Revoking the Clean Power Plan Will Let Natural Gas Win

shale revolutionRichard Goodwin
Environmental Consultant and Engineer
West Palm Beach, Florida

 

Revoking the Clean Power Plan will save jobs and let natural gas prevail on its own, by avoiding governmental economic interference that distorts markets.

The Clean Power Plan (CPP), finalized in 2015, aimed to slash emissions from the power sector 32% by 2030 compared to 2005 levels. Power plants emit nearly one-third of greenhouse gases in the U.S.

Under the plan, states were to develop implementation plans for existing power plants to meet emissions standards set by the Environmental Protection Agency (EPA). If they did not, EPA would develop a plan for them. EPA chief Scott Pruitt on October 10, 2017 signed a proposed rule to repeal the CPP. This revocation does not alter the favorable economics for natural gas based-loaded power plants.

Natural gas plants are inherently less expensive to build as these units do not require coal storage, handling and pollution control (air and waste) systems. The levelized cost of coal vs. natural gas units includes operating cost (labor and debt service) and 50% for the fuel cost component.

Until the advent of horizontal drilling and hydraulic fracturing producing low cost shale gas, base loaded power plants were predominantly coal-fired while natural gas-fired plants represented peaking units. The levelized cost for a natural gas-fired power plant in 2009 was 33% lower than for a coal-fired unit.

Clean Power Plan

H.F. Lee combined cycle gas power plant in Goldsboro, N.C. (Duke Energy)

As of 2005 natural gas fired power plants were beginning to exceed coal-fired power plants. The economics of lower natural gas (less than $12 per million BTU) — due to horizontal drilling and hydraulic fracturing — compelled electric utilities to build new natural gas base loaded plants.

The Clean Power Plan of 2015, which demanded carbon capture and sequestration with no demonstrated, commercially available technology to implement it, was flawed from inception. Revoking CPP will simply allow existing coal-fired power plants to reach their respective useful service life, maintaining the existing operating labor force until retirement, thereby preventing premature job losses. By 2025 all existing coal-fired power plants will have reached the end of useful service life.

Based on the energy economics USA coal usage may not resurface until natural gas exceeds $6 – 7/MMBTU — not expected for the remainder of this decade — natural gas currently trades at about $3/MMBTU.  The Energy Information Agency (EIA) predicts spot price for natural gas reaching the $6 – 7/MMBTU range no earlier than 2030. Therefore, within the next ten years, most of the existing USA coal-fired power plants are likely to be retired by the natural forces of the market.

During this period the industry will assess whether to build new coal-fired power plants or convert to natural gas units. Based on cost of fuel (50% of fossil fuel-fired power plant operating expense) natural gas units should be preferred. Moreover, compared to coal-fired plants, the labor component of new natural gas plants requires about 30-40% less workers i.e. due to elimination of coal handling, storage, feeding and pollution control [air and waste] systems.

Revoking the 2015 Clean Power Plan will allow existing coal-fired plants to reach retirement age but new units most likely will be fueled with natural gas. The labor force associated with operating coal-fired power plants and mining thermal coal for USA consumption will be maintained for the next ten years – afterwards expect reduction of this labor component.

SUMMARY

Revoking the 2015 Clean Power Plan will prevent pre-mature shut-downs of those coal-fired power plants that retain a useful service life. Existing jobs for power plant workers and coal miners will be sustained as natural gas takes over. Provided natural gas price remains below $6 – 7/MMBTU new power plants will be fueled with natural gas. The environmental advocates of revoking CPP should realize natural gas emits about 50% of the Carbon Dioxide than coal-fired units. Also, the justification for 2015 CPP was a fine particulate level (PM2.5) – not supported by peer review science.

REFERENCES

  1. Breeze, P; “The Cost of Power Generation”; Business Insights; 2010
  2. Goodwin, R.W.; “Natural Gas Power Plants’ Fuel of Choice”; July 21, 2011 Energy Pulse Weekly
  3. Milloy, A.: “The Clean Power Plan’s Counterfeit Benefits”; Wall Street Journal; Oct. 16, 2017
  4. Piko, T.; “Power Firms Hold Their Ground”; Wall Street Journal; Oct. 13, 2017
  5. USEIA “Annual Energy Outlook 2017 with projections to 2015” Jan. 5, 2015
  6. USEIA “Quarterly Energy Report” April 2015

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