My Top 10 Predictions for 2013

A year ago in this column, I predicted that 2012 would be pivotal for the power generation industry, and it was. Coal-fired generation dropped precipitously and gas-fired generation accelerated much faster than industry predictions. Early in 2012 the unthinkable occurred: coal- and gas-fired generation crossed paths at about 32% for a short period of time, although coal subsequently began a slow recovery for the remainder of the year. Our 2013 Industry Forecast (p. 30) discusses the likely price and usage trends to expect this year, which are reflected in many of my 2013 predictions.

Looking back over the past year’s predictions, I graded myself a “strong B,” slightly down from the past two years (a detailed discussion of my individual scores is available as an online supplement to this issue). Like coal, I’m expecting a comeback in 2013.

10. Kyoto 2 is DOA. The Kyoto Protocol expired on Dec. 31, 2012, and an extension (Kyoto 2) was formulated in late 2011 as an interim measure until a new treaty was negotiated, slated for 2015. COP18, which ended on Dec. 7, made no tangible progress. Few nations have backed Kyoto 2, and Russia, Japan, and Canada have rejected the measure unless China and India also accept binding targets. In 2013, China and India won’t engage, and the European Union (EU) will stay at arms length until there is agreement for carryover of unused emissions allowances, which the many small member countries disagree with.

9. Coal Combustion Residuals, and Cooling Water Intake Structures Rules Go Live. Why would the administration go into low gear with these two regulations in 2012 and delay post-election into 2013 unless the rules were onerous? Expect coal ash to be reclassified as a special waste and new plants (plus some existing ones) to be forced to begin the move from once-through cooling to cooling towers.

8. Natural Gas Prices Rise. Expect the average price of natural gas used for power generation to rise 20% and the amount of electricity produced by natural gas to drop by at least 10% in 2013, below 2012 levels.

7. Coal Use Rises, But No New Plants Are Built. As gas prices rise, the use of coal for power generation will follow suit, but at a lower rate. Expect coal-fired generation to rise 7% to 8% in 2013, over 2012 levels. Unfortunately, no new coal plants will begin construction in the U.S. in 2013.

6. The EU Embraces Coal. EU member countries will begin construction of several new supercritical coal-fired plants in 2013 in preference to gas-fired combined cycle plants. The price of natural gas imported from Russia into the EU is pegged to the price of oil, making indigenous coal a very attractive fuel, particularly when carbon allowance are at historic lows, and the EU has already reached its 2020 carbon dioxide reduction goals.

5. The EPA Fracks Gas. On the same day the Environmental Protection Agency (EPA) released New Source Performance Standards (NSPS) for the oil and natural gas industry (Aug. 16, 2012), a group of associations petitioned the EPA administrator for reconsideration of certain provisions (now pending). Also, the petitions of eight industry groups challenging the NSPS were combined and filed with the D.C. Circuit Court of Appeals on Oct. 15, 2012. The first hearing is set for Dec. 21, 2012. I predict that the EPA will make small adjustments in the rule to correct the most egregious errors, but the Court of Appeals will strike down the rule for many of the same reasons it did the Cross-State Air Pollution Rule.

4. Demand Stays Flat. The Energy Information Administration’s (EIA’s) Annual Energy Outlook 2013 Early Release Overview (AEO2013 Overview) predicts that demand for electricity will rise at a rate of 0.9% for 2013. In my opinion, the prospects for an economic stall in early 2013 are very high, thereby quenching the hope of an increase in the GDP growth rate. Electricity demand will grow at the more pedestrian rate of 0.7%.

3. Electricity Costs Rise. The average domestic cost of electricity will reach a new milestone of 12 cents/kWh in 2013, an increase of about 2%, according to the EIA.

2. LNG Stays Home. The EIA’s December 2012 release of its AEO2013 Overview predicts that a surplus of natural gas will be available for liquefied natural gas (LNG) export by 2016, and the volumes are double those predicted in last year’s report. With legislators calling on President Obama to declare a moratorium on gas exports and only a single new export terminal approved (Cheniere Energy’s facility in Sabine Pass, La.) to date, the infrastructure is unlikely to be in place by 2016 to export any significant additional quantities. Other than Cheniere Energy, don’t expect approvals for additional export terminals in 2013, which will make the EIA predictions moot.

1. The Carbon Tax Dies. Perhaps the most disturbing concept under discussion by our congressional representatives on both sides of the aisle is the political viability of a carbon tax. Spurring on that discussion was the September 2012 study by the Congressional Research Service that suggested the U.S. budget deficit could be reduced 50% in 10 years if a $20 per metric ton carbon tax were enacted. The tax is represented by some as a way to fight climate change, although many legislators are more interested in the tax as a new revenue source, and others wish to use the revenues to stem the flow of federal budget red ink. Expect plenty of talk but little action, because a tax by any other name is still a tax.

I don’t expect everyone to agree with each of my predictions. If you have strong feelings, aye or nay, let me know at editor@powermag.com.

Dr. Robert Peltier, PE is POWER’s editor-in-chief.