Generation Revolution

NEPA_banner_leadartWith partisan gridlock on energy policy settled over Washington, a casual observer might assume that this nation’s decades-old fleet of coal-fired power plants will remain largely unchanged. Indeed, it is probably true that no sweeping energy bills will be passed in the 113th Congress, and that many of the Administration’s most high-profile actions on what seemed at first to be an Obama priority – climate change – create more headlines than palpable impacts. And yet, without catching the attention of most Americans, the US is nevertheless undergoing a remarkable change in its power generation mix. The country has already seen a precipitous fall in pollutants in recent years. Remarkably, this drop will now be followed by an even bigger wave of change, with the country’s oldest and often least efficient coal plants being closed at a record pace, to be replaced with new combined cycle gas turbines. Those coal plants that remain open will be among the cleanest in the world. Importantly, the cause of these changes is not coordinated action but rather a remarkable combination of economics and regulations.

While Congressional action on traditional pollutants is unlikely to say the least, it is for those seeking a reduction in carbon emissions that the Washington outlook seems most sclerotic.  First, Congressional action on greenhouse gases will not be forthcoming. Those who hold out hope for a carbon tax need remember only one figure – $0.20 – the politically devastating estimated increase in the cost of a gallon of gas under even a moderate tax agreement. The Administration’s actions too are disappointing to the environmental community; while new rules allowed by the Supreme Court’s decision on carbon in Massachusetts v. EPA are tough (though legally tenuous) for new plants, existing coal plants as of yet exempt and will likely face only relatively benign requirements for higher efficiency.

Despite this, few recognize that emissions of CO2 have fallen at least 430 million tons in the last seven years (a 7.7% cut). While some attribute this mainly to economic factors, a rebuttal can be seen in the European Union, where emissions have remained roughly flat over the same period. Further, the last decade has already seen a more than 50% fall in emissions of pollutants like sulfur (SOx- think acid rain) and nitrogen oxides (NOx- a precursor to smog), thanks in part to the Bush-era Clean Air Interstate Rule. These trends, though aided by the economic downturn, are unlikely to be drastically reversed by recovery because of two factors working in tandem: the Obama Administration’s ever-tighter regulation of traditional pollutants and the revolution in shale gas hydraulic fracturing.

Natural gas was the first part of this one-two punch. The combination of horizontal drilling and hydraulic fracturing have unlocked truly unprecedented amounts of gas (often estimated at a 100 year supply), and sent prices tumbling from highs that may not be seen again for decades. Responding to this new glut, utilities with gas plants used traditionally only in peak hours have flipped those turbines on full throttle and scaled back use of coal facilities. Through the fall, the US had used 100 million fewer short tons of coal in 2012, and for the first time ever use of natural gas hovers at roughly the same percentage of power generation as coal. Of course, gas has not only much lower levels of traditional pollutants, but also roughly 50% less CO2 than coal.

The second blow to the coal-burning fleet comes courtesy of the EPA’s Office of Air and Radiation. As mentioned, previous regulations have helped to more than halve emissions of traditional pollutants such as sulfur and nitrogen oxides in the last decade. However, a mix of court orders and self-initiative have seen the Obama Administration seek to push these cuts deeper, with rules demanding that utilities reduce mercury emissions by some 91% and drive further cuts of other pollutants like acid gasses, particulate matter, SOx and NOx either finalized or in the final stages of completion. While some of these recent rules have been overturned in court, those that have stuck or are yet to come are among the most impactful in air quality history. Many are forcing the installation of extremely costly pollution abatement equipment like sulfur scrubbers. Individual plants have spent upwards of $700 million on similar retrofits; some will install this equipment but the cost will be too high for a large swath of the fleet.

These two forces – cheap gas and stiff regulations – have combined to drive the closure of an unprecedented number of coal plants. Nearly 50 gigawatts of coal is slated to go off-line in the next few years, from a nationwide base of roughly 300GW. More announcements are likely, as plants that are just barely profitable now compared to cheap, gas fired competitors find themselves uneconomic and unprofitable if forced to install hundreds of millions of dollars in environmental compliance equipment. In such an environment, there is virtually no discussion of building new coal capacity, and increasing interest in closing existing sites. The decades old plants that close will be replaced largely by new gas turbines; state of the art, efficient turbines running on a much cleaner fuel.

To be certain, this churning in the electric fleet will raise costs on consumers, and those who fret over hydraulic fracturing will find little to cheer about. However, barring sweeping losses in court or stiff new regulations of hydraulic fracturing, the revolution in power generation will continue over the coming decade, and with it will come less carbon, less sulfur, less nitrogen, and cleaner air across the country.