By Nick Cunningham, OilPrice.com:
A few days ago, the Tennessee Valley Authority announced plans to shut down eight coal generating units with a combined power generating capacity of over 3,000 megawatts. The decision will dial back TVA’s reliance on coal as it moves towards a more balanced portfolio. This means coal will drop from a 52% share in 2011 down to 20% in the coming years. The remaining power will come from 40% nuclear, 20% gas, and a 20% combination of renewables, hydro, and energy efficiency.
The TVA, a government-owned corporation, is one of the largest electricity generators in the United States and the fourth largest coal generator. Originally established in the 1930s during the depths of the depression as an economic development program, the TVA provides electricity to 9 million people in the Southeast U.S.
The decision is important because it is illustrative of what many utilities face in the coming years. New environmental regulations will require owners of coal plants to either install costly pollution control upgrades, or shut down. The EPA is not only going after toxic pollution such as mercury, but it proposed greenhouse gas limits in September for new power plants. This will effectively make it impossible to build new coal plants.
Yet the EPA is likely also writing additional greenhouse gas limits for existing power plants, a much more significant step. With the writing on the wall, many utilities cannot trust that coal plants will be viable for the long haul.
This is particularly true when there are cheaper forms of energy at their disposal. For example, TVA evaluated whether or not it would make more sense to upgrade pollution controls at its Paradise coal plant in Central City, Kentucky. Despite heavy pressure from Minority Leader Mitch McConnell, TVA made a business decision to shift to natural gas. TVA’s CEO Bill Johnson explained his decision, “the plan is what’s best in terms of its positive impact on TVA’s rates, debt and the environment; and it will bring the greatest benefit to the people of the Valley.”
This is an example of a large shift currently underway. A combination of cheap natural gas and environmental regulations has made coal uneconomical in many instances. The Sierra Club claims that it has contributed to the closure of 153 coal-fired power plants since 2010. Moreover, the Union for Concerned Scientists estimates that more shut downs are in the offing. After considering compliance with mounting environmental regulations, UCS concluded in a report last year that 49 gigawatts of coal-fired generation no longer make economic sense.
While such a massive shift in the energy market will likely cause disruptions in regional economies, lost economic activity from shuttered coal plants could be made up by new investments in natural gas generation. For example, despite Sen. McConnell’s pleas to keep the coal plants open for fear the region will take an economic hit, the Paradise generating unit will be replaced by a $1.12 billion natural gas plant. This is true across much of coal country, which also happens to be many of the same places that are now awash in natural gas.
Regardless, a shift away from coal seems all but inevitable. TVA’s decision merely confirms the trend already underway. By Nicholas Cunningham for Oilprice.com.