The plan announced late last week by US Secretary of Energy, Rick Perry, to require increased payments to some coal plants is part of a global trend as the coal lobby desperately tries to rescue failing coal plants.
Perry has proposed that within 60 days the Federal Energy Regulatory Commission (FERC) issue rules to increase payments to “fuel-secure” wholesale generators in regulated markets for “grid resiliency services.”
Perry’s proposed the rule allow for “full recovery” of costs for plants which have 90-days on-site fuel supply, which effectively includes only coal or nuclear plants. The two generation technologies Perry seeks to help are those most under threat from increased gas generation, declining demand and growing renewables supply.
While FERC is under no obligation to follow Perry’s direction, two of the three current commissioners have been appointed by the Trump Administration and may well seek to embrace the broad pro-coal and nuclear direction implied in the proposed rule. (Two other FERC commissioners have yet to be appointed.)
The Sierra Club estimates Perry’s proposed rule – if enacted – could apply to about 52,000 megawatts (MW) of coal projects which operate as merchant generators in the regulated markets. (Current US coal plant capacity is about 285,000 MW, of which 92,000 are merchant generators selling into wholesale markets.)
Ever since launching his bid to be elected President in 2016, Donald Trump has repeatedly vowed “we’re going to get those miners back to work.”
How could this be done given coal plant closures announced in recent years continue to be implemented?
Just last week even Peabody Energy, one of the biggest US coal producers, told (p.20) investors that it expects about 10,000 MW of coal plant closures a year and that these would be “impacting all coal producing regions.” (Rather optimistically, Peabody Energy claimed these closures would boost utilisation rates at the remaining coal plants.)
Offsetting falling demand with bigger stockpiles
As US energy writer Tom Overton noted, the 90-day fuel supply threshold proposed by Perry is far higher than stocks currently held at US coal plants. Early last week the US Energy Information Administration (EIA) reported that in July US coal stockpiles amounted to between 72 and 76 days consumption.
According to the EIA, over the last seven years stockpiles have at coal plants have routinely been well below the 90-day supply level and only approached or exceeded it during the winter months. In the 91 months since January 2010, the EIA’s data reveals stockpiles at coal and lignite plants combined have held an average of just 74 days supply.
However, Perry’s proposed rule implies coal plants would have to have a minimum of a 90-day supply stockpiled all year round.
In short, Perry’s proposal would require a substantial increase in the amount of coal mined, stored and presumably burnt.
While Perry’s proposal has been cheered by coal mining lobby groups, it is not without its problems for power generators.
The bigger coal stockpiles are, the more active management they require. Stockpiled coal comes with the risk of spontaneous combustion, especially during the warmer summer months when US coal plants have typically run them down.
Bigger open-air stockpiles are also more likely to result in increased air pollution due to exposure to winds. To cap it all off, the longer coal is stored the more its quality deteriorates with the potential to cause significant problems for power generators.
Nor does having coal stockpiled guarantee it can be used when the grid is nearing capacity constraints.
Just last week NRG Energy informed the Public Utility Commission of Texas that the coal stockpile for the 2500 MW of coal units at it W.A. Parish plant “became so saturated with rainwater [from Hurricane Harvey] that coal was unable to be delivered into the silos from the conveyer system.” Instead, NRG switched the units to run on gas.
Perry has sought to justify the proposed new rule on the basis that during the 2014 Polar Vortex –when large areas of the eastern US states experienced a prolonged period of bitterly cold weather – the PJM Interconnection region almost ran short of generation capacity.
(The PJM Interconnection – originally named after Pennsylvania-New Jersey-Maryland – services part or all of thirteen eastern US states and the District of Columbia.)
In his supporting comments for the proposed rule, Perry stated that “a significant amount of generation was not available to run” during the 2014 Polar Vortex.
However, Robbie Orvis and Mike O’Boyle from Energy Innovation note in Utility Dive that coal plants were a significant cause of the problem.
Almost 14,000 MW of coal plants went offline, equal to 22 per cent of the peak demand in the PJM Interconnection area at the time. The cold weather was so extreme it caused coal and gas plant equipment failures, while frozen coal stockpiles was another contributing factor limiting coal generation.
While Perry’s proposal has triggered a wave of disbelief and alarm from many in the energy industry and policy circles, it is by no means a done deal. In opposition to the proposal are gas, renewables companies, trade associations and environmentalists.
Big Coal’s crash cart crew
While it remains to be seen whether Perry’s proposal goes far, it none-the-less reflects the increasing desperation of coal companies seeking government action to protect their customers from new cleaner and cheaper competition.
Countries with a traditionally high level of coal power dependency and domestic coal mining – including the US, Poland, Australia and South Africa – are now grappling with the ability of the coal industry and its supporters to wield political power to stall the transition to cleaner power.
In Poland, pro-coal politicians successfully pushed for restrictive zoning laws designed to effectively block the construction of new onshore wind farms and to penalise those which had already been commissioned.
Now they are seeking to extract from the European Union an even more generous allocation of free emission permits to enable polluting old plants to keep on going until 2030.
In Australia, the Minerals Council of Australia (MCA) – representing major coal companies such as BHP, Rio Tinto and Peabody – has been lobbying for public subsidies for the construction of three new coal plants and axing support for clean energy.
The NSW Minerals Council – another coal lobby group which is an affiliate member of the MCA – recently campaigned for the construction of a new coal-fired plant when the operator of the privatised Liddell plant said they would shut it down in 2022 and replace it with renewables, other lower emission generation, batteries and demand management.
In South Africa, the scandal-plagued public-utility, Eskom, has sought to downplay the dramatic cost declines in renewables. It also refused to sign new power purchase agreements for private renewables projects.
The South African Government recently relented on this but not before agreeing with Eskom that the price paid for new projects should be cut, potentially rendering some projects unviable.
While new and even some existing coal plants are increasingly uncompetitive with new renewables generation and other lower emissions plants, the coal industry is determined to delay the inevitable fate of old coal plants for as long as possible.
Perry’s plan may, at worst, delay the closure of some old coal plants. It is equally possible that it may be a losing roll of the dice as the interests of diversified power generators and consumers diverge even further from the interests of the coal lobby.
Bob Burton is the Editor of CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.)