By Mike Fitts
Published Feb. 25, 2013
Utilities that serve the Midlands are adjusting the balance of fuels that they use to provide electricity, trying to negotiate major shifts in the marketplace and keep rates competitive.
One major driver of the change: Natural gas is far cheaper and more plentiful than it was just a few years ago, while the regulatory challenges for coal power seem to be mounting.
With large natural gas inventories have come record low prices. In April 2012, natural gas reached its lowest price in a decade, and prices near those lows are expected to continue in 2013.
To take advantage of this shift in price and supply, utilities in South Carolina and nationwide have been shifting away from coal. Coal produced 38% of U.S. electricity in 2012, down from 50% in 2005, according to the EIA. In that time, natural gas’ share of the market grew to 30% from 19%.
South Carolina Electric & Gas has announced plans to close six coal generating stations at three plants across its system by 2018. These units mostly have been used when demand for power is at its peak, because they are smaller, less efficient and older — ranging in age from 45 to 57 years.
The larger goal, according to SCANA public affairs manager Eric Boomhower, is to have a balanced mix of fuel sources for energy generation. The utility plans to generate about 30% of its power from each of three sources: coal, nuclear and natural gas. The remaining power will be supplied from sources such as biomass and hydroelectric, Boomhower said.
This mix of potential fuels will give the utility the flexibility to handle the frequent volatility expected from fuel prices in the future. “Generation decisions aren’t based on prices today,” Boomhower said.
Santee Cooper, the state-owned utility that generates power for the electric cooperatives, has announced the retirement of four of its oldest coal generating units, located in Conway and Moncks Corner.
Santee Cooper has adjusted its operations because of the changes in fuel prices, said public relations director Mollie Gore. The utility had been very heavily reliant on coal for its generation, but that has begun to shift. “The price of natural gas has altered that,” Gore said.
The shift is a recent one. In 2010, about 75% of its power came from plants fired by coal, with just 10% from natural gas. In 2012, coal’s contribution dropped below 60% while natural gas contributed about 20%.
The Rainey Generating Station in Anderson County, which utilizes natural gas, had been considered a plant for Santee Cooper to utilize more often when power demand was high, Gore said. With natural gas so affordable, the Rainey station has been operating consistently to meet the base load need, she said.
Santee Cooper also has been buying power generated with natural gas from other utilities and generators off the interstate grid, even as it has been shutting down some of its coal-fired capacity. In the current energy market, that makes the best sense for customers, Gore said.
The actions in South Carolina are right in line with national moves by utilities. According to a federal EIA report, utilities planned to shut down enough coal-burning capacity to generate almost 27 gigawatts of power from 2012 to 2016. That’s more than four times as much capacity as was retired in the preceding five years.
Both Santee Cooper and SCANA continue to see nuclear power as a key part of their generating mix, citing low operating costs for their current reactors and the two new ones being built near Jenkinsville. The two new reactors have a projected cost of $9.8 billion, and meeting those costs is a reason cited by both utilities as they received approval for rate increases last fall, despite the lower cost of natural gas. SCE&G raised rates an average of 2.3%. Santee Cooper announced a 3.5% per year rate increase for the next two years, the first increase in the base rate since 2009.
Both utilities also cite the increased cost of environmental regulations as a driver of higher rates — and the phasing out of coal plants. Under current federal regulations it is “more and more expensive and arduous” to operate coal plants, SCANA’s Boomhower said. Both utilities say they have been investing in new equipment to meet emissions regulations and that has been expensive.
The environmental costs of coal are mounting, especially for disposal of the ash that is left over, and that will affect the use of the energy going forward, according to a top environmental attorney.
Frank Holleman, a senior attorney with the Southern Environmental Law Center, said that utilities are facing a list of issues with coal that are making it less attractive. Regulations on the emissions of pollutants such as mercury have become tighter, concerns over carbon and its contribution to global warming continue, and coal ash disposal has become an increasing headache. SCE&G has agreed to steps to improve how it stores coal ash, Holleman said. The law center has criticized how Santee Cooper is storing coal ash near the Waccamaw River.
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The Tennessee Valley Authority has been held responsible in federal court for a spill that dumped more than 1 billion gallons of coal ash slurry into rivers near Knoxville in December 2008.
TVA already has settled more than 200 claims and bought more than 180 properties near the spill area, USA Today reported.
Such an event shows the risks that now are inherent in coal, Holleman said. Greater filtering methods can take some potential harmful materials out of the atmosphere, but that still leaves the utilities with disposal issues.
“Utilities that bet on coal seem to have proven to have very bad judgment,” Holleman said.
Two of the researchers working on meeting coal’s environmental and economic challenges believe that the shift toward natural gas could be short-lived.
The price advantage of natural gas is likely to subside, said Jochen Lauterbach, director of the Smartstate Center for Strategic Approaches to the Generation of Electricity at USC. The United States still has 300 years or more of coal at present use rates, he said, and that supply will continue to be a long-term advantage for the fuel.
Lauterbach holds an endowed chair with a focus on addressing environmental issues from coal, such as reducing mercury emissions or the release of carbon into the atmosphere.
Natural gas has been flooding into the market and depressing prices, but “that’s not going to continue,” Lauterbach predicted. Hydraulic fracking is a new and not severely regulated technology now, but new state or federal restrictions are possible, he said.
Much of the work that Lauterbach and associates at USC do is to help utilities and equipment makers meet the latest environmental regulations.
Utilities are ready to spend on new filters and other systems only once it is required, said Bihter Padak, an assistant professor of chemical engineering at USC.
For many older coal plants, those costs are too high to make economic sense and a shutdown is ordered instead, Padak said.