De-Carbonizing Electricity - Will King Coal Finally Be Dethroned?
Last Friday, the WSJ's Environmental Capital blog noted how, according to HSBC, growing government efforts to de-carbonize the electricity supply across the developed world would hurt makers of power generation technology with high exposure to coal.
Yesterday, the EIA released its Electric Power Monthly report for April 2009. In it, the agency notes the following:
The drop in coal-fired generation was the largest absolute fuel-specific decline from April 2008 to April 2009 as it fell by 20,551 thousand megawatthours, or 13.9 percent [...] The April decline was the third consecutive month of historically large drops in coal-fired generation from the same month in the prior year [...]
Coal's drop is larger than the national decline at 5% between April 2008 and April 2009, and that of all other fuel sources but petroleum liquid:
Generation from conventional hydroelectric sources was the largest absolute increase in April 2009 as it was up by 3,918 thousand megawatthours, or 18.4 percent from April 2008. [...] Nuclear generation was up 3.1 percent. Generation from natural gas-fired plants was down by 1.5 percent. Net generation from wind sources was 34.8 percent higher. [...] Petroleum liquid-fired generation was down by 26.5 percent compared to a year ago [...]
The main culprit for the fall overall fall in generation is the significant decline industrial production:
For April 2009, sales in the residential and commercial sectors both decreased by 0.7 percent and 1.6 percent, respectively, while sales in the industrial sector decreased by 13.6 percent, as compared to April 2008.
Yet coal remains the single most widely-used fuel in power generation in the US, accounting for more than nuclear, gas and renewables combined:
Year-to-date, coal-fired plants contributed 46.1 percent of the Nation’s electric power. Nuclear plants contributed 21.0 percent, while 20.5 percent was generated at natural gas-fired plants. Of the 1.2 percent generated by petroleum-fired plants, petroleum liquids represented 0.9 percent, with the remainder from petroleum coke. Conventional hydroelectric power provided 7.0 percent of the total, while other renewables (biomass, geothermal, solar, and wind) and other miscellaneous energy sources generated the remaining 4.1 percent of electric power [...]
Coal is indeed public enemy number 1 in the fight to de-carbonize the electricity supply and, as noted in the HSBC report, the elusive (I think illusive is actually more appropriate here) quest for carbon capture and storage is unlikely to change that.
The next two years are going to be interesting as a number of currents converge: (1) a price will be placed on carbon across America; (2) billions of dollars in subsidy money for environmental industries are going to trigger a significant amount of activity both in alternative energy and in energy efficiency; and (3) an economic recovery will eventually get underway and industrial production will rebound, raising the demand for electricity.
Are we truly witnessing the beginning of the end or is King Coal set to rebound with a vengeance as soon as demand picks up again? If coal declines in the U.S. abd Europe, will that make any difference at all given China's love affair with the black stuff?
Power generation, transmission, distribution and management in North America offer very attractive investment opportunities for investors, and something tells me that the age of coal will end here before the world runs out of it, much like the stone age ended with plenty of stones left.