Grading My Top 10 Predictions for 2013, Part I

I have presented my top 10 predictions for the year in the January issue for the past several years. I then graded myself against the actual events of the year and presented the results at the end of that year. My grades over the past three years ranged from mid- to high-B, which wasn’t bad considering the regulatory and fuel use uncertainties that have kept the industry on its heels.

I dislike unfinished business, which motivated me to grade the predictions I made in the January 2013 issue of POWER. I’ll hit the first five in this posting and the second five in a follow-up posting. The original posting is shown in bold/italics with my comments and grade following in standard type.

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. The Protocol has been expired for a year now with little tangible progress to report on its successor. The Doha Amendment to the Kyoto Protocol was adopted in Doha, Qatar on Dec. 8, 2012 with a new commitment period beginning Jan. 1, 2013 through Dec. 31, 2020 during which the participants promised to reduce GHG emission 18% below 1990 levels (the first commitment period that is now ended promised 5%). Eighty-four countries signed the original agreement. The European community is solidly behind the Amendment because the EU has already reduced their GHG emissions but have yet to formally adopt the Amendment. However, four countries have voted acceptance of the Amendment: Bangladesh, Barbados, Mauritius, and the United Arab Emirates. Kyoto is dead and buried and I get an “A.”

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. The Administration continues to sit on the coal ash rule. In late October, a federal court issued a memorandum opinion ordering the EPA to come up with a concrete timeline for completing its review and release of its coal ash regulation. The EPA published in June 2010 a draft rule with alternative rule-making approaches—coal waste could  be classified under RCRA Subtitle C (hazardous waste) or Subtitle D (nonhazardous waste).  The EPA told POWER during an October interview that the final coal ash decision would be determined once the EPA has made a full evaluation of all the comments submitted about the draft rule. That’s a nice way of saying the EPA is purposefully dragging this out for likely political reasons. The effluent limitations guidelines are now expected in the first half of 2014 followed by the coal ash regulation. I expected the rules to go live in 2013 and they didn’t. However, how onerous the rules will be is yet to be determined so I have to grade this prediction as “Incomplete.”

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. The latest EIA data (through October 2013) shows that the average cost of natural gas used for power generation (Table 4.13.A Electric Power Monthly) shows an increase from $3.91/ million BTU (January 2013) to $4.15, an increase of 6.1% with two cold months pending. The amount of natural gas available for power generation will drop during the winter months because of its priority use for household heating and pipeline bottlenecks in the Northeast. The amount of electricity produced by natural gas (Table 1.1), using the rolling 12 months ending in October, was down 11.5% from 2012 I’ll give myself a “B” overall.

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. From the same Table 1.1 of the EIA’s Electric Power Monthly, we see coal used for electricity generation up 5.8% through October 2013. However, history has shown that household natural gas usage peaks during the colder winter months and power generation dips (e.g., in 2012, gas was 138,863 thousand MWhs in July and 83,989 in Dec). In 2013, gas generation was 119,274 in July so a similar dip is to be expected in Nov/Dec. In 2012, coal use rose during the winter months (up 7.1% in Jan. 2013). When the final annual data is in, I still believe my prediction will be very close. I’ll settle for a “B+.”

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. European power generators continue to mothball gas-fired combined cycle plants in record numbers because they are uneconomic to operate when gas prices are so high. Germany commissioned its first coal-fired plant in eight years with Steag’s 725-MW plant located in western Germany. There are another 10 coal plants scheduled to enter service through 2015, according to Germany’s electrical grid regulator, raising the amount of coal-fired generation in that country to 33% of demand. The average price of natural gas in the EU was $11.42/million Btu in Nov. 2013, pushing three times the average price of gas in the U.S. This prediction earns me an easy “A.”

So far, so good. I’ll hit the final five predictions in a following post.

—Dr. Robert Peltier, PE is POWER’s consulting editor