The demise of coal-fired power plants
By Steven Mufson, Friday,
November 23, 2012
In SALEM, Mass. — Peter Furniss, the
fair-haired chief executive of Footprint Power, gives a tour
of the aging coal and oil plant that towers over sailboats
in this historic harbor.
The Ivy League-educated lawyer, clad in unsoiled work boots
and a pinstripe jacket, circles a mound of coal and walks
inside a rusting oil storage tank. He gingerly steps into a
tunnel where a conveyer belt carries coal into the plant’s
furnaces.
Inside the plant, Furniss points out the Roman arches and
graceful columns in the turbine room and the
half-century-old control panel, an antique compared with the
computers that run equipment now. He shows off the boilers
and pulverizers. Finally, from the roof, he surveys the
scenic coastline, which fades into the autumn fog.
For years, this coal plant — known as one of the
state’s “filthy five†— has flirted with closure and
avoided a costly overhaul that would bring its toxic
emissions in line with modern pollution standards. In 2003,
Gov. Mitt Romney (R) stood in front of the plant and
declared: “I will not create jobs that kill people. That
plant kills people.â€
Nine years later, two of Salem Harbor power plant’s
generating units are still operating and the other two,
including an oil-fired unit, closed last December.
Now, however, the prospect of long-lasting cheap natural
gas supplies has sealed the fate of the plant. In August, Footprint Power, run by a group of
former utility executives, bought the 60-year-old plant from
Dominion Resources and announced they would tear it down in
2014 and replace it with a cleaner, more economical
natural-gas-fired unit.
“When we were first looking at the overall project, it
really was a toss-up as to whether it would be more the
environmental rules or the gas price that was going to drive
coal plants to shut down,†said Furniss, 45. “It now is
very clearly the gas price.â€
Salem Harbor is a case study of how the shale gas
revolution is overthrowing assumptions about energy by
undercutting coal prices and usurping it as the nation’s
fuel of choice for electric power generation.
Across the country, utilities are switching from coal to
cheap natural gas. In April, for the first time, natural gas
pulled even with coal as a fuel source for power plants.
Through August, the use of coal to generate electric power
had tumbled 17 percent while the use of natural gas jumped
27 percent, according to the Energy
Information Administration.
As of July, companies had announced plans to close down 30
gigawatts of coal-fired plants, or about 10 percent of the
nation’s total coal plant capacity, by 2016, according to
a study by the Brattle
Group, a consulting firm. These aren’t models of
efficiency; the EIA says that the average coal-fired
generator to be retired this year is 56 years old.
Overall, this transition might cause the loss of jobs in
some coal mines, but it is also creating jobs in areas rich
in shale gas. Moreover, the gas glut is cutting utility
bills for households and businesses, giving a much-needed
boost to the lackluster economy.
In Ohio, for example, households and businesses in 2011
saved about $1.85 billion, or about 20 percent of gas and
electricity fuel costs compared with the average from 2007
through 2009, according to Richard Smead, a director of the
economic advisory firm Navigant Consulting. The average
household saved $232.
Natural gas emits about half as much carbon dioxide as coal
does in a power plant. In the first quarter of 2012, carbon
dioxide emissions from coal burning fell to the lowest level
for any quarter since 1986, according to the EIA.
Overall, U.S. greenhouse emissions fell to their lowest
level in 20 years, though warm weather last winter and lower
gasoline consumption also played roles. Still, the United
States is roughly on track to meet the reduction in
greenhouse gases that President Obama has pledged to hit by
2020.
The old and the new
As Salem Harbor shows, the coal industry is primed for
upheaval.
The plant opened in 1951. The original GE turbine still
anchors the operation. Outside, emission stacks soar as high
as 491 feet. Mounds of coal, delivered by barges, sit beside
the wooden dock. Automated sprinklers dampen the piles so
they don’t blow away.
Another throwback: The plant was grandfathered under EPA
regulations so that it never had to meet the same
environmental standards as new plants. And a 2000 Harvard School of Public Health study
estimated that the power plant’s emissions could be linked
to 53 premature deaths, 16 heart attacks, 14,400 asthma
attacks and 570 emergency room visits.
The new owners, Footprint Power, know full well the
plant’s limitations. To meet environmental standards now,
Furniss said, the plant imports low-sulfur coal from
Colombia.
The plant runs only when the regional grid managers call on
it — which they do based on the weather and the prices at
which competing power plants are offering electric power.
Firing up the plant is time-consuming. It takes 10 or 12
hours to get the pulverizers going and the boiler
temperatures up. On Oct. 4, the plant was fired up for just
the second time since August. It has run 15 more times since
then, mostly to provide reliability for the regional grid
system.
Compare that with the $800 million natural gas plant
Footprint Power hopes to build along with its partner,
Toyota Tsusho, part of the Toyota group.
The highest exhaust stack on the natural gas plant will be
230 feet, less than half the tallest of the coal plant
stacks. The new plant would be cooled primarily by air and
would use 100,000 gallons of water a day; the coal plant
cools itself with 100 million gallons of water a day from
the harbor, Furniss said. And, with a new generation of gas
turbines GE unveiled in September, the plant could ramp up
in as little as 15 minutes, not 10 hours. (In Colorado,
utility Xcel has already bought GE’s turbines for a new
natural gas plant that will replace a handful of closed coal
plants.)
The Salem natural gas would probably be drawn from Spectra
Energy’s Algonquin pipeline, which passes just a couple of
miles away. The volume of gas flowing through the Algonquin
has surged thanks to supplies from the vast Marcellus shale
gas play that stretches across Pennsylvania into adjacent
states. The coal mounds would disappear.
“Obviously gas is pretty cheap, and one of the things
keeping it pretty cheap is the Marcellus,†Furniss said.
“We assume that prices will rise as the market becomes
more mature.†While prices today are about $3.80 per
thousand cubic feet, Furniss said that Footprint Power
assumes prices will not exceed $6 “at the upper end
. . . in the foreseeable future.â€
Furniss said Footprint hopes to get permits by the third
quarter of 2013. If the Massachusetts Department of Public
Utilities decides the new plant is needed for the
reliability of the regional grid, Footprint Power will find
it easier to line up contracts and financing.
The effects of cheap gas
About a decade ago, the big talk in the utility business
was about tossing off the yoke of public service
commissions, getting away from steady but modest regulated
returns and becoming independent or “merchant†power
companies selling electricity to hungry grids that would pay
steep prices. The restructuring left many local utility
companies, such as Pepco and Baltimore Gas & Electric,
without their own power plants and many power plant owners
without their own local distribution companies.
Cheap natural gas has decimated those strategies. Its price
has dropped so low that merchant power plants using other
fuels have been forced to shut down or sell electricity at
bargain basement rates.
PPL is a major utility that had re-created itself back when
gas was expensive and merchant power was in vogue. The
company had positioned itself so that 70 percent of the
electric power it generated was sold like a commodity by its
“merchant†plants while 30 percent was sold by regulated
plants assured of modest rates of return.
Then at a board meeting in Allentown, Pa., in July 2008,
the directors realized that cheap natural gas was about to
destroy their new business model. Someone charted the PPL
stock price, which was closely correlated to natural gas
prices, which were starting to plunge. One scenario written
up for the board forecast a growing gas glut.
“As we sat around that table, the ‘a-ha moment’ was
when we realized we were making a bet on a business we could
not control,†PPL chief executive Bill Spence said. “We
realized that those reductions in natural gas prices could
have devastating effects on our earnings.â€
So, he said, “we did a complete 180.†Goodbye,
competitive markets; hello, regulation.
To rebalance itself, the company rushed out and spent about
$13 billion buying two regulated utilities, one in Britain
and one in Kentucky. Today its position is reversed so that
75 percent of its operations are regulated and 20 to 25
percent are selling power into competitive markets. Now PPL
plans to spend $18 billion over the next five years, and it
expects to get a safe regulated return on that investment.
One of those projects: A new natural-gas-fired plant in
Kentucky that will replace three half-century-old coal
plants with a total of 800 megawatts of capacity.
If PPL hadn’t changed direction, Spence said, “we would
potentially have been in junk bond status and our ability to
pay dividends might have been called into question.â€
A repeat of history?
The last time the United States made a dash to gas, it
ended badly. From 1998 to 2001 utilities quickly built 70
gigawatts of natural-gas-fired plants; from 2001 to 2003,
they added another 105 gigawatts. Most of those plants —
with more than enough capacity to replace the nation’s
entire nuclear power fleet — went idle as gas prices
soared, hitting $15 per thousand cubic feet after Hurricane
Katrina.
Will this time be different?
Gas-producing companies say that supplies are plentiful
enough for decades to come. Indeed, they’re plentiful
enough to hurt the prospects for renewable energy, too, said
Bob Shapard, chief executive of Texas utility Oncor. “When
you have power this cheap, and the idea that gas is there
and plentiful and will last forever, you lose the focus,â€
Shapard said.
“Natural gas is being talked about as serving as ‘a
bridge fuel’ but could very well wind up being locked in
as the next-generation fuel, which would not be good at
all,†Lisa Nurnberger, then-spokesman for the Natural
Resources Defense Council, said earlier this year.
“Natural gas could wind up crowding [out] renewables.â€
(Nurnberger is now a spokesman for the Union of Concerned
Scientists.)
But prices could rebound somewhat with an improved economy
and a cold winter, and some experts caution that the switch
to gas might slow down, even if it doesn’t reverse. The
newest and most efficient coal plants, relatively few in
number, might be able to compete. Furniss said that even
Salem Harbor expects to run more often during the winter
thanks in part to the recent uptick in gas prices.
The giant utility AEP stands in the vortex of the price and
planning maelstrom. One of the two biggest consumers of coal
in the United States, AEP over the past decade bought idle
natural gas plants at pennies on the dollar when gas prices
were high. AEP used them only occasionally during peak
times, such as hot summer days. But this year, AEP has been
running the gas plants at around 70 percent of their
capacity, much higher than expected. Meanwhile, its coal
plants have been running a little less than half the time,
the company said.
“In years past, we used as much coal as we could,†AEP
chief executive Nicholas K. Akins said. “In our system, we
used to use 80 million tons a year. This year, we only
expect to burn about 55 million tons.â€
AEP is completing work on a highly efficient
“ultra-supercritical†coal plant, but Akins said that
“for the next decade if not longer we are not building any
new coal units.†He said future plants would tap gas
flowing from the nearby Marcellus and Utica shale reserves
that Akins calls a “tremendous benefit and tremendous game
changer.â€
Recently, however, as natural gas prices have edged up, AEP
is starting to see its coal plants picking up.
“For us, you get in that gas price of $3 to $3.25 per
[thousand cubic feet], you’re going to start that switch
to — back to — coal,†Akins said on an earnings
conference call Oct. 24. “I think for other utilities,
it’s higher.†He noted that “our mines were located
close to the plants and . . . coal comes
in by the river and we have pretty advantageous
contracts.â€
In Kentucky, officials face a dilemma. AEP has a coal plant
there that needs $1 billion of scrubbers and other
environmental controls to stay open past 2015. State
officials would like to keep it open because Kentucky coal
mines supply the plant. But the state doesn’t want to
approve the $1 billion in retrofits, which Akins says would
increase electricity rates by 30 percent, hurting consumers
and businesses. On the other hand, the state needs the
generating capacity and building a new natural gas plant
will also cost nearly $1 billion.
So will gas stay cheaper than coal?
“The issue becomes where do you think gas prices are
going to go versus where you think coal prices are going to
go,†Akins said in the interview. “It’s a difficult
proposition.â€
‘A bridge to the future’
Meanwhile, at the Salem Harbor docks, Footprint Power has
paid a consulting firm to collect bore samples 100 feet deep
to figure out how to clean up once the coal is gone.
The new natural gas plant would take up only a third as
much space as the coal plant, so the town of Salem could
expand its dock for bigger ferry boats or even cruise ships.
The town has built a tourist industry around the history of
the witch trials of 1692 and 1693. Just outside the plant
stands another attraction, the “House of Seven Gablesâ€
that Nathaniel Hawthorne used as the model for his novel
about a home cursed by a man wrongfully hanged for
witchcraft.
All things being relative, the community is pleased. “I
was quite publicly opposed to the idea of another
fossil-fuel-burning power plant replacing the existing
fossil-fuel-burning plant,†said Lori A. Ehrlich, a state
representative who stood near Romney the day he criticized
the plant in 2003. “I saw it as an opportunity for a bit
more imagination.†She would have preferred a marine
biotechnology development now underway at a different old
coal plant site down the coast.
“That said,†she added, “I would choose a brand new,
cleaner-burning natural gas plant over a 1950s-vintage,
unscrubbed, coal-burning power plant any day. So it’s a
vast improvement.â€
“This plant is not the future, but it is a bridge to the
future,†Furniss said. “This project is screaming to be
done.â€
