May 1, 2017 Read More →

‘As Coal Burns Out … ’

Washington Examiner:

Many of the nation’s coal producers, both in the East and the West, have been undergoing major debt restructuring due to a downturn in demand for coal and legacy costs. West Virginia-based Peabody Energy, one of the largest coal firms worldwide, recently emerged from bankruptcy along with other companies, and some hiring of miners is occurring.

But analysts see that as most likely short-lived.

“I’m not sure that’s an intelligent thing for the coal companies to do, and I’m not sure if those jobs are stable, but it looks like they’re there,” said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, which seeks a diverse energy economy. “So, there may be some new employment there. But the growth in the energy sector are natural gas, wind and solar.”

The Energy Information Administration, the Energy Department’s independent analysis arm, projects coal mining to increase around 3 percent this year and next, primarily in response to natural gas prices rising. At the same time, federal data has consistently showed wind energy has added more turbines to the grid than any other energy resource. For the first time in history, wind surpassed hydropower as the nation’s leading form of renewable energy.

The wind energy industry isn’t letting that fact go by the wayside. Officials with the American Wind Energy Industry, the industry’s lead trade group, is quick to tout that it is one of the only parts of the energy industry, outside of natural gas, which is actually growing jobs in coal country, pointing out that Ohio has become a key hub for wind energy components manufacturing in the country.

As for coal, in the “very best case” scenario, “the demand will remain flat for a long time,” Sanzillo said. “And in the more likely case, we’re going to see a steady decline. And that’s a function of natural gas prices remaining low. It’s a function of wind and solar energy taking competitive positions away from coal in several areas around the country.”

On top of waning demand for coal, coal power plants are retiring, Sanzillo and many others point out.

Sanzillo’s group and other research firms have issued briefs in recent weeks detailing coal plant closures this year, with the prospect of being replaced by natural gas power plants.

A recent brief by the institute showed 46 coal plants are either slated to be closed or refurbished to burn natural gas through 2018. 

“They may do a little better this year. Natural gas prices are a little higher. And they are coming out of bankruptcies,” Sanzillo said. But the question remains: “Is the price of coal they can get on the market sufficient to cover operating expenses, reinvestment and profit? And the answer is no.”

He explained that prices have come back somewhat for coal, but they are insufficient to meet those three fundamental objectives of any industry. Simply put, there are “too many companies, mining too much coal, with too few customers. In the U.S. and it’s also worldwide,” he said.

The president’s strategy is focused on eliminating environmental regulations without examining the market. “Are the elimination of those regulations going to be sufficient to induce utilities to invest in new coal plants? The answer is no,” Sanzillo said. The principal factor is profitability amid increased competitiveness from natural gas and wind, he said.

Low fuel prices dictate what utilities build, what the state commissions that regulate the utilities will allow to be built, and what resources dominate the large restructured markets that the government oversees.

A recent brief by the institute showed 46 coal plants are either slated to be closed or refurbished to burn natural gas through 2018.

The decline in demand is expected to have ripple effects on mining firms from Utah to Appalachia. Many of the plants looking to retire extend from West Virginia, Kentucky, and through the Tennessee Valley. The plant closures listed in the report represent a conservative estimate, excluding some plant closures in Ohio and Texas.

“Our analysis is conservative in that it considers only those plants and units seen either certain or all but certain to close by the end of 2018,” read the brief. It also excludes the closure of the Navajo Generating Station in Arizona, which is the largest coal-fired power plant in the country. The Trump administration is in talks with the power plant’s owners and the tribes that lease the land it sits on to find a way to extend its life. The plant’s owners blame the market, and low natural gas prices for the power plant’s decline.

The brief explained that the shift away from coal is “likely to continue as intense cost competition from renewables and natural gas continues.”

Bill Johnson, the CEO of the largest public utility in the country, the Tennessee Valley Authority, said coal plants it chose to close are not going to reopen under Trump. The authority operates as an independent nonprofit utility, but is essentially federally owned as a Depression-era solution to supplying poor, rural communities with electricity and light.

“Our statutory duty is to produce electricity at the lowest feasible rate,” Johnson told the Associated Press in a recent interview. “And when we decided to close the [five] coal plants, that was the math we were doing,” he said, adding that it had nothing to do with President Obama’s climate change agenda or regulations.

“We weren’t trying to comply with the Clean Power Plan or anything else. What’s the cheapest way to serve the customer? It turned out to be retiring those coal plants.”

As coal burns out, the race for natural gas is on

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