This time it’s a “death spiral”

There’s an old Rush song called “Circumstances” that contains a line,

Plus ça change
Plus c’est la même chose
The more that things change
The more they stay the same

I was reminded of that song when I happened across another anti-coal blog post this morning. The title of this post indicates the author’s belief that the coal industry is in a “death spiral.” We’ve been hearing this refrain from the anti-coal crowd now for years. So naturally the author’s arguments and hyperbolic rhetoric reminded me of past arguments I’d had with other anti-coal ideologues.

In his post, the author brags about lunching with “a top executive of one of the state’s leading utilities” and claims to have pressed this executive with difficult questions about the rising cost of energy and whether coal-fueled energy was still a wise investment. The author then describes how a few short months later, that same utility postponed and then later cancelled their plans to build a coal-fueled generation station. He suggests that his story, with one other example, demonstrates the coal industry is now suffering through what he terms a “death spiral.”

“Well, I’m not an economist, but I do remember from Econ 101, that if you raise the price of something, demand goes down. Furthermore, if you raise the price of something, for which the market is already soft, where demand is already flat or declining, and for which people have readily available alternatives – demand could go down a lot. So you raise rates – demand goes down, revenue goes down, you can’t pay the cost of your note for the new plant.”

Alert readers will recognize that this author’s entire argument rests on the notion that there are “readily available alternatives” that can affordably replace our coal-fueled generation fleet. He focuses that argument on natural gas and renewables (specifically solar) as his chosen alternatives.

While the author is correct to note that cheap shale gas is heavily impacting utility construction choices, I have also had the opportunity to discussed gas vs. coal demand with several utility executives. I have listened to dozens of their presentations at utility sector conferences. However, I have yet to hear anyone in the energy industry categorically state that gas prices will remain in the $5MMBTU range. No one in the industry – at least no one that I have met, talked to, read, or listened to – is confident that the history of wild gas price swings has fully passed. The potential for future dynamic price swings becomes even more pronounced as environmental groups, now comfortable with the damage they’ve done to coal and nuclear, turn their litigious attention, threats, and green tape on the gas industry and fracing.

As the author moves on to push for solar over coal, it becomes clear that he either does not understand, or chooses to ignore, the fact that renewables cannot not provide the same type of electrical output as coal. His argument begs the question, “what will millions of utility customers – industrial and residential – do for electricity at night or when it’s cloudy?

While there is some interesting work being done on molten salt, the blunt reality is that storage options are (at best) decades away from the point where PV solar could provide baseload energy. Furthermore, it will take decades more before it could do so affordably. Lastly, it would take decades more before affordable, storage-backed solar or wind capacity could begin to approach the 45%+ of our electricity that coal currently provides, or the 20%+ that gas provides. If one argues that storage issues could be addressed by dispersed renewable capacity providing system inputs when others are not generating, they must also admit that it will take many more decades and multiple billions invested in thousands of miles of new transmission lines and smart grid infrastructure to begin to address the intermittent nature of renewables.

While we still have coal, nuclear, and large hydro as a buffer, the choice to build gas and renewables is much easier. As we see changing economics associated with shale gas and the hurried implementation of several new EPA regulations pushing the early closures of smaller and older coal plants, you will see the rush to gas and wind begin to slow. (Not necessarily end, but definitely slow.)

The author also seems to gloss over the fact that his preferred energy future has many energy experts forecasting widespread capacity issues, rolling black outs, rapidly rising electricity costs, and millions of lost jobs.

Ignoring the questionable prices associated with coal-based energy (see The solar prices listed are possible only with massive subsidies and infusions of our tax dollars - Can you say Solyndra?

It is also worth it to take issue with one other point in the post. The graph shown in that post (reprinted here) depicts the relative price of solar energy vs. coal-based energy.

Claims that solar can “compete” in any way against baseload fossil options becomes meaningless when you recognize that solar prices are artificially lowered by massive federal and state subsidies. The second those subsidies are removed the price of renewables skyrockets, massive layoffs occur throughout the industry, and uncompetitive renewable installations are abandoned and left to rot.

A single example serves to demonstrate the “competitive” nature of solar and wind vs. other energy options. EIA data (2008) show solar receives subsidies of $24.34 per MWh and wind receives $23.37 per MWh. In comparison, nuclear receives $1.59 per MWh, hydro receives $0.67 per MWh, coal  receives $0.44 per MWh, and gas & petroleum receive $0.25 per MWh.

Only in the Pollyanna-like world of renewable energy could someone keep a straight face while claiming that, despite receiving 55 times more per MWh in subsidies, their prefered energy source is “competitive.”

As I noted at the start of this post, “Plus ça change Plus c’est la même chose.” Almost ten years ago, I addressed a similar argument from another anti-coal ideologue.

Is coal now “defunct”?

With all due respect … the rumors of coal’s demise have been greatly exaggerated. Clearly the death of coal-fired energy is something that Mr. Gibbons would love to see. However, it is unlikely he will get his wish in his lifetime, and with good reason.

Rather than recognizing the value of using our domestic energy resources in a clean and efficient manner, these activists choose to publish their extreme rhetoric and apocalyptic predictions. They forecast the death of coal and talk of coal’s “death spiral,” or the “death knell of coal.”  They claim coal is “defunct” and describe their plans to move the world beyond coal with little to no cost to the average Main Street resident. Then they manage to encourage a legislator to propose some new law or regulation and, when the world begins to understand the cost of their plans, they abandon the expensive new rules and stick with coal.

Unfortunately for these anti-coal prognosticators, they’re predictions repeatedly come up flaccid and this time is not any different. Far from a death spiral, coal is entering the early stages of a long-term global super cycle. Coal is expected to provide ever more of the world’s energy supply. In fact, the 2011 EIA International Energy Outlook predicts that coal use will increase around the world by 50% to 2035.

Indur Goklany, an expert on climate change, who represented the US at IPCC talks and was part of the US administration says “You should be thankful about fossil fuels, including coal. It has brought about unprecedented improvement in human health and life conditions.” He said there was no chance that coal can be ignored for the greater part of the century.

The rest of the world recognizes coal for its affordability, its abundance and security, and they see the North American coal industry investing billions to make coal more efficient and clean on a daily basis. So while the “death spiral” predictions might make for a good headline, they offer nothing to those seeking serious solutions to our energy challenges.


10. December 2011 by Jason Hayes
Categories: carbon, CCT, Energy, EPA, Jobs, Marketplace Information, Policy, transmission, Utilities | 1 comment

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