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High Gas Prices Trigger Resurgence in Coal-Fired Power Generation

Soaring natural gas prices and a growing interest in fuel diversity for power generation is driving a major resurgence in plans to develop coal-fired power plants, according to Scott Klara, deputy director for the Department of Energy's (DOE) Office of Coal and Power at DOE's National Energy Technology Laboratory (NETL). The latest DOE statistics show about 129 proposed coal-fired power plants (77 GW) will be developed over the next 20 years, a $104 billion investment.

"Coal is a cheap fuel and has been consistently cheap for almost forever it seems," Klara noted in an interview with NGI. "Trends are even showing that over the last five years it slightly declined in price." The problem with coal is the cost of the plant not the fuel. A coal-fired power plant can be more than double the cost of a gas-fired power plant, said Klara, so that the plant mortgage makes up about 75% of your costs. With a gas plant, the capital cost of the plant is cheaper but the fuel costs are growing more and more expensive; the situation is almost completely reversed.

"When gas prices are cheap, that kind of a plant makes sense. But when that gas gets expensive, there's a breaking point and that is very company specific and situational specific," said Klara. "Many people are now starting to look for other options, like coal where the fuel cost is stable and cheap."

There also is a significant trend toward greater fuel diversity. "You can't predict gas price spikes or whether there will be coal price spikes. Companies are now putting in more diverse portfolios of energy sources within their generation mixes than they had in the past. They are looking at renewables, gas, coal. That kind of hedges against all the uncertainties related to fuels," Klara noted.

All forecasts predict rapidly growing demand for electricity over the next two decades. The Energy Information Administration's Annual Energy Outlook forecasts electricity demand will grow about 23% over the next 10 years to 4,360 billion kWh/year from about 3,547 billion kWh in 2004.

"Up until about five years ago, there was hardly a new power plants being built in the United States for any fuel type because it wasn't needed. There was a large excess capacity of generation potential." But in the last few years there has been a significant increase in gas-fired power generation. That has been a major contributor of the surge in natural gas prices. Natural gas also is in relatively short supply compared to other fuels, but particularly coal. There's a 250-year supply of domestic coal reserves at current usage rates compared to a probable Lower 48 domestic gas resource of only about eight years and a total Lower 48 potential gas resource that would be depleted in about 34 years at the current consumption rate, according to the most recent statistics from the Potential Gas Committee.

"The split between gas and coal has a lot more to do with the price of the fuel and specifically natural gas prices recently," Klara noted. "Will we continue to see this boom in coal generation? Certainly if the demand is there for new generation capacity. I think you are going to see a combination of fuels though. Some companies will favor gas at any price for whatever the reasons. You are going to see some favor coal. Is it going to be two-to-one in favor of gas over coal plants or one to one? I think the price of gas will dictate that. But my view is there are definitely going to be a lot of coal plants on the horizon."

Klara sees more than 4,000 MW of coal-fired power being added to the grid in 2006 and nearly 10,000 MW in 2007. In 2010, the annual coal-fired power additions are expected to jump to about 13,000 MW. The state with the most proposed coal-fired power currently on the books is Illinois with 10,033 MW planned, followed by Kentucky with 4,946 MW, Florida with 3,935 MW, Texas with 3,870 MW, and Pennsylvania and Washington each with about 3,100 MW planned.

All this coal-fired power generation has some concerned about emissions increases in the coming decades, but Klara said researchers are well on their way toward building a more environmentally friendly coal-fired power plant. "In our research and development (R&D) pipeline we have whole portfolios of technologies that are starting to prove themselves. In the next 5-15 years there will be technology developments available for coal-fired power generation that could essentially eliminate environmental concerns for [coal-fired power].

"We believe coal R&D is becoming so good that in the 10- to 15-year horizon you can see technology for coal that approaches near zero emissions," he said.

"Right now coal-fired power generation is as clean as it's ever been with demand on an increase. Emissions are at their lowest levels for criteria pollutants ever. Demand has increased over the last 20-30 years," he said. "When you put those two together you realize there have been substantial gains made in coal-fired power generation."

Coal-fired power supplies more than 54% of the electricity in the United States, more than any other source and that isn't likely to change much going forward. Natural gas is around 15% of the mix. Nuclear supplies about 22%. Coal-fired power continues to be the mainstay electricity power generation source and all projections are showing that it will continue to grow.

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