April 23, 2010
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
Coal producers are trying to refurbish their image. But the current hardship in which 29 miners died in underground explosion in West Virginia is making it difficult.
A critical question to arise from that accident is the long-term affect it will have on coal production and specifically whether it will force regulators to enact stricter laws. Tougher oversight, of course, would tend to require not just more safety standards but also stronger pollution controls, all of which would add costs. Utilities would then have to incorporate those new rules into their long-term planning decisions.
"EPA's new regulations will result in a significant reduction in U.S. coal-fired generation, as utilities find it cheaper not to run smaller, older coal-fired power plants than to upgrade them to meet costly new air emissions standards," says a report by Bernstein Research that is authored by Hugh Wynne, Francois Broquin and Saurabh Singh. Beyond any new rules to curtail carbon, they also cite those that already affect acid rain and mercury.
Its outlook for coal is somewhat dour. It says that utility demand for coal will fall by 17 percent over the next five years. Among the companies that Bernstein Research says will steer away from building new coal units include Dynegy, Mirant and NRG.
In recent times, coal's overall share of the electric generation portfolio has fallen from roughly half to about 45 percent, says the U.S. Energy Information Administration. And over the next 25 years, it is anticipated to comprise about 40 percent of the total, it adds. Despite the percentage drop, the federal agency still says that coal is expected to remain the dominate fuel source to produce electricity, all to meet the projected rise in energy demand of at least 1 percent a year.
The most conspicuous legislation on the horizon that will affect the future of coal is that to limit carbon emissions. While current proposals on the table are unlikely to move forward, more conservative approaches could.
With no changes whatsoever, the energy information unit says that 1.3 million short tons of coal are expected to be consumed by 2030. But that number would be nearly cut in half if the most stringent strategies proffered would pass. The more tepid the tactics would become, the better the coal industry would do. Regardless, the benefactors are expected to be nuclear and renewables. Already, utilities such as Exelon and Progress Energy have announced plans to ditch older coal-fired plants.
"The cost would come in the form of having to buy carbon allowances and from switching to nuclear and renewables," says Scott Sitzer, with the energy agency.
Safety Compliance
New environmental rules are one issue. Tougher, safer standards are another. Undoubtedly, coal operators would pass along the higher costs of production to their utility customers.
While mining accidents have been declining over the past decade, the recent disaster has highlighted shortcomings in compliance. Massey Energy, which owns the West Virginia coal mine where the explosion occurred, has a racked up a number of citations. Records show that it has more than 5,000 of them with 458 of them coming last year. This year, it has accumulated 124 citations. The "Big Branch" disaster is the deadliest since 1984.
"I pledge that their deaths will not be in vain," says U.S. Labor Secretary Hilda Solis. "The federal Mine Safety and Health Administration will investigate this tragedy, and take action. Miners should never have to sacrifice their lives for their livelihood."
An earlier accident in West Virginia's Sago mine that killed 13 workers in 2006 prompted Congress to force mine operators to install preventive and emergency measures. At least four inspections a year are now required while the penalties for noncompliance are much higher. The law also forces mine owners to build safety chambers where miners will have 96 hours of oxygen as well as to equip those workers with emergency breathing masks and wireless communication systems.
To date, though, many mines have yet to do all that is required of them. It's both a function of needing more time and of their endless appeals to delay the monetary penalties. In some cases, critics say it is cheaper to take this tack than to actually implement the improvements. Massey Energy, for instance, has been charged nearly $900,000 in fines in 2009, paying only about $168,000 of that.
The mine and safety agency has upped its enforcement actions by 16 percent over four years, says an Associated Press story. But the news organization adds that compliance remains an issue and notes that only 34 of 491 mines that regulators have inspected now use wireless devices that could pinpoint the location of trapped miners.
"U.S. mining has made tremendous strides in ensuring the safety of all those who work in America's mines," says Hal Quinn, president of the National Mining Association. "That work has culminated in record safety performance in 2008 and 2009." The recent "events are a tragic reminder of the work that remains to be done to achieve our goal of zero accidents in the nation's mines."
The pressures exerted on the coal sector will continue and come from tougher environmental and safety regulations. And while that will add to the cost and deter some utilities from building more coal-fired units, it will ultimately enhance the industry's credibility and allow the fuel to remain integral to electric generation.
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