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Coal May Shine Again

US - When natural gas prices spike, coal begins to sparkle. Back in 1990, amendments to the Clean Air Act passed, and many environmentalists breathed easier. Toxic emissions would be drastically cut, and as a consequence, electric utilities began to increasingly rely on natural gas because of its low cost and emissions. Coal's foes began numbering coal's days.

Predictions of coal's demise are now fading. Strict environmental regulations have prompted utilities that depend on coal to install pollution controls to cut emissions. Coal is not going anywhere for a long time, given that the growth in demand for power is expected to resume to about 2 percent a year. And, coal supplies are abundant while its cost is favorable when compared to other fuel sources, particularly natural gas, in which February futures contracts are trading at about $7 per million BTUs or about seven times that of coal. In fact, coal production is expected to increase 3.5 percent over 2003, and increase that is second only to the increase that took place in 2001, says the National Mining Association in a just-released report.

“Coal supplies a major portion of the world's electricity and this will be true in many countries for at least the next 20 years,” says Stuart Dalton, director of fossil steam plants for EPRI, an energy research firm in Palo Alto, Calif. “To compete, it must do so in any environmentally acceptable manner.”

The Energy Information Administration (EIA) now projects that coal will actually increase its share of the U.S. electricity generation market from 50 percent in 2002 to 52 percent by 2025. This year, as the economy gathers steam, the demand for power is expected to grow 2.4 percent. Specifically, western coal, with its lower sulfur content, is expected to yield 620 million tons over the next year while eastern coal, which typically has a higher BTU and sulfur content, is expected to total 495 million tons.

Under current conditions, coal is once again rising to prominence. In addition to its low price, the U.S. Geological Survey says there are 230 billion tons of coal in reserve, enough to last about 230 years at current consumption rates. There's only enough natural gas in reserve to last 50 years, it says. Moreover, concern is increasing as to whether or not new wells can keep up with the rising demand for natural gas. To increase production, producers will need to raise $658 billion in capital over the next 15 years to support natural gas exploration and pipeline infrastructure investment to deliver it.

Prudent Strategies

Utilities are financially prudent to consider using coal because it is a stable fuel source. That's why about 500 of the 3,000 power plants are powered with coal. The biggest plants consume 2,000 tons daily. Columbus, Ohio-based American Electric Power, for example, has a diversified portfolio of fuel sources but is also one of the biggest consumers of coal in the Western Hemisphere, powering 66 percent of its plants and serving its industrial base in the Mid-Atlantic states.

“What the EIA study makes clear is that market forces will result in an increased reliance on coal-based generation …,” says Jack Gerard, CEO of the National Mining Association. That makes it essential for Congress to pass an energy bill, he adds, which provides new funding for clean coal technologies.

Coal's major drawback is that it is dirtier than natural gas and most other fuel sources. The industry has tried to combat the problem by spending about $50 billion since the 1970s to cut nitrogen oxide and sulfur dioxide emissions. Total emissions have dropped by a third while at the same time, coal power production has nearly tripled. But, the constant pressure to cut emissions and the resulting implications are enormous. The cost for electric utilities to comply with the clean air rules is expected to be an additional $60 billion over the next several years.

According the Environmental Protection Agency, coal-fired electricity generates 36 percent of the carbon emissions, as well as 70 percent of the sulfur dioxide, 33 percent of the nitrogen oxide and 23 percent of the particulate matter. Natural gas, comparatively, produces far less emissions, say environmentalists. As a result natural gas plants are easier to permit and take much less time and capital to build than coal plants.

That's why about 90 percent of all new power plants, particularly merchant facilities that are being constructed to meet peak demand, are fueled by natural gas. Coal, by comparison, must clear many hurdles—a process that can take many years. Boilers and power plants are all different and each has a clean air compliance issue associated with it. That's unlike gas-fired plants where the profiles are similar to one another.

Take Calpine Corp., which is an independent power producer that relies almost exclusively on natural gas to fire its plants. It says that it is not trying to compete with coal at today's prices. It has developed its own gas reserves to serve its plants. The aim is to control 25 percent of the gas that its facilities consume and to lock in prices through long term contracts.

“Calpine intends to be, by 2005, among the top five generators in the United States with some 30,000 megawatts of clean, reliable, cost-competitive generation,” says Peter Cartwright, CEO of San Jose-based Calpine.

While the natural gas industry still has much promise, its fate is unlikely to come at the expense of the coal sector. Besides the price discrepancies, the current Bush administration has chosen not to increase regulations on older coal-fired plants. That will probably extend the lives on many of those generators. Moreover, additional infrastructure and access to new reserves and resources is required to meet the world's growing energy needs. The investment necessary to drill for gas, build pipelines and construct gas-fired plants will likely come. However, the time period is uncertain and until supply and demand is equalized, prices will likely remain high.

Saving Grace

The goal, says research firm EPRI, is to use a mix of fuel sources, which includes not just coal and natural gas but also nuclear and renewable sources. To write coal off would be foolhardy. Its abundance is precisely the reason for its low and stable price. And the current gyration in gas rates won't be forgotten either by utilities or by customers.

If coal is ever to be fully accepted, the industry must take greater steps to reduce emissions by adopting existing technologies and developing new ones to reduce pollutants. Beyond the coal preparation plants that treat the fossil fuel before it is burned, EPRI is working to get the industry to employ integrated gasification combined cycles and pressurized fluidized-bed combustion.

In recent years, coal generation's future had been clouded. But the current market conditions may clear up and help reshape its destiny. In the end, the intensified scrutiny could become coal's saving grace. It has forced utilities and coal companies to re-examine themselves and to embrace new approaches. If the technologies they hope to provide get the funding they need and ultimately make it to the forefront, then coal may shine again.

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