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Coal Still King in Kentucky, But Not Forever

By Chris Clair

IMG_5812
LG&E and KU in June christened a 10-megawatt solar power generation array at its E.W. Brown Generating Station in Burgin in Mercer County.

For nearly as long as there has been electricity in Kentucky, coal has been used to make it.

Slowly, however, that’s changing. In 2015, coal’s share of electricity generation in Kentucky dipped below 90 percent for the first time in decades. And in the future the commonwealth will likely use a combination of sources for electrical generation, including natural gas, hydroelectric, solar, wind and renewables like biomass.

Aron Patrick, former assistant director at the Kentucky Energy & Environment Cabinet, told attendees at the Kentucky Association of Manufacturers’ meeting in May that coal’s days as king of electrical generation are numbered.

“Into the future, look out because renewables are going to start to play a bigger part, I think. Wind and solar prices are coming down and are increasingly competitive with some of the other, traditional options we have,” Patrick said. “So into the future, the least-cost mandate (for energy generation fuel) will actually drive Kentucky to increase our dependence upon a variety of renewables.”

Already, two of the state’s major utilities – LG&E and KU, and East Kentucky Power Cooperative – have solar projects either up and running or in the planning stages. Combined, the two utilities serve nearly two-thirds of Kentucky’s electricity consumers. LG&E and KU’s 10-megawatt generating station at the E.W. Brown Generating Station near Harrodsburg went online in early June. EKPC, meanwhile, recently filed with the state Public Service Commission to construct an 8.5-megawatt solar facility on the grounds of its headquarters in Winchester.

They’re the commonwealth’s first. Neither is a large-scale generating station; they’re more experiments to see what solar electricity production could look like here. But they are signs of change.

More notably, older coal-fired electrical generating plants in Kentucky owned by LG&E and KU, Kentucky Power and the Tennessee Valley Authority recently have switched or are switching to natural-gas combined-cycle operations. EKPC recently completed the purchase of a natural gas-fueled power plant in LaGrange to replace the loss of electrical generation from the closure of its 61-year-old William C. Dale power station in Clark County.

Those transitions of the oldest power plants to gas, along with retrofitting middle-aged coal plants with emissions-reducing technology, will lower the amount of pollution Kentucky power plants pump into the air. In 2015 alone, LG&E and KU’s conversion of its Cane Run facility near Louisville was a big factor in the state cutting gross monthly sulfur dioxide emissions by 36 percent and carbon dioxide emissions by 11 percent, according to Energy and Environment Cabinet figures. The state has cut sulfur dioxide emissions by 76 percent since 2000.

The next two years could see further reductions with planned coal-to-natural gas conversions this year at Kentucky Power’s Big Sandy Power Plant in Lawrence County and next year at the TVA’s Paradise Fossil Plant in Muhlenberg County, plus the closure of EKPC’s Dale unit in April of this year.

EKPC estimates that it relies on coal for 70 percent of its electricity generation now, compared with 90 percent just three years ago. LG&E and KU says given current commodity prices, it expects to use coal to generate about 80 percent of its electricity this year, with the remainder generated by natural gas (19 percent) and renewables like hydro and solar (1 percent).

Statewide, the U.S. Energy Information Administration estimated that 87 percent of Kentucky’s net electricity generation came from coal in 2015, a 5 percent reduction from 2014. Another 7 percent came from natural gas, which was more than double the amount of natural gas used for generation in 2014.

In other parts of the country, and the world, the transition away from coal is happening much faster. According to a review by BP of the U.S. energy market in 2015, the world consumed 1.8 percent less coal in 2015 than it did the previous year. All of that decline was accounted for by the United States’ 12.7 percent reduction in coal consumption.

Less coal used to make energy means less coal mined. World coal production fell by 4 percent in 2015, the first global decrease since 1988, according to BP. U.S. coal production fell more than 10 percent.

Kentucky has one-third of all the coal mines in the country, more coal mines than in any other state, according to the U.S. Energy Information Administration. It produces 10 percent of all U.S. coal and 20 percent of all coal mined east of the Mississippi River. For decades, Kentucky has been the third-biggest coal producing state in the country behind Wyoming and West Virginia. But annual coal production in Kentucky declined by 20.7 percent in 2015 to 61.4 million tons, the lowest level since 1954. As a result, the number of coal mining jobs in the state fell by 27.7 percent in 2015 to 8,400, according to the Energy and Environment Cabinet.

Coal still keeps state power cheap

The transition away from coal for energy production is happening much more slowly in the commonwealth than in many other places. Don Mosier, chief operating officer at EKPC, said one reason is that the abundance and proximity of coal in Kentucky continues to be an economic advantage. In 2015, according to Energy and Environment Cabinet, Kentucky boasted the fourth-lowest electrical rate per kilowatt hour in the United States, and the lowest east of the Mississippi River. Electricity prices actually fell last year in Kentucky in both real and nominal terms because of low coal and natural gas prices.

“Most of our daily generating needs are met using coal, and will be for quite a long time, actually,” said Mosier. “I’m one of those that says the death of coal has been greatly exaggerated. We plan our portfolio on a 20-year look-ahead and try to estimate demand growth. We’re making long-term investments, and right now I don’t see any concerns with continued reliance on coal. I see us and the state of Kentucky relying on coal for quite some time.”

Kentucky has long touted its low energy prices to attract manufacturing, and it’s worked. The state’s manufacturing gross domestic product has grown at nearly twice the national average since 2008, according to the Cabinet for Economic Development. In 2015, manufacturing GDP made up nearly one-fifth of Kentucky’s total GDP, compared to the national average of 12.2 percent.

Of industrial, commercial and residential electricity consumers, Kentucky industry has historically been the biggest – using roughly 40 percent of electricity output. That is changing to some extent as industry becomes more efficient, Patrick told the KAM meeting in May. Overall the Energy and Environment Cabinet estimates that Kentucky’s electricity consumption is declining, and will continue to decline in coming decades.

This means that even with the retirement of the oldest coal-fired plants, the state has more than enough electrical generating capacity to meet its needs.

“We are actually long on generating capacity here in Kentucky,” Patrick told the KAM conference. “We do not need, to meet our own domestic load, the amount of generating capacity that we have.”

Fewer units yet excess capacity

Neither LG&E and KU nor EKPC have major generating station projects in the works. Jeff Heun, manager of major capital projects for LG&E and KU said the utility is focused on meeting environmental regulations with respect to ash ponds and limiting effluent into rivers and streams at coal-fired generating plants.

EKPC’s Mosier said the utility’s work to retrofit its four-unit coal generation plant in Mason County, which can generate 1,400 megawatts, and its two-unit coal generating station in Pulaski County, which can generate 341 megawatts, should keep those plants running for another two decades. About half of EKPC’s generation capacity comes from those two plants. The co-op has a long-term contract to buy another 170 megawatts of power from Southeastern Power Administration, whose electricity is generated by hydroelectric dams at Wolf Creek Dam and Laurel Dam.

Not having to worry about meeting demand has allowed a number of coal-fired power units in the state to be retired. According to the Energy and Environment Cabinet, 31 coal units averaging 61 years of age have recently been retired in the state or will be retired by 2020. Those units comprise 5.4 gigawatts of generating capacity. The state still has 145 units at 40 power plants with a capacity of 17 gigawatts. The remaining 32 coal-fired plants, averaging 45 years of age, account for 65 percent of that capacity.

Neil Stamp, president and chief executive of National Environmental Consulting Inc., a Louisville-based industrial environmental remediation firm, said generally there are two generations of coal power plants: the 1950s and ’60s-era plants that are being retired, and 1960s and ’70s-era plants into which utilities are pumping billions of dollars to retrofit them with scrubbers and other technologies to reduce emissions.

For the oldest plants, retirement is the best option.

“It just isn’t economical. They’ve reached the end of their lifespan,” he said. “You can only spin a turbine so many billion times and you’ve got to get a new one.”

Despite the lack of major new generating capacity in the pipeline, Stamp said work on Kentucky power plants is going on almost all the time. They’re either being demolished or retrofitted to make them cleaner.

Stamp said as an observer of Kentucky’s power industry – NEC gets called in when plants get demolished to deal with the environmental cleanup – he’s seeing what he called a pending shift from traditional to so-called cleaner energy. “But that doesn’t mean you’re not burning coal,” he added. “It means you’re burning coal cleaner and more efficiently and using natural gas.”

Looking ahead

The proliferation of hydraulic fracturing, or fracking, in the United States has led to huge increases in the production of natural gas. Since 2006, U.S. natural gas production has increased 46 percent while domestic demand has increased 26 percent. Not surprisingly, prices for Henry Hub natural gas have fallen by 61 percent during that time, and by 70 percent since their high in 2008, according to BP.

Simple economics make natural gas the go-to source for electricity generation going forward. Apart from continuing to run middle-aged, retrofitted coal plants, “unequivocally natural gas is the least-cost option available in the near-term,” Patrick said at the KAM conference.

Renewables, while gaining traction, have their drawbacks. Solar panels only generate their peak electricity when the sun is out and their output can fluctuate wildly, which LG&E and KU already has observed at its E.W. Brown solar array, Heun said.

“On blue-sky days it’s meeting its designed capacity of 10 megawatts of a/c power,” he said. “Then all of a sudden you’ll get those high, white clouds, and we’ll go from 10 megawatts to two megawatts within seconds. The other day, when it was raining, our output was zero.”

Solar power output also fluctuates with the seasons. Less daylight in the winter means less power generation. Kentucky’s potential for large-scale solar power generation is limited.

The state’s wind generation potential is even smaller. The winds throughout much of the state simply aren’t strong enough at above-ground heights generally considered optimal. A study by the National Renewable Energy Laboratory indicated that Kentucky’s wind energy potential was only 61 megawatts at a turbine hub height of 80 meters. That increases to 699 megawatts when turbine hub height is 100 meters, but even this rate would rank Kentucky only 42nd nationally for wind power.

Kentucky has six hydroelectric power generating facilities that together account 3.4 percent of its power generation. In theory, Kentucky could double its hydro power output by building new dams, but new hydroelectric projects have to clear extensive environmental hurdles prior to getting federal approval.

All this means that while renewables may seem like attractive sources for future electricity, their higher costs and variability take some of the shine off. Coal and natural gas are still much more attractive than solar when looked at from a dollar-per-kilowatt hour cost factor, Heun said.

LG&E and KU are exploring building what he called a “community solar facility” for residential service customers who want solar power but can’t afford to install it in their homes or businesses, Heun said. But that’s the only other solar project the utility is eyeing. Solar, he said, is still in its infancy at LG&E and KU.

Right now, for Kentucky, coal combined with natural gas makes the most sense in terms of keeping electricity costs level and low. Because of its large manufacturing sector, Kentucky had the highest rate of electricity consumption per state GDP dollar in the country in 2013, tied with Alabama at 0.49 kilowatt hours per dollar, according to the Energy and Environment Cabinet. For the same reason, Kentucky is more susceptible than other states to changes in electricity prices.

“We’re using more electricity than other states,” Patrick told the KAM conference, “so changing the cost of electricity will disproportionately affect (Kentucky). While there should be no question in this room or in Kentucky that our low and stable electricity prices are a direct result of our dependence upon our local and abundant supply of coal, I hate to say it but into the future and in the present our options are going to be different.”

Chris Clair is a correspondent for The Lane Report. He can be reached at [email protected].

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