Coal:

WRI's Kennedy discusses impact of fluctuating natural gas prices on coal generation

Last week, the U.S. Energy Information Administration released new data showing coal-fired power generation was on the rise at the end of 2012. What contributed to the rise, and how are fluctuating natural gas prices affecting coal's prospects? During today's OnPoint, Kevin Kennedy, director of the U.S. Climate Initiative at the World Resources Institute, discusses the future of natural gas and coal in the United States' energy mix.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Kevin Kennedy, director of the U.S. Climate Initiative at the World Resources Institute. Kevin, thanks for coming on the show.

Kevin Kennedy: Thank you for having me here.

Monica Trauzzi: Kevin, new data from the U.S. Energy Information Administration shows coal-fired power generation was on the rise at the end of 2012. Explain what's happening here, because it does go against what industry is telling us; also the direction of air regulations here in the United States. So why the elevation in coal fire generation?

Kevin Kennedy: Well, one important factor has been the price of natural gas over the last few years. You have been seeing very low-cost natural gas compared to five or ten years ago, and that's been helping drive a bit of a shift from natural, from coal to natural gas. But at the start of last year, you saw natural gas prices get down to about $2.00, and you saw a very rapid shift at that point away from coal and towards natural gas. Last April, natural gas almost caught coal in generation in the U.S., which was extremely surprising. By the end of the year, natural gas prices were going back up, and you saw a shift back towards coal. When you think about the long-term trends, the EIA in their projections really talk about a pattern where the little bit of reduction from coal that we've seen continues, but not a continued drop over time.

Monica Trauzzi: But gas prices are still low. I mean, by all comparisons, they're still low. So how much of an indicator is this little fluctuation in price of what we might see in the future in terms of how gas controls the market?

Kevin Kennedy: One of the interesting questions is where the, if you're just looking at the markets, where the price of natural gas versus the price of coal drives the switch from the one to the other. And what we seem to be seeing, and this is consistent with what people in the industry talk about, is when you're in the $3 or $4 range for natural gas, then coal starts becoming competitive, not all coal plants. If you're below that, then you may see very significant shifts to natural gas, because there's unused capacity. If you want to see a long-term shift to lower emission - to lower emission sources such as natural gas or even renewables, you really need to be looking at long-term policy to drive greenhouse gas reductions.

Monica Trauzzi: But that means what? That means the government controlling the market in some way. I mean, if you want to keep those prices to under $3 or $4. Most folks in the industry say that the price will likely go above that.

Kevin Kennedy: The price will go above that. The real important question is whether all of the fuel sources are really showing their true cost overall, including the cost to the environment. And that's where the importance of greenhouse gas regulations can really come in, because if you have no sorts of controls on greenhouse gases and no price on greenhouse gases, then coal looks unusually cheap, because it's not bearing its full price. But well-designed policies can really help put an appropriate set of constraints on the highest emitting sources. And if we want to meet the sort of long-term targets that President Obama has been talking about for greenhouse gas emissions reductions, smart policy is really the way to go.

Monica Trauzzi: So absent of any kind of low that would reduce emissions, what is the future of natural gas, if we don't have something like that in place?

Kevin Kennedy: Well, natural gas is going to play an increasingly important role in the overall US economy and in the overall generation mix. So it will play a role. It's going to be important from a climate change perspective to make sure that the methane emissions that are associated with natural gas production are kept as low as possible, and we'll actually be coming out with some new analysis later this week that really talks about how to reduce methane emissions from natural gas systems. But what's really important is policies to control the overall greenhouse gas emissions in the country, that smart policy is really critical to be able to drive those emission reductions in the long-term.

Monica Trauzzi: And this all comes at the same time as EPA announcing revisions to its mercury and air toxic standards, and this will affect new coal and natural gas power plants. How do these revisions change the game in terms of the future of these two sources of energy, and also EPA's ability to regulate under the Clean Air Act?

Kevin Kennedy: Well, mercury is a very good example of an area where the full price of coal has not been taken into account in the past, and so these sorts of regulations really are making sure that the public health costs and environmental costs from the different power sources are taken into account appropriate. And existing coal plants are needing to take those rules into account as the owners make decisions about whether to continue operation, or to shut down, or to upgrade them. And so that becomes an important part of the picture overall. And similarly with greenhouse gases, and that's, with climate change as one of the critical issues as we look ahead in the next decades, similar rules for the power sector for climate change is going to be extremely important.

Monica Trauzzi: EnergyWire reported this week that Europe is using more coal because they simply don't have the natural gas supplies that the United States does. Is coal, I mean, taking all this information into account, is coal making a comeback, or is the technology for other sources just not where it needs to be at this point, and are we waiting for it?

Kevin Kennedy: Well, there's a lot of progress that's being made on renewables, and to some degree with natural gas, that is going to be able to push the price parity for renewables and make that a more important part of the mix going forward. Coal, I think there's some extent to which people were inclined, particularly here in the United States, with the expansion of natural gas, to write it off prematurely, just assuming that market forces would take care of moving it away towards lower carbon sources. But what we're seeing with the relatively small shifts in price for natural gas, that there really is a need for policy to drive increased renewables and generally pushing lower carbon sources and getting the greenhouse gas reductions.

Monica Trauzzi: All right. We'll end it here. Thank you for coming on the show.

Kevin Kennedy: OK. Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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