Economic developers in the region are instead betting on natural gas as the primary driver of the energy economy in Pennsylvania, Ohio, Kentucky and West Virginia.
“Consol is actually a good example of the shift away from coal to natural gas,” said Laura Fisher, senior vice president of workforce development for the Allegheny Conference on Community Development, a large business development group focused on the economic longevity of the region that has everything to do with fracking and little to do with mining.
The company celebrated its 150th anniversary last year, said Fisher, noting that until very recently it had been a coal company since its inception. “It is now a majority natural gas company. It still has some coal assets, but most of them have been sold,” she said.
As a large Southwest Pennsylvania-based company, Consol shifted its business model from one based on coal mining in the Pennsylvania-Ohio-West Virginia tri-state region to one in which natural gas is the fuel of choice. It still operates one of two coal export terminals on the East Coast, but other than that there are few remnants of its coal mining past, as it has become a major player in the Marcellus Shale region that stretches from Eastern Ohio, through Pennsylvania, to New York.
“Coal is still part of the mix, and we anticipate that it will be,” Fisher explained. “But we anticipate the natural gas between the Marcellus and Utica [shale regions] is so prolific that it really dwarfs other energy sources. And what we’ve really been putting our attention to is harnessing that resource.”
The federal government has a similar take on the future of the region. Although it may not specifically have natural gas in mind, it does support the industries that natural gas is fixed to spawn.
Meanwhile, Fisher’s group, which represents 10 counties in Southwestern Pennsylvania, formed a collaborative with West Virginia and Ohio to focus on developing shale, she said.
The large oil and gas company, Chevron, is a partner with Fisher’s group to catalyze the workforce required to go hand-in-hand with that development.
Chevron, which owns drilling assets in the fracking fields of Pennsylvania, is also working to improve the skills it sees as beneficial to the energy industry in the states, as well as the new manufacturing and technology jobs that the fracking boom is attracting to the region.
Trip Oliver, the company’s head of policy for the Appalachian region, explained that Chevron acquired a company called Atlas Energy just over six years ago, which began its foray into the Marcellus and Utica shale areas of Pennsylvania, Ohio and West Virginia.
Oliver said they are supportive of the federal government’s getting involved, but they also feel “it’s important for a private company, for business, to take leadership role in this region.”
He said that was the one message they heard consistently from regional groups “is that we really need a corporation to step up and really put their name behind a major initiative here in order to address this challenge that we have regionally with the technical skills in the workforce.”
Chevron is acting to be a “catalyst for change,” he said.
Surviving bankruptcy
Many of the nation’s coal producers, both in the East and the West, have been undergoing major debt restructuring due to a downturn in demand for coal and legacy costs. Peabody Energy, one of the largest coal firms worldwide, recently emerged from bankruptcy along with other companies, and some hiring of miners is occurring.
But analysts see that as most likely short-lived.
“I’m not sure that’s an intelligent thing for the coal companies to do, and I’m not sure if those jobs are stable, but it looks like they’re there,” said Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, which seeks a diverse energy economy. “So, there may be some new employment there. But the growth in the energy sector are natural gas, wind and solar.”
The Energy Information Administration, the Energy Department’s independent analysis arm, projects coal mining to increase around 3 percent this year and next, primarily in response to natural gas prices rising. At the same time, federal data has consistently showed wind energy has added more turbines to the grid than any other energy resource. For the first time in history, wind surpassed hydropower as the nation’s leading form of renewable energy.
The wind energy industry isn’t letting that fact go by the wayside. Officials with the American Wind Energy Industry, the industry’s lead trade group, is quick to tout that it is one of the only parts of the energy industry, outside of natural gas, which is actually growing jobs in coal country, pointing out that Ohio has become a key hub for wind energy components manufacturing in the country.
As for coal, in the “very best case” scenario, “the demand will remain flat for a long time,” Sanzillo said. “And in the more likely case, we’re going to see a steady decline. And that’s a function of natural gas prices remaining low. It’s a function of wind and solar energy taking competitive positions away from coal in several areas around the country.”
Coal plant retirements
On top of waning demand for coal, coal power plants are retiring, Sanzillo and many others point out.
Sanzillo’s group and other research firms have issued briefs in recent weeks detailing coal plant closures this year, with the prospect of being replaced by natural gas power plants.
“They may do a little better this year. Natural gas prices are a little higher. And they are coming out of bankruptcies,” Sanzillo said. But the question remains: “Is the price of coal they can get on the market sufficient to cover operating expenses, reinvestment and profit? And the answer is no.”
He explained that prices have come back somewhat for coal, but they are insufficient to meet those three fundamental objectives of any industry. Simply put, there are “too many companies, mining too much coal, with too few customers. In the U.S. and it’s also worldwide,” he said.
The president’s strategy is focused on eliminating environmental regulations without examining the market. “Are the elimination of those regulations going to be sufficient to induce utilities to invest in new coal plants? The answer is no,” Sanzillo said. The principal factor is profitability amid increased competitiveness from natural gas and wind, he said.
Low fuel prices dictate what utilities build, what the state commissions that regulate the utilities will allow to be built, and what resources dominate the large restructured markets that the government oversees.
A recent brief by the institute showed 46 coal plants are either slated to be closed or refurbished to burn natural gas through 2018.
The decline in demand is expected to have ripple effects on mining firms from Utah to Appalachia. Many of the plants looking to retire extend from West Virginia, Kentucky, and through the Tennessee Valley. The plant closures listed in the report represent a conservative estimate, excluding some plant closures in Ohio and Texas.
“Our analysis is conservative in that it considers only those plants and units seen either certain or all but certain to close by the end of 2018,” read the brief. It also excludes the closure of the Navajo Generating Station in Arizona, which is the largest coal-fired power plant in the country. The Trump administration is in talks with the power plant’s owners and the tribes that lease the land it sits on to find a way to extend its life. The plant’s owners blame the market, and low natural gas prices for the power plant’s decline.
The brief explained that the shift away from coal is “likely to continue as intense cost competition from renewables and natural gas continues.”
Bill Johnson, the CEO of the largest public utility in the country, the Tennessee Valley Authority, said coal plants it chose to close are not going to reopen under Trump. The authority operates as an independent nonprofit utility, but is essentially federally owned as a Depression-era solution to supplying poor, rural communities with electricity and light.
“Our statutory duty is to produce electricity at the lowest feasible rate,” Johnson told the Associated Press in a recent interview. “And when we decided to close the [five] coal plants, that was the math we were doing,” he said, adding that it had nothing to do with President Obama’s climate change agenda or regulations.
“We weren’t trying to comply with the Clean Power Plan or anything else. What’s the cheapest way to serve the customer? It turned out to be retiring those coal plants.”
Johnson acknowledged that Trump could seek to reverse the agency’s choices in the budget. He said there have been no talks with the administration over the authority’s direction.
North Carolina-based Duke Energy, once one of the largest coal utilities in the country, said last month that it can no longer support using higher amounts of coal, despite Trump’s push to revive the industry.
“We have to look through the changes of administration, the changes in politics and set our vision on where we want our company to be and what strategy we are pursuing,” said CEO Lynn Good at a gathering last month. “So when I think about administrations, the only person running Duke Energy for 2025, 2030 and 2035 is Duke Energy,” Good said.
She explained that the economics of using coal are “really challenged” and that the company’s focus should be on maintaining the current fleet of power plants, which includes 11 nuclear reactors along with new natural gas power plants. Much of the utility’s coal fleet is being transitioned from coal to natural gas. Based on 2016 figures, the company has closed about half of its coal-fired power plants in just its home state alone. It functions across much of Appalachia.
The Gulf of Appalachia
Fisher, of the Allegheny Conference on Community Development, said the effort is meant to attract new businesses to the region, including the petrochemical industry and a new investment by Shell to build a “cracker” facility in Beaver County, Pa., to turn natural gas into high-value chemicals used in manufacturing. Crackers are the principal part of a refinery used to separate a range of different products from both natural gas or ethane. At an oil refinery, it’s the device that is able to produce gasoline and diesel from the same barrel of crude.
Polymer and plastics are other industries the region wants to attract, as well as a range of chemical companies that are always looking for cheap supplies of natural gas and its liquid derivative, ethane. It is attracting investment as far away as Thailand, Fisher said.
“It’s an ethane cracker from a Thailand company [called PTT] looking to set up in Eastern Ohio,” said Chris Ziegler, executive director for the American Petroleum Institute’s Ohio branch. “That’s what’s needed here in the state or in this Appalachian Basin,” he added, saying new natural gas refining facilities would create more demand for the vast quantities of ethane that exist in Ohio.
Fisher and the Allegheny Conference want nothing less than the tri-state region to become like the states along the Gulf Coast where the oil and gas industry is very mature.
She still sees coal having a role in the energy future of the region, but primarily through investments in research and development at the National Energy Technology Laboratory in West Virginia and the federal lab’s hub in Pittsburgh, which is the principal federal research center for fossil fuel advancement. Fisher sees the quest to make clean coal technologies commercial as the future of the region’s coal industry.
Grid battles
At the same time, merchant companies continue to take advantage of the low-cost natural gas being produced in the region in deciding to build new efficient natural gas-fired power plants in the states, Ziegler said. Approximately 10,000 megawatts of new gas capacity is slated to come online this year and next, he said. A typical coal plant produces roughly 550 MW of electricity at full capacity. That amount does not count plans by individual utilities to transition coal to gas in the state.
At the same time, the oil and gas industry is fighting utility companies whose nuclear power plants have become uncompetitive due to the abundance and low cost of natural gas. The American Petroleum Institute, which represents the oil and gas industry, doesn’t want state legislatures to approve subsidies for ailing nuclear plants, which will end up tacking fees onto consumer’s energy bills, said Ziegler, who is fighting such an effort in Ohio.
The same position would likely be taken by natural gas interests if coal plant owners tried to do something similar. API and others want the market to dictate the generation mix, not artificial incentives.
The coal industry group American Coalition for Clean Coal Electricity is also responding to the high penetration of natural gas in the region. It has begun making the argument that coal plants should be valued for the added resilience they provide to the grid and that natural gas plants have their limitations.
The coal group made the argument in a letter in response to the grid operator for the region, PJM Interconnection, saying natural gas could provide up to 86 percent of the power grid’s needs.
“PJM flat out said increased natural gas generation will not hurt regulatory reliability at all,” said Ziegler. “Our response would be let the market determine the best generation for a state, a region, whatever it may be,” he added.
“Time and time again, consumers, especially here in Ohio, have been asked to prop up generation assets, or other folks in the utility industry, to the detriment of consumer bills … [and] with no apparent benefit,” Ziegler said.
That fight is also occurring in the courts as natural gas power generators sue New York for implementing billions of dollars in incentives to keep nuclear power plants afloat.
The issue is also being reviewed in Washington by the Federal Energy Regulatory Commission. “However, as you know, FERC presently lacks a quorum to act on this or other contested matters,” said John Shelk, president of the Electric Power Supply Association, representing the natural gas power companies. The federal agency, which regulates both the electric grid and the interstate natural gas industry, lacks at least three commissioners to be able to make decisions and rules.
Shelk said the coal group’s proposal is interesting, but he said the devil would be in the details. “On resilience, depends how they do it,” he said. “PJM is looking at options, and per the Federal Power Act, anything has to be on a nondiscriminatory basis,” Shelk said. “If it isn’t fuel-neutral — meaning define needed attributes and let everyone compete — we would have concerns.”
Shelk noted that while most his members’ assets are gas, “we have significant nuclear, coal and renewables too — so we look at these things across fuels.”
Trump has not appointed new nominees in the months since FERC was forced to put in place emergency orders placing senior staff in charge of its day-to-day operations, while shelving major decisions.
Shelk said all of the contested issues will be “central to the FERC technical conference May 1-2 on the interrelationships between federal regulation of wholesale markets and state actions such as the … nuclear subsidies.” Technical conferences are for information-gathering, although in the past they have been used as a backdrop to vet future decisions. With the lack of the quorum, commissioners will likely observe, but engagement on the issues and discussion of future decisions will be limited.
Perry’s grid gambit
Also at the federal level, Energy Secretary Rick Perry is conducting his own review of the grid that seems to track with the coal industry’s desire to see its power plants deemed a necessary part of the power system to make it more resilient.
A number of groups and sectors are seeking ways to influence and keep tabs on Perry’s analysis, although it is not clear how they will be doing that.
Perry said in a memo to senior staff last month that experts have “highlighted the diminishing diversity of our nation’s electric generation mix and what that could mean for baseload power and grid resilience.” Baseload power plants are able to provide electricity around the clock, with limited interruptions. In contrast, wind and solar power are deemed intermittent because they are unable to provide electricity without interruption in a single 24-hour period.
The 60-day review would look at how changes in the baseload power supply are changing and affecting resilience and reliability. He named coal, natural gas, hydropower and nuclear as baseload power plants, excluding solar and wind as intermittent resources.
Coal state lawmakers praised Perry’s effort, which they see as part of Trump’s push to keep coal a vital part of the electricity grid while also supporting natural gas and renewables that are growing in states such as West Virginia. Sen. Shelley Moore Capito, R-W.Va., a Trump advocate, did her best to appear fuel-neutral when responding to Perry’s memo.
“If we are going to have affordable, reliable energy that powers our economy and advances our quality of life, we must maintain an adequate supply of base load electricity that is always available when it is needed,” Capito said in a statement. “There is a role for multiple energy sources, including our own West Virginia coal and natural gas, as well as nuclear and renewables.
“But there is a clear difference between intermittent energy sources and base load power,” she said. “A diversity in fuel sources and technologies is essential for a reliable and properly functioning electric grid.”
Wind industry advocates plan to respond formally to the Perry study, especially the fact that Perry’s memo does not acknowledge the benefits of their industry to the grid. Now more than ever, wind energy possesses the attributes to be considered something akin to baseload power, according to senior wind energy officials.
“We hope that in the course of doing this study that the Department of Energy goes out and talks to the utilities and other grid operators who are reliably operating the power system with large amounts of wind and solar energy today,” said Michael Goggin, senior director of research at the American Wind Energy Association.
The grid operator in Perry’s home state of Texas, he pointed out, is a great example of how to successfully integrate wind on a massive scale. PJM and the Southwest Power Pool that run the markets under FERC are all integrating high amounts of wind while also running conventional power plants, he added.
“We think that markets are working, and we think wind is making really valuable contributions to electric reliability,” Goggin said. “And that’s one of the most interesting things here,” he said, referring to Perry’s memo. “We think there are some out-of-date notions about the abilities of wind and solar to provide grid reliability services.”