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White paper offers Trump a strategy to benefit coal, wood pellets

By Katie Fletcher | January 18, 2017

FutureMetrics LLC released a white paper this month providing a strategy for how the Trump administration can help save the coal industry while boosting the industrial pellet industry with policy that supports the use of U.S.-produced wood pellet fuel blended with coal in large utility power stations.

According to the white paper, “The new administration could have a major win-win with the coal and forest products sectors if it crafts a policy that allows the blending of pellet fuel with coal in some of our nations coal-fired generation fleet; a fleet that currently is, and could be in the future, the backbone of a secure and reliable power grid.”

The paper concluded that, based on a 10 percent cofiring ratio of pellets to subbituminous coal, the increased generation cost is less than three quarters of a penny ($0.007) on the kilowatt-hour (kWh). The paper proposes a policy that compensates power generators for this amount per kWh to assist U.S. government in saving tens of thousands of coal mining jobs and creating tens of thousands of new jobs across the industrial pellet supply chain.

“The growth of a U.S. cofiring market would spur billions of dollars of investment in new industrial pellet manufacturing plants in the heartland of the U.S.,” stated William Strauss, president of FutureMetrics, in his white paper.

The paper reiterated that pellet fuel is a proven, low-cost solution for reducing carbon emissions from pulverized coal (PC) power plants around the world. This past year, around 14 million metric tons of pellets were consumed, most of them imported from North America, which is exporting almost one shipload per day (about 8 million metric tons in 2016) to power plants in England, western Europe, Japan and South Korea, according to the white paper.

December 2016 data from the EIA Form 860 shows that there are 435 operating coal-fueled power plants larger than 250 megawatts (MW) in the U.S. The EIA chart shows that most of the larger power plants use PC technology, which is easily modified to use a blend of coal and industrial wood pellet fuel. Strauss said modified plants are just as reliable and output the same amount of power as when running on 100 percent coal.

Data illustrated in the paper also suggests that coal-fueled power stations provide over 50 percent of the available large-scale utility electricity generation in the U.S. (excluding stations smaller than 250 MW). However, this is changing rapidly because of low-cost natural gas (NG).

Strauss stated in the paper that hydraulic fracturing (fracking) in shale formations has opened up massive reserves and a flood of NG resulting in very low prices and increasing shale gas production more than eight fold in the past eight years. As a result, the power sector has been shifting from coal to NG by building new NG-fueled power plants and retiring older coal-fueled plants, which has created challenging conditions in the coal mining sector. Trending low-cost NG coupled with an aging coal-fired power fleet, leaves little incentive for new coal plants to be built, but Strauss provided policy that he believes could change that trend in his white paper.

The Obama administration set goals for policy to lower carbon emissions, with the Clean Power Plan created for that purpose. Strauss stated that the CPP is unlikely to survive Trump’s presidency, but the new administration stated goals to bring jobs back to the industrial heartland with specific attention paid to the coal mining sector. “To achieve that goal, the administration will have to implement policy that changes the economics of power generation,” Strauss said in his paper. “There will have to be a reason that utilities will choose to keep the coal plants running.”

The white paper proposed that a policy that supports a cofiring strategy will guarantee a significantly higher demand for coal (and therefore for coal mining jobs) than business-as-usual. “The cohort of PC power stations that do not cofire (business-as-usual) continue to see their markets taken over by NG generation,” Strauss wrote in the white paper. “But, the cohort of PC power stations that do not cofire remain running and continue to demand coal at a rate of 90 percent of what it would be if the plant ran only on coal.”

According to the data provided in the paper, if PC power plants, representing just 25 percent of total coal demand, cofire a blend of 10 percent pellets and 90 percent coal, coal demand in 2030 could reach an estimated 148 million metric tons per year higher than if there are no policy incentives for keeping the coal plants running.

The paper noted that a policy could simply focus on a scheme for keeping coal power plants running on 100 percent coal, but the Trump administration should consider a cofiring scheme because it would support more jobs and significant manufacturing investment, while lowering CO2 emissions.