The Future of Coal in Utah
CRITICAL ISSUES & HIGHLIGHTS The coal industry has entered into a period of intense scrutiny, speculation, and uncertainty. The following developments represent the significant drivers that served as the impetus for this study as well as the central messages from the Rural Planning Group's coal study. There are nine key certainties followed by five key uncertainties for the future of Utah's coal industry. This information sets the stage for the four possible scenarios for the future of coal. Scroll down to find out more about the coal industry in Utah.
UTAH • With demand for coal-fired power diminishing in California, the Los Angeles Division of Water and Power (LADWP)—IPP’s primary customer—will not be renewing its power purchase agreement, which is set to expire in 2027. Instead, the LADWP is working with IPP and intends to build a new natural gas plant and begin purchasing natural gas-fired electricity from IPP by 2025. • The Carbon Plant, operated by Rocky Mountain Power, is set to close its doors in 2015 due to the prohibitive costs of operating under existing federal regulations. • The Bonanza Plant was recently fined for excess pollution and faces uncertainty due to an increasingly stringent regulatory environment. • Rocky Mountain Power (RMP) is not planning to build additional coal-fired generating capacity in Utah. Instead, over the next ten years, RMP intends to reduce their reliance on coal by 15 percent. • Natural gas production in Utah, occurring primarily in the Uintah Basin, exceeded coal production for the first time in 2010, with that trend continuing over the past four years. Increased competition, in the form of decreasing natural gas prices, puts additional pressure on the coal industry. • Earlier this year, the Ute Indian Tribe announced plans for a 1,000-megawatt natural gas power plant, demonstrating increasing competition for Utah’s coal-fired power plants. UNITED STATES • Over half (8,433) of all coal miners in Eastern Kentucky have been laid off since the first quarter of 2009. • While public opinion tends to shift over time, Gallup’s most recent energy poll reports that two thirds of Americans favor development of alternatives to coal. • The United States is experiencing a shift away from coal-fired power. The state of Nevada, for example, reduced its coal-fired power production from 70 percent of its total power generation in 1992 to 12 percent in 2012. • Since 2010, over 150 of the nation’s coal-fired power plants have closed or been scheduled for retirement. • The EIA reports 11 planned coal-fired generating unit additions in the United States in comparison with 281 natural gas-fired generating unit additions, with coal accounting for 4 percent of planned capacity and natural gas accounting for 45 percent of planned capacity. • The EPA estimates that 46 to 50 gigawatts of coal-fired generating capacity—over four times PacifiCorp’s total generating portfolio—will go offline as a result of its proposed CO2 regulation. As a result, the EPA also estimates that thermal coal production in the United States will decline by roughly 26 percent. WORLD • The world produced an oversupply of coal amounting to roughly 840 million short tons during the 5-year period between 2008 and 2012, a trend many experts expect to continue. • Global coal prices dropped roughly 40 percent between 2011 and 2014, decreasing the profit margins of US coal exporters. • With China, Japan, and South Korea importing half of the world’s coal exports, Indonesia and Australia (who ship half of the world’s coal exports) have a distinct geographic advantage in the global coal market, contributing to their ability to sell coal at low rates.
KEY MESSAGE Central Utah is heavily influenced by coal Utah’s coal communities rely on the jobs, revenues, and indirect economic benefits provided by coal mining and coal-fired power. The future of coal will play a fundamental role in the future of Utah's coal producing counties.
KEY MESSAGE Coal is an abundant resource in Utah Utah produces a significant amount of coal. In the national picture, however, Utah is only the 15th largest coal producer, and has less than 1 percent of the nations recoverable reserves. This is because 57 percent of Utah’s coal reserves are locked in the Grand Staircase-Escalante National Monument, leaving 54 years of economically feasible coal reserves for the state.
KEY MESSAGE Utah's coal is renowned for its clean qualities Utah’s coal is renowned for its clean qualities and relatively high heat content. Utah coal is also priced near the national average, allowing it to compete with most coal mines in the US. Low sulfur and ash content contribute to Utah coal’s competitiveness when compared with coals from other regions, especially the eastern US.
KEY MESSAGE Most of Utah's coal does not leave the state There are three key markets for Utah coal: (1) within the State of Utah, (2) domestic exports, and (3) international exports. Shifts in any of these markets are felt by individuals and communities across central Utah. The Utah and US markets are facing longterm decline in demand for coal, and international prices are currently very low due to a long-term glut on the supply side.
KEY MESSAGE Coal keeps Utah's electricity rates low Coal remains the most cost-effective source of energy production in Utah, and across the US. Recent decreases in natural gas prices have increased the profitability of gas-fired plants, increasing pressure on the coal-fired power industry. Despite this, coal remains significantly less expensive than natural gas, providing Utah's citizenry with one of the lowest electricity rates in the US.
KEY MESSAGE Utah relies heavily on coal-fired power Utah uses coal to generate more of its electricity than 43 other states. The high usage of coal is tied to low utility rates within the state. However, within Utah and across the nation, a significant shift away from coal has occurred. With no new coal-fired plants planned for Utah and only a few nationally, it appears as though this trend will continue.
KEY MESSAGE Demand for power in Utah continues to increase Demand for electricity in Utah will increase greatly in coming years. Power consumption within Utah is expected to increase in two ways: (1) Utah's population is expected to double by 2050, and (2) individuals are expected to use more energy per capita despite energy conservation and efficiency efforts. Current trends in power plant construction suggest natural gas plants will fill most of the new demand, with some assistance from renewable energy sources.
KEY MESSAGE Most Americans favor alternatives to coal Public opinion of coal is trending downwards. Concern about climate change is significant in the US, and two thirds of Americans support increased emissions requirements for power plants. Significantly more people under the age of 55 prefer strict renewable energy development to fossil-fuel development, demonstrating that opinion is unlikely to improve significantly in the future.
KEY MESSAGE Regulation is negatively impacting the coal industry Changes in public opinion have been followed in suit by increased regulatory requirements for both the mining and power-producing sectors. There are currently seven regulations from the EPA affecting coal-fired power plants that have recently gone into effect, are proposed, or are awaiting public comment. Considering multiple agencies regulate coal-fired power and coal mining, the number of regulations that change the landscape for these industries is staggering.
KEY MESSAGE The natural gas boom threatens the coal industry Natural gas is the fastest-growing electricity source in Utah and in the US. The EIA has projected that natural gas will surpass coal as the top electricity source in the country by 2035. However, decreasing natural gas prices and cleaner emissions could speed this process, reducing the national coal fleet even faster than projected.
KEY UNCERTAINTY - 1 Public Opinion Public opinion affects, and is affected by, other uncertainties. The “national mood” towards CO2 and other air-born pollutants is a driver in the recent shift away from coal-fired power generation in the United States. Public opinion has played a pivotal role in driving companies, states, and the federal government to institute, change, and eliminate policies and strategies that directly affect the coal industry. Today, roughly two thirds of Americans favor development of alternatives to coal, with many supporting regulations to reduce emissions. Public opinion, however, is not a foregone conclusion. It shifts in connection with global, national, and regional events. For instance, during the 2008 economic crisis, a majority of Americans shifted to preferring policies favoring the economy over policies favoring the environment. While public opinion has since reverted to pre-2008 levels, with over half of Americans again favoring protection of the environment, future events may significantly alter public opinion on coal, thereby shaping the future of the industry.
KEY UNCERTAINTY - 2 Regulation The political landscape surrounding coal is rife with contention. The ongoing debate has blazed across the country and is highly contested, with participants siding for or against increased emissions regulation, and some even questioning the continued use of coal as an energy source at all. As a result, the frequency of coal-related regulation has increased dramatically. The EPA alone has seven separate regulations passed or currently in consideration that will specifically affect coal-fired plants, in addition to currently implemented regulations and other agencies' regulations. Governmental regulation changes how coal mines and power plants operate, in some cases jeopardizing their economic feasibility.
KEY UNCERTAINTY - 3 Technology Historically, advancements in the energy sector have proven positive and consistent, but few are regarded as industry-changing events that significantly alter the nation’s energy portfolio. A number of industries have experienced minor breakthroughs, but most are still far from supplanting coal-burning facilities in terms of the amount and consistency of power they generate. The development of fracking however, is the type of revolutionary advancement that could fundamentally affect coal utilization. Before fracking technology was developed, the supply-side limits of natural gas limited its feasible extraction. However, with the widespread implementation of fracking, natural gas is expected to surpass coal as the leading electricity producing material in the country by 2035.
KEY UNCERTAINTY - 4 Markets Demand is the single most important driver for Utah’s coal mines and power plants. Regardless of increased regulation and other barriers to operation, power plants and mines will remain open so long as they are profitable. With demand for coal-fired power diminishing in California, the Los Angeles Division of Water and Power (LADWP)—IPP’s primary customer—will not be renewing its power purchase agreement, which is set to expire in 2027. Instead, the LADWP is working with IPP and intends to build a new natural gas plant and begin purchasing natural gas-fired electricity from IPP by 2025.
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KEY UNCERTAINTY - 5 Calamities A global war, enormous tidal waves, earthquakes, economic collapse, extremely severe weather, etc. can affect the coal market in a multitude of ways. It is important to recognize that a variety of calamities could mean the damnation or salvation of the coal industry in Utah. Given Utah’s location, the impact of disasters geographically specific to Utah (like a devastating earthquake that damages mines beyond repair) are unlikely, and would likely be less severe than large scale disasters occurring elsewhere. Nevertheless, disasters that occur in other states, countries, or even other industries can directly affect the coal industry in Utah. In Germany, for instance, there was a significant shift back to coal from nuclear power after the 2011 tsunami in Japan, and its subsequent impact on the Fukushima Daichi nuclear power plant. Germany decided that the threats of nuclear power generation were less attractive than the emissions problems that had caused the German government to phase out coal use in the first place. Consequently, coal consumption in Germany has been increasing consistently since the 2011 disaster.
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