No one argues that coal is a clean fuel. What coal miners and power companies explain is that coal is necessary to provide the energy the world needs. And that's an important piece of the puzzle to remember while the news headlines appear to be calling the end for coal. These three charts help explain.
The first graphic comes from the U.S. Energy Information Administration (EIA). It's a fancy picture of a power plug and the amount of power that each fuel source provided in 2013. Coal's share was tops at 39%. That's about normal. Natural gas made up 27% and nuclear 19%. This trio is the core of the U.S. energy market.
The percentages can shift back and forth to some degree, but take any one of these power sources out today and the U.S. power grid would fall apart. It's that simple. There isn't enough capacity from any other power source to make up the difference. Moreover, this trio provides an important balance. If there's a problem with one source for any reason, there are two others to pick up the slack.
Fast, but not fast enough
Environmentalists argue that renewable power sources like hydro, solar, and wind can pick up the slack for coal. And looking at the EIA's graph of the growth renewable power sources have seen in recent years makes an impressive statement. However, comparing that to the socket photo above shows part of the problem.
Despite the rapid growth in solar and wind power (hydro has remained roughly static), all renewable power sources still only account for a fraction (13%) of the U.S. power market. That's exactly why Xcel Energy's (NASDAQ:XEL) aggressive shift toward wind power will still leave the utility reliant on coal.
In fact, Xcel Energy expects to meet the proposed Environmental Protection Agency carbon dioxide rule by 2020 by which time it plans to have reduced its carbon emissions by 30%. That achievement will be accomplished by increasing wind power by 19 percentage points and trimming coal by 13 percentage points.
That's nice, but coal will still account for over 40% of Xcel Energy's power. And its going to cost the utility over $14 billion to get there. Big costly renewable power growth, then, still isn't enough for Xcel to "kill" its coal plants.
The last graphic, also from the EIA, shows why renewables like solar and wind will have a hard time displacing coal—reliability. Coal, gas, and nuclear power are all controlled by utilities. If you need more power, you run your plants a little harder. If one fuel is cheaper than another, you shift between plants.
That's exactly what Southern Company (NYSE:SO) did in the first quarter. Last year, natural gas produced 47% of Southern Company's power in the first stanza of the year. Coal contributed 32%. Those roles reversed this year as natural gas prices rose off of historic lows, with coal accounting for 45% and gas 35%.
Southern Company can make such shifts because it has the ability to turn coal, gas, and nuclear "on" and "off." Between 2011 and 2013, coal plants ran between around 50% of capacity and 80%, as needed, according to the EIA. Over that same span solar and wind ran between 10% and 40% of capacity. Hydro tends to run at high capacities, however growth options are limited by the availability of suitable locations. But utilities can't control any of these—capacity is dictated by nature.
No sun means no solar power. No wind means no wind power. Low water flows means less hydro power. Thus, the installed capacity will never be the amount of power provided. The only offset to that inherent unreliability is the old trio of coal, gas, and nuclear. And as the socket graphic shows, coal is just too big to cut out.
Down, but not out
Coal use will likely diminish over the longer term. But coal's death is decades away at the very least. And until then, utilities like Southern Company and Xcel Power will have no choice but to keep burning this dirty fuel. Perhaps, then, the fuel isn't the problem. Maybe it's technology—that's why you should keep a close eye on Southern Company's carbon capture progress at its Kemper coal plant.