From OilPrice.com: Back in the “good old days” when Tony Blair was leading the UK’s “New” Labor Party, he had to keep coal miners — the backbone of the old Labor Party–happy while ostensibly not interfering with the market.
Being New Labor means never interfering with the wisdom of the market. Instead he banned construction of new gas-fired power plants not already authorized.
The previous Tory government had already authorized enough gas fired power stations to cover all new demand for the next ten years. So Blair demonstrated fealty to the miners while accomplishing little in the way of reviving the UK’s declining coal industry. From the look of the numbers, it does not appear as if American politicians promoting coal will do more.
The U.S. has about 1,070,000 megawatts (MW) of generating capacity which breaks down as follows:
According to the Energy Information Administration, roughly 15,000 MW per year, mostly coal, will be retired, with or without new regulations. This is one way to gauge the so-called “war on coal” proposed by the Obama Administration. But in reality those coal plants slated for somewhat premature retirement are old and uncompetitive.
In the U.S., trends in electricity usage have been flatlining for years. Our government, on the other hand, optimistically believes electricity usage might increase by 1 percent per year. If so, the domestic power industry will need about 10,000 MW of new capacity per year to meet this new demand. We will also require an additional 15,000 MW per year of new power generating plants to replace those being retired. Does the industry have those plants ready to go?
Just looking at plants presently under construction the answer is a resounding no. For 2016-2020, the U.S. electric utility industry had 44,000 MW scheduled to be built or completed–about one third of what we supposedly need.
But here is how things have changed. In previous decades, electric companies needed long lead times to build huge coal and nuclear facilities. At present, only one small coal facility is under construction and no new nuclear units are scheduled to come into service after 2020. Adding in the pending and permitted gas and renewable units easily makes up for the capacity deficit. (All plant construction data from the Nuclear Energy Institute.)
Capacity additions under construction (44,000 MW) for 2016-2020 look like this (in MW):
That is, coal additions get lost in the rounding.
The schedule of plants permitted or pending (137,000 MW) makes the shift clearer:
Planned construction (still on the drawing boards) consists of 65 percent renewables, 27 percent natural gas, 4 percent hydro and 2 percent coal. If it is not on the drawing boards, and it is coal or nuclear, it won’t be built by 2020.
The electric industry is gradually leaving coal behind as a boiler fuel. Over an even longer time frame the same may happen to natural gas. If electric demand does not pick up, renewables will continue to cannibalize sales from fossil fuel generation. It’s basically a zero sum game.
But let’s assume for the moment that we do see a big boost in domestic electricity sales and generation. What impact would that optimistic outcome have? We expect that power plants fueled by coal as well as and nuclear will continue to lose market share–but they might be able to keep absolute sales steady. Enough to perhaps survive, but not likely enough as an industry to thrive.
However, we are not betting on a big increase in kilowatt hour sales. Demand for electricity is growing. But so are offsetting efficiency measures and conservation. And as far as the growing penetration of renewables go, we suspect that die has already been cast especially in high cost power markets.
The Market Vectors Coal ETF (NYSE:KOL) closed at $12.47 on Friday, up $0.02 (+0.16%). Year-to-date, the only remaining coal-focused fund has surged 99.52%.
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