REPORT: GAS PRICES, CCS CHALLENGES PAINT BLEAK FUTURE FOR COAL

Martin Schneider
GHG Monitor
8/23/13

Low natural gas prices and regulatory uncertainty will continue to put new coal-fired power plants at a significant disadvantage, a new Department of Energy-funded report concludes, estimating that the price of natural gas would have to rise well beyond projected levels to make natural gas combined cycle plant more expensive than any type of coal-fired technology, even when carbon capture and storage costs are included. The report was completed by ICF Incorporated for the Eastern Interconnection States’ Planning Council and National Association of Regulatory Utility Commissioners and funded by the Department of Energy. Only when gas prices are higher than about $11.5/MMBtu, the report concludes, does the levelized cost of electricity for a natural gas combined cycle plant exceed the cost of a super critical pulverized coal plant without CCS. Currently, the price of natural gas is averaging around $3.25/MMBtu. “With the abundance of natural gas from shale plays, natural gas prices as high as $10/MMBtu are unlikely; furthermore, according to the latest projections from EIA, natural gas prices are expected to reach the $8/MMBtu range by 2040. Therefore, it is very unlikely that new standard coal power plants will be built (without CCS) if there are no gas infrastructure issues,” the report concludes

When CCS is incorporated, natural gas prices would have to exceed $13/MMBtu for a natural gas combined cycle plant to be more expensive than either an integrated gas combined cycle coal plant or super critical pulverized coal plant. “Low natural gas prices put new coal-fired plants at a significant disadvantage, as it is difficult for new coal-fired plants with high levelized cost of electricity to compete with gas-fired generating technologies,” the report says.

Drive for CCS Technologies ‘Moribund’

A host of new regulations are also providing significant obstacles for new coal plants going forward, particularly when it comes to the New Source Performance Standards, the report says. “While any new generation facility will have to meet the criteria and toxic air regulations, water regulations and effluent guidelines and ash handling regulations, it is the NSPS regulations, depending on how they are finalized, that could specifically make the construction of new coal plants without CCS virtually impossible,” the report says. While noting that the commercial viability of carbon capture and storage technology is a “vital factor in determining the future of coal-fired plants in the United States,” the report emphasizes that “the drive for CCS technologies has become moribund, as prospects for imposing a price on carbon emissions has reduced significantly in recent years. The combination of these developments has resulted in an effective moratorium on new coal-fired power plants.”

When it comes to CCS technology itself, the report notes that “the development of fully integrated CCS projects is challenged by a variety of factors, including uncertainty in climate policy, commercial availability of the technology and high costs.” As such, the report’s authors suggest that future emphasis could be put on deploying CCS for natural gas—not coal—plants. “The uncertain future of regulatory and legislative carbon policy casts further doubts on the future development of CCS, especially with limited funding available for technology development,” the report says. “Furthermore, even if a carbon policy comes to fruition, CCS may be deployed on natural gas plants before coal-fired plants, if natural gas prices remain low.”

The report points out that generators have announced 47 GW of coal-fired capacity requirements for 2012 and beyond. However, that does not mean coal will not remain an important part of the energy mix. “Although coal-fired units face an array of challenges, the existing base of coal-fired generating resources with pollution control equipment to limit emissions of criteria air pollutants will continue to play a significant role in the fuel mix within the [Eastern Interconnection] for the foreseeable future. Current and future environmental regulations for limiting criteria pollutants, toxics, coal combustion residuals and effluents will lead to significant deactivations and ultimately produce a future coal fleet consisting of larger, cleaner units.” The report adds: “The remaining units that choose to continue to operate after 2016, when [EPA’s Mercury and Air Toxics Standards] become effective, will have to meet the MATS requirements through a combination of additional environmental control equipment and access to the type of coal that allows them to comply with MATS and other environmental rulemakings. This implies that the remaining coal units after 2016 will be larger, cleaner, and have more dispatch than the existing set of coal units.”