Coal losing favor as energy source for electric plants
King coal is rapidly losing support among many who were once its most fervent supporters, electric utility executives, according to a new report by a subsidiary of Black & Veatch.
Low natural gas prices and environmental regulations have had coal on the defensive for some time. But utility executives, despite using more natural gas to generate power, have been reluctant to abandon the idea of coal as the best economical option.
But that relationship is changing.
Black & Veatch, an Overland Park engineering and consulting firm that regularly surveys the industry, a year ago found that 82 percent of utility executives responding said that coal had a future when “fiscal realities were fully considered.” But in this year’s report, that number fell to 58 percent.
“The percentage of respondents who believe there is a future for coal in the United States has dropped significantly,” the report concluded.
Black & Veatch’s 2012 Strategic Directions in the U.S. Electric Utility Industry was released Monday at the Edison Electric Institute’s annual conference in Orlando, Fla. The report, based on more than 500 surveys returned by utility executives across the country, is considered an excellent snapshot of the industry’s view on various issues. The survey went to upper and middle management working in utilities, ranging from large investor-owned companies to municipal utilities and electric cooperatives.
The sixth annual report, which also includes an analysis, comes during what is one of the electric industry’s most challenging and uncertain times:
Demand for electricity is down because of the economy. Pressure is up to curb pollution and retire coal-fired plants. Natural gas, which burns cleaner and can be used to generate power, has slashed the price of wholesale electricity, which many utilities rely on for extra revenue. Conservation of electricity by consumers has plenty of potential, but how to encourage it without dinging a utility’s profits remains a problem.
Electric vehicles illustrate both the uncertainly and promise facing the electric industry. Utility executives have high hopes for them as a new source of business, but just how big they will become is unclear. The executives question estimates that show 7 percent of the country’s electricity could be used in electric vehicles by 2025.
“In my conversations with the leadership, there is enthusiasm about electrics, but there is skepticism about the overall impact it will have on the business,” said John Chevrette, president of Black & Veatch Management Consulting, which wrote the report.
Some of its other findings and conclusions:
- More than 80 percent of utilities are embarking on a major investment cycle, including upgrading transmission lines and retiring coal-fired power plants. Aging infrastructure has become the top issue for utilities. All of this means more rate increases in the future, and more than half of those surveyed think the rate increases will be significant.
- Wind energy is losing some ground. In 2010, the utility executives considered it among the top three “environmentally friendly” technologies. But cheap natural gas has affected wind power as well. Federal incentives for wind power are set to expire, and it’s unclear whether they will be extended. Solar energy has climbed up the list as its panels have become cheaper, making them more economical, including for use by homeowners and businesses.
- Overall, renewables are still seen as an opportunity by utilities, but a majority of executives surveyed said if their adoption caused rates to rise as much as 5 to 10 percent, then customers would question the investment.
- The past year hasn’t been good for nuclear energy with the crisis in Japan, but utility executives aren’t giving up on it. Nuclear energy remains atop their “environmental” list. The radiation and continued potential for danger from the Japanese plants damaged in last year’s tsunami raise questions about how environmentally sound nuclear power is. But the executives’ confidence has been boosted in part by new plant designs that have more passive safety features and upgrades extending the life of current nuclear plants.
But what could be setting the stage for the most change in the electric industry is what to do about coal-fired power plants. Environmental laws already affect the plants, and there has been lots of talk about further global warming laws or agreements to curb carbon emissions.
Black & Veatch is projecting that 450 coal-fired plants will be decommissioned by 2020 because of age or environmental regulations, and natural gas plants are getting serious attention as a replacement. Gas has long been used to provide energy to meet peak demand — often in summer for air conditioning — but meeting base year-round demand was left to coal. A coal-fired plant costs more to build, but the price of coal in the past more than offset the expense.
But now natural gas, which has been hovering around $2 per 1,000 cubic feet, is more than competitive with coal. In March, natural gas used in producing electricity rose 40 percent while coal fell 20 percent.
Gas producers are beginning to cut back, and prices will eventually rise. But even around $5 per 1,000 cubic feet, natural gas would still be an economical player when new plants are built. The bet is that the country’s plentiful supplies of natural gas will keep prices relatively stable.
Electric utilities are playing it different ways. KCP&L and Westar jointly own a coal-fired plant and recently decided that expensive upgrades made more sense than retrofitting it to natural gas. KCP&L has plenty of capacity for now, but if a new plant is built in the future, then natural gas will be seriously considered.
But many utilities, as the Black & Veatch reports indicates, are already there.
American Electric Power, one of the country’s largest utilities, with 5 million customers in 11 states, last week ditched plans to upgrade a Kentucky coal-fired plant that last year was deemed the most cost-effective option. Now it is considering other options, including natural gas. Gas now accounts for 24 percent of the company’s generating capacity. And the utility recently said when opening a natural gas power plant that it intended to use more of the fuel.
“This is another step in the transformation of AEP’s generating fleet as we continue to diversify our fuel mix to improve our environmental footprint and provide economical electricity for our customers,” said Nicholas K. Akins, American Electric Power’s president and chief executive officer. “Natural gas will become an increasing part of AEP’s generating portfolio in the coming decades as a result of the development of shale gas reserves and new environmental regulations.
-Steve Everly
