By Matt Daily
(Reuters) - The first-ever U.S. proposal to restrict carbon dioxide emissions would have once been a major shock to electricity companies by making it uneconomic to build new coal-fired power plants.
But the discovery of abundant supplies of cheap natural gas means that many of those plants won't get built anyway - making the Obama administration's plan, while painful for the coal industry, much less relevant.
The U.S. Environmental Protection Agency announced on Tuesday it planned to set new rules that would limit new power plants' CO2 emissions, the first move by the world's largest economy to regulate the gas blamed for contributing to global warming.
Those CO2 rules, long feared by coal users, come on top of EPA pollution regulations that will drive dozens of old coal power plants into retirement, and will make it even harder to build those plants that have powered the nation for decades.
"It is dramatic," said Brandon Blossman, analyst with Houston investment bank Tudor, Pickering and Holt. "But cheap natural gas has caused that to happen in a much stealthier way."
A glut of gas from vast shale fields in the United States has driven prices of that fuel to their lowest level in a decade near $2.20 per million British thermal units, prompting power companies to run their gas plants at record levels.
That has pushed coal's share of the nation's electricity production down by nearly a quarter over the past year, although it still remains the largest supplier of power, with nearly 40 percent of the market compared to 27 percent for gas-fired power generators.
Analysts at Barclays had forecast about 6,600 megawatts of coal power plants would be built in the coming years, but the new EPA rules would shrink that to about 2,200 MW. That equates to fewer than five power plants with enough capacity to supply about 2 million households.
The U.S. Department of Energy forecast last year the new gas power plants would total 134,000 megawatts over the next 25 years, five times the projected amount of new coal-based generation, even before gas prices fell to their current lows.
Power developers have scrapped plans for more than 100 coal-fired electricity plants over the past decade due to difficulty obtaining construction and pollution permits or because they were simply too expensive.
Instead, they are turning to natural gas, which can be built more quickly and are typically more efficient, and are far cheaper.
"At best, a coal-fired power plant is about 2-1/2 times as expensive as gas," Blossman said.
With gas taking the lead in the power industry, the new EPA proposals appeared to trigger a collective shrug from Wall Street on Tuesday.
Shares in coal companies Alpha Natural Resources and Peabody Energy both slipped less than 2 percent, while shares in coal-heavy utility buyers such as American Electric Power and Southern Company rose slightly.
The new EPA rules would not apply to any power plants that begin construction in the next 12 months, such as Duke Energy's Cliffside and Edwardsport plants, which will total more than 1,400 MW when they come on line this year.
Duke is not planning any new coal plants besides those two, a spokesman said.
But those companies that do seek to build new coal power plants will need to rely on carbon capture and sequestration (CCS), under the planned EPA rules.
That prospect appears a bit daunting, since there are currently no operating commercial-scale CCS projects in the country.
Still, at least two projects in development in Texas aim to change that.
Power company NRG Energy's Petra Nova subsidiary hopes to start construction next year on a project at the W.A. Parish coal power plant near Houston.
"I think it's crucial that someone demonstrate the viability of carbon capture at scale," said Petra Nova CEO Jeff Baudier. "There's been a large number of CCS projects that have fallen by the wayside."
And power plant developer Summit Power Group is currently seeking funds to build a new coal power plant near Odessa, Texas that will use CCS technology.
Petra Nova has received $167 million from the U.S. Department of Energy for its project, which will cover less than half the cost of its construction, while Summit has won $450 million from the DOE, but still needs to raise more than $2 billion in debt and equity funding.
(Reporting By Matt Daily; Editing by Bob Burgdorfer)
Airlines Indefinitely Suspend Service to Tel Aviv After Hamas Rocket Lands Near Airport | Guy Benson