This is the Truth About Coal

There has been a recent push to revive US coal-fired power plants in the name of electric power resilience and reliability. Why is this a bad idea? It is a bad idea for several reasons. Following is a list of the top 4 reasons why coal is a bad idea

Electricity from Coal Plants is More Expensive

Coal requires all of us to pay more on our energy bills. It’s expensive compared to most other forms of power from renewable energy to natural gas. According to Lazard’s most recent report on the unsubsidized levelized cost of energy, the lowest cost coal plant is $60/MWh this is in comparison to wind at $30/MWh, gas combined cycle at $42/MWh and utility scale solar at $43/MWh. When there is an apples to apples comparison between coal and renewable energy. This means that we are looking at plants that produce the same amount kWh per year, coal is much higher than solar and significantly higher than solar. The facts demonstrate that coal is more expensive than most other viable options. Keep in mind that this is unsubsidized costs, none of the “unfair” investment tax credits or production tax credits are included in this price. Further, this does not include the social and environmental costs that come from coal. That is covered later.

Coal Plants are a Public Health Nuisance

Speaking of social and environmental costs, coal power plants emit mercury and a variety of other greenhouse gas emissions that should be properly accounted for. The key concern here is the amount of mercury emitted by coal plants. which can result in significant health risks. According to a recent EPA analysis, over 42% of mercury emissions in the United States come from coal fired power plants. Overall 50% of mercury emissions comes from fossil fuel plants. This does not include all of the other dioxins and heavy metals that come from primarily coal plants. Below you can see the dispersion of mercury/toxic emitting power plants.

EPA – Toxic Rule Facilities

The problem with mercury is that it significantly increases a community’s health risk. High levels of mercury emitted from power plants can harm brain, heart, kidneys, lungs and immune systems of people of all ages. Further, mercury from power plants has been found to have a significant negative impact on a baby’s development, with particular impacts to a baby’s nervous system.

Coal Plants are not that Resilient

Coal power plants are not as resilient as some would like us to believe. Coal plants and the supply chain that gets coal to the power plants are highly susceptible to cyber, physical and climate risks. A recent study by the National Academies of Science titled Coal: Research and Development to Support National Energy Policy found that ““The rail net­works that transport the nation’s coal—like air traffic control and electric trans­mission networks—have an inherent fragility and instability common to complex networks. Because con­cerns about sabotage and terrorism were largely ignored until recently, existing networks were created with potential choke points [like some rail bridges over major rivers]…that cause vulnerabili­ty…[and] the potential for small-scale issues to become large-scale disruptions.”

Climate Change May Hurt Rail System

The Department of Energy further elaborates on the fragility of coal transport by finding  “Hardly a month goes by that delivery of Powder River Basin (PRB) coal somewhere in the supply chain is not interrupted by a derailment, freezing, flooding, or other natural occurrence.” Climate change is likely to increase heat that buckles rails, floods and storms that undermine tracks, and extreme weather that spikes electric demand. Meanwhile, utilities, having cut coal inventories threefold during 1980–2000 to save cost, keep trying to squeeze out more cost, exacerbating risk.” A recent example of coal not being that fuel secure was the Texas WA Parish plant. During Hurricane Harvey, the plant had to switch from coal to natural gas due to saturated coal piles. Those proponents for coal should also recall the Polar Vortex that resulted in frozen coal piles. You can’t burn frozen coal.

One other thing, coal or any other water-cooled power generation system can’t operate or at least not very efficiently when the water is too warm or there is not enough water to cool the plant. I covered this in a recent blog post on the power sector having a significant water problem.

Climate Change Induced Lack of Water Reduces Power Resilience

Coal Plants are Significant Greenhouse Gas Emitters

Can’t forget this one. Coal power plants emit significant greenhouse gas emissions. In the US, coal accounts for 67% of greenhouse gas emissions in the power sector. Of the total greenhouse gas emissions, 28% comes from electric power generation. Granted, overall GHG emissions have come down due to fuel switching since 1990, but not by much. This largely due to much of the switching is to natural gas, another greenhouse gas contributor, although not as large of one. Also, there have some increases in demand across parts of the country which has limited overall reduction.

Coal Power Plant’s Climate Change Problem

The current administration has not made the connection between greenhouse gas emissions and climate change. By not making this connection, that cannot see that sustaining or increasing emissions will result in a significant increase in storm intensity that will negatively impact the overall power system, i.e. hurt system resilience. Storm intensity, demonstrated by Superstorm Sandy, Hurricane Harvey, Irma and Maria, the Polar Vortex, to name a few, is anticipated to significantly increase under current greenhouse gas projection scenarios. If the concern of the administration is resilience of our power system due to extreme storms, there probably should be some effort to reduce the likelihood of this intensity by reducing the cause.

To Conclude

There are four really good reasons why coal fired power plants may not be the best option for a resilient and reliable grid. This was just a high-level overview. Each of these topics could be their own posts. For the long-term resilience of our electric power system, it is key that we not look to short-term fixes to the detriment of long-term health, economic and environmental well-being.

 

 

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Why Nations Will Meet Paris Climate Agreement Goals

Paris Agreement and Climate Change Risk:

The Paris Agreement was the first time all countries came together to work toward a reduction in global greenhouse gas emissions in an effort to mitigate climate change. In a 2015 study published in Nature if the world was able to maintain its commitments toward meeting the Paris Agreement goals then it could be expected that:

  • A third of oil reserves
  • Half of gas reserves
  • 80% of known coal reserves

will stay in the ground. Although this would be good for the overall health of the planet by reducing impact of climate change, it would be disastrous for resource extraction based companies. However, with recent reports, companies that work on the extraction of oil, gas and coal may not have much to worry about if current trends continue. Even with the Paris Agreement accords we see many countries not meeting their goals and actually increasing their emissions. Globally, we see more coal plants coming online to support developing countries appetite for growth. Also, we continue to see increases in emissions from the transportation sector.

Is this growth in emissions a hiccup and expected to be short lived? Some would argue that it is.

Why could this be just a hiccup?

Due to growing global climate change risk countries and companies continue to take steps to transition from the burning of fossil fuel. With decreasing costs of fossil free alternatives, the effort to debarbonize is becoming much easier.

The most recent levelized cost of energy studies, show all PV solar and wind to be cost competitive with natural gas and coal fired power plants. This was not necessarily the case at the signing of the Paris Agreement. Costs will continue to decrease for these generation assets and it will be more difficult to fund more expensive fossil-fuel alternatives. Further, as more renewable energy facilities are built out, the diversity of locations for these systems will reduce the intermittency issues that have been a concern for power grid operators. Not only the number of systems and the diversity of location are a benefit, but so is the significant ongoing decrease in the price of battery storage. On a regular basis, new reports are published on the ongoing decreasing cost of battery storage.

The technology is coming quickly and is ready for deployment. Much of the barrier is now political. Globally, risk adverse elected officials responding to very powerful fossil fuel interests, has resulted in an unlevel playing field with markets and regulations not properly accounting for and allowing new clean energy technologies.

What happened after the Paris Agreement?

 It was expected that when the Paris Agreement was signed  everyone was ready to go and begin to implement all these climate change mitigating measures. The fact of the matter is that there were many well meaning pledges, but the economic and political reality was not yet there for many parts of the world. Although we needed these goals to be met sooner rather than later, it takes time.

Technologies needed to be further developed and costs had to continue to decline. The financial markets and capital providers had to become more comfortable with valuing and funding these new technologies. Government regulators and policy makers had to better understand the barriers to deploying these systems and start making the appropriate changes that would not hinder the deployment of clean energy systems. Finally, the clean energy sector needed more allies and a bigger voice to compete with the more powerful fossil fuel lobby. 

Winds of Change

Financing and Investment in Clean Energy

Things are looking up. Specific to investing in clean energy, in 2017, clean energy investment outpaced fossil fuel investment by a significant amount, $333 billion vs $144 billion, respectively.  A specific funding instrument growing in popularity are green bonds. They are becoming one of the largest investment vehicles for energy efficiency and renewable energy investments. In 2018, it is expected that there will be $250 billion in green bond new offerings. This is 60% higher than 2017, which was $155 billion.  2017 saw a 60% increase in investment from 2016 (See graph below).

Source: Bloomberg

Political Winds are Changing

On the political side, at least outside of the US, we see a more robust shift to taking serious steps toward decarbonization and reducing climate change risks. The European Parliament is getting more serious in supporting plans to facilitate EU capital markets to meet long-term sustainability goals, which includes decarbonization, disaster resiliency and resource efficiency.

On May 29th the European Parliament adopted the sustainable finance resolution. Which includes:

  • Rules to orient financial markets towards environmental objectives
  • Policy framework to encourage investments into sustainable assets
  • Divestments from fossil fuels and unsustainable energies

The first two items are key areas that all countries must further develop to ensure Paris Agreement goals are met and exceeded. Without the proper market and regulatory framework in place, the investment community and companies will be less willing to transition to cleaner technologies. Item three, divestments are already happening. They will only become more rapid as the rules and frameworks around clean energy are developed.

Divestment Continues

What we are seeing in the market in regards to divestment should provide some hope for clean energy and concern for fossil fuel interests.

For example, hedge funds are seeing a 50% increase in demand for responsible investment offerings from current and prospective investors. This is according to a survey of about 80 managers from the Alternative Investment Management Association.

Another significant move was made by the state of New York and and New York City to actively divest from existing and future fossil based investments. To date, endowments and portfolios managing over $6 trillion are actively divesting from fossil fuel assets. Pension funds have come to the realization that they must protect their portfolios from climate change. Fossil fuels are not the future and their investments are at risk.

Stranded Assets Due to Climate Change

As divestment occurs, one of the primary concerns is the threat of fossil fuel stranded assets. These are largely reserves that will not be used as global markets move to clean energy resources.

What is a stranded asset? According to University of Oxford Smith School and Enterprise and the Environment, a stranded asset are “assets that have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities and they can be caused by a variety of risks.”

At risk are assets listed on the financial statements of energy producers and a reduction in anticipated cash flows for future production which may be reflected in company stocks.

Risky Business

Oil and gas companies may see transitioning their business model to clean energy as risky. Some have made some initial transitions, Total, Statoil, Shell and BP for example. At this time, their clean energy investment is still minor compared to their overall fossil fuel investment strategies. For example, of Shell’s $30 billion investment budget only $2 billion goes to renewables.

Although this climate change transition may be risky, not paying serious attention and taking serious steps toward transitioning to clean energy assets may be even more risky. There is a lot of uncertainty as to the speed to which this transition will happen. A miscalculation in the speed of this trend could have dire consequences for fossil fuel companies. A recent report by the Oxford Institute for Energy Studies, “The Rise of Renewables and Energy Transitions,” lays out the significant risks of stranded assets that could be faced by those who do not choose wisely ( a little Indiana Jones reference). Moving to be an integrated energy company rather than an oil and gas pure play is probably the most appropriate choice in the current energy landscape. A recent study by Wood Mackenzie, finds that over the next 20 years renewables will be the fastest-growing primary energy source worldwide. They anticipate average annual growth rates of 6% for wind and 11% for solar. In contrast demand for oil, is anticipated to grow about 0.5% per year.

Growth in Renewable Energy vs. Fossil Fuels

Concerns over climate change risk are real and are being taken seriously by financial decision makers and policy makers. This would suggest that fossil fuel companies can no longer take a wait and see approach. The technology and markets are changing rapidly and for their own viability and of the communities they serve, they probably should get on board.