Coal's Decline: Driven by Policy or Technology?

Dr. Walter J. Culver, founding board member of Great Lakes Energy Institute, and Dr. Mingguo Hong, Associate Professor of Electrical Engineering and Computer Science at CWRU, recently published an article in The Electricity Journal that explores why coal production in the U.S. has declined dramatically, in line with over 90% of it being used for electricity generation and its decline there.

Read the News Release from Science Daily

Some laymen attribute coal’s decline to the clean-air policies of the federal Environmental Protection Agency (EPA) through rules that it applied to electricity generation plants. The authors point out, however, that largely because of court challenges, EPA regulations did not change until 2015, 25 years after President G.W. Bush signed amendments to the Clean Air Act in 1990.  For eighteen years following new EPA rules, coal continued to thrive, until 2008 when its production peaked and then declined 23% in the next seven years.

The authors found that the decline data are correlated with the shale revolution that began to be fully felt in 2007-2008, after which cheap natural gas outcompeted coal markedly. The authors consider gas’ techno-economic pluses as well as state regulations in electricity generation, and conclude that coal will continue to be displaced largely by natural gas in the nearer term. 

Wind and solar generation are also increasingly competitive with coal, lacking only cost-effective electricity storage (batteries, really) to be a threat to coal in most regions.  Ominously for coal, batteries are benefitting from significant R&D that is beginning to yield utilities-capable products. [1],[2],[3]

Market Forces:

Between 2007 and 2015, shale gas prices dropped almost in half,[4] positioning natural gas to outprice coal mined in four of the five U.S. coal regions, as shown in Figure 3 from the paper.  It shows the benchmark gas prices (“Henry Hub” prices) in the past four years to be cheaper than the coal of the two regions in Appalachian for over 88% of the months.  Further, gas has been cheaper than the coal of Appalachia, Illinois, and the Rockies for over 57% of the months.  Even the cheapest coal, in Wyoming’s Powder River Basin, competes poorly in the great population centers east of the Mississippi once rail transport of $0.03 per ton-mile is considered.[5]

That prompted investment in pipelines and gas storage infrastructure that have made gas even more competitive.  

 

The authors examine in depth the hard data available from (1) the U.S. Energy Information Administration, (2) academia, specialized energy consultants, and Wall Street analysts, and (3) the publically available information of the electric utilities and gas industry.  The authors conclude that natural gas will likely maintain a price advantage over coal into the foreseeable future, and that both lessening prices and the Renewable Portfolio policies of three quarters of America’s states (rather than federal policy), will hasten the encroachment of wind and solar as replacements for coal.

Technology:

While the Heat Factor (an efficiency metric) of coal-fired power plants has largely remained constant, intensive R&D in combined-cycle gas turbines (CCGTs) is leading to Heat Factors that are 40% better than coal-fired generators.[6],[7]   Additionally, CCGTs offer superior generator nimbleness in the face of changing demand and outages, an advantage in grid reliability that is important to the nation, and can translate to increased dollar incentives for the utilities.

As for gas supply-and-demand—it is not likely to be under pressure.  Technology advancements in shale-field geology and gas extraction have increased accessible shale-gas reserves at a rate exponentially faster and cheaper than gas is currently being extracted.[8]  The authors do examine three main forces that could test such technological excellence in the future:

·       A significant increase in the share of production going to power plants,

·       A significant increase in the share of production going to export, and

·       Curtailment in production because current prices continue to trend at too-low a level to be broadly profitable. 

They conclude that extrapolations of available data—and supportable excursions in those extrapolations—are unlikely to change the dynamics of coal versus gas.  Further, the pressure on coal from renewables will likely increase as the levelized cost of electricity (LCOE) for solar continues to drop, already down by 68% since 2010, and the LCOE of wind continues to drop, already down 51% since 2010.

The Electricity Journal 29 (2016), pp. 50-61 DOI information: 10.1016/j.tej.2016.08.008



[1] Energy Information Administration, “United States Coal Production and Consumption by Year,” 2015.

[2] Energy Information Administration, “Short-term Energy Outlook,” 2015.

[3] Energy Information Administration, “U.S. Natural Gas Marketed Production,” 2015.

[4] Energy Information Administration, “Today in Energy: Average annual natural gas spot price in 2015 was at lowest level since 1999,” 2016.

[5] “Railroads and Coal”, Assn of American Railroads, Jul 2015

[6] General Electric Co., “9HA.01/.02 Gas Turbine,” 2015.

[7] Energy Information Association, “Average Operating Heat Rate for Selected Energy Sources,” 2014.

[8] Energy Information Association, “U.S. Crude Oil and Natural Gas Proved Reserves,” 2015.