August 7, 2013
July was a big month for discussion of energy issues at the Kentucky State Capitol.
In early July, a state legislative committee heard from Kentucky Energy and Environment Cabinet Secretary Len Peters about the future of coal-fired power in the state, primarily the unlikelihood that there will be any new coal-fired plants permitted by the federal government in the foreseeable future.
A week or so later we heard again from Peters, who reiterated the hard road coal will continue to travel in the current U.S. energy landscape and what Kentucky can expect in terms of regulatory pressure and market forces on coal production. He spoke candidly about the continuing decline of coal production—especially in East Kentucky—and a shrinking demand for international exports of Kentucky coal.
Let’s talk about the export issue for a moment.
According to Peters, international exports of Kentucky coal are pretty small (about 8 percent of coal produced in 2011). And total U.S. exports, including Kentucky coal, have been weaker this year than they were in 2012.
It might surprise some of you that even exports to China have tapered off considering all the news about that giant nation’s economic boom. Apparently, China’s economic growth has slowed, Peters said, resulting in fewer tons of U.S. coal being shipped to what has been the world’s largest consumer of U.S. coal exports.
What about here at home? Well, there was actually a bump in coal consumption in the first quarter of this year (it being wintertime), but that coal had been stockpiled. Coal production in the U.S. during the same quarter declined by 5 percent. So, in short, increased consumption this year has not translated into increased production, which doesn’t help Kentucky coal. Neither does the fact that more coal-fired power plants are set to go “off line” or be retired in the near future, Peters said, citing the retirement of a 1,710 megawatt coal plant just a few years after the utility spent millions of dollars in technology to reduce the plant’s carbon footprint.
“The company cited weak power demand coupled with the expense of meeting newer regulatory requirements,” Peters told lawmakers.
The next bit of news should be of no surprise to any of us who keep up with energy market news, or those who are in the coal business: Natural gas is priced competitively and has federal regulation on its side, making it the new go-to fossil fuel for many utilities. And, according to Peters’ testimony, that is not supposed to change much.
Even if or when the coal market makes a comeback, he told lawmakers that “Appalachian coal is still the least cost-competitive relative to all other coal basins” with Wyoming basin coal being most desirable. Meanwhile, the nation is locking itself into natural gas usage by switching to natural-gas electricity generation. Then there is the matter of increased regulation which Peters said will not decrease but will “in fact … become greater.”
Not the best report for those of us who have supported Kentucky coal and indeed grown up in communities that have relied on mining for generations. We are tired of hearing the end of coal is near and that our communities—already suffering after years of recession—are going to suffer even more. I say “we”, because I’m with you on this.
So, I say we look at the bright side. And there is a bright side—maybe even more than one, Peters told lawmakers.
Among the actions that Kentucky coal can take to improve its marketability are, Peters said:
• Making coal-fired generation more efficient to reduce carbon emissions;
• Relying on state research (a boiler efficiency study, in particular) to serve as a compass for policymakers, utilities and the public as they navigate Kentucky coal’s future;
• Work heavily with the federal government to ensure flexibility and compliance time frames with federal greenhouse gas emission regulations;
• Continue carbon capture and storage research and development, and;
• Identify projects for possible cost sharing to leverage federal funding for Kentucky.
Peters stressed that Kentucky needs to have “a meaningful discussion” about the economic changes happening in Eastern Kentucky because, as he stated, we must all work together. As our state motto says, “United We Stand, Divided We Fall,” and we need to heed those words. We must at the same time though, Peters explained, be realistic about market changes and plan according, especially for the protection of our manufacturing base. As Peters said so well, “affordability and price certainty for our (manufacturers) and for our citizens become paramount” in Kentucky’s changing energy future.
I will have the Kentucky Coal Association’s response to what is happening to our state’s coal industry in my next article. Talk to you then.