Most regions of the country have seen proposals for a huge amount of coal-fired power generation. However, in just the past year more than 30 GW of proposed coal-fired capacity has been canceled or postponed. While one might expect a robust increase in demand for gas from power generation, the truth is the power sector's gas burn already was in for substantial growth, analysts say.
While the historically high natural gas prices that sparked renewed interest in coal-fired generation are still around, environmental concerns over coal and uncertainty over the regulation of greenhouse gas emissions have tempered the coal stampede. Still, new coal plants are being announced, with about 6,700 MW proposed this year, according to consultancy Wood Mackenzie. About 2,800 MW of that proposed capacity is for integrated gasification combined-cycle (IGCC) plants with the remainder being conventional coal plants, said Wood Mackenzie's Anthony Damiano, research manager for North American power.
"Don't count [coal] out completely yet," Damiano told NGI. "There's around 10 or 11 projects of note in 2007 that have either started construction this year or received an air permit, most by the states." He noted that although the former TXU Corp. canceled plans for some coal plants, the company has been able to so far proceed with expansion at its Oak Grove plant in central Texas.
Additionally, the U.S. Environmental Protection Agency (EPA) recently granted a permit for a coal plant in Utah, and this came following a U.S. Supreme Court decision that said carbon dioxide (CO2) is a pollutant that can be regulated by EPA (see NGI, April 9). Additionally, state air permits have recently been granted in Oklahoma and Georgia; Illinois is promoting coal-fired generation.
"The point is, you always want to be careful of any knee-jerk reaction saying [coal development] is completely dead," Damiano said. "Things are still getting permits and starting construction, but definitely it is slowing down. The thing to look out for is how that will proceed into 2008. Will there be any more permits, plants starting construction, etc.?"
Some form of regulation of CO2 emissions is inevitable, said Hans Daniels, director of coal advisory services for consultancy Global Energy Decision. "Whether it's cap-and-trade or a tax, that's still uncertain," he said. Clearly, uncertainty over what's to come with regard to carbon have put some developers and investors off coal, at least for the time being, analysts say.
Daniels noted that renewables continue to grab attention. However, with the exception of wind power they have yet to gain much traction. "The joke in the industry is that solar is 20 years away, and it always will be 20 years away." As for nuclear power, "I don't see nuclear as having much impact on coal over the next several decades," he said.
For one thing, nuclear plants are getting old, and while many have been relicensed, plants will have to be retired sooner or later. This means the nuclear industry will have to get more plants on the ground just to retain its 20% share of power generation. "They need to build even more to replace the ones that will be retiring," he said.
As for the coal-fired plants that have been canceled or postponed, Daniels said the amount of generation isn't that significant when one considers the huge amount of coal-fired capacity that has been proposed over the last two or three years.
While environmental concerns over coal-fired plants grab headlines, probably a bigger reason for the step back from coal development is rising construction costs. "When you're talking a 50-100% increases depending on the project, that obviously has a lot to do with it as well," Damiano said.
Regardless of whether coal-fired generation development continues to slow, stands still or even accelerates, natural gas producers have much to which they can look forward from the power sector. Indeed, even with robust coal development, gas demand for power generation over the next five years or so should be strong as coal plants take a long time to bring into operation, noted Damiano.
"Even under your base case conditions, you've got very strong demand growth for gas." Damiano said. "And then when you start looking at the 2012-2013 time period, our analysis is there are certain parts of the country that don't have enough [power generation] under development of any type. Gas is the only real option for those places."
Damiano's Wood Mackenzie colleague on the gas side of the business, Jen Snyder, said incremental power demand for gas will continue, particularly due to economic growth. "For 2012, 2013, 2014, we're looking at more support for gas demand," she said. "The pace for now through those years we had expected to be relatively quick, even with the [coal] plants on the table just because of the timing associated with those new plants."
Offsetting increased demand for gas-fired power is a slowing in gross domestic product (GDP) growth in 2007 and expectations for slower GDP growth in 2008. "And the other thing that we've seen over the last year is most definitely an acceleration in renewables projects, in particular wind projects, which obviously can't be counted on to meet peak requirements but do have a negative impact on gas demand," Snyder said. "The third thing is that we've actually reduced our assumptions for coal retirements based on the real high gas prices because installing scrubbers makes sense even with very inefficient coal plants."
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