Coal Demand and Prices Surge… As Do U.S. Coal Exports!

karl November 4, 2017 at 5:15 pm

Good luck with that.

I can’t speak for other regions of the U.S. but… that’s not likely to happen in my region. Simply put, my capacity planning/fleet strategy team’s essentially put you renewable guys in a “box” that you can’t escape from.

Here’s the dilemma you face. During the recession we took advantage of low labor/construction cost to add a mix of new nuclear, new gas, and revamped coal. In addition we revamped the raccoon mountain water storage system and added purchased wind to our capacity inventory.

This had the following impacts

a) As a means of maximizing fuel flexibility we fully controlled all of our coal and gas units. This, in-turn, reduced our coal purchasing cost by roughly $1 billion/year and substantially decreased the generating cost of our remaining coal assets.

b) We retained our older coal units long enough to add a substantial amount of new nuclear. We then closed our oldest most inefficient coal units. (Sorry “Eco-activist” – closing these plants wasn’t a “win” for your side. It was our plan all along. )

c) We purchased number of gas units, mostly in Mississippi, as a means of capturing expected low long-term natural gas prices in areas of our region where gas was available and expected to remain cheap. Also a practical necessity given our coal fleet was roughly 60 years old.

d) We replaced the Allen coal plant, near Memphis, with a highly efficient base-load natural gas system – one of the most energy efficient in the world . For those “gas only” guys, don’t get too excited, the delivered coal/gas prices in the Memphis area have historically tended to track closely… the original Allen plant had been configured to used gas before it was converted to a coal plant. For the western “wind” guys, sorry but the cost of production at the new Allen plant is exceptionally competitive. We simply don’t need your capacity and can beat your cost.

e) We replaced the Paradise 1 & 2 units with a second highly efficient natural base-load natural gas system. For those “gas only” guys, don’t get too excited, this decision was a balance between the cost of fully controlling either the Shawnee or the Paradise units & the need for capacity flexibility in the area.. . particularly given local demand reduction resulting from the closing of a nearby nuclear fuel processing facility. Construct of the new gas plant allowed us to build more capacity than we immediately needed as a way of providing a capacity buffer in the area.

f) We used both items c, d, and e above as a mean s of adding a capacity buffer to the overall region. Meaning, that although many of gas units are “base-load”, we can run them as intermediate units in a “low growth” economy and still make money. If the economy surges into “high growth”, we run them as full base-load units and make even more money.

g) The revamped Raccoon Mountain energy storage facility is recharged with cheap hydro-power as opposed to expensive renewable power. So we can offer customers “energy storage” services at a substantially lower price and battery assets charged with expensive renewable power.
h) We added enough wind to satisfy the demands of the few customers we have that are actually willing to pay the additional cost of renewable. So, if you’re in our region, you free to be as “green” as you like – as long as you pay the full cost. (Don’t get too excited wind guys… only about 15% of this wind capacity is actually available when needed).

The short version is this: Our mix of assets is already “low carbon”, so even if the “Clean Power Plan” had been implemented it wouldn’t have impacted us one bit. Furthermore our capacity mix is flexible enough that we won’t need any additional capacity for years. Meaning, in a flat to low-demand growth environment we wouldn’t need any addition capacity for roughly the next 15-20 years. And in a high-demand growth environment, we likely wouldn’t need additional capacity for roughly the next ten years.

Now this is what you renewable guys are facing. We are not going to finance the construction of any renewable assets in our region… because we simply don’t need the capacity. (OK maybe a few token “political” units here and there… but nothing substantial).

Your perfectly welcome to build as much renewable as you want in our region… so long as you pay for the capital cost out of your own pocket and pay extra for the power you need when your assets don’t generate. (Of course you do have the dilemma that the renewable subsidies are ending… so the “risk” is entirely on you.)

And, oh by the way, those customers that what to be green? Well… were happy to sell them the renewable power we purchased when it was cheap and subsided… and with our substantial low-coal energy storage capacity we can offer “green” power at a much lower cost than the “battery dependent” guys.

See Karl… We “fossil” guys are a bit smarter than you think. You don’t have ten years.