This entry is the second of a two-part follow up to the blog I posted last fall. The first entry focused on the national story of coal's decline, this entry focuses on the west.
Investors already projected another bleak year for the U.S. coal industry – but 2014 may be the worst year for coal producers. In contrast, investors are increasingly warming up to the economic viability of alternative energy sources, including energy efficiency, and giving the dirty coal industry the cold shoulder. And nowhere is this trend more clear than in the West, where coal was once king. Despite waning domestic demand for coal and frequent announcements of coal plant retirements, coal producers cast about for new markets to stay afloat. But the writing is on the wall: the negative economics of coal make it increasingly more difficult for utilities to justify long-term investments in its aging infrastructure and polluting power production.
Coal isn’t just losing the economics battle, it’s also losing the war for public opinion: a majority of Americans don’t want energy policies that prioritize coal production. Recent studies show Americans prefer energy conservation over production in U.S. energy policy. And when increased production is pursued to address the nation’s energy problems, two-thirds of Americans prefer the emphasis to be on alternative energy sources, not oil, gas and coal.
The findings in the IPCC’s Fifth Assessment Report must have sounded familiar to Western states still reeling from the impacts of recent climate-related extremes, including heat waves, droughts, floods, cyclones, and wildfires. The current climate variability, which is predicted to increase in coming years, revealed the West’s significant vulnerability and exposure to the impacts of climate change – particularly for Western states’ water supply, food production, ecosystems, infrastructure and people’s health and livelihoods. With predictions of increasing climate change-induced volatility to cause further damage, these states; investments that reduce fossil fuel emissions and tap into cleaner, more sustainable energy sources such as solar, wind, and energy efficiency, become economic and strategic no-brainers.
More dirty power plants shutting down
Due to rising costs associated with keeping aging coal plants running many owners are choosing to retire them instead. In fact, nearly a quarter of the nation’s coal fleet could be retired by end of the decade, according to Bloomberg New Energy Finance. Of 536 coal-fired plants in U.S., 84 have already announced retirement and estimates that 146 units more may retire by 2020.
Keeping pace with the national trend, western coal plants are shuttering their doors at a rapid rate. Since my last blog in October 2013 that listed recently-announced retiring coal plants, the following coal plants in Western states have also announced closures:
- Carbon Power Plant in Utah
- North Valmy Generating Station in Nevada (227 MW of 567 MW closing)
- WN Clark Station in Colorado
- Arapahoe Generating Station in Colorado
- Valmont Generating Station in Colorado
- Cherokee Generating Station in Colorado
- Neil Simpson 1 in Wyoming
- Osage Power Plant in Wyoming
Utilities are getting out of these plants because less polluting alternatives are better investments. They will also significantly reduce dangerous greenhouse gas emissions, and make it easier for western states comply with upcoming federal carbon standards for power plants.
Utilities are starting to avoid coal to reduce risks
Fossil fuel’s volatility and associated price risks are influencing investments decisions across the West, too. For example, Montana’s largest utility, NorthWestern Energy, is diversifying its portfolio by investing in hydropower to insulate itself from the price and regulatory risks of doubling down on coal.
Meanwhile in Arizona, Tucson Electric Power (TEP) announced that it is starting to diversify its coal heavy portfolio and has committed to cost-effectively meet growing demand, while relying less on coal (one-third less capacity) and investing more in renewable energy and energy efficiency in the future.
Coal markets are drying up
As utilities look to get out of making long-term investments in coal and natural gas continues to be the cheaper alternative, the domestic demand for coal is slumping. For example, Wyoming – the country’s biggest coal producing state – did not see any successful federal coal lease sales last year. One scheduled sale received no bids. The U.S. Bureau of Land Management rejected the highest bid it received for another sale, stating it was below market value.
States that rely on coal are seeking increasingly more extreme options to find new customers and markets. Now Wyoming coal producers want to export coal, despite being landlocked. To pull this off, they would have to send loaded coal trains from Powder Basin through states in the Pacific Northwest.
Stiff local opposition across Washington and Oregon against coal export terminals’ pollution, coal dust and noise has dampened support and delayed these plans, sometimes indefinitely. Out of Ambre Energy’s original six coal export port projects in the Pacific Northwest, three have already been dropped all together. Legislators in Wyoming are now calling for the state budget to include half a million dollars to cover lawsuits to gain access to the west coast’s ports and therefore the Asian market. Other coal companies are now turning to Gulf of Mexico to avoid this opposition that coal export plants are facing in the Pacific Northwest.
But as coal producers desperately cast about for new markets, reports find that Asia may not be the best bet long-term. China’s thermal coal demand for power generation is projected to flatten as soon as 2020 due to slowing economic growth, current plants’ efficiency improvements and increasing efforts to reduce the country’s choking air pollution. The alternative options for coal producers domestically and globally continues to shrink.
Efficiency gains momentum to replace dirty energy
In contrast to coal becoming more expensive, energy efficiency remains the cheapest resource by far to reduce demand and fulfill peak load needs. A recent study by ACEE underscores that efficiency, not the recent economic recession, is reducing electricity use nationally. This trend, brought about by utility investments in energy efficiency, decreases demand and therefore coal’s market share even further.
And this is good news for electricity users and ratepayers: another new federal study confirms that saving energy is far less expensive than generating power in a power plant. As my colleague Becky Stanfield points out, it is projected to cost between four and ten times more per kwh to build and use a new power plant than it has been to implement energy efficiency programs to simply reduce the amount of energy we waste.
As domestic demand for coal wanes and Western states cope with the continued environmental and economic impacts of climate change, the economic viability of cleaner alternative energy resources is becoming increasingly clear to investors and utilities.
Co-authored by Meredith Connolly, NRDC Energy Law & Policy Fellow