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Fuel Diversification Key to Power Sector’s Future, Execs Say

Coal needs to be apart of a future energy landscape in which more renewables, efficiency and changing demand patterns are straining the nation's grid, according to a panel of industry executives examining "big picture policy" on Wednesday at the Wells Fargo Securities Energy Symposium in New York City.

A future dominated by natural gas and renewables is unrealistic and unwise, the executives said, pointing to a lack of sufficient gas infrastructure to support a total backing out of coal.

A panel in which three of the four members hold substantial stakes in coal-fired generation, along with a renewable energy company, the consensus called for a diversity of fuel supplies beyond natural gas and renewables, recognizing that this means technology advancements will be needed to make clean coal commercially viable.

Noting that the proposed federal Clean Power Plan means a "sea change" for the industry, Wisconsin Energy CEO Gale Klappa said that history of the power sector has demonstrated that "there is no one perfect fuel source" for generating electricity.

"The lesson of history in our industry is that our customers are best served over the short- and long-term by fuel diversity," said Klappa, adding that he is concerned current national policy is locking out coal from even being a small part of the nation's future energy mix. "I think we have to find a way technologically to meet stringent environmental rules and still be able to burn coal."

The proposed new U.S. Environmental Protection Agency (EPA) clean power rules would essentially require the unrealistic scenario of all of the nation's combined-cycle natural gas-fired generation units operating at a 70% capacity factor, he said. "That is an interesting goal, but the natural gas infrastructure to do that is not in place today and probably can't be in place for at least a decade.

"As we move toward more reliance on gas and renewables, I think it would be a huge policy mistake to basically eliminate coal and new coal-fired power plants," Klappa concluded, noting Wisconsin Energy has the most fuel-efficient gas- and coal-fired generation plants in the Midwest.

Agreeing with Klappa on diversity, Jim Lash, president of FirstEnergy Corp.'s generation business, said the U.S. Energy Information Administration projects that gas will surpass coal in 2040 as the dominate power fuel source at 35% of generation, but "the gas infrastructure is simply not there.

"We cannot rely on a single fuel source; you need diversity, and coal will continue to play a key role we believe, as will renewables, but they cannot replace baseload generation plants."

Duke Energy CFO Steve Young said he speaks with regulators often about the need for diversity in fuel supplies, "and effectively new coal-fired generation has been shut out as one of those options. That makes it challenging for the long-term planning that we do in our business."

Duke plans call for retiring 4,000 MW of coal-fired generation by 2018, which is roughly 25% of its capacity and the remaining capacity is "very environmentally compliant," Young said, adding that with the new EPA rules "everything moves toward gas."

From the renewable sector's perspective, Pattern Energy Group Inc. CEO Michael Garland said that realistically there will be some coal-fired generation in the United States for a long time. He agreed that "there are arguments for coal," although it is difficult to propose new coal plants currently.

Garland cited Ontario, Canada, where Pattern is the largest renewable project developer, as an example of a region that has already gone through the coal debate. "Ontario decided to shut down all of its coal plants, and the nuclear sector was very opposed to the strategy of going forward with more renewables, but once they cut a deal for how [nuclear plants] could be paid for ramping up and down, they decided they could actually ramp nuclear facilities in response to renewables' intermittence."

Garland said the no coal policy is "working well" in Ontario, and some people now are complaining that there are too many renewables, along with "a little bit of gas-fired generation." There are no coal plants operating and the nuclear plants are "operating extremely well," he said.

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