Some good news about coal

For once

Posted by Sean Casten (Guest Contributor) at 4:19 PM on 19 Jul 2007

Read more about: energy | coal

It's typically held that the market will price in all current information. To avowed economists, this means markets can virtually predict the future. If you buy that logic, the market may be signaling something environmentally positive about coal and carbon legislation.

This from Greenwire ($ub. rqd):

Citing high input costs, weather and environmental concerns, the global bank Citigroup yesterday downgraded coal stocks across the board and shaved earnings estimates and targets for Peabody Energy (NYSE: BTU), Arch Coal Inc. (NYSE: ACI) and Foundation Coal Holdings Inc. (NYSE: FCL).

In a metals and mining report to investors, Citi analyst John Hill issued no "buys" for coal companies and recommended switching to steel, gold and other energy stocks.

After maintaining a bullish view of coal so far this year, Hill expressed concern that data points are failing to translate into utility stockpile drawdowns as natural gas becomes a bigger share of the power-generation feedstock.

"At the same time, prophesies of a new wave of coal-fired generation have vaporized, while clean-coal technologies, such as IGCC with carbon-capture and coal-to-liquids, remain a decade away or more," Hill said.

He underscored that coal has missed a "critical" time window: If stockpiles remain elevated into autumn, they are likely to remain so, he explained, and perpetuate contract/pricing standoffs with utilities into 2008.

Election politics are likely to turn "more bestial" for coal next year, Hill added.

"Candidates are already stepping up to 'ban coal,' while company productivity/margins are likely to be structurally impaired by new regulatory mandates applied to a group perceived as landscape-disfiguring, global warming bad guys," Hill explained.

The New York-based bank said it expects coal prices to rise but earnings to falter. Citi was expected to downgrade coal stocks in the late summer, but the bank advanced the timetable due to "likely grim" second-quarter earnings from companies within the sector.

Copyright E&E Publishing, LLC. Reprinted with permission.
www.eenews.net

This deserves a bit of explanation.

Conventional wisdom has it that all new generation is gas and therefore natural-gas price spikes have led to higher electric rates. This is only partially correct. Yes, most new generation additions over the last 15 years have been gas-fired, but most of the new generation has actually come from coal and nuclear plants that manage to run a bit harder.

The entire coal fleet had a 58 percent capacity factor in 1990, and a 75 percent capacity factor in 2003. Same installed base, but lots more coal combustion.

This trend cannot continue indefinitely, but it has served to substantially hedge away much of the price increase in natural gas, as we have effectively become more coal-intensive as a nation. (Gas-plant capacity factors fell precipitously during the same period.)

Ergo, continuing on this trend line is possible only if we build new coal plants ... which requires getting more permits in place. Citibank seems to be think that this is unlikely. If they're right, it may suggest a shift to a less carbon-intensive grid. Certainly not the end game, but it just might be the beginning.

For story: Some good news about coal
7 Comments | Post a Comment

As we save more gas, we displace more coal.

by sunflower at 5:02 PM on 19 Jul 2007

Move to Sustainability, Kill all the Carbon

Hey, all:

Sorry, Sunflower, I just felt compelled to offer an alternative, more progressive step.

David
Sustainability For Life

Messages done with sustainable energy, with Wind and Sun!

by SustainableGreen at 5:40 PM on 19 Jul 2007

In short

In short, putting in new coal plants requires that they meet all the newest environmental regulations.

Particularly reduced sulfur, NOx, U238, and Thorium, and mercury etc

So even without carbon being an issue, Coal has gotten a lot more expensive than it used to be.

From around $1000/KW installed, to $2200/KW installed in the last 5 years.

And Carbon Capture and Storage is expected to jack that up to about $3700/KW installed, or higher.

With prices like that, it's no wonder that Coal isn't looking like such a bargain anymore.

Way I look at it. It's Capitalism at work.
A more ideal form of Capitalism were you can't ignore paying the full cost of production.
_

That said, we should be wary that having them jump the ship on Natural Gas and Coal might lead them to Nukes.

So how do we steer them instead towards industrial renewables.

-David Ahlport

by GreyFlcn at 6:43 PM on 19 Jul 2007

Black is Still Hot

"New coal plants bury 'Kyoto'
New greenhouse-gas emissions from China, India, and the US will swamp cuts from the Kyoto treaty."
http://www.csmonitor.com/2004/1223/p01s04-sten.html

Not sure that things have changed much since this outlook in 2004. And fueling much of this projected growth in China and India is their trade with the US. Increasing costs to build plants here may not be as much of a deterrent over there. Again, a case of outsourcing our environmental costs and sharing them with the world. So, is there ever any good news about coal?

by justlou at 5:28 AM on 20 Jul 2007

Greyflcn

You're absolutely right. There are interesting (and very politically charged) debates going on in most state utility commissions right now who are facing the prospect of either accepting utility requests for massive increases in rates to pay for those new coal plants or else run the gas fleet harder and pay equal increases. It is a politically interesting time, because those commissions - who have historically tended to believe that whats-good-for-the-utility-is-good-for-the-consumer are suddenly much more receptive to more holistic pitches.

Do note though that it's not so much that coal has suddenly become more expensive: many of the added capital costs have been a factor in new coal plant construction since the clean air act was passed. The difference today is that having now just about exhausted the reserve margin in the (pre-CAA) fleet, we're now finally facing up to the need to have to pay those capital costs rather than just run the old plants harder.

(How is pre-CAA coal like a bad stripclub? It's cheap and dirty.)

I'm not sure I'd quite classify this as capitalism at work though, because no matter how you slice it, a utility commission who decides which plants shall be built looks a lot more socialist than capitalist. That said, we are slowly starting to pay something closer to the true cost of coal, which is a good thing and gets to your larger point. (I say almost because even these pollution abatement costs still don't factor in the health & climate costs of coal that remain outside of the marginal c/kWh rate.)

My only disagreement with you is your last comment about being wary of going to natural gas and nukes. Low carbon is better than high carbon. Zero carbon is better than low carbon. But we shouldn't let the perfect be the enemy of the good. Nuclear power does scare me in 1000 year time frames, for obvious reasons. But global warming scares me a lot sooner. Ultimately, it is going to take a combination of natural gas, nuclear, renewables and energy efficiency working together to make any rapid reduction in carbon emissions. Cutting any one out of the mix only delays a carbon-reduction process that we cannot afford to move slowly on.

by Sean Casten at 6:15 AM on 20 Jul 2007
[ Parent ]

Units

Hey GreyFlon could you check your measurement units? You mentioned thousands of dollars per kilowatt. Goodness, my toaster oven might use one KW a month and I think that's only a buck or two. My average monthly bill is 500 kW-hours and costs about $200 after all the fuel adjustments - for natural gas. Oh well, energy, power, megawatts - what's the diff?
sammie

Onward through the fog

by Sam Wells at 8:18 AM on 20 Jul 2007

Sam

Greyflcn is right on his units. I believe you are confusing kW and kWh (The former is a unit of power, the latter energy. If I use a full kW for one hour, I have consumed a kWh of electricity. It is the difference between the rated horsepower of your car engine and your total fuel consumption. They are related, but only through a unit of time.)

GreyFlcn's numbers are capital costs, per kW of peak power output from the plants, and are about right. Your estimates for your toaster are units of kWh energy use, and are a function of power costs and toaster efficiency. Apples and oranges.

For comparison though, a typical, pre-CAA coal plant has generation costs of 2 - 4 cents/kWh depending on coal price. Add another 2 - 4 cents to amortize the cost of the transmission and distribution wires and you get to the delivered cost of energy from those facilities. The new coal plants, once you factor in higher capital costs for all the pollution control, lower overall efficiency (the pollution controls mandated for coal plants consume 5 - 10% of the total power plant load, thereby driving up overall coal use per useful kWh) and the cost of new transmission are coming in at closer to 9 - 10 cents/kWh.

by Sean Casten at 8:29 AM on 20 Jul 2007
[ Parent ]

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