Coal is King? EIA says the answer is yes but with some key caveats.

Last week the Energy Information Administration (EIA) released its Annual Energy Outlook for 2011. The report projected that by 2035 coal will continue to constitute the largest share of electricity generation in the U.S. Despite EIA predicting that few new coal-fired power plants will come online over the next 25 years, coal's share of the electricity market will only decline from its current share of 45% to 43%. The few media reports on EIA's outlook highlighted that coal, despite its challenges, will remain king for the foreseeable future. Yet, media reports ignore some of the underlying caveats in the report. EIA's outlook notes that "EPA is expected to enact several key regulations in the coming decade that will have an impact on the U.S. power sector, particularly the fleet of coal-fired power plants." Yet since EPA has not finalized these rules, "their impacts cannot be fully analyzed" and they were not included in the reference case cited by many in the press reporting on EIA's outlook. EPA proposed the Clean Air Transport Rule last year, which would require significant reductions in sulfur dioxide (SOx) and nitrous oxide (NOx) emissions. As EIA's report notes, these new regulations could require that coal-plants install scrubbers and selective catalytic reduction to reduce SOx and NOx emissions, respectively. Compliance with new regulations for conventional air pollutants and greenhouse gases could make retirement or retrofits of coal-fired power plants increasingly make more sense economically as time progresses. EIA's notes the consequence of these regulations by providing an alternative case scenario where compliance with these regulations would result in a retirement of over 20% of the existing coal fleet. The over 800-pound gorilla in the room is the development of new shale gas reserves in the Barnett, Eagleford, and Marcellus shales, among others. The development of these reserves can provide utilities with an affordable supply of natural gas, while also making it easier for utilities to meet new EPA air regulations . At an Energy Bar Association event, Steven Fine of ICF International stated that retirement of coal plants are "very sensitive" to natural gas prices. ICF's analysis estimated that a shift of natural gas prices by 50 cents up or down can affect the amount of coal plants retiring by approximately 7-10 gigawatts in either direction. Thus, under a status quo scenario, coal does remain "king," but EPA regulation and new shale gas development are directly challenging that status quo.

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