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Cross-Posted from DeSmogBlog
Photo: Jeffrey Beall / Flickr
In a missive titled “White Paper: Financial Risks of Investments in Coal,” As You Sow concludes that coal is becoming an increasingly risky investment with each passing day. The fracking boom and the up-and-coming renewable energy sector are quickly superseding King Coal’s empire as a source of power generation, As You Sow concludes in the report.
As You Sow chocks up King Coal’s ongoing demise to five factors, quoting straight from the report:
1. Increasing capital costs for environmental controls at existing coal plants and uncertainty about future regulatory compliance costs
2. Declining prices for natural gas, a driver of electric power prices in competitive markets
3. Upward price pressures and price volatility of coal
4. High construction costs for new coal plants and unknown costs to implement carbon capture and storage
5. Increasing competitiveness of renewable generation resources
Prong one pertains to what groups like the American Legislative Exchange Council (ALEC), the Republican Party at-large, and the conservative media echo chamber have coined a “War on Coal” and a “Regulatory Train Wreck,” echoing what the shale gas industry’s PR squad has coined a “War on Shale Gas.”
According to As You Sow, regulations have tied the hands of the coal industry to a sufficient level that it’s no longer as lucrative of a venture to make a capital investment into coal as it is to invest in the shale gas and renewable energy industries. “Uncertainty about future regulations plagues coal plant operators who face the incremental imposition of more stringent standards over time,” As You Sow explained.
Shale Gas “Killing” Coal Power Plants
Most importantly, highlighted in prong two, the U.S. is in the midst of a shale gas boom, described by Cheniere Energy CEO Charif Souki as “stupefyingly large” on this weekend’s episode of Fareed Zakaria’s CNN show “GPS.”
So large, in fact, that for the first time in U.S. history, gas power generation surpassed coal power generation’s place at the commanding heights of the marketplace. Thus far in 2012, according to the Energy Information Agency‘s latest numbers, nearly twice as many megawatt hours from natural gas have been produced than via coal (381,433 vs. 196,654 thousand MWh).
“What that means is, literally, natural gas is going to kill more coal-fired power plants than the EPA regulations,” Michael Zenker, a coal analyst for Barclays told NPR in a July 2012 story in which he explained the signifance of the ongoing shale gas boom.
The ecological hazards of shale gas are well-known and well-documented, with scientists at Cornell University showing that the entire lifecycle of shale gas proves to be dirtier than coal. The Post Carbon Institute also called shale gas a “bridge fuel to nowhere” in a June 2011 report.
The economic hazards are lesser known, but increasingly so due to the investigative reporting conducted by The New York Times and Rolling Stone, and As You So offered its own cautionary note on the future of shale gas, writing,
Natural gas will – in time – face many of the same risks as coal: price increases and volatility as the easily recoverable resources are depleted, more stringent environmental regulations that will demand capital investments, and competition from wind, solar, and other forms of renewable energy.
Exports Creating “Volatile” Market for Coal…and Shale Gas?
Export is the current name of the game for the coal industry, like its fossil fuel partner, the shale gas industry and LNG (liquified natural gas) exports. Coal exports from the Power River Basin are the fossil of the day. All the while, production is in steep decline in Central Appalachia.
“Doyle Trading Consultants calculated that the U.S. coal supply declined more than 100 million tons in 2012 and that many of the cuts, particularly in Central Appalachia, are permanent,” explained As You Sow.
This new market trend – in which the U.S. is more or less a “resource colony” for the global coal commodities market – has made coal a more “volatile” investment, according to As You Sow.
The Jig Is Up on Coal…and Shale Gas?
The jig is up on coal, As You Sow concludes, explaining that “the prognosis for coal as a financially viable source from which to generate electricity continues to decline” and that 46 coal plants have been retired since July 2012, with dozens more planned for retirement between now and 2016.
Ending on an optimistic note, As You Sow sees the centralized role that coal and gas enjoy as sources of power generation in their waning days, concluding:
More importantly for the business model of electric utilities, business and residential consumers will continue to reduce their energy consumption through efficiency and demand management, and will move increasingly to distributed, rather than centralized, generation as the price of solar technology declines.
With a recent investigation conducted by Reuters showing that, like Michigan’s, Ohio’s shale gas assets may be far smaller than the shale gas industry has boasted. If anything, this foreshadows that the “golden age of gas” may soon become more of a “bust” than a “boom,” as originally advertised by the industry.
4 Comments
Nicely written; rec’d
Actually I would like to believe you are right about coal. But what about exports to China and India that DD posted about earlier? Also as oil becomes short in years ahead coal seems like a natural subsitute (unless nat gas is in that much supply)?
Combustion = an exothermic chemical reaction between a fuel and an oxidizer that produces heat. In most cases the fuel is organic and therefore releases carbon in the form of soot and CO2. The concentration of Carbon Dioxide in an atmosphere undeniably and empirically traps more radiant energy, increasing the temperature of that atmosphere. Therefore, I would like to actually see a war on coal. And on shale gas. And on methane gas. And on all biofuels. All of these are “bad bets” and an alternative must be found and soon.
In the 1980′s, Valuline listed one publicly traded coal company – Pyro Coal (who operated one small underground mine in Indiana). Since 2000, at least 14 large coal companies became publicly traded.
So, why the recent interest in coal stocks?
1. Thank George W. Bush. In July, 2000, Arch Coal (the bastard child of the Hunt trust and Ashland Oil) was selling for $9. After Bush was appointed by the Supreme Court that December, Arch stock went to $42 (Arch had only been publicly traded a few years and may have been the only coal company selling stock at the time). In the spring of 2001, with Bush as president, other large coal companies quickly went public – the first of these being Peabody and Consol.
Under Bush, coal was allowed to pass their environmental & safety costs on the to public – private profit, public loss. Any true-cost accounting of the coal industry would show it as an nonviable business model – even without global warming taken into account.
2. The 1990′s proved that one could make a bundle by selling stock in nonviable business models (see, most internet startups circa 1995 – pets.com, webvan.com, etoys.com) to suckers. And after two decades of Reagan’s taxcuts (ie, redistribution of America’s wealth to the elite) there were a lot of suckers out there with an unexpected windfall.
Coal wasn’t publicly traded in the last century because it is an unpredictably cyclic industry – boom & bust (but mostly bust). Railroads and oil companies occasionally ventured into coal in the last century only to be handed their ass (The railroads were basically given their coal reserves in the 1800′s from government lands and the oil companies purchased their coal in an ill-conceived, late 1970′s, plan to diversify and become “energy” companies). Railroads now stick to what they do best – collecting coal royalties on the lands the government gave them and using their transport monopoly to overcharge for shipping coal (this cost is passed-on to the electricity consumer via the utility).
Railroads may be the largest obstacle to America switching to renewable energy as 45% of their tonnage hauled by trains is coal.
Besides currently making the earth uninhabitable, coal was also responsible for making George W. Bush president in 2000. In 1999, Federal Judge Charles H. Haden correctly ruled for the environment and against mountain top removal coal mining in West Virginia (Bragg v. Robertson). This decision was depicted as threatening the future of surface mining, by both Democrats and Republicans, resulting in W. Virginia’s five traditionally Democratic electoral votes going to the Republican. Gore would have won the election 271 – 266 by carrying W. Virgina (even with losing Florida).