Wednesday, August 25, 2010

Gas Electricity Plant to Replace Planned Coal Plant in Ohio

American  Municipal Power, Inc. (AMP) announced earlier this week that it is moving forward with a 600 MW natural gas combined cycle power plant on the Ohio River in Megis Co., Ohio.  If approved by a multitude of oversight bodies, it would be built on the site originally planned for a 1,000 MW coal-fired power plant.  Apparently this new proposal is more palatable to environmental groups, one of which has already withdrawn its objections, and the members of the cooperative utility,which would save money over the long haul.

While this is but one example of utility investment decisions being made all over the country, this particular decision reflects the complex environment for utilities.  Not only is it a matter of how much a plant costs to build and operate, utilities must think about whether building a coal plant will expose them to future environmental restrictions that attempt to quantify the coal's environmental and human health damage. They must also look at the new paradigm of natural gas supply.  Shale gas discoveries have erased the supply concerns that have long made natural gas prices so volatile.

Unfortunately or fortunately, depending on your perspective, many utilities must also add alternative power generation sources to satisfy state targeted standards, thus complicating investment decisions.  As Robert Bryce's recent editorial in the Wall Street Journal correctly points out, alternative/renewable energy portfolio standards generally lead to the addition of wind power, which is most easily implemented at a large scale.  Unfortunately, because of the intermittent nature of wind, a utility will still run its baseload power source but use less of is peak generation.  As a result, the utility uses the same amount of coal and less natural gas (this was discussed in a post last year).  In the end, carbon emissions generally remain unchanged with the addition of wind power.

Unfortunately today, the increased use of wind energy, while well intentioned, is both expensive and ineffective at lowering carbon dioxide emissions.  The problem, however, is not wind power itself, but the decision framework of the utility.  Today, because coal is cheaper than gas, the gas plant gets switched off first.  But this calculation doesn't take into consideration the full economic and non-economic impacts of burning coal. Only by assessing an economic cost for burning coal and applying at least part of this cost to those who burn coal will we see the economic burden of the fuel.  I don't know if that comes in the form of a carbon tax, cap and trade or increased pollution controls, but the fact is that coal is getting a free ride.

The inescapable conclusion is that the fastest and cheapest way to lower carbon dioxide emissions without changing our standard of living is to use more natural gas than coal.  It's that simple.  Natural gas produces about half the carbon of coal; gas produces none of the dangerous particulate emissions of coal; and gas plants are generally cheaper to build on the front end.

Given that Big Coal holds untold political sway across the country, it is unlikely we will ever see the true cost of coal implemented, so I'm not holding my breath (unless I'm near a coal-fired power plant).  But if we as a nation are serious about reducing greenhouse gases, we need to get serious about replacing coal power with natural gas power.

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