Some coal plants here are going dark but overseas they are lighting up. Akron, Ohio-based FirstEnergy’s planned closure of six coal-fired units is expected to start a trend -- one that will see the oldest and dirtiest such facilities laid to rest.

Like all utilities that own and operate coal-fired fleets, FirstEnergy had a choice: To retire or to retrofit its plants given the range of rules to take effect -- everything involving mercury, coal ash and greenhouse gases. The company concluded that it would be cheaper to just shutter by September the inefficient and under-used plants, which amounts to about 10 percent of the electricity it burns.

But FirstEnergy operates in states that have restructured electricity markets: Its prices are driven in part by supply and demand, not what regulators say it can or cannot earn. With less electricity to bid into the system, it then puts a higher value on what it can offer. A Wall Street Journal story quotes several analysts who say that price per megawatt could nearly double from its current value of $126.

“We recently completed a comprehensive review of our coal-fired generating plants and determined that additional investments to implement (the mercury rule) and other environmental rules would make these older plants even less likely to be dispatched under market rules,” says James Lash, president of FirstEnergy Generation. “As a result, it was necessary to retire the plants rather than continue operations.” The company currently owns 17 coal plants that are located in Ohio, Pennsylvania and Maryland.

Coal now provides about half of this country’s electric generation. But the energy picture is changing with the pending environmental rules and the newfound wealth of inexpensive shale gas here. Black & Veatch is predicting that coal’s share of the market could fall by as much as half over the next 25 years while natural gas’ slice would double from its 20 percent share today. Its calculations are driven in some measure by an expectation of increased greenhouse gas regulations.

Lighting up Overseas

While U.S. utilities that burn coal are becoming increasingly challenged to find newer and cleaner sources of energy, those in China and other parts of the developing world are hungry for more. Therefore, coal producers here will find that international markets potentially more lucrative.

“Politically, it is a win-win for the government if it uses natural gas to produce power here while quietly selling coal elsewhere,” says Ken Green, scholar at the American Enterprise Institute. “Government gets lease and tax revenues here while also reducing local air pollution levels and greenhouse gas emissions at home.”

According to China’s National Development and Reform Commission, the country’s coal imports rose by nearly 11 percent in 2011 to 182 million tons. That makes it the world’s largest importer of coal. It is also producing and consuming more at home as well, or an 11 percent increase from 2010 to 2011. That demand is  helping to raise coal prices.

For their part, coal organizations are saying that the shift in market fundamentals is harmful to both utilities and their customers. That’s because the combined regulatory costs would be the most expensive that have ever been enacted.

The American Coalition for Clean Coal Electricity, which funded a study by the National Economic Research Associates, says that 1.4 million jobs would be lost while electricity rates would rise by 23 percent, all by 2020. Less demand for coal would mean more need for natural gas, which would see its prices rise too.

“We will meet the Environmental Protection Agency rules but we will need a little more time,” says David Owens, an executive vice president at the Edison Electric Institute. Owens adds that the emergence of shale gas is a game-changer but he cautions that an over-reliance on it could have adverse consequences.

While the industry is hoping for delay, action will ultimately be inevitable. Standard & Poor's says that a third of coal plants are working to comply. But two-thirds of them in the United States are older than 30 years and must either be retired or retrofitted. The older and smaller facilities are better candidates to be retired while the newer and bigger coal plants might be more easily modernized.

FirstEnergy’s experience is indicative of that thinking. And while coal will remain vital, its significance will gradually decline here. Its importance overseas, conversely, is expected escalate as developing countries grow.

EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

Follow Ken on  www.twitter.com/ken_silverstein

energybizinsider@energycentral.com

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