Mon, August 21, 2017 9:38 am
Andy and Hans returned from Park City, UT loaded with market insight and industry news. The recurring theme throughout much of the conference seemed to center on “leveling the playing field” for all forms of generation. Overall the industry is encouraged by the support it is getting from the current administration in Washington DC and its review of many of the regulations that affect coal leasing, production, transportation, use and the market for coal combustion residuals. Here are the highlights:
- Renewables in the Crosshairs: Massive Production Tax Credit (PTC) and Investment Tax Credit (ITC) subsidies are distorting wind and solar markets and eating into coal and natgas market share. Several presenters, including Representative Rob Bishop (R-UT), suggested that the House could take up regulations that would change the subsidy system for renewables. The PTC was intended as a short-term subsidy to promote renewables, yet it has been extended ten times. Others commented that fees and royalties for extracting wind and solar resources from the air should be similar to the fees and royalties paid by industry to extract coal, gas and oil from the ground.
- Battery Storage: Wind generation results in significant production volatility due its inherent variability, uncertainty and intermittency. In South Australia, where the state has moved to 100% renewables, there have been four power supply disruptions due to the lack of wind, resulting in third-world power for a first-world region. With much fanfare Tesla will build the world’s largest battery at 100 MWs, but it was soberingly pointed out that the device would only have sufficient power to run Glencore’s smelter in New South Wales for 7.7 minutes.
- Millennium Bulk Terminal: There were many supporting voices for MBT as a project that needs to move forward. While not said, it does seem there is recognition that MBT will receive a favorable review from this Administration. Laura Nelson, Energy Advisor to the UT Gov, said “we need to access exports…(and MBT) is a key example of how we can access global markets.”
- Roadmap for Coal Industry: Glenn Kellow, CEO of Peabody, noted that 10 GWs/year of coal-fired capacity will retire over next five years. To preserve the baseload advantage of coal, he suggested the following:
- Pause coal retirements for two years
- Level the playing field between renewables and baseload power
- Create a diverse portfolio standard at the state level
- Make coal gen more competitive
- Develop High Efficiency, Low Emissions (HELE) technology today and carbon capture over time.
- Rail Issues: Side discussions with some attendees revealed that Chicago rail congestion is worsening and many do not see conditions improving in the near term. YTD coal carloads are up 17% YoY which is adding to the congestion. It takes time to add rail resources: 6-9 months to add employees, 12 months for railcars and locomotives, and 18-36 months to add terminals and track capacity.
- Natgas Outlook: Andrew Bradford from BTU Analytics opened with an ominous note for coal producers saying that “the pause in gas production growth is over” and increasing rig activity, associated gas (Permian and Oklahoma), and new pipes are all pointing to renewed production growth. Mr. Bradford indicated that most of the growth is targeting the export markets through new LNG facilities and cross-border exports into Mexico and his view is there is little growth for U.S. power generation. He said gas producers are fine with prices near $3/mmBtu but prices below $2.50/mmBtu cause problems for producers. The massive growth in productivity through innovation is reaching a point of diminishing returns with little left to squeeze. He said “it is hard to get excited about demand and he expects gas prices to stay within a $2-$4 band for the next five years.
- Baily and Schaefer Retirements: Dennis Rackers from Northern Indiana Public Service (NIPSCO) gave a rather sobering assessment to the analysis leading up to NIPSCO’s decision to retire the Baily Plant and two units at Schaefer citing the cost to comply with the Effluent Limitation Guideline (ELG) rule that affects discharges from coal units. He said NIPSCO looked at a variety of impacts including environmental, reliability, the cost to the rate-base and effects on the workforce. He said the cost of meeting the ELG requirements are too high and are based on opaque findings but NIPSCO is facing a timeline that forces them to react. Mr. Rackers did highlight one aspect of the ELG, that plants equipped with wet FGDs (scrubbers) face steeper compliance costs than plants outfitted with dry scrubbers. This was one of the considerations that weighed into the decision to retire the Bailey and Schaefer units and why the Michigan City plant survives. Michigan City has a dry scrubber. Many units that have dry-scrub systems in the U.S. use PRB coal.