The era of U.S. coal-fired electric power generation will effectively end as new federal regulations limiting carbon dioxide emissions from fossil plants take effect, a new analysis from Bloomberg Government concludes.

The report, from energy analyst Rob Barnett, posits that the new U.S. EPA rule, rolled out last month and open for public comment until June 12, will effectively ban the construction of new coal-fired power plants because the CO2 emission rates required of fossil plants are so strenuous that no conventional coal plant could meet them.

Baseload oil-fired power plants, which account for a much smaller share of current generation assets, also would fail to meet the EPA standard, the analysis found.

And while EPA designed the rule to accommodate fossil fuel plants equipped with carbon capture and storage (CCS) technology, the Barnett report said such plants are unlikely to find favor with investors unless Congress provides incentives to defray their higher construction and operation costs.

Meanwhile, existing coal-fired power plants, many of which date to the 1970s or earlier, will continue to face pressure to close as other environmental regulations target conventional coal pollutants like nitrogen oxides, mercury and particulate matter.

"I think coal is at a very low place right now," Barnett said in an interview, noting that coal has lost about 10 percent of its market share for electricity generation as more utilities convert their plants to burn natural gas.

Scott Segal, executive director of the Electric Reliability Coordinating Council, which represents utility interests in Washington, said Bloomberg's findings about the effect of the new EPA rule on coal plants are "very consistent" with what his group concluded in its own review of the regulation.

Cheap gas makes coal uneconomical
"The agency disingenuously refers to its rule as path forward for coal, when in fact it's a dead end," Segal said in an interview.

Barnett said he does not expect coal to "fall off a cliff" due to the new EPA rule on greenhouse gas emissions, but that it will remain in utilities' fuel mix for the next 25 to 30 years.

Adoption of clean coal technologies like carbon capture and storage also will be a heavy lift for the utility sector, since they can significantly drive up production costs.

According to estimates from the Energy Information Administration, electricity generated from CCS-equipped coal plants costs almost 50 percent more to produce than conventional coal-fired generation and is roughly 100 percent more expensive that electricity produced from natural gas-fired boilers.

And given the current cost competitiveness of natural gas, there is little reason for utilities to include coal in the planning mix for new generation assets, Barnett said.

"Essentially, a natural gas plant can comply with the EPA's proposed standard at a much lower cost, which begs the question of why investors would choose to build coal with CCS," the report states.

Moreover, if natural gas prices remain low due to higher yields associated with the hydraulic fracturing of wells, other forms of electricity -- including renewables -- will have a hard time winning favor with utilities and state public utilities commissions that govern the growth of the electricity system.

U.S. coal eventually headed overseas
While natural gas prices are currently hovering around $2 per million British thermal units, EIA projects that prices will gradually rise to a long-term average of around $6 per million Btu.

Yet the analysis shows that even with higher gas prices, coal plants still fail to be economically competitive under the new greenhouse gas rule, which requires that fossil plants not exceed emission rates of 1,000 pounds of CO2 per megawatt-hour.

In fact, gas prices would have to increase fivefold, to an average $10 per million Btu over the life of a power plant, for coal to become competitive again, the report notes.

Segal said he disagrees that new coal-fired generation will become obsolete due to market forces alone, citing utilities' interest in maintaining a diverse fuel mix to hedge against price fluctuations. "Many power providers are still interested in maintaining a balanced portfolio," Segal said.

But, he added, EPA's rule will disrupt utility hedging by eliminating coal from the fuel mix and "depriving the market of its flexibility."

Other mitigating factors for coal-fired electricity would be if thermal coal prices dropped off steeply or the cost of building a coal-fired power plant came down. But Barnett said such conditions would hinge on a number of factors, including a reduction in coal demand overseas.

He noted that U.S. coal companies are already positioning themselves to boost exports, especially to energy-consumptive countries like China, as domestic demand for coal continues to drop off.

"It's really a tale of two markets," he said, noting that as U.S. thermal coal prices soften, demand for high-grade metallurgical coal and some thermal coal has helped prop up U.S. coal mining activity in traditional high-volume regions like Appalachia and the Powder River Basin.

Click here to access the Bloomberg report.

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC., 202-628-6500