Last month, the U.S. Environmental Protection Agency (EPA) released its proposed Clean Power Plan, which plans to lower carbon dioxide (CO2) emissions by 30% by 2030, compared to 2005 levels. The U.S. levels in 2013 were 10% below those of 2005 – a growth of 2% from 2012 levels.
The EPA said that the combustion of fossil fuels to generate electricity was responsible for 38% of CO2 emissions between 1990 and 2012. Electricity generation was followed by transportation at 32%, industry at 14%, residential and commercial at 9%, and various non-fossil fuel combustion sources making up the final 6%.
The new rules require all power plants to produce less than 1,000 lbs. of CO2 per megawatt hour of power produced.
A study by the EPA said that the average U.S. coal plant emits 2,249 lbs. of CO2 per megawatt hour of power produced. The newest, most efficient coal power plant emits 1,700 lbs. per megawatt hour.
In fact, many small businesses and even homes produce too much CO2 according to the EPA. The American public became troubled by the EPA’s increasing authority, leading to involvement from the courts. The Supreme Court limited the EPA’s power a month ago by rejecting their claimed right to tailoring, which would have allowed the administration to pass environmental laws without review.
However, the EPA still has the power to crush the coal industry, despite the fact that the U.S. depends on coal for about 40% of its electricity needs.
The ways to reduce CO2 will be decided by each state’s government, but broadly speaking, there are four methods suggested by the EPA:
- Upgrading the emission systems at existing coal power plants to cut or capture CO2,
- Increasing the amount of renewable energy power plants,
- Increasing energy efficiency at the consumer end, or;
- Completely replacing the coal-fired power plants with natural gas-fired power plants.
The first of the given options is economically and technologically unfeasible. Babcock and Wilcox Power Generation Group estimated that retrofit costs range from $180 to $1,025 per unit kW increase in power.
According to the U.S. Chamber of Commerce, retrofitters have the option of including post-combustion capture systems for CO2 or reconfiguring the unit to use pure oxygen instead of air for their processes. They also said that “Both existing technology approaches are costly, and both involve large parasitic power needs that can reduce the output of the existing unit by one-third,” and that while these technologies have been implemented on a small scale, they are not ready for large scale use yet.
Another economically unfeasible method of lowering CO2 is building more renewable energy facilities. According to a 2008 Electric Power Research Institute study, wind generation costs are about double natural gas installation costs, or around $2,000 per KW of capacity constructed. The cost of a new nuclear plant is more than $4,000 per KW, and solar power is the most expensive renewable resource of all. A new solar plant in Florida is projected to cost about $6,600 per KW.
Patrick Sullivan, President of the Mississippi Energy Institute (a nonprofit, energy-based development organization), said the renewable requirements alone could cost state ratepayers anywhere from $5 billion to $10 billion by 2030. Renewable energy plants like wind and solar are slow to build, expensive, and an unpredictable/unreliable source of energy. Although hydroelectric power plants may work, they are geographically limited and the government rarely recognizes them as a renewable energy source.
The other two methods suggested by the EPA are more realistic. The third in the list, lowering CO2 emissions on the consumer side, is feasible. Coal facilities which choose this route would be excused from the 1,000 pounds of CO2 per megawatt hour of power produced thanks to their compliance with the U.S. CO2 reduction goal. However, this method is not simple to use.
There is plenty of energy to be saved on the consumer side. Fortune said “Over $80 billion in power was spent unnecessarily in 2013 because of inefficiencies with the world’s 14 billion online electronic devices.” The EIA said that more efficient technologies could save the equivalent of over 600 million metric tons of CO2 emissions, which would have the same effect as shutting down 200 coal-fired power plants. According to the EIA, the U.S. had 557 coal plants operating in 2012.
The key players in consumer electricity waste are the makers of technology products like computers and cell phones. It turns out that the “standby mode” most modern devices have uses as much power as when the device is in active use. IEA’s executive director, Maria Van der Hoeven, said that “Just by using today’s best-available technology, such devices could perform exactly the same tasks in standby mode while consuming around 65% less power,” but this method of lowering CO2 depends on the motivation of technology companies and consumers.
The last method for CO2 reduction – replacing coal with natural gas – is the most probable outcome of the EPA rulings. According to a 2008 Electric Power Research Institute study, a conventional combined-cycle natural gas plant costs about $1,000 per KW of capacity constructed. For reference, a coal-fired plant costs more than $2,500 per KW hour to build.
Natural gas plants are also more efficient and emit less CO2 than coal plants, with an average of 1,135 pounds of CO2 per megawatt hour of power produced. Though this is still too high for the EPA’s demanded regulation maximum of 1,000, the EPA said that modern, combined-cycle natural gas plants are regularly below 1,000 pounds of CO2 per megawatt hour of power produced.
However, there are still significant costs to switch to natural gas fueled power plants. Black & Veatch pointed out the heavy investments in projects such as tying into an existing major gas pipeline, constructing a new pipeline to the site, or installing a revenue metering station. The firm reported that “associated rights-of-way can be anywhere from several hundred thousand dollars to more than $1 million per linear mile of pipeline to the site.” While some coal plants could be simple to convert, others will probably be destroyed or abandoned in favor of creating new natural gas plants.
Many states are protesting these new EPA regulations since coal is a valuable and plentiful resource in the U.S.
Several coal-dependent state lawmakers accuse the EPA and the Obama administration of starting a “war on coal.” When the EPA first introduced heavier restrictions on coal, a signed letter from 221 lawmakers to the White House asked that the rule be dropped. Nine states have already said they will sue the EPA for their latest restrictions on CO2 emissions.
[sam_ad id=”32″ codes=”true”]
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.