Future Coal

Once a keystone in an age of growth and prosperity, coal is in search of a new role and identity. In 21st century Asia the resource is playing out a transformation similar to the one it underwent in 19th century Europe. However, coal continues to draw rancour worldwide for its deleterious environmental impacts and its rising cost profile. Despite offering a number of “clean coal” options, the future of coal doesn’t look like it used to only a few years ago.

Discussions of coal’s future have become even more heated in recent months as the world’s largest coal producer, the United States, plunges into an election furor with energy taking the front stage.

In states like West Virginia, Ohio, and Kentucky, which mine or use coal, political support for the coal industry is seen as critical in an era when environmental regulations are making it more costly and challenging to mine and burn the fossil fuel.

The US coal industry has been fighting for what it sees as an essential for families, businesses, and industries, all of which have relied on coal to provide more than 50 percent of US electricity output for the last decade. The American Coalition for Clean Coal Electricity (ACCCE) is arguing that new Environmental Protection Agency (EPA) regulations are an attempt to shutter the US coal industry.

On March 27, 2012, the EPA released its New Source Performance Standards, which limit CO2 emissions to 1,000 lbs/megawatt-hour of energy generation for facilities greater than 25 megawatts. Coal advocates like the ACCCE have said these targets will effectively end any future construction of coal-fired power plants and will reduce any potential deployment of clean-coal technology.

“This latest rule will make it impossible to build any new coal-fueled power plants, and could cause the premature closure of many more coal-fueled power plants operating today,” the group said on its website.

Taking its battle to the American populace, the ACCCE has enlisted the support of NASCAR and developed a YouTube campaign in the hope of pushing back at regulatory changes that have made “America’s power” more costly.

Clean coal malaise?

Outside of regulatory changes, the coal industry is currently facing a number of other cost challenges, from falling gas prices to rising production costs and technological barriers, all of which have made clean coal have less of an impact than previously hoped.

Despite the surge of efforts to make clean coal a viable option in recent years, the industry is currently finding it difficult to continue pursuing what many see as a critical phase of a larger long-term exit strategy from fossil fuels energy systems.

Nebraska-based Tenaska recently proposed the construction of the Taylorville Energy Center, a 602-MW coal gasification power plant with carbon capture and storage technology. However, in a bid to win legislative approval, it now wants to swap out the clean-coal technology for a plant that runs on natural gas.

While Tenaska officials did not comment on the change of trajectory, the new proposal does not preclude a coal gasification addition to the Illinois facility in the future. With low current natural gas prices, choosing natural gas over clean coal right now would reduce two-thirds of the original US $3.5 billion price tag.

“It will be designed in a way that the gasification can be added later,” Phil Gonet, Director of the Illinois Coal Association said. “It’s a deferral. That makes sense.”

Illinois’ coal industry was eagerly awaiting the commencement of a clean-coal project that would provide research opportunities and funding in a state that is home to nearly 20 percent of US recoverable coal reserves.

Many believe low natural gas prices are not here to stay and that coal will continue to be a long-term option once the economics and technology come online.

EU utilities, on the other hand, have found that the costs of burning coal have fallen over the past year.

Reuters reported this week that lower industrial output coming out of Europe recently has driven down the cost of carbon permits – the certificate that puts a price on carbon emissions – by more than 60 percent over the last year. The lower cost of the permits reduces the cost of emitting carbon dioxide and makes cheaper, but higher-polluting fuel sources more viable.

“If you have anything that’s coal-fired in your generation park at the moment – be it lignite or hard coal – you will take advantage of the high margins and burn the stuff,” a trader with a major German utility told Reuters.

Like all technologies, it is not always the design or output that matters in mainstreaming new ideas. The timing is as important as anything else.

Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.