By Rob Barnett | May 02, 2012
Low natural gas prices combined with new environmental requirements are taking a bite out of coal-fired power. The Environmental Protection Agency ratcheted up the pressure on coal last month when the agency proposed new regulations that aim to curb greenhouse gas emissions. Our new Bloomberg Government study, The Twilight of Coal-Fired Power, assesses EPA’s recently proposed greenhouse regulations.
Although EPA’s proposal would effectively ban the construction of new coal-fired power plants, the study concluded that this isn’t a departure from business as usual. This is because new coal power plants are an out-of-the-money investment based on current coal and natural gas prices. Natural gas has been the default fuel of choice for new power plants for nearly two decades, and a rule that bans coal isn’t going to shift investment patterns in the power sector in the short-run. However, permanently removing conventional coal-fired power as an option for new electric power is an unprecedented move by EPA.
The report concludes that coal will slowly lose market share as a result of both environmental regulations and the compelling economics of natural gas. This puts coal producers, especially higher-cost producers located in Appalachia and the Eastern half of the U.S., in a tenuous position: With expectations for declining demand from the power sector, coal producers will need to seek new markets in order to survive.
Rob Barnett is an energy analyst at Bloomberg Government. He was an associate director of climate change and clean energy at IHS Cambridge Energy Research Associates. Barnett holds a master’s degree in economics from Boston University and an undergraduate and master’s degree in electrical engineering from Clemson University.
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