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 Spring 2011


By Barbara Freese

Our nation depends on coal for almost half its electricity, even though most coal-fired power plants are decades old (some dating back to the Eisenhower administration), and impose staggering costs on our health and environment. Rather than shifting away from coal, many utilities around the country are spending, or planning to spend, huge sums to retrofit old coal plants, hoping to pass the costs on to ratepayers.

These retrofits will do nothing to reduce the enormous threat coal plants pose to the climate (because today’s pollution controls do not capture heat-trapping carbon emissions); on the contrary, they will increase that threat by extending the plants’ lives. Furthermore, the new UCS report  A Risky Proposition: The Financial Hazards of New Investments in Coal Plants shows that changes in the economic fundamentals of power generation could make major retrofits a losing gamble from a financial perspective too. Below we summarize the changing economic risk factors that no would-be investor in coal can afford to ignore.

The Factors Making Coal Risky

Aging plants. Many of the nation’s coal plants have reached or passed the end of their originally intended lifetimes: 72 percent of U.S. coal capacity is more than 30 years old, and 34 percent is more than 40 years old. These older plants are increasingly inefficient and unreliable, and face high maintenance and capital costs to keep operating economically.

The United States currently has far more electric generating capacity in place than it is projected to need for years, making it possible to retire many aging coal plants now. And as we demonstrated in our 2009 report Climate 2030: A National Blueprint for a Clean Energy Economy, the right mix of policies and investments would allow the United States to reliably and affordably replace more than 80 percent of its coal plants with cleaner options by 2030.

Lower demand. Cleaner energy resources have increasingly eroded the market for coal power, and this trend is likely to accelerate. Spending on ratepayer-funded efficiency programs, for example, nearly doubled between 2007 and 2009, and 27 states now—or soon will—require utilities to reduce their customers’ energy demand. Twenty-nine states and Washington, DC, also have standards requiring utilities to obtain a growing percentage of the power they sell from renewable resources such as wind and solar energy, which have greatly expanded over the last few years (partly in response to such standards).

Natural-gas-fired plants are also drawing market share away from coal. While gas prices are notoriously volatile, many analysts expect them to stay low for years, largely because of new but controversial methods of drilling that have expanded domestic production. Gas plants are also cleaner, cheaper, and faster to build than coal plants, and many existing U.S. gas plants are underutilized and could quickly displace a significant amount of coal power if operated at full capacity.

Rising prices. While renewable energy and natural gas prices have been falling, coal prices have been rising, in part because of volatile global markets. This is the main reason why “spot” prices (the going rate for buyers not already under contract) for coal from the eastern United States spiked in 2008 and are rising again as the global economy recovers. Coal from the western United States, which is currently less exposed to global trade, could become equally vulnerable to price spikes if plans to export it to growing Asian markets succeed.

Serious questions are also being raised about the size of both global and domestic coal reserves. Modern geological assessments, as well as “peak coal” projections based on past production rates, suggest we have much less economically recoverable coal than official estimates have indicated. In addition, productivity in U.S. coal mines has been dropping for years, even in the newest and youngest domestic coal fields, indicating that technological advances are no longer compensating for growing resource depletion.

Electricity with a Side of Poison
Coal plants damage more than our climate.

The Environmental Protection Agency (EPA) is pursuing regulations that will finally reduce—but not eliminate—the following risks associated with coal power:
  • Sulfur dioxide and nitrogen oxide. The proposed Clean Air Transport Rule would require more power plants to capture these emissions, which produce ozone and particulate pollution that cause thousands of premature deaths and more than $100 billion in health-related costs each year.
  • Mercury. The forthcoming Air Toxics Rule would require plants to capture this potent neurotoxin, which can disrupt fetal and infant brain development. Coal power produces at least half of all U.S. mercury emissions.
  • Coal ash. Proposed rules would require safer handling of this toxic waste product, potentially forcing plants to store it in lined landfills instead of surface impoundments (which are more likely to endanger local communities with both slow leaks and catastrophic breaches).
  • Fish kills. Coal plants withdraw vast quantities of water from adjacent water bodies, killing fish and other aquatic life as they are drawn into cooling systems. New rules could require coal plants to install cooling towers that would greatly reduce the amounts of water withdrawn and also reduce the hot water discharged (which can also harm aquatic life).
UCS is working to help the EPA fulfill its mission by defending these and other important public health and environmental safeguards (see “Newsroom,” p. 5).

 

Higher costs. Power plants continue to become more expensive to build and operate. The cost of building new coal plants roughly doubled between 2000 and 2008, partly due to global commodity costs, and has remained high despite the recession (see the figure). Pollution control costs have also risen. For example, the projected cost of installing an emissions “scrubber” at the 433-megawatt Merrimack coal plant in New Hampshire increased over three years from $250 million to $457 million. These trends are making banks and creditors wary of lending large sums for coal-related projects, which may make it more costly for utilities to obtain financing.

Long-overdue application of more protective health and environmental standards also contributes to the rising cost of coal power (though the anticipated compliance costs are far lower than the benefits to human health and the environment). Many old plants still lack scrubbers, cooling towers, ash landfills, and other basic safeguards. But a number of lawsuits over the years have pushed the EPA to adopt new rules—some under a court-ordered schedule—that will likely require many plant operators to finally add pollution-reduction technologies (see the sidebar). Some members of Congress have threatened to derail these regulations, despite the evidence that the benefits far outweigh the costs. But blocking these regulations would hardly make the financial risks associated with coal’s impacts go away; it would simply delay the inevitable necessity of addressing the enormous costs coal power imposes on society.

Eventual carbon regulation. Finally, coal plants face the conspicuous financial risk inherent in being the nation’s greatest source of carbon dioxide, the pollutant mainly responsible for global warming. Coal plants emit more carbon dioxide than all our cars, trucks, buses, and trains combined, and emit about twice as much as natural gas plants per unit of power generated.

Congress failed to pass climate legislation last session, but the growing threat from global warming means lawmakers will have to return to the issue—perhaps repeatedly during the lifetime of any long-term investment in a coal plant. And whatever climate legislation eventually passes, a price on carbon is likely to be included because it is such an effective way to spur private-sector innovation. As our most carbon-intensive energy source, coal plants will obviously face new costs.

The industry hopes to solve its carbon problem with a pollution-control technology called carbon capture and storage (CCS). But CCS is years away from being commercially available (presuming it gets that far), and under current designs it could increase the cost of energy from a new plant by 78 percent—even more if retrofitted on an existing plant. Low natural gas costs, coal supply and cost concerns, and the defeat of federal climate legislation (which would have provided subsidies for CCS) may hinder the technology’s development.

We Can’t Let History Repeat Itself

Most coal plants are owned by utilities that have a strong financial incentive to invest in capital-intensive projects like new plants or retrofits and pass the costs on to ratepayers, rather than in alternatives such as energy efficiency programs that save ratepayers money. This bias toward overbuilding contributed to the disastrous power plant investments of the 1970s, when utilities ignored rising construction costs and falling demand to waste billions on new nuclear and coal plants the nation did not need. The result was more than 100 nuclear plants and 80 coal plants being canceled after years of expenditures.

Major new, long-term investments in coal power today are a risky proposition given the availability of safer, more cost-effective alternatives. Expansion of renewable energy and energy efficiency, along with greater utilization of natural gas plants, could eliminate the need for most coal power within the next 15 to 20 years. The United States cannot afford to deepen its dependence on dirty coal when the benefits of transitioning to a cleaner energy system—protecting our health, air, water, and climate as well as strengthening the economy—are so clear.

Barbara Freese is a senior policy analyst/advocate in the UCS Climate and Energy Program.

 

Read the report A Risky Proposition and learn more about cheaper, more reliable energy alternatives in the Clean Energy section of our website.