Coal losing favor markedly with utility leaders

Coal was excavated at a surface mine near Salyersville in May. Coal accounts for about a third of the energy market in the United States, its lowest level since 1973.  PHOTO BY SHAWN PORTER
Coal was excavated at a surface mine near Salyersville in May. Coal accounts for about a third of the energy market in the United States, its lowest level since 1973. PHOTO BY SHAWN PORTER

King coal is rapidly losing support among electric utility executives, who were once its most fervent supporters, according to a new report.

Low natural gas prices and environmental regulations have had coal on the defensive for some time. But utility executives, despite using more natural gas to generate power, have been reluctant to abandon the idea of coal as the best economical option.

But that relationship is changing.

Black & Veatch, a Kansas engineering and consulting firm that regularly surveys the industry, a year ago found that 82 percent of utility executives responding said coal had a future when "fiscal realities were fully considered." But in this year's report, that number fell to 58 percent.

"The percentage of respondents who believe there is a future for coal in the United States has dropped significantly," the report concluded.

Black & Veatch's 2012 Strategic Directions in the U.S. Electric Utility Industry was released Monday at the Edison Electric Institute's annual conference in Orlando, Fla. The report, based on more than 500 surveys returned by utility executives across the country, is considered an excellent snapshot of the industry's view on various issues. The survey went to upper and middle management working in utilities, ranging from large investor-owned companies to municipal utilities and electric cooperatives.

Black & Veatch is projecting that 450 coal-fired plants will be decommissioned by 2020 because of age or environmental regulations, and natural gas plants are getting serious attention as a replacement. Gas has long been used to provide energy to meet peak demand — often in summer for air conditioning — but meeting base year-round demand was left to coal. A coal-fired plant costs more to build, but the price of coal in the past more than offset the expense.

But now natural gas, which has been hovering at about $2 per 1,000 cubic feet, is more than competitive with coal.

The federal Energy Information Administration reported Tuesday that coal's share of the overall energy market dropped to 34 percent in March because of the warm spring and historically low natural gas prices. Natural gas accounted for 30 percent of power generation, The Associated Press reported.

The figure for coal-generated power is the lowest since January 1973.

Gas producers are beginning to cut back on supply, and prices will rise eventually. But even at $5 per 1,000 cubic feet, natural gas would be an economical player when new plants are built. The bet is that the country's plentiful supplies of natural gas will keep prices relatively stable.

American Electric Power, one of the country's largest utilities, with 5 million customers in 11 states, last week ditched plans to upgrade its Kentucky coal-fired plant near Louisa; last year, that upgrade was deemed the most cost-effective option. Now it is considering other options, including natural gas. Gas now accounts for 24 percent of the company's generating capacity. And the utility recently said when opening a natural gas power plant that it intended to use more of the fuel.

"This is another step in the transformation of AEP's generating fleet as we continue to diversify our fuel mix to improve our environmental footprint and provide economical electricity for our customers," said Nicholas K. Akins, AEP's president and chief executive officer. "Natural gas will become an increasing part of AEP's generating portfolio in the coming decades as a result of the development of shale gas reserves and new environmental regulations."