Coal has been used to produce electricity since the 1880s and has played a major role in providing low-cost electricity for many regions of our country. City Water and Light has been a co-owner in two major coal-fired plants in Arkansas for roughly four decades, and coal makes up approximately half of our utility’s generation portfolio, which also includes natural gas-fired and hydro power. This coal-fired capacity has played an integral part in CWL customers’ rates being approximately 40% below national average rates and saving our customers collectively over $60 million per year versus average rates.
Environmental regulations and changing market conditions are causing a drastic reduction in coal-fired generation in the U.S. According to the U.S. Energy Information Administration, the percentage of electricity generated from coal in the U.S. dropped from 49% to 30% from 2007–2017, and this trend is likely to continue. As aging coal plants retire over coming years and with few, if any, new coal plants coming online, where will our country’s electricity come from in the future?
In 2016, natural gas-fired generators surpassed coal in the U.S. generation mix, supplying about 33.8% compared to coal’s 30.4%. Fracking and horizontal drilling have resulted in a significant increase in natural gas production, which has played a vital part in natural gas prices dropping. The drop in natural gas prices, along with regulatory changes reducing coal generation, has created this shift toward natural gas as the lead technology for electricity generation in the U.S.
One positive for natural gas-fired generation is that the fuel is normally available, which means plants are typically available when needed. When compared to coal, natural gas has a carbon footprint that is half or less. Some of the negatives for natural gas are price volatility and supply reductions or interruptions. Although gas prices are currently low relative to historic prices, prices have been close to $14 per MMBtu, or over 4 times the current price, just a little over ten years ago. Most believe we will not see natural gas prices at this level in the foreseeable future. Another concern is gas supply can sometimes be temporarily reduced by storms such as major hurricanes and extreme cold weather events that increase heating load demand.
Nuclear plants’ contribution to the nation’s electricity generation has been relatively flat at about 20% for the last 10 years or more. The pros for nuclear are low-cost and abundant fuel, but the negatives of extremely high construction costs, concern over nuclear accidents and dealing with radioactive waste outweigh the positives. Without a significant change, little to no growth is expected in the nuclear sector for at least 10 years or more.
Lastly, renewables are becoming more economical, so we are seeing growth in those technologies. From 2007 to 2017, electricity from wind and solar projects tripled from 3% to 9%, while hydro power remained relatively steady. While “fuel” is essentially free with renewables, the construction costs, along with O&M costs, resulted in an all-in cost of electricity that was relatively high in the past. However the cost of wind and solar has continued to drop while the technologies continue to improve, thus the all-in cost of electricity from both of these technologies has been trending down. The improved market conditions for wind and solar, along with tightening environmental regulations, will likely continue to drive growth in these sectors.
So where do we go from here? At CWL, we feel there is no “silver bullet” or one technology that will be the answer. Instead our future generation portfolio could be a blend of natural gas-fired generation with some renewables, including our existing federal hydropower.
The selection of future electricity generation resources is critical to our CWL customers, so we will continue to work extremely hard to arrive at a solution that will maintain our utility’s wonderful position of low rates and high reliability.
Editor’s note: Kevan Inboden is the special projects administrator for City Water and Light. He can be reached at [email protected] The opinions expressed are those of the author.