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July 21, 2010

Electricity Generation: Coal’s Share down in 2009, Lowest since 1978

July 21, 2010
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In the electricity-generation market of 2009, coal generation had only a 44 .6 percent share, 3.6 percentage points lower than in 2008 and the lowest level since 1978 when it represented 44.2 percent of the market. Hydroelectric power, wind energy, and natural gas picked up most of the market share coal lost in 2009. Higher water levels helped lift hydroelectric generation, while wind and natural gas boosted their generation levels by adding capacity. Natural gas was also able to compete more effectively against coal, inasmuch as gas’s price was about 50 percent lower in 2009 than in 2008.

Natural gas garnered over half the share lost by coal’s decreased generation because, unlike wind, combined-cycle generators have higher capacity factors and are dispatchable. Therefore, they are a better substitute for coal-powered electricity generation. But substituting natural gas-fired generation for coal-fired generation comes at a price to consumers, inasmuch as average coal-fired production costs in 2009 were 40 percent lower than those of natural gas—2.97 cents per kilowatt hour for coal versus 5.0 cents per kilowatt hour for natural gas.

Why is coal seeing a reduced market and what are the consequences to electricity consumers? A number of factors are responsible for coal’s lower market share, including: the possibility of further national legislation and regulation benefitting other technologies and promoting the reduction of coal-fired generation; state programs for reducing greenhouse gas emissions and increasing renewable sources of energy; a more competitive environment for natural gas production and generation; higher subsidies on a production basis for renewable sources than for traditional coal-fired generation; and regulatory reviews and legal delays that result in the cancellations of coal-fired projects. Among the consequences of increased regulatory and legislative programs are higher costs both for the substitute technologies and for compliance by coal-fired generators.

An example of what electric utility companies face with regard to coal-fired generation can be seen in a report by the National Resource Defense Council (NRDC), based on 2008 data but recently released and showing the criteria pollutants (e.g., sulfur dioxide, nitrogen oxide, and mercury) and carbon dioxide emissions of the nation’s top 100 electric generation producers. According to Dan Lashof, NRDC’s climate director, “Power companies have been on notice for more than a decade that they will need to cut their emissions of carbon dioxide and other pollutants. This report shows which companies have made smart decisions to position themselves for the transition to clean energy and which are lagging.” Three electric utility companies co-sponsored the report with the NRDC and CERES, an investor advocacy coalition that describes itself as “a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.”

Federal Regulatory and Legislative Activity Affecting Coal

Various proposals are circulating for national regulation and legislation that effectively mandate less coal consumption. These include a possible nationwide renewable portfolio standard (RPS) that would require electric utilities to generate a set percentage of their electricity from qualified renewable generating technologies. Another is a cap-and-trade bill that would force the reduction of carbon dioxide emissions. Because coal generation emits twice the carbon dioxide emissions of natural gas, any cap-and-trade policy would be targeted at lowering coal’s share of generation within the electric utility sector.

The Environmental Protection Agency (EPA) just released a proposed “transport rule” that would improve air quality in the eastern United States by reducing power plant emissions from 31 states and the District of Columbia. Specifically, it would alter the limits on sulfur dioxide, nitrogen oxides, and ozone emissions that are currently in place. According to the EPA, the rule would reduce sulfur dioxide emissions by 71 percent and nitrogen oxide emissions by 52 percent from 2005 levels by 2014. EPA projects the utilities’ cost of compliance at $2.8 billion. The agency is still working on the new rule for ozone and plans to finalize it as well as revisit the transport rule in 2012.

Because the power sector has already significantly reduced its sulfur dioxide and nitrogen oxide emissions since 1990 when legislation first required a reduction in criteria pollutants, Dan Riedinger, a spokesman at the Edison Electric Institute, said “EPA’s new proposal would require dramatic reductions in power sector emissions, on top of major reductions to date, on a very short timeline.” The short timeline is likely to increase the cost of compliance because electric utility companies frequently make technology changes when they are down for scheduled maintenance. Major changes will increase that down time, resulting in less generation output and increased equipment cost to comply with the lower emissions rates. Any legislative or regulatory policy that would reduce existing coal-fired generation or further limit their emissions will almost certainly cause an increase in electricity prices.

Although the Federal government has yet to pass an RPS or a cap-and-trade program for electric utilities, some states have already enacted such programs. The Institute for Energy Research found that, in those states that have an RPS, electricity prices in 2009 were 39 percent higher than in states without an RPS.

State Programs, Generation Mix Changes, and Electricity Price Increases

In 2009, average electricity prices nation-wide increased by 1.5 percent, a small percentage, partially because of lower natural gas prices. However, some states saw double-digit price increases. For example, West Virginia had an 18 percent increase in average electricity prices, while Virginia customers saw an 11 percent increase. Coal generation in both states was lower, by 24 percent and 17 percent, respectively. In the case of West Virginia, the state has an RPS that requires investor-owned utilities with more than 30,000 residential customers to generate 25 percent of their retail electricity sales from alternate and renewable energy sources by 2025. Virginia does not have a legislated RPS, but has a goal to generate 15 percent of 2007 electricity sales from renewable energy by 2025.

Several states had large percentage decreases in coal generation. One such state was Ohio. Comparing 2009 to 2008, its coal generation went down by 13 percent; its natural gas generation went up by 87 percent; and its average electricity price went up by 6.9 percent. Ohio has an RPS that requires its utilities to provide 25 percent of their retail electricity supply from alternate energy sources by 2025. North Carolina and Pennsylvania are other states with an RPS whose coal generation went down (13 and 11 percent, respectively). In 2009, their natural gas generation went up by 18 and 56 percent, respectively, and their average electricity price went up 5 and 3 percent, respectively. Pennsylvania’s RPS requires its utilities to generate 18 percent of their electricity from alternate energy sources by compliance year 2020 (June 1, 2020 to May 31, 2021). North Carolina’s RPS requires investor-owned utilities to generate 12.5 percent of 2020 retail electricity sales from renewables by 2021, while municipal utilities and cooperatives must meet a target of 10 percent of renewable energy by 2018.

In 2007, the Governor of Kansas rejected a permit for a coal plant due to carbon dioxide emissions. That was the first such rejection of its kind. Kansas, a primarily coal generation state, lowered its coal generation by 5 percent and raised its natural gas generation by 17 percent, with an electricity price increase of 8 percent in 2009 over 2008. Besides its rejection of a permit for a coal-fired plant, Kansas also has an RPS that requires utilities to provide 20 percent of peak demand capacity (based on the average demand from the previous three years) from renewable sources by 2020. Florida, while not an RPS state, passed legislation in 2008 that authorizes its Department of Environment Protection to develop a greenhouse gas trading program. In 2009, Florida’s coal generation went down 17 percent, its gas generation went up 14 percent and its electricity price went up 6 percent.

Other states with a lower coal share include Alabama and South Carolina, where coal generation declined by 25 and 15 percent, respectively, in 2009. While neither state has enacted a cap-and-trade or RPS program, both states capitalized on lower natural gas prices to switch from coal-fired generation to natural gas-fired generation, reducing carbon dioxide emissions as a result.

Conclusion

In 1988, coal’s share of electricity generation peaked at 56.9 percent of the market, over 12 percentage points higher than it is today. Athough coal lost market share thereafter, its generation levels in 2009 were still almost 15 percent higher than in 1988. During that time, sulfur dioxide emissions declined by more than 40 percent and nitrogen oxide emissions by more than 60 percent. Meanwhile, electricity prices increased by more than 50 percent. Many factors have entered into that increase, including: increases in fuel costs; regulatory impacts from the amendments to the Clean Air Act and other legislation; state regulation and legislation affecting fuel mix, emissions output, and the pricing of electricity; and proposals by the federal government to increase regulations and enact environmental and other legislation affecting the fuel mix of electric generators.

Consumers need to realize that these regulatory and legislative policies increase the price of electricity. And with pressure from the administration to pass energy and environmental legislation this year, U.S. utility companies are on notice that actions need to be taken to reduce emissions from fossil-fired generators.


Energy Information Administration, Electric Power Monthly, March 2010, http://tonto.eia.doe.gov/ftproot/electricity/epm/02261003.pdf

Nuclear Energy Institute, http://www.nei.org/resourcesandstats/documentlibrary/reliableandaffordableenergy/graphicsandcharts/uselectricityproductioncosts/

E&E Publishing, CLIMATE: Report shows decline in U.S. utilities’ CO2 emissions, June 29, 2010, http://www.eenews.net/eenewspm/2010/06/29/5/

Benching Air Emissions of the 100 Largest Electric Power Producers in the United States, June 2010, http://www.nrdc.org/air/pollution/benchmarking/2008/benchmark2008.pdf

http://www.ceres.org/Page.aspx?pid=415

Environmental Protection Agency, Air Transport, http://epa.gov/airtransport/

E&E News, Air Pollution: Power plant rules a ‘work in progress,’ EPA air chief says, July 6, 2010, http://www.eenews.net/eenewspm/2010/07/06/1

Ibid.

Institute for Energy Research, Energy Regulations in the States: A Wake-up Call, http://instituteforenergyresearch.org/pdf/statereport.pdf

All state electricity generation and price data are from the Energy Information Administration, Electric Power Monthly, March 2010, http://tonto.eia.doe.gov/ftproot/electricity/epm/02261003.pdf

Institute for Energy Research, Energy Regulations in the States: A Wake-up Call, http://instituteforenergyresearch.org/states/virginia/ and http://instituteforenergyresearch.org/states/west-virginia/

Institute for Energy Research, Energy Regulations in the States: A Wake-up Call, http://instituteforenergyresearch.org/states/ohio/

Institute for Energy Research, Energy Regulations in the States: A Wake-up Call, http://instituteforenergyresearch.org/states/pennsylvania/

Institute for Energy Research, Energy Regulations in the States: A Wake-up Call, http://instituteforenergyresearch.org/states/north-carolina/

Institute for Energy Research, Energy Regulations in the States: A Wake-up Call, http://instituteforenergyresearch.org/states/kansas/

Institute for Energy Research, Energy Regulations in the States: A Wake-up Call, http://instituteforenergyresearch.org/states/florida/

Energy Information Administration, Monthly Energy Review, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf , and Annual Energy Review, http://www.eia.doe.gov/emeu/aer/pdf/

Energy Information Administration, Monthly Energy Review, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec9_14.pdf


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