Wednesday, December 2, 2009

Progress Energy to Close Some Coal Plants

North Carolina based utility Progress Energy said that it will close 11 coal-fired electric plants representing 1,500 megawatts by 2017 (here is a good article from Reuters with lots more details).  Many of these plants are old and retrofitting them with updated pollution controls will be expensive.  The company seems to be making a bet that Congress will pass some sort of carbon reduction legislation and that the price of natural gas will remain low for the foreseeable future.

While it's a simple statement to close 30% of your coal fleet in North Carolina, it's actually a fairly complex wager.  First, the company would be taking a substantial risk in closing a coal plant before carbon reduction legislation is finalized.  One of the major policy discussions is how to set the baseline to measure progress in reducing carbon output.  It's not something that has been well measured until recently and there may have been inconsistent measurement standards in the past.  To me, this points to a baseline in the present, either 2009 or 2010.  But if you close a coal plant before then, you reduce your baseline carbon output and therefore don't get credit for the reduction and, worse, have to enact more cuts to meet goals.  Having that uncertainty out there is going to keep other big coal users on the fence.

Second, Progress is banking on natural gas prices remaining both low and less volatile.  I'm sure the company's economists have pored over data and are projecting just this kind of scenario.  At least one new gas-fired plant is planned, but it is likely for Progress Energy that natural gas will be a bridge fuel not to alternatives but to nuclear power.  Progress is planning two nuclear reactors in North Carolina and more in Florida.

No comments: