If Hollywood were scripting the power industry story for 2011, it would be a sequel to 2010—more of the same, but just not quite as good. Natural gas gets top billing and the accolades, wind power drops to a supporting role, and new nuclear answers the casting call but has yet to get a speaking part. Coal is like Mel Gibson—a talented Oscar winner unlikely to get another leading role. In this, our fifth annual industry forecast report, the story may be familiar, but the price of admission is going way up.
Dull. Boring. Yawn-inducing. Soporific. Bland. More of the same. Welcome to the world of energy, 2011.
For a change, the coming year in energy, at least in the U.S., looks like a year of few surprises and no real excitement. Compared with previous years, 2011 could shape up to be business as usual, and a breather after 2010 is probably welcome.
Looking back, 2010 was filled with spills, thrills, and chills. A mammoth deepwater drilling rig in the Gulf of Mexico blew up and spewed out millions of gallons of crude, occupying the front pages of U.S. newspapers and providing endless footage for TV broadcasts for a third of the year. Climate legislation—threatening game-changing impacts on the generation of electricity, particularly for coal—crashed and burned in the U.S. Senate amid cheers from many in the industry and jeers from environmentalists. The U.S. nuclear renaissance again promised to make an appearance, and Uncle Sam dropped an $8.3 billion loan guarantee on a proposed two-unit project, but nuclear exited the year with a whimper.
Electricity Demand Rebounds
So what’s ahead? Let’s start with demand for electricity, the major driver of business decisions about generation, including whether to build new plants, retire old ones, or change the mix of technologies used to make power. The dominant factors in electric demand are the state of the U.S. economy and the weather. The “Great Recession” is still being felt, and annual economic growth is likely to be around 2% for 2011, according to many estimates.
As for the weather, last summer was unusually hot (following an unusually cool summer 2009), which drove increased use of air conditioning, causing the U.S. Energy Information Administration (EIA) in its November 2010 Short Term Energy Outlook to raise its 2010 yearly electricity forecast to a 4.7% increase, up from 4% in August. Assuming that temperatures in 2011 will return to normal, the EIA is forecasting electric demand growth for the year to drop to –0.1%, down from a modest 0.4% predicted in August (Figure 1).
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| 1. Electricity consumption grows. Total U.S. electricity consumption grew in 2010 after two straight years of decreases. Electricity consumption in 2011 is predicted by the Energy Information Administration (EIA) to be approximately the same as in 2010. Source: EIA, Short-Term Energy Outlook, November 2010 |
Long-term EIA assessments predict that 2011 will be the last year of about zero growth in electricity generation; future predictions trend back to 1% through 2035 (Figure 2). The North American Electric Reliability Corp. (NERC) 2010 Long-Term Reliability Assessment released in October is consistent with the EIA predictions that summer peak demand will grow by 1.34% per year and annual net generation will grow by 1.57% through 2019. That means no bubbling economy to spur electric demand. Another concern: NERC recently concluded that the Environmental Protection Agency’s (EPA’s) preoccupation with regulating coal-fired power plants will likely reduce the reliability of the nation’s grid (see the NERC sidebar).
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| 2. Slow future growth. The EIA predicts that electricity growth, though stagnant in 2011, will resume long-term growth of about 1.5% per year. The data are based on a three-year moving average. Source: EIA, Short-Term Energy Outlook, November 2010 |
The slow-as-Venezuelan crude economy influenced energy use across all sectors. Lawrence Livermore National Laboratory (LLNL) in September reported that total U.S. energy consumption in 2009 (the latest year for which data are available) was 94.6 quadrillion Btu, down from 99 quads in 2008. “Energy use tends to follow the level of economic activity, and that level declined last year. At the same time, higher efficiency appliances and vehicles reduced energy use even further,” said A.J. Simon, an LLNL energy systems analyst who develops the energy flow charts using data provided by the Department of Energy’s (DOE’s) Energy Information Administration. “As a result, people and businesses are using less energy in general.” Simon elaborated: “Simply said, people are doing less stuff. Therefore, they’re burning less fuel.”
Coal Remains Number One
The generating story for 2011 starts with coal, the fuel that just won’t quit. During 2010, green forces again tried, and failed, to commit energy regicide, but Old King Coal again survived. It’s dirty to burn, it’s hard to handle, its extraction disrupts the earth. But coal packs a wallop in terms of energy density, and it is relatively cheap, meaning that coal is still the dominant fuel for baseload generation of power. This year shapes up as offering no reason for coal plants already in operation or in the construction pipeline to disappear wholesale, although some retirements and plant cancellations are likely, due to specific business conditions (Figure 3).
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| 3. Coal use remains flat. Coal consumption will remain flat in 2011, according to EIA predictions. Data are presented as a percent change from the previous year. Source: EIA, Short-Term Energy Outlook, November 2010 |
Look for coal to continue its hegemony well beyond 2011. Few new projects are likely to be announced this year or next, but a large group of projects are under way. Most are likely to get finished and enter service. A year ago, the DOE’s National Energy Technology Laboratory (NETL) southwest of Pittsburgh updated 2002 and 2007 reports on coal-generating plants with conclusions drawn from its extensive plant database. The key finding of last year’s NETL report was the growing gap between announced projects and commissioned plant capacity. The NETL report, “Tracking New Coal-Fired Power Plants” (available on the NETL website) noted: “Actual plant capacity, commissioned since 2000, has been far less than new capacity announced.” The 2002 report showed over 36,000 MW of new coal-fired capacity scheduled to be installed by 2007. Only about 4,500 MW actually got commissioned.
This trend continued last year and is likely to continue in 2011 and 2012, according to NETL’s Erik Shuster, who wrote the NETL reports. Shuster told POWER in an interview that he expects fewer announcements of new projects in the next couple of years, driven by uncertainty about the economy and the political environment. There will also be some retirements, such as the one announced last year by the Tennessee Valley Authority, which is retiring nine elderly units. But that leaves “tons of plants” still in the works, says Shuster.
According to NETL’s 2010 report, 22 plants (13,755 MW of coal-fired generation) were under construction in January, down from 28 plants (2,500 MW) in January 2009, with one plant (320 MW) “near construction,” down from seven plants (2,500 MW) in 2009. Eight plants (3,280 MW) in January 2010 were in NETL’s “permitted” category, compared to 13 plants (7,000 MW) in January 2009. NETL defines “permitted” as “Two or more permits approved or fuel or power contracts have been negotiated.”
The Sierra Club maintains a useful database on its website of coal-fired projects, which generally agrees with data in the NETL compilation. In its latest update, the Sierra Club’s tracking shows 44 projects that it defines as active, 11 as “upcoming,” and 25 as “uncertain.” The organization claims “victory!” for 133 cancelled plants, although many of those projects died without the opposition of environmental groups.
So coal looks solid for the next couple of years. But there is an eerie resemblance between the current coal project pipeline and what we saw in the late 1970s and 1980s with nuclear plants: It’s a pipeline in the process of emptying. The EIA’s Annual Energy Outlook also points to this phenomenon, showing a gradual but significant market share decline for coal-fired electricity by the middle of this decade, rebounding a bit by 2035. The EIA says, “With slow growth in electricity demand, little new coal-fired capacity is added, and the coal share falls from 48 percent in 2008 to 44 percent in 2035.”
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