December 1, 2010
Wisconsin Cannot Afford to Ignore Rising Coal Prices
Long-considered an inexpensive and reliable fuel source, coal has become subject to market and regulatory pressures that threaten to make it an expensive and risky way to generate electricity, according to national news reports and pertinent utility filings with the Wisconsin Public Service Commission (PSC).
“The expectation of continued increases in coal prices reinforces the value of relying on Wisconsin’s own energy resources. If there’s an effort to find savings for utility customers, the logical move would be to shutter antiquated coal plants before they become more of a liability,” said Michael Vickerman, Executive Director of RENEW Wisconsin, a statewide, nonprofit renewable energy advocacy organization.
A key driver behind coal’s rising cost is China, which has moved from an exporter to an importer of coal. The New York Times (NYT) reported last week that Chinese coal imports will hit all-time highs for November and December of this year. Some of this coal is coming from Wyoming’s Powder River Basin, the coal field that also supplies many Wisconsin power plants.1
In the New York Times story, an executive from Peabody Energy, the world’s largest private coal company, predicted that his company will send larger and larger quantities of coal to China in the coming years.
Further adding to the upward price pressure on coal is the rising cost of diesel fuel. The PSC has estimated that half of the delivered cost of coal in Wisconsin is attributable to rail shipment, that is highly sensitive to the price of diesel fuel, which sells for 38 cents more per gallon than it did a year ago, according to the U.S. Energy Information Administration.2 Tom Whipple, editor of the Peak Oil Review, expects diesel fuel supplies to tighten in 2011 as a consequence of flat production volumes and increasing demand from Asia.3 This phenomenon could affect Wisconsin electric utility rates as early as January 2011, according to Vickerman.
We Energies’ coal costs have escalated by $57 million, of which transportation costs account for almost $33 million, according to the utility’s most recent rate filing with the PSC. On top of that, We Energies expects to pay an additional $8 million in oil surcharge costs.4
Regulatory costs add pressure
Additionally, compliance with coming federal clean air regulations is certain to propel the cost of coal generation higher, especially if utilities install expensive pollution control equipment on their aging and increasingly costly generators.Several U.S. utilities, including Minneapolis-based Xcel Energy, have decided to meet that upcoming regulatory challenge by shutting down old coal-fired units and replacing them with a combination of gas-fired and renewable generation. An Xcel executive told the Denver Post that it’s often more cost effective to shutter these plants than to retrofit them.5
“The only thing that keeps these clunkers going is the belief that coal will always be the cheapest resource available to utilities,” said Vickerman. “But it is now quite apparent that coal is no longer dirt cheap, and it’s time we in Wisconsin face that reality. When you add up the costs of mining, transportation, and cleaning up old power plants to meet new clean air standards, coal shapes up as an expensive anachronism, not the bargain fuel that it once was. Of course, the premium that utilities pay to keep burning coal will be passed along directly to utility customers.”
Wisconsin’s energy policies, which expressly favor conservation and renewable resources, have been exceptionally effective at diversifying and localizing the state’s energy mix, as well as generating thousands of family-supporting jobs here, said Vickerman.
1. Breaking Away From Coal, New York Times, November 30, 2010
2. Weekly Petroleum State Report
3. Peak Oil Review
4. We Energies’ Application for Reopening rate request docket
5. Rising coal costs will be felt in electric bills, Denver Post, October 24, 2010