Friday, February 21, 2014

Pricey Electricity?

Count on Coal Montana was touting a news report in the Washington Examiner last week claiming that electricity prices are going to “soar 80 percent, thanks to EPA coal regulations.” And according to the Examiner, a conservative fish wrapper not usually noted for relying on Obama administration officials, the source for this alarming news was none other than, you guessed it, an Obama administration official.

But before you go out and mortgage the house to pay for this astronomical increase in your electricity bill, take a deep breath and relax. It isn’t going to happen, and Count on Coal Montana should know that. Here’s the story.

Last year the EPA announced limits on the amount of carbon that can be produced by new electrical generation stations, and it was apparent that new coal fired power plants could not operate within those limits without capturing and sequestering a significant portion of their carbon emissions. The problem is that although the technology for sequestration, known as CCS, is technically feasible and has worked in some demonstration projects, it is still very costly, and is not even remotely competitive, on a cost basis, with other technologies such as wind, natural gas, conservation or conventional coal.

Reducing the high cost of CCS has become a project of the Obama administration and last week a Department of Energy official, Julio Friedman, was up on Capitol Hill to give the House Energy and Commerce Committee a report on how that effort is coming along (you can watch a video of the hearing here).  What Friedman was talking about was the cost of CCS, and what he said was that if we had to generate our electricity in CCS-equipped coal-fired power plants under current conditions, the price of electricity would have to go up by about 80 percent for those plants to cover costs. Longer term – in a decade or so – CCS costs and the break-even price would come down.

The future of electricity prices if all new generation were to come from CCS-equipped, coal-fired plants may be an interesting hypothetical for Dr. Friedman and Congress people to contemplate, but here’s the thing: it doesn’t really have much to do with what will actually happen in the electricity market.

When the EPA announced its new source carbon standards last year, there was a great hue and cry, including in the halls Congress, about the “war on coal” the Obama administration was supposedly waging by imposing standards that were so tough that coal couldn’t be burned without CCS. Mandating CCS might make coal even more non-competitive, but as Brad Plummer noted in a Washington Post report, even without the EPA regulations, coal is, and will be for a long time to come, at a big cost disadvantage with respect to natural gas. As a result, Plummer says, “it’s entirely possible that no coal power plants of any type will get built for years, regardless of what the EPA does.” It’s the market, not the President, who’s waging the war on coal, and the price of electricity in that market will be driven by the cost of producing electricity with natural gas, wind and other renewables.

Count on Coal Montana is arguing on the one hand that EPA regulations are driving coal fired power plants out of business and on the other hand, that the price of electricity will be driven by the generation costs in those very same out-of-business plants. Can someone please explain how this works? I just don’t get it.

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