Thesizeofeconomicallyrecover-ablecoalreservesdidincreasewithrisingcoalpricesundertheUSGS’sanalysis,butcoalplantswouldbeartheincreasedcosts. TheEIA,bycontrast,doesnotfactorspecificcoalpricesintoitsestimatedrecoverablereserve(ERR)figures.Itsestimatesarebasedlargelyona1974studybytheUSGS,whichcalculatedthequantityofcoalrecoverableusingthen-standardminingmethodsand“assumingamarketandanadequatesellingpriceatthetimeofmining”(EIA1997).TheEIAhasnotyetupdateditsreservefigurestoreflectthe2008USGSGillettestudy. OnecostlychallengeloomingfortheU.S.coalindustrywillbeintheopeningofnewminesortheexpansionofexist-ingones.EveninWyoming,theamountofremainingcoalreservesatactivemineswasonly7billionshorttonsin2008,orroughly15yearsofcurrentstateproduction(EIA2009f).Aseparate2009reviewofU.S.coalreservesandofthelifespansofexistingminesintheGillettecoalfieldnotedthat,accordingtopublicrecords,manyofthemajorPRBmineshadonly10to15yearsremainingatcurrentratesofproduction(Glustrom2009).Moreover,thisreviewfoundthatevenifthenewfederalcoalleasesthatthemineshadrequestedwereapproved,thelifespansofmostofthemajormineswouldstillbetypicallylessthan20years.Andbecausethemineswouldbeexpandingintoportionsofthecoalfieldwithgreateroverburdenandotherwiselessfavorableminingconditions,itisfairtoassumethattheirproductioncostswouldcontinuetorise. Already,warningsignsarepointingtoincreasingdifficul-tiesandcostsaheadforU.S.coalmines.Productionofthe

It is plausible that demand growth in Asia could

drive up U.S. coal prices for years, even while

the size of the U.S. coal fleet shrinks because of

plant retirements.


China’scoaldemandweretogrowinstepwithitseconomicgrowth,thenation’sreserveswouldlastonly19years(Hein-bergandFridley2010).ArecentWall Street Journalarticle,“China’sCoalCrisis,”citedaHongKong-basedbrokeragefirmasestimatingthatevenifthegrowthinChina’scoaldemandwerehalved,to5percentyearly,thecountrywouldrunoutofcoalin21to28years(dependingonwhichreserveestimateisused)(Winning2010).TheChinesegovernment’sannouncedcapondomesticcoalproduction,discussedearlier,willslowthedepletionofChinesereserves,butthecapwillalso

shrinkingeventhough,withhighercoalprices,theyshouldberising(HeinbergandFridley2010;EWG2007). China’scoalreserveestimatesareofparticularinterest,givenitsenormousandacceleratingcoalconsumption.AseriesofrecentarticlesraisedtheprospectthatChinacoulddepleteitsreservesfarsoonerthanearlierestimateshadsuggested(Rudolf2010).Forexample,intheirNature article“TheEndofCheapCoal,”authorsRichardHeinberg,ofthePostCarbonInstitute,andDavidFridley,deputyleaderoftheLawrenceBerkeleyNationalLaboratory’sChinaEnergyGroup,notedthatif

Figure 7. C H A N G E S I N U . S . C O A L M I N E L A B O R P R O D U C T I V I T Y

After decades of greatly increasing labor productivity, U.S. coal mines have experienced significantly declining productivity since about 2000. This trend suggests that technological changes are no longer compensating for the depletion of the easiest-to-mine coal, even at the relatively new coal mines of the Powder River Basin (PRB). (Note that the graph shows Wyoming mine productivity, rather than PRB productivity in particular, for the sake of continuity across the years, but PRB mines dominate Wyoming production.)

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

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Sources: EIA Annual Coal Reports, 2001–2009; Coal Industry Annuals, 1994–2000


Virginia—leadingtocallsforstrongerregulationofminesafety(Wald2010b). Surfacemining,especiallythepracticeofmountaintop-removalmininginAppalachia,isalsogettingmuchcloserscrutinythaninpreviousyears(McIlmoilandHanson2010).Asitsnameimplies,thetechniqueinvolvesblastingawaythetopsofmountainsandthendisposingofthewastesinadjacentvalleys(apracticeknownas“valleyfill”).TheEPAestimatesthatalmost2,000milesofAppalachianheadwaterstreamshavebeenburiedbythesevalleyfills(EPA2010h).Agrowingbodyofscientificevidenceshowsthatmountaintopremovalandvalleyfillshaveimpactsthatare“pervasiveandirrevers-ible,”withahighpotentialforharminghumanhealth(Palmeretal.2010). InJanuary2011theEPAvetoedthewaterpermitforwhatwouldhavebeenoneofthelargestmountaintop-removaloper-ationsever(Ward2011).Earlier,in2010,theagencyhadalsoissuednewguidancetobetterprotectAppalachianwatershedsfromtheimpactsofmountaintopremoval.EPAAdministratorLisaJacksontoldreporters,“noorveryfewvalleyfills…aregoingtobeabletomeetstandardslikethis”(Ward2010).Andafederalcourtdealtwhatcouldbeasignificantblowtomoun-taintopminingwithadecisioninSeptember2010.Undertheruling,anAppalachiancoalcompanywouldhavetoinstallatreatmentsystemtoreducedischargesofthewaterpollutantseleniumfromtwoofitsmountaintop-removalmines(Schoof2010).Evenifmountaintopminingwereallowedtocontinue,suchdecisionscouldincreasethepriceofAppalachiancoal.

acceleratethedepletionofreservesinothernationswhiledriv-ingupglobalcoalprices. Theseprojectionsusethetraditionalmethodofestimatingcoalreserves,basedongeologicdataandassumptionsabouthowmuchoftheundergroundresourcecanbeeconomicallymined.Theestimatedamountisthentypicallydividedbyagivenproductionratetodeterminehowmanyyearsofcoalisleftatthatrate.Butthisapproachfailstoreflectthepat-ternofrisingcostsandfallingproductionthatcharacterizethedepletionofnonrenewableresources.Inmanyways,themoreimportantquestionfromaneconomicorplanningstandpointisthetimeatwhichproductionofcoalwillpeakandthenbeginitsdecline,therebyputtingsustainedupwardpressureonprices.Someanalystsattempttopredicttheseproductionpeaksusinghistoricalproductionratesandthenprojectingfutureratesthroughtheuseofabellcurve.Thisapproachhasbeendescribedasa“mathematicalwayofmodelingthefactthatwetendtofindandproducethemostaccessibleportionofthe[nonrenewable]resourcefirst,sothatproductionrequiresmoreeffortovertime”(Heinberg2009). Thecurve-fittingapproachcanleadtomuchsmallerestimatesoffutureproductionthanthetraditionalapproach(Rutledge2010;Kerr2009).Onerecentanalysisusingthecurve-fittingmethodconcludedthatthepeakinglobalcoalproductionfromexistingcoalfieldswouldbecloseto2011(Inman2010;PatzekandCroft2010).Whileestimatesusingthisapproacharestillcontroversial,theydeservegreateratten-tion,particularlyinlightoftheirmajorimplicationsandthepoorqualityofthedataonwhichcurrentU.S.andglobalcoalreserveestimatesarebased.

Other Production-Cost Increases AheadOtherupwardpressuresoncoalproductioncostsarisefromissuessuchasunderground-safetyrequirementsandthepotentialdifficultyofobtainingpermitsfornewsurfacemines(EIA2009e).Theaveragecostofcoalfromlow-costproduc-ersincentralAppalachiahasmorethandoubledsince2003,andthischangemaybeattributableinparttoagreaterfocusinrecentyearsonminesafety(Mellquistetal.2010).Evenso,coalminingremainsdangerous,havingcaused29fatalinjuriesand4,760nonfatalinjuriesin2008,mostlyinundergroundmines(NRC2010c).In2010,29minerswerekilledinasingleaccident—atMasseyEnergy’sUpperBigBranchmineinWest


P A R T F O U R

Carbon RiskA Costly Problem in a Warming World

Anyonemakingalong-terminvestmentincoalplantsfacestheinherentfinancialrisksassociatedwithlockingintothemosthigh-carbonenergytechnologyduringanerawhenthenationandtheworldmust

slashcarbonemissions.ThisincludesthecontinuedriskthatcoalplantsinthefuturewillhavetopayfortherighttoemitCO2. Whileclimatelegislationfailedtopassinthe111thCon-gressanditappearsatthiswritingthatthe112thCongresswillremaindeeplydividedontheissue,theurgencyoftheclimatethreatensuresthatCongresswillbepressuredtotakeuptheissueagain,perhapsrepeatedlyintheyearsahead,aslongaswestayonourcurrentdangerouspath.Theadvantagesofincludingapriceoncarbontohelpmobilizemarketforcesaregreatenoughthatitwilllikelybeincludedinfuturelegislation.Thecontinuedexpectationofsucheventualcarbonrestric-tionsisoneofthereasonswhysomanyutilitieshaverecentlyannouncedtheclosureofoldcoalplantsandshownarenewedinterestinnaturalgas(Smith2010). Inthispart,wediscusspresentprojectionsofCO2pricesandtheirlikelyimpactsoncoalpower.WealsodiscusswhythefactthatCCStechnologymaybecomecommerciallyavailableintheyearsaheaddoesnotmakeitsafetoinvesttodayincoalplantsthatlackCCS.

The Impact of a Carbon Cost on Coal GenerationNotsurprisingly,computermodelsshowthatputtingapriceoncarbonmakesinvestmentsinnewcoalplantslessattractive.Asnotedearlier,theEIA’slatestAnnualEnergyOutlooknolongerforecastsanynewcoalplantswithoutCCSbefore2030(otherthanthosealreadyunderconstruction).Backin2009,how-

ever,theEIAwasstillforecastingafewsuch“unplanned”plantsbefore2030untilitaddedapriceoncarbonunderitsmodelingoftheAmericanCleanEnergyandSecurityAct(ACES,thecomprehensiveclimatebillthatpassedtheHousein2009),whenthoseplantsdisappearedfromtheforecast(EIA2009d).TheEPA’smodelingofthesamebill,andpreviousmodelingofotherclimatebillsinearlierCongresses,similarlyshowedotherwise-projectednewcoalplantswithoutCCSdisappearingunderacarbonprice(EPA2009a;EIA2008b;EPA2008).Itisalsoworthnotingthattheseanalysesallassumednaturalgaspriceshigher(andthereforelesscompetitivewithcoal)thanmanyanalystsandutilitiesnowforecast,giventheexpandedestimatesofdomesticproductiondiscussedinPart2. Ofcourse,theimpactsofapriceoncarbonwouldgobeyondnewplants.Existingcoalplantswouldseetheircostsriseevenmorebecausetheyemitmorecarbonperkilowatt-hourthannewones. Alongseriesofstudiesshowsthatreplacingtoday’scoalplantswithsomethinglesscarbon-intensiveisacentralfeatureofthenation’sleast-costpathtoCO2emissionsreductions(ACCF/NAM2008;Banks2008;CRAInternational2008;DeLaquil,Goldstein,andWright2008;MurrayandRoss2007;Paltsevetal.2007).Theseanalysesmakewidelyvaryingassumptionsaboutfuturefuelpricesandtechnologydevelop-ment,theyusedifferentmodels,andtheyaddressdifferentlegislation.Someofthemodelingorganizationssupportcap-and-tradeandothersopposeit.SomeshowtheUnitedStatesturningmoretonuclearandnaturalgas;othershaveitfavoringrenewablepowerandefficiency.Mostofthemodelsmakeassumptionsthatarehighlyfavorabletocoalgeneration.But


receivedbroadsupportfromCaliforniavoterswhentheydecidedlyrejectedareferendumattempttorollbackthestate’semission-reductionlawsinNovember2010),andthereisalreadyafuturesmarketdevelopinginCaliforniacarbonallowances(PointCarbon2011). AmongthetopenergyrecommendationsofaNovember2010conferenceofcorporateleaderssponsoredbytheWall Street Journalwasacallfor“acomprehensiveenergypolicythatprovidesconsistencyandpredictabilityforinvestment,”includ-ingclearerpolicyon“carbonconstraints”toavoidapatchworkofstaterules(Ball2010).“Therewasarecognitionthatsometypeofcarbonpricingwillbeneeded,”saidoneoftheCEOsindescribingtheconference;anotherCEO,aftersimilarlynotingthat,“we’regoingtoneedsomekindofasignaloncarbon,”highlightedthe“hundredsofbillionsofdollarsthatcompaniesarereadytoinvest”iftheuncertaintyovercarbonwereclearedup(Ball2010).“Ithinktheprospectofnocarbon[regulation]isputtingblinderson,”saidtheauthorofanewreportbyconsultinggroupICFInternational,whichpredictedthatcoalplantownerswillstillfactorclimateregulationsintotheirdecisions(FineMaron2011).

evenwithsuchcoal-friendlyassumptions,themodels’resultsshowthatgenerationfromcoalplantswithoutCCSdeclinessteadilyandoftensteeply. Itishardlysurprisingthatalawdesignedtosqueezecarbonpollutionoutoftheeconomyascost-effectivelyaspossiblewoulddrivethenationawayfromcoal.CoalpowerisourlargestsourceofCO2emissionsandthemostcarbon-intensivesourceofpower,andtherearemanywaysinwhichwecancost-effectivelyreplaceit.Indeed,anypathtowardcarbonreductionthatdidnotgreatlyreduceourdependenceoncoalgenerationwouldalmostsurelybestrayingfromtheleast-cost(andmostbeneficial)pathwhileimposinggreateroverallcostsonsociety.Tobesure,politicalpressuresmaycontinuetodelayormitigatetheimpactsofclimateprotectionpoliciesoncoalgeneration.Butthefactthatshiftingfromcoalisthemostobviouswaytoreducecarbonemissionsmeansthatthecoalpowersectorwillremainunderpressuretoshrinkastheworldwarmsandassocietyseeksthebestwaytocutemissions.

Carbon Prices Still on the HorizonThereisnowasubstantialliterature,largelyderivedfromthecomputermodelinganalysesconductedbythefederalgovern-mentandothers,thatforecastspossiblefutureCO2allowanceprices.12Mostofthestudiesaretiedtooneoftheclimatebillsthathavebeenproposedinrecentyears,particularlytheACESbillthatpassedtheU.S.Housein2009,andtheygenerallylookatmultiplescenariosthatvarykeyassumptionssuchasthefeaturesofthefederalprogramandthecostsofavailabletechnologies. Thebillsinquestiondidnotpass,butseveralfactorsensurethatCongresswillbeundercontinualandgrowingpressuretoputcomprehensivecarbonrestrictionsinplaceoverthenextfewyears.Amongthesefactorsistheincreasinglyurgentneedtoreducecarbonemissions,whichwillbecomeevenmoreapparentasconcentrationsofglobalwarminggasesrise,pushingtheplanettowardhighertemperatures,moreextremeweatherevents,andothernegativeclimaticconsequences. Anotherfactorisindustry’sdesiretoforestalltheemergingpatchworkofstateclimatepoliciesinfavoroftheuniformityandgreatercertaintyoffederallegislation.Thepowersectorisalreadysubjecttoacap-and-tradeprogramintheNortheastundertheRegionalGreenhouseGasInitiative,Californiaismovingaheadwithitsowncap-and-tradeprogram(which

12 Under various climate bills that have been considered by Congress in recent years, a limited and declining number of allowances would be issued by the government that grant the right to emit one ton of carbon dioxide. The allow-ances would be tradable and their prices set by market forces.

©Ph

otoD

isc


tiallyreducetheoveralllevelizedcarboncostssuchprojectsface.Moreover,thenationmaydecidetopursueamoreaggressiverateofemissionsreductionthanpreviouslyproposedinordertomakeupforlosttime,therebyputtingupwardpressureonthecarboncostsfacedbyacoalinvestment. SynapseEnergyEconomics(aconsultingfirmwithawiderangeofclients,includingenvironmentalgroups,gridopera-tors,businesses,andgovernmentagencies)recentlyconductedadetailedreviewofmorethan75differentscenariosexaminedintherecentmodelinganalysesofvariousclimatebills.Italsosurveyedtheallowancepriceprojectionsusedbyanumberofelectriccompaniesintheirresourceplansoverthelasttwoyears.Basedontheseallowanceprojections,onareviewofrecentclimatepolicydevelopments,andonitsanalysisofthecarbon-priceimpactofarangeofpolicyandtechnologyassumptions,Synapsehasprojectedlow-,medium-,andhigh-costcasesthatprovidearangeofallowancepricesthrough2030(Johnstonetal.2011). Figure8(p.22)showsSynapse’sthreeprojectedcosttra-jectories,anditcomparesthemtoallowancepricesprojectedbytheEIAandEPAforvariousscenariosundertheACESbillanditsSenatecounterpart,theAmericanPowerAct.Giventhefailureofthesebillstopass,Synapseassumesadelayedonsetofanycarbonprice,rangingfrom2015(underthehigh-costcase)to2020(low-costcase).Synapseconsidersthehigh-costcasetobeconsistentwithmoreaggressivereductiontargets,greaterrestrictionsontheuseofoffsets,somerestrictionsontheavailabilityorcostoflow-carbontechnologies,moreaggressiveinternationalactions(whichreduceavailableinter-nationaloffsets),orhigherbaselineemissions.Thelow-costtrajectoryisconsistentwithasustainedpoliticalstalematethatdelaysacarbonpricetill2020andotherfactorssuchaslessaggressivereductiontargets,asafety-valvemechanismlimitingallowanceprices,orgreateravailabilityofoffsets. InPart8,weshowtheimpactthatthisrangeofprojectedCO2costswouldhaveonanewcoalplantandotherenergytechnologies.Onaper-megawatt-hourlevelizedbasis,thecostofelectricityfromanewcoalplantwouldrisefromanaddi-tional$13.70(usingthelow-costestimate)toanadditional$44.20(usingthehigh-costestimate)(Figure12,p.40).Whilenewcoalplantsarealreadymorecostlythanmanycleaneroptions,futureCO2pricesinthisrangewouldmakethemevenlesseconomicallycompetitive(Figure13,p.41).

Congresswillalsobesubjecttopressuretoactfromtheinternationalcommunity,asitgrowsmoreimpatientfortheUnitedStatestojoinotherdevelopedcountriesinreducingcarbonpollution.AndCongressmayalsoactinresponsetoclimate-relatedlitigationworkingitswaythroughthecourtsoraspartofanefforttoprevent(orenhance)executiveactiononclimatechange.Finally,con-gressionalactioncouldwellbedrivenbyadesiretopursuethemanynonenvironmentalbenefitsofmovingtoacleanerandmorediversifiedenergysystem—includinggreaterglobalcompetitiveness,acceleratedtechnologicalinnovation,enhancednationalsecurity,andnewjobsinclean-energygrowthindustries. Itremainsreasonable,therefore,toexpectfuturefederallegislationonclimate,and—giventhebenefitsofsendingamarketsignaltostimulateinnovationintheprivatesector—itshouldbeexpectedthatsuchlegislationwillincludeapriceoncarbon.Obviously,thereisgreatuncertaintyoverwhatafutureclimatelawwouldlooklike,butanyformofcarbonpricewouldlikelypresenttheenergymarketswiththesamefundamentalsetofchoicesamongthesamesetofavailabletechnologiesthatthemarketswouldhavefacedunderthemodeledclimatebills.Becausethecomputeranalysesofthepreviouscap-and-tradebillslookedathowthemarketswouldrespondundersomanyvariedscenarios,theycreatedaspectrumofsimulatedoutcomesthatputboundariesonthelikelycostsofdifferentkindsofcarbonrestric-tions.Thesemodelresultsrepresent,therefore,astillrelevantandusefulstartingpointforassessingthelong-termcarbonriskfacedbythoseinvestingincoaltoday;theresultsarethemostcompre-hensivedataavailableontherangeofallowancepriceslikelyunderthevariousapproachesafutureclimatebillmighttake. Ofcourse,thefailureofclimatelegislationtopassthusfarmeansthattheonsetofacarbonpriceisdelayedbeyondthedatesassumedintheliterature;thisdelayshouldbefactoredinwhenassessingfuturefinancialrisk.However,giventhelongoperatinglifetimeofanewcoalplantoronethathasbeensub-jecttoamajorlife-extendingretrofit,thedelaymaynotsubstan-

I think the prospect of no carbon [regulation] is

putting blinders on.

— S T E V E F I N E , I C F I N T E R N A T I O N A L


Whilemanyofthecomponenttechnologiesthatwouldlikelybeusedtocapture,transport,andstoretheCO2ingeologicformationshavebeenusedinotherindustrialapplica-tions,therehasnotyetbeenacommercial-scaledemonstrationofCCSatacoal-firedpowerplant.Withthisneedinmind,theUnionofConcernedScientistspublishedareportin2008thatdescribedCCStechnology,revieweditsstatus,potential,andcosts,andcalledforthefederalgovernmenttosubsidize5to10full-scaledemonstrationprojects(Freese,Clemmer,andNogee2008).However,despitesupportforsuchprojects

Uncertainties around Carbon-Capture Retrofits SomeproponentsofnewcoalplantinvestmentspointtoCCStechnologyassomethingtheycouldeventuallyaddtothoseplants.Afterall,totheextentthatCO2emissionscouldbecapturedandstoredundergroundratherthanemitted,theplants’ownerswouldnotberequiredtobuyCO2allowances.However,thistechnologymustovercomenumeroushurdlesbeforeitiscommerciallyviable,includingveryhighcostsandefficiencylossesundercurrentdesigns,particularlywhenaddedasaretrofittoanexistingcoalplant.

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Figure 8. CO 2 ALLOWANCE PRICE FOREC ASTS COMPARED WITH PRE VIOUSLY MODELED SCENARIOS

Recent forecasts by Synapse Energy Economics of high-, mid- and low-cost CO2 prices are contrasted with the CO2 prices projected under multiple scenarios by federal modeling of climate bills considered by the last Congress.

EIA HR 2454 EIA APA EPA HR 2454 EPA HR 2454 SuppEPA APA Synapse Low Synapse Mid Synapse High

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plantwouldincreaseitslevelizedcostofenergybyasmuchas330percent,thoughthisestimateisrelativetoamuchlowerassumedlevelizedcostthanthoseofnewplants(Figure9). AsCCStechnologyfinallymovesintothephaseofcommercial-scaledemonstrationprojectsandasweincorporatethelessonsfromsuchprojectsintoplantdesign,thesehighcostsmaywellcomedown(Al-JuaiedandWhitmore2009).Also,anumberofinnovativeapproachestocarboncapturearebeingresearched,someofwhichmayhavepotentialforbreakthroughsincostreduction.Butsubstantialresearchanddevelopmentwillberequiredbeforeweknowifanyoftheseapproachescanbesuccessfullycommercialized.

withinthepowersectorandthefederalgovernment,progresstowardcommercialdemonstrationtodatehasbeenslow. AddingCCStoacoalplantisestimatedtogreatlyincreasethecostofelectricityfromthatplant,particularlyiftheCCSwereaddedasaretrofit(Figure9).Almostallcoalplantsinoperationtodayusepulverizedcoaltechnology,13andtheycouldemployeitherapost-combustion captureprocessoravari-ationcalled oxy-combustion(inwhichthecoalisburnedusingpureoxygenratherthanair).TwoplantscurrentlyinoperationintheUnitedStatesusethealternativeintegratedgasificationcombined-cycle(IGCC)technology,14whichcouldemployapre-combustion captureprocess.Accordingtofederalestimatesbasedoncurrenttechnologicaldesigns,addingCCStoanewpulverizedcoalplantwouldincreaseitslevelizedcostofelectricityby65percentor78percent(usingoxy-combustionorpost-combustion,respectively);andaddingpre-combustioncapturetoanewIGCCplantwouldincreaseitslevelizedcostsby36percent.AddingCCSasaretrofittoapulverizedcoal

Figure 9. R E L AT I V E CO S T I N C R E A S E S F R O M A D D I N G C A R B O N C A P T U R E TO COA L - F I R E D P O W E R P L A N TS

Adding CCS to coal plants is projected to add substantially to the levelized cost of electricity from those plants. A recent federal study projected that costs would increase 36 percent if adding pre-combustion capture to a new IGCC plant, 78 percent if adding post-combustion capture to a new pul-verized coal plant, 65 percent if adding oxy-combustion to a new pulverized coal plant, and 330 percent if adding post-combustion capture to an existing pulverized coal plant. The much greater relative cost increase for the existing plant is largely because it is assumed to start with much lower levelized costs. %

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78% 65%

330%

13 Some plants use a variation on pulverized coal combustion called circulating fluidized bed (CFB) combustion.

14 One additional IGCC plant is under construction and several others have been announced.

Source: ITF CCS 2010


Ontheotherhand,recentdevelopmentswithCCSprojectssuggestthattheinitialcostestimatesusingcur-renttechnologymaybetoolow.Forexample,U.S.powerproducerTenaskahasproposedanIGCCplantinTaylorville,IL,designedtocapturemorethan50percentofitscarbonemissions.However,acostreviewbytheIllinoisCommerceCommission(requiredbystatelawbeforetheprojectcouldreceivealegallyguaranteedmarketforitsoutput),foundthattheprojectwouldcostover$210/MWh(or21¢/kWh),withuncertaintiesthatcouldpushcostshigher(ICC2010).TheprojectsubsequentlyfailedtogetnecessaryapprovalfromtheIllinoislegislature(Reuters2011). TheFutureGenCCSproject—thefederallysupportedflagshipefforttodevelopCCS—hasalreadybeencancelledonceforcostoverruns;nowrevived,itrecentlyshiftedcourse.Ratherthantestingpre-combustioncaptureaspartofanewIGCCplant,itwilltestoxy-combustioncaptureataretiredoil-burningIllinoispowerplantalteredtoburncoalandusepureoxygeninsteadofair(Wald2010a).Thistypeofcarboncapturetechnologycouldsomedaybeaddedtotheexistingfleetofpulverizedcoalplants,unlikethepre-combustionapproachthattheprojectwasformerlyplanningtotest.Thischangeindirectionthereforeoffersgreaterpotentialtoreducetheemis-sionsofexistingcoalplants.Butbecauseoxyfuelcombustionisarelativelyuntestedtechnology,theshiftcouldalsoleadtofurtherdelaysandmakecostshardertoproject.

CCSdevelopmenthasrunintoproblemsabroadaswell.TheNorwegianoilcompanyStatoilisoneofthepioneersofCCS;ithaslongexperiencepumpingCO2capturedfromnaturalgasproductionintodepositsbelowtheNorthSea.ButStatoilisstillreportedlyfacinganine-foldjumpincoststobuildaCCStestcenterataNorwegianrefinery(Reuters2010b).Meanwhile,theNorwegiangovernmentrecentlyannouncedthatitisreevaluatingthetechnologyithadplannedtouseinasubsequentproject,whichwouldinstallfull-scaleCCSattherefinery.Thegovernmentwasrespond-ingtonewevidenceofhealthandenvironmentalriskslinkedtotheaminechemicalsithadintendedtouseinthecaptureprocess(Bhatia2010). OneoftheleadersindevelopingCCStechnologyatcoalplantsinEuropehasbeentheSwedishutilityVattenfall.WhilethecompanyisreportedlycontinuingtopursueCCS,itsCEOrecentlyannouncedthat,“therewillbenoCCSbefore2020,soVattenfallhastoreduceCO2byothermeans.”HealsosaiditwasunlikelythatVattenfallwould“investtoprolongthelivesoftheoldercoalplants”itownsinGermany(Platts2010). SuchdifficultiesanddelaysdonotmeanthatCCShasnofuturebutsimplythatitwillbeyearsbeforeweknowwhatthetechnologyiscapableofachieving.Certainlynoonecontem-platingalong-terminvestmentinacoalplanttodaycansafelyassumethatCCStechnologywilldevelopfastenoughtoofferanaffordablewaytocutthatplant’sCO2emissions.


aremore‘viable’thanpastexpectationsaroundCongressionalactiononclimatechange(carbon)orrenewablessincethisEPA‘event’ismostlyaboutenforcementofexistinglawswherethehealthandsocietalgoodbenefitsareoflimiteddebateatthispoint”(Eggersetal.2010). Theexactcompliancecostsfacedbyanygivenplantwoulddepend,amongotherthings,onwhatthefuturerulesactuallyrequiredandwhatpollutioncontrolsandotherequipmenttheplantalreadyhadinplace.Butcoalplantsareclearlyatriskofmajornewcosts,especiallytheoldestplantsthatinmanycaseshavemanagedfordecadestoentirelyavoidinstallingmoderncontrols,thusexternalizingtheassociatedcostsofhealthandenvironmentaldamageontoothers. Theregulatoryeffortslikelytoimposethemostsignificantcostsarediscussedbelow.

Transport Rule: Preventing Thousands of Deaths from Pollution-Related DiseasesPublichealthexpertsandgovernmentalregulatorshavelongrecognizedthatairpollutantemissionsfromU.S.coalplantskillthousandsofpeopleyearlyandcausemanymorenon-fatalhealtheffects.Anextensivebodyofresearchshows,forexample,thatfineparticulatesintheairincreasethedeathratesfromheartandlungconditionsandstrokes(CATF2010;EPA

Quiteapartfromtheirimpactonclimate,coalplantscauseastaggeringarrayofotherharmstotheenvironmentandhumanhealth.Coalplantscontributetotheprematuredeathsofthousandsof

Americanseachyearfromheartandlungdisease,forexample.Theyarethesourceofmorethanhalfofthenation’satmo-sphericemissionsofmercury,apotentneurotoxinthateachyearthreatensthousandsofnewbornswithlifelongreductioninbrainfunction.Coalplantsgeneratemillionsoftonsoftoxicashandothersolidwastesknowntoleakintogroundandsurfacewaters.Andcoalplantsrequireenormousquantitiesofwaterforcooling,therebyputtingstressonwatersuppliesandtakingaheavytollonaquaticlife. Coalplantsfacetheprospectofhavingtomorethoroughlyreducetheseandotherenvironmentalandpublichealthimpactsoverthenextfewyears.TheEPAiscurrentlyworkingthroughabacklogofstandardstoaddresssuchthreats—aback-logthatdevelopedlargelyunderthepreviousadministration,whentheEPAinsomeinstancesadoptedrulesthatthecourtsstruckdownasinsufficientlyprotectiveandinotherinstancesfailedtoactaltogether. InadditiontotriggeringtheseriesoffinancialanalysesthatprojectedthecoalplantretirementsdiscussedinPart1,thesependingrulemakingshaveprovokedpoliticaloppositionandpromptedcallsforlegislationthatwouldbartheiradoption.However,itwouldberecklessforthoseinvestingincoalplantstocountonsuchlegislationbeingpassed,giventhatthehealthandenvironmentalbenefitsoftheruleswouldgreatlyoutweightheirprojectedcompliancecosts.15Oneoftherecentanalysesofforthcomingairqualityrulesconcluded,“theEPAactions

P A R T F I V E

Coal’s Damages—to Air, Water, Land, and Public Health—and the Costs of Reducing Them

15 The Clean Air Act has been particularly successful in delivering benefits far in excess of compliance costs. The EPA estimates that the total benefits of the Clean Air Act—in lives saved, reduced heart disease, fewer asthma attacks, and other positive effects—amount to more than 40 times the costs of regulation (Jackson 2010).


andparticulates;regionalhazereductionrequirements;andregulationstoreduceemissionsofmercuryandothertoxicairemissions(discussedinthenextsection). AddingSO2andNOXcontrolstoanexistingcoalplantcouldcosthundredsofmillionsofdollarsintotal.InTable2,weshowarangeofcostsforscrubbersandSCR,includingtheirincrementalimpactindollarspermegawatt-hour. Thesecostsarevastlyoutweighed,however,bytheTrans-portRule’sbenefits.TheEPAhasdoneadetailedcost-benefitanalysis,asrequiredbylaw,andfoundthattheTransportRulewouldyieldbenefitsrangingfrom$120billionto$290billionintheyear2014alone,mainlyfromthethousandsoflivessaved;theseestimatesdonotevenincludethemanyunquanti-fiedbenefitsoftherule,suchasincreasedagriculturalcropandcommercialforestyields,visibilityimprovements,andbetterecosystemfunctioningbecauseofreducedacidrain(EPA2010e).Thecompliancecosts,bycontrast,wereestimatedbytheEPAatonly$2billionto$3.2billiononanannualizedbasis.Theagencymaybeassumingsomewhatlowercompli-ancecoststhanthoseestimatedinthestudiescitedearlier,butsuchcostscouldbeseveraltimeshigherandstillbegreatlyoutweighedbytherule’shealthbenefits.AndwhilecoalplantswillfacecoststocuttheirSO2andNOXemissions,theTrans-portRuleisreallyjustshiftingontotheplantsafractionofthecoststhattheAmericanpublichasborneforyearsasaresultofthoseemissions’adverseimpacts.

Air Toxics Rule: Protecting Children’s Brain Development Coalplantsemitseveralhighlytoxicairpollutants,includingarsenic,lead,selenium,dioxins,acidgases,and,mostnotably,mercury.Apotentneurotoxinthatimpairsthebraindevelop-mentofinfantsandchildren,mercuryhasalsobeenlinkedtoheartproblems.CoalplantsarethesourceofmorethanhalfofU.S.anthropogenicemissionsofmercuryintotheatmosphere(EPA2010a). Afterleavingthesmokestack,emittedmercuryfallstoearthandaccumulatesinwaterbodies,whereitchemically

2010d;NRC2010c;Lockwoodetal.2009).Researchsuggestsfurtherthatthispollutionmayshortenthelivesofitsvictimsbyanaverageof14years(CATF2010).Tosomeextent,coalplantsemitthesetinyparticulatesdirectly,buttheirmuchgreatercontributiontoparticulatepollutioncomesfromtheiremissionsofsulfurdioxide(SO2)andasuiteofnitrogenoxides(NOX)—gasesthatcondenseintoparticulateformintheatmosphere. EarlierregulatoryeffortshavealreadybroughtaboutsignificantreductionsinSO2andNOXemissionsfromU.S.coalplants,thusgreatlyreducingtheirdeathtoll.ButarecentanalysisbytheCleanAirTaskForce(CATF)estimatedthatcoalplantcontributiontofineparticulateswouldstillkillmorethan13,000peoplein2010alone(CATF2010).16Combinedwiththethousandsofnonfatalheartattacks,othereffects,andthehospitalizationsthatthesepollutantsalsocause,theCATFestimatesthispollutioncausesmonetizeddamagesofmorethan$100billionyearly.TheCATFmayactuallyhaveunder-estimatedsuchmortality,health,andcostimpacts,becauseitconservativelyfocusedonthelowendoftherangesestablishedbythescientificliterature.Thehighendwouldyieldcostsatleasttwiceasgreat(EPA2010d). IntheeasternhalfoftheUnitedStates,SO2andNOXemissionsfromcoalplantsarepollutingtheairofdownwindstates,preventingthosestatesfrommeetingtheirhealth-basedairqualitystandardsundertheCleanAirActbothforfineparticulatesandozone.In2005,theEPAattemptedtoaddressthisproblemthroughtheCleanAirInterstateRule(CAIR).In2008,anappellatecourtremandedtheCAIRruletotheEPA,inpartbecauseitfoundthattheemissionstradingallowedbyCAIRmeantthattheEPAcouldnotshowtherulewouldsuf-ficientlyprotectdownwindstates(EPA2010d). InJuly2010,theEPAreleasedanotherproposedrule,calledtheCleanAirTransportRule,toreplaceCAIR.WhiletheEPA’spreferredoptionwouldstillallowsometradingwithinstates,theTransportRuleincreasesthelikelihoodthatcoalplantsinthe32statestowhichitapplieswouldneedtoinstallnewpollutioncontrolsforSO2(scrubbers)andforNOX(selectivecatalyticreduction[SCR]orothermeasures)orelseupgradeexistingcontrols.ControlslimitingSO2andNOXemissionsmayalsoberequiredunderotherrulesthattheEPAisrequiredtopursueundertheCleanAirAct,includingupdatedhealth-basedambientairqualitystandardsforsulfurdioxide,ozone,

16 The deaths, heart attacks, and other health impacts from each coal plant, as estimated in the CATF’s study, are presented at http://www.catf.us/coal/problems/power_plants/existing.


mercurylevelsexceedingtheEPA’shealth-basedsafetycrite-rion(USGS2009a). Consumptionofcontaminatedfishbywomenwhoarepregnant(orevenbeforetheybecomepregnant)hasledtowidespreadfetalexposuretomercurylevelsthathavebeenlinkedtoreducedbrainfunction.Onestartlinganalysishasestimatedthat,eachyear,between316,000and637,000babies—or7.8to15.7percentofallU.S.newborns—havebeenexposedinuterotomercurylevelsassociatedwithaper-manentreductioninI.Q.(Trasande,Landrigan,andSchechter2005).Thesenumbersreflecttheimpactsofmercuryemis-sionsfromallsources—notjustfromcoalplants—includ-ingbuildupfrompastemissions,butasthemainsourceof

transformsintomethylmercury.Inthisform,themercurybuildsupinthetissuesoffishaswellasintheanimals(includ-ingpeople)thatconsumethem.TwomajornewfederalstudiesdocumentthefactthattheUnitedStatessuffersfromwidespreadmercurycontaminationofitswatersandfish.AmultiyearEPAsurveyoflakefishcollectedin500locationsthroughoutthelower48statesfoundmercuryineverysinglefishsamplecollected,andnearlyhalfofthelakeshadtissueconcentrationsofmercurythatexceededtheEPA’shumanhealthscreeningvalue(EPA2009b).AU.S.GeologicalSurveystudyhadsimilarfindingsforstreamfish.Thestudydetectedmercurycontaminationineveryfishsampledfrom291streamsnationwide,andaboutaquarterofthefishcontained

Table 2. SELEC TED AIR POLLUTION CONTROL COSTS

Coal plants that still lack the air pollution control technologies listed above may be required to install some combination of them under forthcoming EPA rules that will limit emissions of mercury and other hazardous air pollutants.

Flue gas desulfurization (FGD or scrubbers)(1)

500 MW plant

100 MW plant (2,3)

Selective catalytic reduction (SCR)(4)

500 MW plant

100 MW plant (2,5)

Activated-carbon injection (ACI)(6)

ACI and baghouse (7)

CONSTRUC TION COST ($/K W)

282–508

432–790

133–390

168–550

7–10

150–161

FIXED O&M COST ($/K W-YR)

8.27

23.55

1.39

1.96

0.29

0.74

VARIABLE O&M COST ($/MWH)

1.84

9.13

0.54

0.76

0.37

0.37

INCREMENTAL LEVELIZED COST ($/MWH) (8)

7.39–10.9

19.01–24.7

2.83–6.85

3.66–9.67

0.52–0.57

2.83–3.00

O&M = Operations and maintenanceAll values are in 2010 dollars.(1) Lower scrubber cost from EIA 2010g; higher scrubber cost from CRA International 2010.(2) Used linear regression on EIA data to estimate the 100 MW FGD and SCR construction-cost range (low value). Used EPA-IPM model of wet FGD to estimate capital costs for 100 MW (high value) (Sargent and Lundy 2010). (3) Used EPA-IPM model of wet FGD to estimate O&M costs for 100 MW unit.(4) Lower SCR cost from EIA 2010g; higher SCR cost from NERC 2010.(5) Used CRA International MRN-NEEM equations to estimate construction costs and fixed O&M. Variable O&M costs for 100 MW unit were proportionally adjusted with installed 500 MW capacity (CRA International 2010).(6) Lower ACI cost from CRA International 2010; higher ACI cost from UBS 2010.(7) Lower ACI/baghouse cost from Eggers et al. 2010; higher ACI/baghouse cost from CRA International 2010a.(8) Assumes fixed-charge rate of 11.7 percent consistent with the EIA-NEMS model (personal communication); assumes a capacity factor of 85 percent.


ofcostestimatesforeachofthemaintypesofairpollutioncontrolsthatcouldberequiredundertherule. Reducingcoalplants’atmosphericemissionsofmercuryiscriticaltoprotectingourchildren’sbraindevelopmentfromthedamagingeffectsofthispotentneurotoxin.However,thepol-lutioncontrolslistedabovewillnotmakethemercuryorothertoxicelementsofaplant’sexhaustdisappear.Bycapturingandconcentratingthesepollutantstheywillmakethecoalplant’ssolidandliquidwastesmoretoxic,furthernecessitatingtheircarefulhandling.

Ash Rule: Keeping Toxic Contaminants Out of Groundwater and Surface WaterCoalplantscreateanenormousamountofsolidwaste,includingflyash,bottomash,coalslag,andscrubberresidue(collectivelytermed“coalash”inthisreport).Thismaterialcontainsmanytoxiccomponents,suchasarsenic,selenium,cadmium,lead,andmercury(EPA2009d).Thelongstandingdisputeoverhowcoalashshouldbemanagedwasintensi-fiedafterasurfaceimpoundmentfailedataTennesseeValleyAuthority(TVA)coalplantnearKingston,TN,in2008.Thespill,whichreleasedabilliongallonsofcoalashintheformofathicksludge,destroyedthreehomesanddamagedmanyothers,covered300acresofland,andcontaminatedtworivers(Gottlieb,Gilbert,andEvans2010).Cleanupcostsforthisspillwereestimatedtoexceed$1billion(BusinessWire2010). Alessvisiblebutmuchmorewidespreadthreatposedbycoalashdisposalfacilitiesistheslowleakageoftheirtoxiccom-ponents—whichincludecarcinogensandneurotoxins—intogroundorsurfacewater.TheEPAhasidentified67casesofprovenorpotentialdamagefromsuchleakage,andsubsequentanalysesbyothersofstateagencyrecordshavebroughtthetotaluptoatleast137sitesin34states(Stant2010).Thefullextentofleakagefromcoalashdisposalsitesisunknown,how-ever,becausemanystatesdonotrequiregroundwatermonitor-ingandfederaloversighthasbeeninconsistent. TheEPAestimatesthatU.S.coalplantsgeneratedsome136milliontonsofcoalashin2008(EPA2010f).Bywayofcomparison,themunicipalsolidwastecreatedintheentirecountryin2008wasabout250milliontons(EPA2010g).Thirty-sevenpercentofthecoalashwenttoa“beneficialreuse,”thoughundertoday’sspottystateregulationsthistermhasbeenusedtoincludenotjustthosepracticesthoughtto

human-causedatmosphericmercuryemissionstoday(andasamajorcontributorinthepast),coalpowerisresponsibleforasignificantfractionofthisexposure(O’Neilletal.2009). Effortstoprotectchildrenfrommercuryimpairmenthavebeenhinderedbyyearsoflitigationanddelay.UndertheClintonadministration,mercurywaslistedasahazardousairpollutantundertheCleanAirAct,whichtriggeredtheapplica-tionoftheact’smoststringentpollutioncontrolstandards—involvingmaximumachievablecontroltechnology,orMACT.TheBushEPAtriedtoreversecourseinfavorofamorelenientregulatoryapproachthatwouldhaveallowedemissionstrading,butthatrulewasstruckdownbyareviewingcourt.TheEPAisnowobligedunderaconsentdecreetocompleteaMACTstan-dardbyNovember2011thatwouldlimitmercuryemissionsfromcoalplantsoldandnew. TheforthcomingMACTstandardisexpectedtohaveaparticularlylargeimpactoncoalplantoperations.ItistobeissuedunderSection112oftheCleanAirAct,which,dealingasitdoeswiththemosttoxicofsubstances,requiresthemoststringentoflimits.Underthelaw,thisnewrulemustimposeemissionslimitsonallexistingcoalplants,nolessstringentthantheaveragelimitsachievedbythebest-performing12percentofthoseplants.Moreover,thisMACTstandardwouldnotonlyaddressmercurybutalsotheotherhazardousairpollutants(citedabove)fromcoalplants. Becausecoalplantswithscrubbers,baghouses,activated-carboninjection(ACI),andSCRachievethelowestemissionsoftoxicairpollutants,theMACTstandardmayfinallyforceallcoalplantsthatdonotalreadyhavethemtoinstallthesepollutioncontrols,andtodosoby2015(thoughone-yearextensionsmaybeallowedonacase-by-casebasis).Thisispar-ticularlytrueforplantsburningeasterncoal,thoughindustryanalystshavespeculatedthatplantsburningwesterncoalmaybeallowedtouseadifferentandsomewhatlesscostlysuiteofcontroltechnologies(Eggersetal.2010).Table2showsarange

Public health experts and governmental

regulators have long recognized that air

pollutant emissions from U.S. coal plants kill

thousands of people yearly.


guidanceunderSubtitleDofRCRAthatwouldallowthestatestocontinuetheirownoversightoftheashdisposal.IfcoalashwereregulatedunderSubtitleC,itwouldbesubjecttostandardsthatbetterprotectpublichealthandwaterquality.Forexample,ashpondswouldhavetobemonitoredmorecarefullyandeventuallyphasedout,andnewlandfillswouldberequiredtousecompositelinersandleachate-collectionsystemsandtomonitorthegroundwater. Coalplantsalsofacenewrequirementsforhandlingthewastewaterassociatedwiththeirashhandlinganddisposalfacilitiesandwiththescrubberstheywillincreasinglyberequiredtoinstall.Inamultiyearstudycompletedin2009,theEPAconcludedthatalthoughtreatmenttechnologieswereavailabletoremovepollutantsfromsuchwastewater,thesesystemswereonlyinuseatafractionofcoalplants.TheEPAconsequentlyannouncedplanstoreviseitsexistingwater-dischargestandardsforcoalplants(EPA2009c),and

encapsulatethetoxiccomponentsoftheash(suchasincorpora-tionintoconcrete)butalsopracticesthatclearlydonot(suchasspreadingitonicyroadsfortractionorusingitasasoiladditiveorasfillintheconstructionofagolfcourse)(Gottlieb,Gilbert,andEvans2010;McCabe2010).About8percentofthecoalashwasplacedindefunctmines,andtherestwasdisposedofeitherinwetform(inatleast629surfaceimpoundments)orinthedryerconfinesof311onsitelandfillsatpowerstationsormorethan100offsitelandfills(EPA2010f;Gottlieb,Gilbert,andEvans2010).TheEPAhasestimatedthatin2004some62percentofthesurfaceimpoundmentsand31percentofthelandfillslackedliners(EPA2010f). InJune2010,theEPAproposednewrulestoregulatethedisposalofcoalash(EPA2010f).Theproposalincludedtwoalternativeapproachestofutureregulation:onetotreatcoalashasa”specialwaste”underSubtitleCoftheResourceConser-vationandRecoveryAct(RCRA);andtheothertoestablish

More than 1 billion gallons of coal plant waste were released into the environment near Kingston, TN, in December 2008, when a waste impoundment operated by the Tennessee Valley Authority ruptured.

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theEPAexpectsthatthebenefitsofthenewregulationwillamounttosomefourorfivetimesitscosts(EPA2010f).Theseestimatesdonotreflectthemanybenefitstoplantsandwild-lifethattheEPAleftunquantified,suchasdiminishedharmtomigratorybirdsfromseleniumpoisoning,reduceddamagetowetlands,andfewerdeformitiesamongfishandamphibians.Suchbenefitsaresubstantial.Inarecentanalysisthatevaluatedtheecologicalandotherdamagesfromthecontaminationoffishandwildlifecausedbyjustsixleakingsurfaceimpound-ments,theestimatedvalueoftheselossesexceeded$1.8billion(Lemly2010).

Cooling Water Rule: Reducing Fish Kills and Other Strains on Water Bodies Thermoelectricplants(coal,gas,oil,nuclear,andsomerenew-abletechnologies)withdrawvastamountsofwater,mainlyforcooling.Combined,theywithdrewmorethan200billiongallonsofwaterperdayin2005,accountingfornearlyhalfofallU.S.waterwithdrawals(USGS2009b).Thirty-ninepercent

thisrevisionmightrequiretheconstructionofnewwastewa-tertreatmentfacilitiesatmanyplants. AsaresultoftheKingstonashspill,theTVAnowplanstospend$1.5billionto$2billiontoconvert11coalplantsfromwettodrystorage(TVA2009).Industrysourcesestimatethatconvertingacoalplanttodryhandlingofitsbottomashwouldcost$20millionto$30millionperunit,thatconversiontodryhandlingofflyashwouldcost$15millionperunit(or$200pertonofflyash),thatbuildinganewlandfillwouldcost$30million,andthatnewwastewatertreatmentfacilitieswouldcost$80millionto$120millionperfacility(ICFInternational2010;EOPGroup2009).Theindustry’scostestimatescouldbeexaggerated,butclearlyanyonemakingalong-terminvest-mentinacoalplantthatcurrentlylacksthecapabilitytosafelyhandleitscoalashfacestheriskofsignificantnewcosts. AswiththeEPA’sotherregulations,ratherthancreatingnewcosts,theforthcomingcoalashrulesarejustshiftingontothecoalplantssomeofthecoststhatthepublicatlargehasborneforyearsasaresultoftheplants’pollution.Inaggregate,

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ofallfreshwaterwithdrawalswereattributedtotheseplantsincombination,17and63percentofthatfractionwasduetocoalplants(Shuster2009).Althoughmostofthiswaterissubse-quentlyreturnedtothewaterbody,theactofwithdrawingit(andreturningitsignificantlywarmer)hassubstantialenviron-mentalimpacts. Coolingwaterintakestructurestakeaheavytollonfishandotheraquaticlife,throughimpingement(trappingtheorganismsagainsttheintakescreens)orentrainment(draw-ingthemintothecoolingsystem).Theselossesnotonlykillbillionsofindividualorganismsbutalsocandisrupttheaquaticfoodchainandalterspeciescompositionandbiodiversity(EPA2004).Analysisoftheimpactofthe631MWBayShorecoalplantnearToledo,OH,estimatedthatitswaterwithdrawal(anaverageof650milliongallonsdaily)annuallyimpinges46mil-lionto52millionfishandentrains209millionfisheggs,2.2billionfishlarvae,and13.8billionjuvenilefish.Notallofthoseeggs,larvae,andjuvenileswouldhavesurvivedtoadulthood,butabiologicalassessmentestimatedthattheplantprevents54.5millionfishfromreachingadulthoodeachyear,causingannuallossesofnearly$30millioninlostrecreationalandcommercialfishing(Gentner2010). Coalplants’heavydependenceoncoolingwaterthreatensnotonlytheenvironmentbutalsotheplants’futureoperations.ArecentanalysisfundedbytheU.S.DepartmentofEnergyfoundthatnearly350coalplantswerevulnerabletopotentialwaterconcerns,eitherbecauseoffallingsupplies(especiallyinalreadywater-scarceareas)orrisingwaterdemands—fromcompetingsourcesorfromchangesattheplantitself(NETL2010).Ofparticularconcernwasthehigherdemandforwaterthatwouldoccurifexistingplantsinstalledcarbon-captureequipment,whichthereportfoundcouldincreasewatercon-sumptionby30to40percent.18Thereportwarnedthatiftheseissuesremainunaddressed,futurewaterconflictscouldleadtopowerdisruptionsaswellastoincreasedcoststoconsumers.Someplantshavealreadybeenforcedtolimittheiroperationsbecauseofwatershortages,andwater-availabilityconcernshavefueledoppositiontonewplants(DOE2006).Thissituationislikelytoworsenasglobalwarming—ironically,causedinlargemeasurebyCO2emissionsfromcoalplants—isprojectedtoexacerbatewatershortagesinsomeregions. Virtuallyallnewcoalplantsarerequiredtouseaclosed-cyclecoolingsystemthatallowstheplanttokeeprecyclingthe

samewater(afterrunningitthroughcoolingtowers,wheresomeofitevaporatesandmustbereplacedwithnewwith-drawals).Closed-cyclecoolingwithdraws93to98percentlesswaterthanaonce-throughsystem(NETL2010;NYDEC2010).19However,becausemostcoalplantswerebuiltdecadesago,about39percentofplantsstilluseonce-throughcooling(Shuster2009).In2004,theEPAissuedrulesthatstoppedshortofrequiringallexistingplantstoaddcoolingtowers,inpartbecauseofcost.Buttheagencyisnowreconsideringthoserules(EPA2010b). TheEPAestimatedin2004thataddingclosed-cyclecool-ingtothelargestpowerplantsbuiltwithoutitwouldcost$130millionto$200million(EPA2004).ArecentstudybytheNorthAmericanElectricReliabilityCouncilcalculatedthecostinper-kilowatttermsandfordifferentplantsizes.NERCestimatedthatupgradingfromonce-throughcoolingwouldcostabout$150/kWto$160/kWforplantslargerthan500MW,about$200/kWfor300MWplants,andmuchmoreforplantssmallerthan300MW(NERC2010).Theuseofcoolingtow-ersalsoreducesaplant’spoweroutputbyasmuchas4percentwhensummerconditionsareattheirworst,thoughgenerallybylessthan2percentoverall(DOE2008).

Regulation of Global Warming Emissions: The EPA’s Climate Protection Mandate Quiteapartfromanyfederalmarket-basedcarbonlimitthatmaybeenactedinthefuture,coalplantsfacenewlimitsonCO2underexistingprovisionsoftheCleanAirAct.In2007,inthelandmarkcaseofMassachusettsv.EPA,theU.S.SupremeCourtheldthatCO2isa“pollutant”undertheCleanAirAct;consequently,thecourtorderedtheEPAtoformallydetermine

17 Irrigation accounted for about the same percentage.

18 In fact, according to an earlier analysis by the federal National Energy Technology Laboratory, adding carbon capture to a pulverized coal plant could nearly double its water use, largely due to the increased water demands of the capture process (NETL 2007). This comparison assumed that both the plant without capture and the one with it were equipped with cooling towers.

19 While recirculating systems withdraw vastly less water, they do consume more water than once-through systems because of evaporation from the cool-ing towers. However, when excess downstream evaporation caused by once-through systems is factored in, the difference is reduced. Overall, once-through cooling systems consume about 300 gal/MWh versus closed systems’ 480 gal/MWh (Shuster 2009).


whetherCO2endangerspublichealthorwelfare.InDecember2009,theEPAannouncedthatithadmadeafindingofendan-germent,asindeedithadto,giventhewealthofsupportingscientificevidence(EPA2009e).Thisfindingtriggeredrequire-mentstoregulateCO2fromcoalplantsunderexistingCleanAirActprograms,includingtheNewSourceReview(NSR)andNewSourcePerformanceStandard(NSPS)provisions.20 UndertheEPA’ssubsequentlyadoptedTailoringRule,newcoalplantsthatemitmorethan100,000tonsofCO2peryearwillbesubjecttoNSR,aswillmodifiedcoalplantsthatincreasetheirCO2emissionsbymorethan75,000tons(EPA2010c).Astheyapplyforpermitsfromstateauthorities,thenewormodifiedplantswillhavetoemployBestAvailableControlTechnology(BACT)toreducesuchemissions.ItisnotyetclearwhattechnologiesorpracticeswillbeconsideredtobeBACT,whichisdeterminedbypermittingauthoritiesonacase-by-casebasisafterconsideringmanyfactors,includingcost.InNovember2010,theEPAreleasedguidanceonhowpermittingauthoritiesshoulddetermineBACTforcoalplants(EPA2010i). TheEPAhasalsoannouncedthatinJuly2011itwillproposenewrulesaddressingglobalwarmingemissionsfromcoalplantsunderitsNSPSauthority(asrequiredbycourtorder).TheserulesarescheduledtobecompletedbyNovember2012(EPA2010j).Unlikethecase-by-caseBACTdeterminations,theNSPSruleswillbeuniversal,requiringallnewcoalplantsinthenationtomeetglobalwarmingemissionslimits.TheseNSPSruleswillalsotriggeraprocessthateventuallyresultsintheissuanceofperformancestandardsapplicabletoexistingcoalplants. ItistoosoontosaywhatkindsofchangesandcoststheforthcomingBACTandNSPSstandardsmayrequireofcoalplants,butattheveryleasttheprospectofCO2limitsundertheseprovisions,aswellasunderfutureclimatelegislation,willhavetobefactoredintoanydecisiontoinvestincoal.

Need for Long-Range Planning and Regulatory Oversight Prior to Any RetrofitsBeforemakingorapprovinganyexpensiveretrofittoanoldcoalplant,arealisticassessmentisneededthattakesintoaccountitsremainingusefullife,thehighermaintenancecostsandreducedefficienciesthatoldplantsface,andthecostsofanylife-extendingcapitalprojects.Asingleretrofitinvestment,consideredinisolation,mightappearfinanciallyreasonable,butitwouldberecklesstostartdowntheretrofitpathwithoutfirstconsideringthecombinedeffectofalltheupgradesthatmaybeneededoverthenextfewyears.Theassessmentshouldincludenotjustthecapitalandoperatingcostsofalllikelyretrofitsbutalsotheirimpactsontheplant’senergyoutput;inaddition,anyphysicalspaceconstraintsthatmaypreventplantsfrominstall-ingrequiredequipmentmustbeconsidered.Andofcourse,theassessmentshouldfactorinalltheotherfinancialrisksdiscussedinthisreportwhileconsideringtheincreasinglyavailablealter-nativestoburningcoal. Awide-rangingandtransparentassessmentisparticu-larlyimportantwherearate-regulatedutilityseeksregulatorypermissiontopassitsupgradecostsontoratepayers,whohavenootherwayofknowingthefullcostsahead.Itwillgenerallybeintheutility’sfinancialinteresttomakesuchasequenceofheavycapitalinvestments,whichexpandtheratebaseonwhichitisguaranteedtheopportunitytoearnacertainrateofreturn(presumingregulators’approval)—evenwhenitwouldbebetterforratepayersfortheutilitytotakeanotherpath,suchasinvestinginenergyefficiency.Insomecases,autility’sfinancialincentivetoputcostlycontrolsonoldplantscanbesubstantial;forexample,byaddingascrubbertothe40-yearoldMerrimackcoalplantinNewHampshire,theutilitythatownsitwillincreaseitsyearlyreturnoninvestmentintheplantbymorethanfivetimes—from$10milliontoover$50million(Schlissel2009).

20 The regulation of global warming pollution by the EPA remains controver-sial, despite the Supreme Court decision that established the agency’s authority over these emissions. The prospect of such regulation has attracted a large number of legal challenges, from industry and the states alike, as well as calls for congressional action to amend the Clean Air Act. However, as the author of a recent report by ICF International has noted, blocking the EPA rules “just throws more uncertainty into the mix because it’s not that the central problem has gone away…it’s just that the perceived remedy for now has been put on hold. You’re still left with that issue hanging out there” (Fine Maron 2011).


Coalplantconstructioncostsroseatastartlingrateintheyearsleadingupto2008,contributingtothecancellationofmanyproposedcoalplants.Despitetherecession,constructioncostshaveremainedhigh,

andin2010someprojectswerestillannouncingsubstantialcostoverruns(Hawthorne2010;O’Malley2010).

Steep Cost Increases Between2000and2008,capitalcostsforcoal-firedpower-plantconstructionroughlydoubled,withparticularlysteeppricehikesbetween2005and2008.SynapseEnergyEconom-icsestimatedinJuly2008thatcostsfornewcoalplantshadreached$3,500/kWbeforefinancingcosts,upfromaslittleas$1,500/kWto$1,800/kWin2005(Schlissel,Smith,andWil-son2008).AndtheIHSCambridgeEnergyResearchAssoci-ates(CERA)PowerPlantCapitalCostsIndex,whichtracksthecostsassociatedwiththeconstructionofaportfolioofpowerplantsinNorthAmerica,showedconstructioncostsnearlydoublingbetween2000and2008(Figure10,p.34). Powerplantconstructioncostsdroppedsomewhatduringtherecessionthatfollowed.However,theIHSCERAindexshowedthatthedeclinewasmodest,andinlate2009andearly2010costsactuallyroseslightlybeforeflatteningoutlaterin2010(IHSCERA2010aand2010b). Thecostincreasesbetween2000and2008werepartlytheresultofincreasesintheglobalcostofcommoditiesandofcompetinginternationaldemandforpowerplants,particularlyfromAsia(IHSCERA2008;Schlissel,Smith,andWilson2008).Otherfactorsdrivingtheincreaseincludedcompetitionforlimitedequipment,labor,andengineeringandconstruction

P A R T S I X

Construction CostsHigh and Volatile

resources,aswellasthedecliningnumberofengineersintheworkforceduetoretirementsandaninsufficientreplacementrate(IHSCERA2008). RisingglobalcommoditypricesdrivenbyAsiandemandhaveagainbeencitedforkeepingconstructioncostshighin2010(IHSCERA2010a).Whilethecommoditypricesthathadbeenraisingpowerplantcostsdidfallsteeplywiththeeco-nomiccrisis,theybottomedoutinearly2009andthenquicklyrebounded.ThesepriceincreaseswereinlargepartattributabletotherapideconomicrecoveryintheemergingAsianecono-mies,accordingtotheInternationalMonetaryFund(IMF),anditexpectscommoditypricestoremainhighbyhistoricalstandards(IMF2010). Evenduringthemonthswheretheindexshowsthatpowerplantpricesweredropping,particularcoalplantprojectswerestillannouncingsubstantialcostincreases.InNovember2009,AmericanMunicipalPower(AMP)announcedthatthepro-jectedcostsofitsproposedOhioplanthadjumped37percentsincetheprecedingMay;asaresult,AMPannouncedtheproj-ect’slikelyconversiontoanaturalgasplant(AMP2009).Morerecently,itwasreportedin2010thatthecostsofPeabody’sPrairieStatecoalplantinIllinois,whichiswellunderconstruc-tion,hadjumpedto$4.4billion,morethandoubletheoriginalestimatesof2001(Hawthorne2010). Pollutioncontrolprojectshavealsoexperiencedrisingcon-structioncosts.Theadditionofascrubberandotherchangesatthe433MWMerrimackcoalplantinNewHampshirewereestimatedin2006tocost$250million,butcostshavesincerisento$457million(NHDES2010;Colburn2009).Thissteepcostincreasepromptedseveralgroups,includingthe


UnionofConcernedScientists,topressforaregulatoryrecon-siderationoftheprojectthatcouldcompareitscoststothestate’senergyefficiencyandrenewableenergyalternatives.Thelargenumberofcoalplantsthatsimultaneouslywillbeseekingtomakeupgradesintimetomeetcompliancedeadlinesmightputfurtherupwardpressureonconstructioncosts.

Pulverized Coal Plant CostsForyears,estimatesofaveragecoalplantconstructioncostsfromseveralfrequentlyusedsourceslaggedwellbehindcostprojectionsfromactualprojects(EIA2009a;EIA2008a;EPA2008;EIA2007;MIT2007;NETL2007;EPRI2006).Figure11showsactual“overnight”constructioncostestimatesforanumberofcoalplantproposals,anditcomparesthemtocostsasprojectedbyseveralstudies.(Overnightcostsdonotincludefinancingorescalatingcostsduringconstruction.)TheEIAraiseditsassumedcapitalcostsestimatesineachofitslastfourAnnualEnergyOutlooksasitattemptedtobelat-edlycatchupwithrisingprojectprices.Overthefouryears,

theEIAincreaseditsestimatedovernightcapitalcostsfrom$1,327/kWin2007to$3,167/kW(foratypical600MWplant)intheearlyreleaseofits2011AEO(EIA2011a;EIA2007).TheEIA’s2011costestimate,whichweuseinourcostcomparisonsinPart8,isnowalmostexactlythesameasthecostestimatethattheUnionofConcernedScientistsusedin2009,basedondatafromactualprojects(Cleetus,Clemmer,andFriedman2009).

IGCC Plant CostsReliableconstructioncostestimatesforIGCCplantsarelimited,asnoprojectshaverecentlybeencompletedintheUnitedStates.BasedonstudiescomparingIGCCandpulver-izedcoalplants,weassumeinPart8thatIGCCplantswillfacecapitalcostsapproximately16percentgreaterthanthoseofpulverizedcoalplants(EIA2008c;MGA2008;MIT2007;NETL2007).Thistranslatesintoanovernightcapitalcostrangeof$3,200/kWto$3,800/kW(includingrealcostescala-tion)forplantswitha2015in-servicedate.However,recently

Figure 10. POWER PLANT CONSTRUC TION COSTS

IHS CERA’s tracking of a port-folio of power plant construc-tion costs, indexed to prices in 2000, shows steep cost increases from 2000 to 2008, followed by a decline with the economic slowdown. However, costs rose slightly in late 2009 and early 2010.

2000 2002 2004 2006 2008 2010

240

220

200

180

160

140

120

100

CO

ST

IN

DE

X (

20

00

=1

00

)

n CERA Cost Index with Nuclearn CERA Cost Index without Nuclear

Sources: IHS CERA 2010a; IHS CERA 2008


Figure 11. PULVERIZED COAL PLANT CAPITAL COSTS: AC TUAL PROJEC TS VS. STUDIES

Federal estimates of overnight capital costs of new pulverized coal plants have lagged behind actual project estimates, though between 2007 and 2011 EIA cost estimates rose considerably.Notes: The figure includes some circulating fluidized bed plants (noted with an asterisk); the year of the cost estimate is shown next to the name of each plant and study.

n Cancelledn Existing Project, Complete or in Processn Studies

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

2 0 1 0 $ / K W

Nelson Dewey 3* (08)AMP-Ohio (09)

Black & Veatch (08)MGA (08)

Hybrid Energy Center* (08)Big Stone II (09)

UCS Blueprint (09) EIA (AEO 11)

Sutherland 4 (09) John W. Turk (06)

Florida Glades 1 (07) Florida Glades 2 (07)

Prairie State (10) Taylor Energy Center (07)

Iatan (10) Dalman Unit 4 (09)

Westar (06) Southwest 2 (04)

Cliffside (06) Springerville 3 (06)

EIA (AEO 10) NAM (08)

Oak Creek (09) EIA (AEO 09)

Plum Point (06) Comanche (04)

Wygen II (05) Weston 4 (08)

Council Bluffs (03) NETL (07)

EIA (AEO 08) EPRI (06) MIT (07)

JK Spruce 2 (06) Cross 3&4 (06)

EIA (AEO 07)

4,4004,1253,3573,2693,2683,2183,1703,1673,0373,0193,0183,0182,7502,5942,5182,4902,4862,4752,3982,3942,2572,2522,2072,1452,1432,1312,0652,0111,7751,6421,6351,5841,4611,4211,4061,327

Sources: IHS CERA 2010a; IHS CERA 2008


announcedcostsatthe618MWEdwardsportIGCCfacilityinIndianahavebeencominginmuchhigherthanourestimate.In2010,estimatedcostsfortheprojectroseto$2.9billion,or23percentmorethanthe2009estimateand53percenthigherthantheoriginalpricetagin2006(DukeEnergyIndiana2010;O’Malley2010).Theresultingcapitalcostis$4,693/kW(includingfinancingcosts).

Plant Costs with CCSWenotethatthecostescalationsdiscussedaboverelatesolelytothecostofbuildingplantswithoutcarboncaptureandstoragetechnology.AswediscussedinPart4,addingCCSwouldresultincostsrisingevenhigher.InouranalysisinPart8,weassumethatovernightconstructioncostsforIGCCplantswithCCSwouldbe$5,000/kWto$6,500/kW(in2010dollars)foraprojectwitha2015in-servicedate,basedonrecentEIA,utility,andotherestimates(EIA2011a;Exelon2010:MGA2008).WenotethattheTenaskaIGCCplantwithCCSinTaylorville,IL,isreportingacostof$5,263/kW,whichfallswithinthisrange(WorleyParsons2010). WedidnotdetermineaconstructioncostforpulverizedcoalplantswithCCSbecauseourcostcomparisonsderiveoriginallyfromtheEIA’smodel,whichdoesnotmakethatoptionavailable.

Between 2000 and 2008, capital costs for coal-

fired power-plant construction roughly doubled,

with particularly steep price hikes between

2005 and 2008.


T hemanyfinancialrisksdiscussedinParts2through6collectivelyleadtoyetanotherriskforthoseintendingtobuildcoalplants:thepossibilitythattheywillbedeniedfinancingfortheplantorchargedfarmorefor

financingthantheyhadplanned.“Coalisadeadmanwalkin’,”saidKevinParker,globalheadofassetmanagementatDeutscheBank,totheWashington Post.“Bankswon’tfinancethem.Insurancecompanieswon’tinsurethem.TheEPAiscomingafterthem....Andtheeconomicstomakeitcleandon’twork”(Mufson2011).

Major Banks Trying to Limit Carbon Risks,Pressured to Do MoreManyofthecountry’slargestbankshaveendorsedastatementof“CarbonPrinciples”underwhichtheycommittotakingcarbonrisksexplicitlyintoaccountwhenevaluatingthefinancingofnewpowergenerationfacilities(BankofAmericaetal.2008).TheCarbonPrinciplesunderstandablymakeaspecialpointofurgingrate-regulatedutilitiestoseekfromregulators“clarityonpotentialCO2compliance-costrecovery,”inrecognitionthatfutureraterecoveryforcoalplantcostsmaybedenied.However,inmanycasesstateregulatorshavebeenreluctanttogiveassurancesthatcostscanallbepassedontoratepayers.Someregulators,includingthoseinTexas,Iowa,andMinnesota,havegonetheotherway,puttinglimitsontheamountsofconstructioncosts,CO2costs,orboththatcouldbepassedthroughtoratepayers(IUB2009;MPUC2009;PUCT2008).LimitsofthissorthavecontributedtothecancellationofcoalprojectssuchasAlliant’sMarshalltown,IA,plantandtheBigStoneIIprojectinSouthDakota.DukeEnergymayalsofacelimitsonhowmuchitcan

P A R T S E V E N

Harder-to-Get Financing

collectfromIndianaratepayerstocoveritsincreasinglycostlyandcontroversialEdwardsportIGCCplant(Russell2010). MajorbanksarebeingcalleduponbyenvironmentalactiviststogomuchfurthertoreducetheirfundingofcoalprojectsthantheyhavetodateundertheClimatePrinciples(RAN2011).AndBankofAmericahasfacedaseriesofprotests,includingaNovember2009demonstrationbyclimateactivistsatwhich20peoplewerearrested(Scott2009).Bankshavealsoincreas-inglybeentargetsofcriticismfortheirsupportofmountaintop-removalmining,andasaresultmanyofthemajorbankshavetakenstepstolimittheirfundingofthepractice(Zeller2010).

Downgraded Debt Ratings from Exposure to Coal Risk Financialratingagencieshaverecentlydowngradedseveralutilitiesbasedatleastinpartonthecoststheyfaceincon-structingnewcoalplantsorretrofittingoldones.Forexample,Moody’sdowngradedtheSouthernCompanyandthreeofitssubsidiariespartlybecauseofthehighrisksassociatedwithnewIGCC(andnuclear)constructionaswellaswith“longer-termpressuresfrompotentialcarboncontrolsandrenewableport-foliostandards”(Moody’sInvestorsService2010a).Moody’salsodowngradedEdisonMissionanditsMidwestGenerationsubsidiary,citingsubstantialuncertaintiesabouthowtheywouldcomplywithupcomingstateandfederalenvironmentalrequirements(Moody’sInvestorsService2010b).StandardandPoor’slowereditsoutlookonDukeEnergyinresponsetothespiralingconstructioncostsatitsEdwardsportIGCCplant,andCitidowngradedtheutilitybasedonconcernsthatitwillnotbeabletorecoverthecostsofcapitalexpendituresto


Publiclyownedutilitiesmayalsousemunicipalbondsasameansoffinancingcoalprojects.However,publicbondfundingisfacingincreasingcriticismforexposingtaxpay-erstosignificantfinancialrisksbyfailingtoadequatelytakeintoaccountthefullcostsofcoalplants;suchfundingisalsobeingcriticizedasaninappropriatetaxpayersubsidyofcoalpower(Johnstonetal.2010). Forexample,in2008WilliamC.Thompson,Jr.,thecomptrollerofNewYorkCity,requestedthattheU.S.Depart-mentoftheTreasuryconductareviewofthefinancialandenvironmentalrisksassociatedwithtax-exemptfinancingforcoal-firedpowerplants.Hecitedinparticulartheincreasedconstructioncostsfornewcoalplants,theregulatoryuncer-taintysurroundingCO2emissions,andthepriceofcoalitself(Thompson2008).TheAMP-OhioplantthatThompsonsin-gledoutasariskyinvestmentwassubsequentlycancelledwhenitscostsjumped37percentbetweenMayandNovember2009(AMP2009).Andwhilecapitalinvestmentsinpublicpowermayseemlessexposedtothefinancialrisksdiscussedinthisreport,itisworthrememberingthattheinfamousWashing-tonPublicPowerSupplySystem’sdefaulton$2.25billioninmunicipalbonds—thelargestmunicipalbonddefaultinU.S.history—waspartlycausedbypublicpowerentities’failuretoappreciatetherisksattachedtotheirenormousinvestmentsinbaseloadpower(Alexander,Zagorin,andPeterson1983). Inshort,backersofcoalprojectsfacetherisksthatfinanc-ingwillbehardertogetandthatitwillcostmore,givenconcernsoverthecostsfacedbycoalplantsandbypressuretoavoidfundingenvironmentallydestructiveprojects.

complywithenvironmentalregulations(AP2010;Chin2010).AndFitchdowngradedthedebtratingsofPPLEnergySupply,citing“theuncertaincostandimpactongrossmarginsofmeet-ingpotentialenvironmentalregulationsaddressinggreenhousegasemissions”andPPL’s“highconcentrationofcoal-firedgeneration,”amongotherthings(Fitch2009).

Cooperative Funding Drying Up, Municipal Funding QuestionedAtraditionalsourceofcoalplantfundingforruralelectriccooperativeshasbeenthefederalRuralUtilitiesService(RUS).Butin2008,theRUSsuspendeditsloanprogramfornewcoalplants,citingconcernsoverrisingconstructioncosts,legalchallenges,andpotentialdelays(Puckett2008).TheRUSstillprovidescertainformsofindirectsupportthathelpruralcoop-erativesobtaincoal-investmentfundingfromothersources.However,itisbeingcalledupontohaltthispracticeandtoreviewitspoliciesforloansorloanguaranteesforcoalplantretrofits,particularlyinlightofPresidentObama’spledgetophaseoutfossilfuelsubsidies(Johnstonetal.2010).

Financial rating agencies have recently down-

graded several utilities based at least in part

on the costs they face in constructing new coal

plants or retrofitting old ones.


Coalhasalwayshadseriousdisadvantagesasapowersource,includingthelonglistofharmsitimposesonhealthandtheenvironment.Coalplantsarenotonlycostlytobuildbutalsoarenotveryflexible.

Theycannotrampupordowneasily,andcoalpowercannotbequicklyaddedinsmallincrements—onlyinlargeandexpen-siveblocksthatrequiremanyyearsofleadtimeanddecadesofoperationinordertorecovertheinitialinvestment. Ontheotherhand,coalpowerhashadcertainadvantagesthatallowedmanyofyesterday’scoalplantinvestmentstopayoffinthelongrun(notcountingthemajorcostsbornebysociety).Existingcoalplantshavebeenabletoproducelow-costelectricitybyburninglow-costcoalwhilelargelyavoidingmanyofthetougherenvironmentalstandards.Andinadditiontoitspriceadvantage,coalpowerhasbeenabletoprovidedispatch-ablebaseloadpower,notsubjecttothevariable-outputissuesofwind-andsolar-basedsources. Butthisrelativelystablepastisnoguidetothefuture,asavolatileperiodliesjustahead.U.S.demandforcoalpowerisweakeningasbothpoliciesandmarketsaccelerateinvestmentsinrenewableenergyandefficiency,andaslownaturalgaspricesandanabundanceofunderusedcapacityatgasplantsthreatencoal’smarketshare.Coalpricesareatriskofbeingdrivenhigherbyinternationaldemand,decliningmineproductivity,andthepossibilitythatwehavefarlesscheaplyaccessiblecoalavailablethanwehavelongthought.Toleranceforcoal’smul-titudeofadverseimpactsisdeclining,andlong-delayedhealthandenvironmentalprotectionsaremovingforward,oftenundercourtorder.Moreover,coalplantconstructioncostshaverisendramaticallyandstayedhighdespitetherecession.Forall

P A R T E I G H T

Bottom LineThe Wrong Investment for a Changing World

thesereasons,investorsandlendersareappropriatelybecomingwaryofcoal. Finally,thechangingglobalclimateisalteringpoliciesandattitudesinwaysthatwillputincreasingpressureoncoalpowerastemperaturesriseandwesearchharderforwaystode-car-bonizeoureconomy.Thereissimplynoavoidingthefactthatatremendouseconomicriskisattachedtomakingalargeandmulti-decadefinancialcommitmenttothemosthigh-carbonenergychoiceavailableatatimewhenwemustcutcarbonemissionsdeeply. Inotherwords,andasshownthroughoutthisreport,coal’slongstandingproblemsarebecomingevenbiggerproblems,whileitsrelativestrengthsarefading.Coalpowerislosingitscostadvan-tage,anditsbaseloadnatureisnolongertheassetitoncewas.

The High Cost of Energy from New Coal PlantsFigure12(p.40)showsthatthelevelizedcostofelectricityfornewcoalplantshasrisentonearly$119/MWh—evenwithoutcarbonprices—asestimatedbytheEIAinitslatestAnnualEnergyOutlook(AEO)(EIA2011a).Thisfigure,morethandoubletheEIA’sestimateinits2006AEO,largelyreflectsthesteepincreasesincapitalcostsandfinancingoverthelastfewyears. Theright-handbarinFigure12showstheadditionalimpactofpotentialfuturecarboncosts,reflectingCO2allow-ancecostsatlow,medium,andhighlevels(usingtherangeofprojectedCO2costspreparedbySynapse,asdiscussedinPart4).Withthesecarbonprices,thecostofelectricitywouldrangefrom$132/MWh(withlowCO2costs)to$163/MWh(withhighCO2costs).Importantly,thesefiguresstilldonotrepresentmanyoftheharder-to-quantifyrisksdiscussedinthisreport.


Forexample,whilethecomparisonsreflectarangeofcoalprices,theydonotfullyrepresenttheriskthatcoalpricescouldrisesteeplyduetovolatileglobalmarkets,fallingproductivity,shrinkingreserves,orotherfactors(asdiscussedinPart3).

New Coal Costs More than Many Cleaner OptionsFigure13illustrateshowthecostofelectricityfromcoal-firedpowerplantscomparestootherenergyoptions,underavarietyofassumptions.Explicittaxincentivesarereflected,anditisassumedthattoday’sincentivesforwindandbiomasswillbeextended,astheyhavebeenseveraltimesinthepast.Figure13alsoreflectslow,medium,andhighCO2costs,takenfromSyn-apse(Part4).Arangeofcostsispresentedforalltechnologiessoastoallowforsomeofthemarketuncertaintiesandsite-specific

variables.Forexample,thefigureassumesarangeoffuelprices(takenfromtheEIA)forbiomass,naturalgas,andcoal,thoughitdoesnotfullyreflectthepossibilitythatcoalpricescouldbepusheddramaticallyhigherbythefactorsdiscussedinPart3.Thefigurealsoincludesarangeofcapacityfactorsforwind,solar,naturalgas,andnuclearpowertoaccountforthedifferentlevelsofresourcequality,operatingconditions,andoutputatdifferentsites.Andforalltechnologiesitincorporatesarangeof

Figure 12. INCREASING LEVELIZED COST OF ELEC TRICIT Y FROM NEW PULVERIZED COAL IN 2015

The projected levelized cost of electricity from a new coal plant more than doubled between 2006 and 2011, even without a price on carbon, as estimated by the EIA in its Annual Energy Outlooks for those years. The third bar shows the additional financial impact of potential carbon costs, taken from Synapse projections.21

20

10

$/M

Wh

180

160

140

120

100

80

60

40

20

0

53.3

AEO 2006 AEO 2011 ADDED CO2 RISK

118.6

162.7

15.28.6

29.5

19.9

9.7

89.0

20.2

10.313.7

19.9

9.7

89.0

n High CO2 Costsn Mid CO2 Costsn Low CO2 Costsn Fuel Costsn O & M Costsn Capital Costs and Financing

21 For CO2 allowance prices, each color represents incremental costs. Thus the cost of a medium CO2 price is shown by the yellow and orange bars combined, and the cost of a high CO2 price is shown by the yellow, orange, and red bars combined.

Sources: EIA 2011a; Johnston et al. 2011; EIA 2006


energyefficiency.Wheneithercarbonpricesorincentivesarefactoredin,newcoalplantsalsocostmorethanbiomassfacili-tiesorthebestsolarthermalandsolarphotovoltaicsites. Inshort,thetraditionalcostadvantagethatcoalpowerhasenjoyedovercleanerenergy—andthathasbeenusedtojustifycoal’sprofoundenvironmentalandhealthimpacts—haslargelydisappearedwithrespecttonewplants.

Coal Competing for Dispatch in the MarketThekindoflevelized-costcomparisonshownabovecanbeusefulforpreliminaryscreeningamongnewenergysupplies

constructioncosts.WediscusstheseandotherassumptionsinmoredetailinAppendixA,availableonline. Evenwithoutacarbonprice,newcoalplantsclearlyhavehigheroverallcoststhannewgasplants,windfacilities,andthebestgeothermalsites,andmuchhighercoststhaninvestingin

Figure 13. LEVELIZED COST OF ELEC TRICIT Y FOR VARIOUS TECHNOLOGIES

All estimates reflect newly built technologies that come online in 2015 and represent all-in levelized costs over a 20-year period. A range of capital costs is assumed for all technologies; a range of fuel costs is assumed for coal, natural gas, and biomass; and a range of capacity factors is assumed for wind, solar, natural gas, and nuclear power. A range of CO2 prices is taken from Synapse projections (see Part 4). For comparative purposes, tax credits for renewables in place through 2012 were assumed to be extended to 2015. Tax credits for supercritical pulverized coal plants were not included because they have limited funding and would not cover more than a few new plants. See Appendix A (available online) for additional assumptions.

The levelized cost of electricity for new coal

plants has risen to nearly $119/MWh—even

without carbon prices.

n Total Costs with Incentivesn Total Costs without Incentivesn Low CO2 Costsn Mid CO2 Costsn High CO2 Costs

Coal IGCC-CCS

Nuclear

Coal IGCC

Pulverized Coal

Solar Thermal

Large Solar PV

Biomass

Geothermal

Wind (Onshore)

Natural Gas CC

Efficiency

0 50 100 150 200 250 300 350

$ / M W h


Naturalgasplantshaveamajoradvantageovercoalplantsintheirabilitytoadjusttheiroutputrelativelyquicklyandeffi-ciently,whichallowsfortheintegrationofagreaterquantityofvariableoutputrenewablesontothegrid.JonWellinghoff,chairoftheFederalEnergyRegulatoryCommission,hasstressedtheimportanceofthisload-followingability: [I]f you can shape your renewables, you don’t need fossil fuel or nuclear plants to run all the time. And in fact, most plants running all the time in your system are an impediment because they’re very inflexible. You can’t ramp up and ramp down a nuclear plant. And if you have instead the ability to ramp up and ramp down loads in ways that can shape the entire system, then the old concept of baseload becomes an anachronism(StraubandBehr2009). Inotherwords,thepowersystemoftomorrowwillputanincreasinglyhigherpremiumonflexibilityoversteadiness.

A Cleaner Path ForwardThecostsdiscussedinthisreportwouldposelessofafinancialrisktocoalinvestmentsifthenationhadnochoicebuttomaintainitscurrentlevelofcoaldependenceregardlessofsuchcosts.However,studiesbytheUnionofConcernedScientists(UCS)andothersarechallengingtheassumptionthatcoalpowermustindefinitelyremainamajorpartofourpowergrid.Thesestudiesshowthatwecouldreplacemostofourcoalpoweroverthenext15to20yearsbyusingrenewableenergyanddemandreduction,withadditionalreductionsincoalpowerthereafter. In2009,UCSpublishedClimate 2030: A National Blueprint for a Clean Energy Economy,apeer-reviewedanalysisofthecostsandbenefitsthrough2030ofscenariosforreducingU.S.globalwarmingemissions(Cleetus,Clemmer,andFriedman2009).Theanalysisincludedadetailedreviewoftechnologycostsandtrendsthroughthefallof2008,usingamodifiedversionofthemodelthattheEIAemploysforitsownanalyses. TheUCSmodelshowedhowwecouldachieveglobalwarmingemissions-reductiontargetsof26percentbelow

tomeetgrowingdemand,butitoversimplifiesthecomplexmatterofdecidingwhichoptionswillbestfitwithintheelectricsystemorwinmarketshare.Totheextentthatcoalprojectsselltheirpoweronthewholesalemarkets,theywillbecompet-ingfordispatch22withotherpowersourcesbasednotontheirfulllevelizedcostsbutontheirvariablecosts(suchasfuelandoperatingcosts).Wind,solar,andgeothermalgeneratorsfacenofuelcosts;sowhenavailable,theirvariablecostsareusuallylowerthanthoseofcoalpower,evenwithoutCO2costsadded.Andrenewableenergydoesnotneedtohavealowerlevelizedcostthancoalpowerinordertoexpanditsmarketshare,asitisalsobeingdrivenbypolicychoices(seePart2).Moreover,thenationhasalargefleetofnewandunderutilizednaturalgasplantsalreadyonthegrid,readytocompetewithcoal.Whilenaturalgaspricevolatilityisalwaysaconcern,severalstudiesbytheEIAandUnionofConcernedScientistshaveshownthattheadditionofrenewablepowertothegridhelpstopreventgaspricesfromrising(Nogee,Deyette,andClemmer2007). Ofcourse,withacarbonpriceaddedtothemix,coalpowerwouldbecomeevenmoredisadvantagedintheenergymarkets,giventhatitemitssomuchmorecarbonperkilowatt-hourthannaturalgasplants.IntheMidwestespecially,coalplantsareatriskofbeingsqueezedoutofthedispatchbetweenincreasingwindenergyfacilitiesontheonehandandnaturalgasplantsontheother(WoodMackenzie2010).

The Disappearing Baseload AdvantageCoal’sstatusasasourceofbaseloadpowerdoesnotrepresenttheadvantageitoncedid.Infact,coalpower’slackofflexibilitymakesitpoorlysuitedforthegridoftomorrow,whichwillsurelyincludegreaterquantitiesofvariable-outputwindandsolarpower. AsdiscussedinPart2,manystudiesshowthatlargequanti-tiesofwindcanbeintegratedintoapowergridatlowcost.Thisintegrationofwind(orsolar)canbedonepartlybyshapingdemand(through“demand-sidemanagement”measuresthathelpsmoothoutload)andpartlythroughothersourcesofsupplyplayinga“load-following”role(essentially,rampingupanddownotherpowerplantsonthesystemtocompensatefortherisingandfallingoutputoftherenewables).Largerregions(orbalancingareas),windforecasting,awidergeographicdistributionofwindturbines,andstrongtransmis-sioninterconnectionscanalsohelpreducethecostsofintegrat-ingwind.

22 For purposes of this discussion, we use “dispatch” to refer to the assignment of electric load to specific generating stations and other sources of supply within an integrated electric system.


UndertheUCSBlueprint,coalburnedatpowerplantsdeclinesby84percent—frommorethanabilliontonsin2005to137milliontonsin2030—withacommensuratelydramaticcutincoalgeneration(Figure14)andpowerplantcarbonemissions.Bycontrast,undertheUCSreferencecase23—withnonewpoliciesadoptedafterOctober2008—coalgenerationisprojectedtoincrease29percentby2030.Overall,theBlueprintpoliciessaveconsumersandbusinesses

2005levelsby2020andof56percentby2030—reductionsthatweresteeperthanthosedebatedinthe111thCongress.Withintheemissionslimitsandpolicyconstraintsprovided(includinganationwidelimitonemissionsandcomplementaryincentivesandstandardstoincreasetheuseofenergyefficiencyandrenewablepower),themodeldeterminedthecombina-tionofnewgeneratingresourcesneededtomaintainelectricityreliabilityatthelowesttotalcost(includinganynecessarycostsforbuildingnewtransmission,integratingtechnologiesintothegrid,andprovidingadequatereservepowersupplies). Themodel’sresultsshowedthattheUnitedStatescouldachievedeepemissionscutswhilesavingenergyconsumersmoney.Italsovividlydemonstratedhowamoreaggressivepursuitofenergyefficiencyandrenewableenergycouldgreatlyreduceourdependenceoncoalpower.

23 The UCS reference case is based on the assumptions used by the Energy Infor-mation Administration’s Annual Energy Outlook for 2008, with certain modifica-tions and updates. For example, UCS modified assumptions about the costs and performance of several energy and transportation technologies based on data from actual projects, information from more recent studies, and input from experts. The reference case also reflects tax credits signed into law in October 2008.

Figure 14. FUTURE POWER GENERATION UNDER UCS BLUEPRINT

The left graph shows sources of electricity through 2030 under the UCS reference-case scenario. The right graph shows the energy savings and energy sources projected for the same period under the UCS Blueprint suite of policies, which include energy efficiency measures, a strong renewable energy standard, and a nationwide limit on emissions.

Reference Case Electricity Generation Blueprint Case Electricity Generation E�ciency SavingsReference Case Electricity Generation Blueprint Case Electricity Generation E�ciency Savings

2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030

6,000

5,000

4,000

3,000

2,000

1,000

0AM

OU

NT

OF

EL

EC

TR

ICIT

Y G

EN

ER

AT

ED

(BIL

LIO

N K

ILO

WA

TT

-HO

UR

S)

n Natural Gas with Combined Heat and Powern Wind, Solar, Biomass, Geothermal*n Hydron Nuclear

*Landfill gas and incremental hydro are also included in this category

Efficiency Savings

n Natural Gasn Coaln Other

Source: Cleetus, Clemmer, and Friedman 2009


sectorsisnearly3.5timeshigherthantoday’slevels,providing16percentofU.S.electricityby2030.Largelybecauseofanationalrenewableelectricitystandard,theoptionsofwind,solar,geothermal,andbioenergyprovide40percentofthenation’selectricityuseby2030,afteraccountingforthedropindemandstemmingfromenergyefficiencyandCHP. ArecentmodelingexercisebytheElectricPowerResearchInstitute(EPRI)—anonprofitresearchgroupwhosemem-bercompaniesgeneratemostofthenation’spower—yieldedresultsstrikinglysimilartothoseoftheUCSBlueprint.UnderascenariothatreducesU.S.carbonemissionsby80percentby2050anddoesnotincludeanypoliciesorincentivesfor

$464billionannuallyin2030and$1.7trillioninnetcumula-tivesavingsbetween2010and2030. WiththeBlueprintpolicies,theelectricitysectormakesthebiggestcontributiontoreducingU.S.globalwarmingemis-sions,providing57percentofallcutsin2030.AsshowninFigure14,significantemissionscutsinthesectorcomefromreplacingcoalplantswithefficiency,combinedheatandpower(CHP),andrenewableenergy.By2030,energyefficiencymeasures—suchasadvancedbuildingsandindustrialprocessesandhigh-efficiencyappliances,lighting,andmotors—reducedemandforelectricity35percentbelowthereferencecase.CHPbasedonnaturalgasintheindustrialandcommercial

Figure 15. FUTURE POWER GENERATION UNDER EPRI MODEL

This figure shows the results of a 2010 “test drive” of the new regional economic model developed by the industry-funded Electric Power Research Institute. Under this scenario, power from existing coal plants declines by about two-thirds by 2025, replaced almost entirely by renewable sources and energy efficiency; new coal with CCS emerges after 2030; and U.S. carbon emissions are reduced by 80 percent by 2050.

2010 2015 2020 2025 2030 2035 2040 2045 2050

6,000

5,000

4,000

3,000

2,000

1,000

0

TW

h

AEO 2010 Reference Casen Energy Efficiency*n Solarn Geothermaln Biomassn Windn Hydro+n Nuclear (New)n Nuclear (Existing)n Gas-CCSn Gasn Coal-CCS (New)n CCS Retrofitn Coal

• Includes new programs, technology, and behavioral price response

Source: Specker 2010

Energy Efficiency and Price Response

Wind

New Nuclear

Existing Nuclear

Gas-CCS

Gas

New Coal-CCSExisting Coal


2010 2015 2020 2025 2030 2035 2040 2045 2050

butnotofwaterorashhandlingupgrades)areonlyabout0.25¢/kWhin2020,or$2.20permonthforatypicalresidentialcustomer,comparedwiththereferencecase. Theoverallnetbenefitstosocietyofaggressivelymovingawayfromcoalwouldbetremendous.Notonlywouldsuchashiftputusonapathtoachievethedeepcarbonreductionsweneed,butitwouldsavethousandsoflivesyearlythroughbetterairquality,reducethethreatthatmercuryposestoourchildren,greatlyreducethestrainonourincreasinglypreciouswatersupplies,reducethethreatoftoxicleakagefromcoalash,keepAppalachianmountainsstanding,andprotectthewaterandhealthofcoalminingcommunities.Onaneconomicfront,itwouldstimulatewhatwillsurelybethegrowthindustriesoftomorrow—renewablepowerandenergyefficiency—providingnewclean-energyjobsandstimulatingfurthertechnologicalimprovements.Asthesebenefitsbecomeincreasinglyapparentandhardtoresist,policymakerswillbeundergrowingpressuretoputthenationonthisbeneficialpath.Anyonemakinglong-terminvestmentsincoaltodaymustfactorinthisrisk.

ConclusionInthe1970s,theelectricpowersectorwasinvestinghugeamountsofmoneyinbaseloadplantswhileignoringthetrendsunderminingtherationaleforthoseplants,includingchangesindemandgrowth,constructionandoperatingcosts,regulations,andpublicsentiment.Thefinancialresultsweredisastrous,withmorethan100nuclearplantsand80coalplantscancelled,sometimesafterhundredsofmillionsorevenbillionsofdollarswerespentonasingleproject(Schlissel,MullettandAlvarez2009;Pierce1984;GAO1980).Theselossesledtoskyrocketingelectricratesandin1983triggeredthelargestmunicipalbonddefaultinU.S.history(Alexander,Zagorin,andPeterson1983).Legalbattlesarosearoundthecountryoverhowmuchofthefinancialcalamitycouldhavebeenforeseenandavoided. Ifandwhentoday’slong-terminvestmentsinnewcoalplantsorcostlyplantretrofitsleadtosteepfinanciallosses,therewillbenodebateoverwhethertheycouldhavebeenforeseen.Thetrendscurrentlyunderminingtheeconomicsofsuchinvest-mentsarefartooobvious.Makingmajornewinvestmentsincoalpower—astheplanetwarms,astheclean-energyeconomyemerges,andastheotherdevelopmentsdescribedinthisreportplayout—isanunacceptablyriskyproposition.

specifictechnologies,theEPRImodelprojectsthatabouttwo-thirdsoftoday’scoalpowerwouldberetiredby2025andreplacedprimarilywithefficiencyandrenewablepower(Figure15)(Hannegan2010;Specker2010).Powerfromexistingcoalplantscontinuestodropthrough2040,withonlyafractionofthemretrofittedwithCCSandoperationalin2050.NewcoalwithCCSdoesnotbegintocomeinuntilafter2030.Theresultsofthismodelingrun,releasedinthesummerof2010,donotincludethepriceimpactsofthesechanges. Athirdstudy,releasedin2010bySynapseEnergyEconom-ics,investigatedascenariothatcompletelyphasesoutcoalby2050(whilecuttingnuclearpowerby30percent).Theresultsshowthatthisobjectivecanbeachievedatlowconsumercostandwitheventualconsumersavings(Keithetal.2010).Coalcapacitydropsby85GWby2020,andcoalgenerationiscutnearlyinhalfby2030andphasedoutcompletelyby2050. Synapse’sspreadsheet-basedanalysisofregionalenergybal-ancesusesdatafromtheEIA’sAnnualEnergyOutlook2010,updatedtoreflectactualcostandperformancedataforeachresourcetypebasedonrecentactualprojects.Theincrementalcostsofthisscenario(whichincludesaconsiderationoftheavoidedcostsofairemissionscontrolsatexistingcoalplants,

©N

REL

Source: Specker 2010


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A Risky Proposition


Power producers across the United States are deciding whether to make massive, long-term investments in coal-fired power plants. Some are planning to build new coal plants, and many more are considering sinking new money into very old plants.

This report describes why these investments are, in fact, a risky proposition. Coal power faces higher costs on several fronts, including rising coal prices, high construction costs, uncertain financing, and the costs associated with addressing coal’s tremendous ongoing impacts on our health, air, water, and climate. At the same time, coal is losing market share to its cleaner energy competitors—including energy efficiency, renewable power, and natural gas—which are in many cases benefiting from both falling costs and growing policy support.

These are trends that no one making, approving, financing, or expected to pay for a long-term investment in a coal plant can afford to ignore.

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