Uncertainties over natural-gas prices, carbon regulation, and clean-technology alternatives are inhibiting investment in new power plants. An emissions “wargame” from Booz, Allen & Hamilton...
Coal's Black Future
Turbulent politics and market trends cloud prospects for coal-fired power.
it less likely that regulatory pressure on greenhouse-gas emissions will abate.
Shadow of the Future
Uncertainty about future U.S. policy towards greenhouse-gas emissions has proven more burdensome to the electricity sector than any actual policy that’s likely to be adopted. For some years, new generation-capacity development has been at a standstill, with more capacity additions being cancelled than announced. Last year that eased somewhat, with a significant increase in new generating-capacity announcements. Interestingly, coal is a key component, but the number of corresponding cancellations demonstrates widespread uncertainty. The commitment toward gas, nuclear and renewables has been aggressive and appears poised to overtake coal (see Figure 3) .
Europe provides a current example of the uncertainty that blights investment. The original European scheme for restricting GHG provided assurance that existing facilities would have a gradually decreasing stream of emissions allowances without charge. Now Brussels is considering whether to auction off the allowances rather than award them to existing sites. The economic consequences are huge for existing sites with stranded investments. And the prospect that any new-build plant could become similarly stranded must stand as a deterrent to potential investors.
The future of coal-fired generation, under most commonly discussed carbon regimes, appears bleak based on the extremely high cost of separating post-combustion GHG from a flue-gas stream using today’s technology. Over the long term, prospects for carbon capture and sequestration (CCS) could improve dramatically. Effective CCS technology should be available for about $30 a ton sometime after 2020, versus about $100 a ton today.
More broadly, coal gasification could offer a potential pathway for employing coal that avoids the need for expensive post-combustion separation. Unfortunately, traditional gasification technologies with CCS will become economic only when natural gas prices exceed $11, compared to $7 to $8 today. And as discussed, alternatives such as nuclear generation make sustained gas prices that high seem unlikely.
Non-traditional catalyzed gasification technologies may be emerging that could provide a pathway from coal to natural gas at perhaps $5 per MMBtu with CCS. Today, these technologies exist only at lab-bench scale, but their potential for an extraordinary impact should not be overlooked. That impact would cut two ways. On one hand, it would revive the fortunes of coal mining, replacing LNG as the source of incremental gas supplies. On the other hand, it would accelerate the shift away from conventional coal-fired generation.
In a recent “carbon war game” exercise among seven major U.S. investor-owned utilities, GHG restrictions triggered a transition away from coal-fired generation, driving up real electricity prices by 5 percent a year for a decade in the coal-heavy markets (see “ Carbon Wargames ,” Fortnightly, December 2007). War game participants broadly agreed that increases of that magnitude would set off a political firestorm. How likely is such an outcome, and how likely is it to trigger a reversal of GHG policy?
The answer seems to depend heavily on the details of the GHG-restriction program. If it consists of a national economy-wide cap-and-trade program, and existing power-plant operators receive a continuing allocation of emissions allowances