The following is part two in a three-part series examining the factors inhibiting the addition of coal-fired generation capacity in the U.S. This story explores the policies that have boosted coal in China and the market conditions currently disadvantaging new capacity running on that fuel in the U.S. The first installment explored what is considered "state of the art" technology for coal generation and the challenges facing developers, while the third story will look at the politics of coal and what would be needed to get a new power plant built.
A passenger airliner flies past steam and white smoke emitted from China Huaneng Group's Beijing power plant, which shut down March 18, 2017, as the Chinese capital converted to clean energy such as thermal power. Source: AP Photo/Andy Wong |
An argument raised frequently in the ongoing debate around U.S. climate change policy has been that the U.S. should not have to act to address the issue until China does, too. In fact, President Donald Trump used exactly that justification in June 2017 when he announced from the White House Rose Garden that he intended to pull the country out of the Paris Agreement on climate change.
"China will be allowed to build hundreds of additional coal plants. So we can't build the plants, but they can, according to this agreement," Trump said before a crowd of cabinet members and guests.
According to two experts on the Chinese and U.S. power industries, though, China has no intention of ramping up construction of coal-fired power plants domestically and instead is turning increasingly to renewables. The Chinese government has canceled dozens of proposed coal facilities while working to shutter existing ones, according to Christopher James, principal of the Regulatory Assistance Project, which bills itself as an independent, nonpartisan organization focused on the transition to a clean, reliable and efficient energy future. David Schlissel of the Institute for Energy Economics and Financial Analysis puts the number of canceled coal projects in the hundreds, insisting that "China is not a role model for [the] U.S. building new coal plants."
Tourists wearing protective masks walk through Tiananmen Square in Beijing in heavy smog on Jan. 4, 2017. Source: AP Photo/Andy Wong |
James, who advises regulators, advocates and businesses on reducing greenhouse gases and other pollutants to meet current standards, noted that the approaches to power generation taken by the U.S. and China are quite different.
For instance, although the U.S. power industry runs on a system that generally dispatches lower-cost generators ahead of higher-cost ones and the construction of new facilities largely is driven by need, companies operating the grid in China are state-owned enterprises, and decisions to construct new power plants in that country are directed by national policy.
Furthermore, the U.S. is in the midst of an extended period of low load growth, and its Energy Information Administration currently assumes a 1% annual growth rate going forward, James said. China, meanwhile, has experienced less consistent load growth that at times has reached peaks of up to 25%, according to information from CEIC Data and China's National Bureau of Statistics.
That volatility lately has subsided significantly, however, causing China to rethink the need for coal-fired generation additions, according to James. Moreover, the national government in recent years has moved to stop some previously approved coal plants because of concerns over how they were approved by local officials.
According to a snapshot issued by Rhodium Group on Jan. 25, China's coal demand in 2017 was up 3.3% year-over-year following three years of decline. But demand for wind and solar jumped by 26% and 75%, respectively, that same year. Rhodium's snapshot, which used data from China's National Bureau of Statistics, also showed that natural gas and nuclear increased their shares of China's generation mix in 2017. The recent overall decline in coal demand comes as Beijing steps up its air pollution control efforts, and that trend is expected to continue for 2018, Rhodium said.
Despite its domestic efforts, though, China has continued to fund coal-fired power plants elsewhere in the world, according to Schlissel, who is the director of resource planning analysis at the Institute for Energy Economics and Financial Analysis and an expert on engineering and economic issues related to energy.
A risky investment
Back in the U.S., James said, anyone wishing to build a new coal-fired generator would need to find an investor willing to make a big bet on a fuel that some believe is coming to the end of its run. "Wall Street has been very clear that it does not intend to invest any money in new coal plants in the U.S.," James said.
These are not "tree hugger[s]," James said. "I've talked to folks at Citigroup about this," he continued. "And they are like, 'we're a bunch of capitalists. We could care less about trees. We're not putting any money in coal because we don't see the value of the investment.' This is Citigroup talking, not the Sierra Club."
James said he has heard similar sentiments from Bank of America Corp., although company representatives did not respond to a request for comment.
A spokesperson for Citigroup Inc. declined to comment specifically on whether that company will fund coal investments going forward and instead referred to its Environmental and Social Policy Framework. In that 2015 document, Citigroup noted its $100 billion environmental finance goal. But Bank Track, which follows investments in coal plant development since the signing of the Paris Agreement in late 2015, has placed Citi at number 18 in the top 20 commercial banks that have continued to finance coal plant developments between January 2014 and September 2017. Bank Track is a coalition of activist groups that have called for the end of dedicated financing to new coal power plants worldwide.
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Coal-fired generators have been going bankrupt or retiring at a rapid rate, and many that remain operational are running even though they no longer are economic, Schlissel said. Merchant generators must survive on energy market and capacity market revenue, but prices in both the PJM Interconnection and Midcontinent ISO have dropped precipitously in the most recent auctions, according to Schlissel. Meanwhile, the price of gas also has fallen and stayed low.
Additionally, new renewable generators continue to be added to the resource mix, and their associated costs keep going down. "That's where the money goes," Schlissel continued. Noting that a new renewable resource can be built more quickly than a coal plant, James said developers increasingly are opting for solar or wind installations.
In the Southeast, Southern Co., Duke Energy Corp. and the Tennessee Valley Authority all have moved away from coal, and "out West, they really can't run away ... fast enough," Schlissel said. In the Electric Reliability Council of Texas, three big coal-fired generators either retired recently or are expected to do so in the coming months. The Southwest Power Pool and MISO both have seen an influx of gas generation, while PJM is quickly accruing wind, Schlissel continued, adding that coal is a nonstarter in the Northeast and New York.
Together, those factors lead to uncertainty as to whether generators can make money in the markets. "I just don't see investors as willing to risk their money" on coal, Schlissel stated.
That said, Schlissel could imagine a state-of-the-art coal-fired plant gaining interest from a public power agency, which could own the facility and sell the output to a cooperative or municipal utility to guarantee a flow of money. But under such a scenario, the developer would struggle to gain the necessary regulatory approvals, according to Schlissel, who said he believes the public power community has become weary of such long-term contracts for new power plants.
James suggested that a regulated utility could apply to build a new coal plant through its public utility commission and seek a rate increase to cover the cost. although he noted that the nation's regulators have viewed rate increase requests unfavorably in recent years. "I think it would be a tough row to hoe," he said.
Both Schlissel and James said the federal government itself, or perhaps a foreign government, could foot the bill for a new coal plant. With a government contribution, some private investor might be willing to put up the remaining money, Schlissel speculated.
Even so, James said investors must consider not just the current market and regulatory environment but also those of the future. "If today is day zero, and the decision is made based on factors in play today, those factors change. They can change quite a bit," according to James.
Michelle Bloodworth, COO for the American Coalition for Clean Coal Electricity, acknowledged the many factors influencing decisions to invest in new coal capacity. But she suggested that recent policy moves from the Trump administration surrounding coal's resilience attributes have provided a glimmer of hope that discussions about new coal investments could fire up. Perhaps with new federal or state incentives and clarity on environmental regulations, Bloodworth said, "a developer could be incentivized to build a new coal plant."
As of publication, the White House had not returned a request for clarification on Trump's comments regarding the Paris Agreement.


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