While the Trump Administration is pushing for growth of the American coal industry, market forces are heading toward renewable energy. But is coal still economically viable in the United States?
When Donald Trump ran for president in 2016, he vowed to make coal a key part of the American economy by making sure that it would be used to power the nation. He wanted coal to regain its lofty place as the number one source for America's energy needs and that regulations and renewable energy would not interfere with his promise. But as a businessman and candidate who ran exalting the benefits of the free market, Trump has neglected how consumers and companies are turning to cleaner and cheaper renewable energy in the United States. Even though the Trump Administration is still behind the use of coal as a key source of meeting America's expanding energy needs, the question remains whether coal is an economically viable resource in the short and long term.
Coal's Economic and Financial Viability
The American coal industry is undergoing a steady, precipitous decline that will accelerate in the next 15 to 20 years. For example, in January 2013, Georgia Power said it would shut down ten coal units containing a total of 1,976 megawatts (MW) of electricity while in the same year American Electric Power stated it will retire a coal-fired plant that generated 580 MW. Talen Energy decided to cease the operation of a coal-burning plant in Montana in 2018 since it was deemed as not being "economically viable" any longer. Michigan's largest utility, DTE Energy (NYSE:DTE), announced in 2017 that it would eventually end every aspect of its coal-based electricity production in approximately 23 years and that by 2040, the company would no longer have coal generation energy.
Companies such as DTE and Talen are looking to significantly shrink their carbon footprint and move toward wind parks and solar farms generating cheaper energy. In the city of Chicago, Illinois, the cost of generating electricity using coal is 50 percent higher than natural gas. A 2013 report by the Center for Tax and Budget Accountability (CTBA) stated that the coal industry ended up costing the taxpayers of Illinois $19.8 million in 2011 even when subsidies, revenues, and costs tied to regulations were subtracted. There are also the social costs associated with coal. In a report by Climate Advisors for the World Bank, the social costs of electricity generation using coal was $99/MWh or Megawatts per hour. However, for alternative sources of energy such as nuclear ($52/MWh), natural gas ($83/MWh), and wind ($72/MWh), the costs are all considerably cheaper. In terms of cost of natural gas, the average price of the commodity went from $7 per million British thermal units (BTU) in 2007 to $3 in the first half of 2017.
Coal-dependent electric utilities face other cost factors, including rising capital costs for updating, modernizing, and installing environmental controls at existing plants. Here existing plants must adhere to federal and state environmental laws in order to remain operational. There is also the cost associated with coal's price volatility and any price increases for mining. Energy companies must also face the financial risk associated with failed coal projects such as the situation with Southern Company (NYSE:SO) and its "clean coal" plant in Kemper County, Mississippi. The plant, with a cost run-up of $7.5 billion, was to have been the first Integrated Gasification Combined-Cycle (OTCPK:IGCC) energy producer in the world equipped with Carbon Capture and Storage (CCS). The plant was supposed to produce 582 MW of electricity with expectations of capturing 65 percent of pre-combustion CO2 that it made. However, there were delays and significant cost overruns forcing Southern Company to abandon the project and convert it into a cheaper natural gas plant.
The Shift Toward Alternative Energy Sources
Coal has three main competitors that many analysts feel will eventually meet a large degree of America's energy demands: natural gas, wind, and solar. Without a doubt, natural gas will be the largest competitor in energy production in the United States and probably ruin the coal industry. The use of hydraulic fracturing, or fracking, has had a great deal to do with undermining coal's dominance since it is an easier way to take natural gas from the vast deposits located in the United States. With the increased use of fracking, coal-run energy plants are now being converted into natural gas plants and operating at lower cost. According to a report by the Federal Reserve Bank of St. Louis, natural gas exceeded coal as the top generator of electricity in the country for the first time in American history in 2016. The key significance of this fact is that in 2000, natural gas only produced 33 percent of the coal-generated electricity in the United States.
Environmentally, natural gas also has certain benefits over coal. A newly built natural gas energy plant gives off 50 to 60 percent less in greenhouse gas emissions than one using coal.
Wind power is another source of energy that is cost-competitive. Taking into consideration advances in wind power technology and cheaper production costs, energy generation via wind technology has gotten 80 percent cheaper over the past thirty years. Between 2009 and 2012, the weighted average cost of wind-powered electricity generation in the United States has dropped by greater than 40 percent. The trend in electricity generated by wind farms will only grow as time passes. According to the American Wind Energy Association, there are now 14 states that met more than 10 percent of their electricity needs using wind in 2017.
Solar power has also seen decreases in cost, especially in the use of solar photovoltaics (PV). Due to improved technology and greater economies of scale, PV capacity in the United States market has increased to 8.9 gigawatts (GW). More and more homeowners across the United States are installing solar panels on the roofs of their homes while such institutions as colleges and universities are placing them on top of buildings and in their parking lots. The state of California recently passed a law mandating that new homes must have solar panels installed on their roofs. The cost of both solar and wind power will undermine the cost of coal. According to the investment bank, Lazard, in 2014 the cost of utility-scale solar power went as low as 5.6 cents per kilowatt hour (kWh), while the cost of wind went to 1.4 cents per kWh. The cost of coal was 6.6 cents per kWh.
What the future holds
Many analysts believe that it is not a question of if, but when coal will lose its predominance as a key generator of energy in the United States. Other nations around the world such as Germany, France, China, and India, are currently making the switch from fossil fuel to renewable clean energy and saving huge sums of money in the process. The Trump Administration wants to go back to a time when coal was king rather than leading the world in encouraging adoption of new energy technology. In America, consumers, companies, and the states are seen as advancing to the forefront in using renewable energy and making a faster transition to a cleaner, more efficient, and cost-effective future.