Coal, the dirty but indispensable fuel

Reuters - Supporters of renewables often imply the clean-energy revolution is close to phasing out fossil fuels for electricity generation in the United States, especially polluting coal-fired power plants.

They point to the wind farms sprouting up in Texas and across the Great Plains, as well as the giant solar thermal arrays being commissioned in California, as signs that coal's days are numbered.

In California, the state's Renewables Portfolio Standard (RPS) requires power retailers to procure at least 33 percent of their electricity from eligible renewable sources by 2020. Regulators are confident the state will easily surpass that goal.

Portfolio standards have also been enacted in 36 other states plus the District of Colombia mandating minimum generation from renewables, according to the U.S. Department of Energy.

Only Alabama, Alaska, Arkansas, Georgia, Idaho, Kentucky, Louisiana, Mississippi, Nebraska, South Carolina, Tennessee and Wyoming have no RPS in force. Most are major coal states or rely heavily on coal-fired power stations for their electricity supply.

Coal's share of power generation has been falling since the mid-1980s and the decline has accelerated since 2005. Existing coal-fired power plants are being shut down as operators switch to cheaper natural gas and struggle to comply with emissions controls. Few, if any, new ones are likely to be built.

In November, the federally chartered Tennessee Valley Authority, the major power producer for large parts of the southeast United States, said it would close eight coal-fired units after it concluded they could not be economically upgraded to comply with more-stringent emissions rules.

Draft CO2 emission standards would require any coal-fired power plants built in future to be fitted with as-yet untested carbon capture and storage technology, prompting coal-state senators to complain bitterly that the Obama administration is waging a "war on coal".

Environmental groups hope the majority of the country's coal reserves, the largest in the world, remain buried underground and unused. They are likely to be disappointed, however.
Forecasts of coal's demise are premature.

There is simply no way to eliminate or substantially reduce reliance on coal over the next two decades and still meet growing demand for electricity at affordable prices.
              
An indispensable fuel

In the year to June 2013, coal-fired plants accounted for 39 percent of all power generated in the United States, the lowest level for more than four decades, and down from over 50 percent between 1990 and 2004, according to the U.S. Energy Information Administration (EIA).

Thanks to shale, power generators fired by natural gas have been able to out-compete coal-fired rivals. Earlier this year, gas-fired plants accounted for 30 percent of all power output,
double their share at the start of the century (http://link.reuters.com/cyp25v).

Even so, coal remains the dominant source of electricity in the United States. In the year to June, coal-fired plants supplied an average of 132 terrawatt-hours (TWh) per month,
compared with 98 TWh from natural gas, 64 TWh from nuclear and 23 TWh from conventional hydroelectric dams.

If gas is to replace coal, as environmentalists hope, and gas producers such as Shell are lobbying for, gas generation would need to increase almost 135 percent from the current,
already record, level. The implied gas demand would stretch the industry's capacity to supply it, even with the shale boom.

Renewables look even less likely to replace coal in the next two decades. Wind and solar accounted for only 4 percent of net power generation in the 12 months ending in June. Total output was just one-tenth of that from coal: wind and solar output would need to increase by an order of magnitude (literally) to replace the current fleet of coal-fired units.

In fact, wind and solar production would need to rise by even more than this. Planned electrification of heating and transport systems, including plug-in electric vehicles, will
ensure electricity demand continues to grow throughout the 2020s and 2030s.

By 2040, U.S. electricity consumption is projected to hit 4,842 TWh per year, almost 25 percent higher than 2013, according to the EIA.

On current policies, coal-fired power generation will still account for around 38 percent of total electricity production, or 1,775 TWh, about 13 percent higher than today.

Legislative changes may be able to shift the generation mix, especially if the federal government enacts rules for greenhouse emissions from existing power plants. But there is no scenario under which coal-fired power generation can be phased out largely or completely within the next two decades while still providing electricity at affordable prices.

The same trends are even more pronounced worldwide. Coal has been the fastest-growing source of energy globally over the last three decades, led by increasing electricity demand across Asia. Rising incomes across the region will ensure that electricity demand and coal consumption continue to grow rapidly through 2040.
              
California dreaming

California's RPS is often held up as an example of what ambitious policies can achieve in greening the electricity supply.

But a closer look shows California's electricity system is far from typical and may hold few lessons for the rest of thenation, let alone developing Asia.

For a start, California imports about a third of its electricity. EIA data shows the state accounted for just under 5 percent of nationwide generation in 2010, less than Texas, Florida or Pennsylvania, and about the same as Illinois.

California imports electricity from across the Western Interconnection, the giant power grid that covers the western third of the United States as well as neighbouring parts of Canada, linking California's demand centres in Los Angeles and the Bay Area with hydroelectric dams as far away as Washington state as well as coal-fired power plants in Utah and Wyoming.

In-state generation is not typical either. California produces just 1 percent of its power from coal. Instead the state relies on natural gas for around half of its power production, with hydro and nuclear accounting for around 15 percent each (before recent nuclear power plant closures).

Geothermal power chips in another 6 percent.

Nuclear, hydro and geothermal will continue to satisfy much of the state's baseload. Variable energy resources such as solar and wind have to be integrated on top of that with gas-fired plants, which tend to be more flexible than coal-fired generators.
              
Eastern power grid
              
The problem is very different on the Eastern Interconnection, the even more massive set of interlinked power grids that cover the eastern two-thirds of the country as well as central and eastern Canada.
              
The Eastern Interconnection contains 84 percent of all the coal-fired units in the United States - and most of those are concentrated in two sub-regions: the Southeast and the
mid-Atlantic/Great Lakes.

Coal accounted for 50 percent of all power generation on the Eastern Interconnection in 2010 and as much as 41 percent as recently as 2012 - 8 percentage points and 6 percentage points more than for the nation as a whole.
              
Of the 269 GW of coal-fired generating capacity on the Eastern Interconnection, roughly a third is concentrated in just five states: Indiana, Illinois, Ohio, Pennsylvania and West Virginia.
          
By 2015, the average age of the coal units in these five states will be almost 50 years, according to a report by the Eastern Interconnection States' Planning Council published in June on the "Current and future direction of coal-fired power in the Eastern Interconnection".
              
Many of these plants are old, small and inefficient, so they will close in the next two decades as they reach the end of their economic lives. Natural gas and renewables will thus continue to expand their market share.
          
But replacing a substantial proportion of coal-fired units would require a massive scaling up of the gas industry and leave power producers dangerously dependent on a single fuel.

Integrating a high share of renewables onto the eastern grid, and coupling them with coal as well as gas, will be much more challenging than in the west.
     
Environmentalists may not be happy about the prospect, but coal will therefore remain indispensable in the eastern United States.
              
That explains why the Obama administration, reluctantly, and the International Energy Agency, with somewhat more enthusiasm, continue to back research into carbon capture technology.
            
According to the IEA: "With coal and other fossil fuels remaining dominant in the fuel mix, there is no climate-friendly scenario in the long run without carbon capture and storage."

(Editing by Dale Hudson)

*John Kemp is a Reuters market analyst. The views expressed are his own