How Trump Could Save Coal with Wood Pellets

Cofiring pellets at coal-fired power stations would help achieve the new administration’s job-creating goals, as well as other positive impacts.
By William Strauss | March 15, 2017

The use of U.S.-produced wood pellet fuel blended with coal in large utility power stations could sustain coal mining jobs, create tens of thousands of new jobs in another sector that is experiencing significant job losses—the forest products sector—and stimulate billions of dollars of new investment in new U.S. manufacturing plants.

By supporting the blending of industrial wood pellet fuel with coal in pulverized coal (PC) power plants, policy will lock in the need for PC power plants, therefore guaranteeing significant demand for coal.  This well-proven strategy, which is already in place in many other countries, can provide certainty for the need for U.S.-produced coal for decades, and certainty for U.S. coal mining jobs.

This strategy, which the Trump administration could follow, is a win-win-win for the coal and forest products sectors, and the environment. It offers many advantages, including: use of existing power stations; much lower capital cost than new natural gas plants; reliability and no derating; flexible, baseload or on-demand generation; already demonstrated at scale in many locations; lessening of utilities’ dependency on natural gas; lower carbon emissions; creation and sustaining of jobs; and lower sulfur oxide, nitrogen oxide and mercury emissions.

Existing Power Plant Fleet, Shale Gas Revolution
The U.S. still hosts 435 operating coal-fueled power plants larger than 250 megawatts (MW), most of which use pulverized coal (PC) technology—about 97 percent, according to U.S. EIA data.  PC power plants are easily modified to use a blend of coal and industrial wood pellet fuel, the modified plants are just as reliable, and they output the same amount of power as they did when running on 100 percent coal.

Coal-fueled power stations still provide over 50 percent of the available large-scale utility electricity generation in the U.S., (excluding stations smaller than 250 MWs). That is changing rapidly, however. Not because of environmental rules, but because of low cost natural gas (NG). Hydraulic fracturing in shale formations has opened up massive reserves, and a flood of NG, resulting in very low prices. Shale gas production has increased more than eightfold in the past eight years, and as a result of current and expected future low-cost NG, the power sector has been shifting from coal to NG by building new, natural gas-fueled power plants, and retiring older, coal-fueled power plants.

The shift from coal to NG has created very challenging conditions in the coal mining industry. If current trends continue, and there is no reason to believe that they will not, employment in the sector is likely to further decline significantly. Furthermore, the U.S. coal-fired power plant fleet is aging.  The median age of PC power plants larger than 250 MWs is 40 years—90 percent of larger PC plants are 27 years old or older.  

As the coal generation fleet ages, given low-cost natural gas, there is little incentive to build new coal plants. 

Policy to Change the Trend
Absent policy that influences the markets, the utilities will continue to shift into the low-cost NG that can be used in easy-to-build, easy-to-run-and-maintain, combined-cycle NG power plants. 
The new Trump administration does not seem shy about potentially implementing policies that will influence the markets. The question is: What is the underlying goal of a policy?  In respect to the power generation sector, the Obama administration’s goal of policy was to lower carbon emissions.  The Clean Power Plan was created for that purpose, but it is highly unlikely that the CPP will survive the Trump presidency. 
In the Trump administration, a stated goal is 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.  There will have to be a reason that utilities will choose to keep the coal plants running. The following is a strategy that will save coal mining jobs and result in more jobs than firing on coal alone.  The strategy also yields a much higher job sustaining and creation impact than shifting from coal to natural gas.

The total jobs resulting from cofiring a 400-MW coal-fired power plant with a ratio of 10 percent wood pellets creates about 1,757 total jobs, including multiplier effects (the indirect and induced jobs that are a result of the direct jobs,) compared to 100 percent coal, at about 1,686 jobs.  The mining, refining, and transportation via rail and truck of coal are more labor-intensive than the extraction and pipelining of NG, which creates about 576 jobs. And there are zero jobs associated with fueling wind or solar power plants.

If sustaining and creating jobs is the objective, then a policy that keeps some of the coal generation fleet running will help realize that objective. 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. But the cohort of PC power stations that do cofire remain running and, in the example used in Image 2, continue to demand coal at a rate that is 90 percent of what it would be if the plant ran on only coal. 

If PC power plants representing 25 percent of total coal demand cofire a blend of 10 percent pellets and 90 percent coal, coal demand in 2030 is estimated to be 148 million tons per year higher than a circumstance under which there are no policy incentives for keeping the coal plants running.  A higher proportion would result in an even higher demand for coal in 2030, versus business as usual.  Image 2 shows a scenario in which 100 percent of the PC power plants cofire. That scenario is not realistic for several reasons, but is shown to illustrate the impact that a cofiring policy can have on the coal demand.

Of course, the policy could simply focus on a scheme for keeping coal power plants running on 100 percent coal. But there are two important reasons that the Trump administration should consider a cofiring scheme. The first is more jobs, and significant manufacturing investment. Most PC coal plants and many of the coal mines are in states that also have significant forest products industries. The steady decline in the pulp and paper sector is closing pulp mills across the U.S., and with each closure, thousands of mill jobs and logging and transportation jobs are lost. Industrial pellet fuel can be made from the same feedstock that goes into pulp and paper mills.

Every 500,000-ton-per-year (TPY) pellet manufacturing plant sustains about 800 direct, indirect and induced jobs across the forest projects supply chain. A policy that supports cofiring supports jobs in two large and economically important sectors: coal and forest products. In the Image 1 scenario, the U.S. would need to produce about 20 million tons per year of industrial wood pellets to provide the 10 percent blend in those power stations. This would be a significant long-term demand that would generate billions of dollars of investment in new production capacity.  Each 500,000 TPY fuel manufacturing plant costs, on average, about $125 million to build. 

The actual percentage of the PC power fleet that cofire will be based on an analysis of the age of the power stations, and the proximity to potential pellet fuel supply. Utilities would like to avoid stranding newer coal-fueled generating assets, and this strategy provides a pathway to keeping the newer plants operating over their useful life, while sustaining and creating needed jobs in two important sectors.

The second reason a Trump administration should consider a cofiring scheme is lower CO2 emissions. Cofiring industrial wood pellet fuel with coal lowers carbon emissions versus 100 percent coal. While it would appear that the Trump administration will not make carbon emissions mitigation the foundation of any policy, in the case of a cofiring strategy, CO2 emissions reduction is a byproduct of a job protection, job creation and manufacturing growth policy. Thus, the administration can take credit for advancing the U.S.’s role in lowering greenhouse gas emissions as a corollary to the actual policy objective. 

Conclusion
For a policy that compensates the generators about $0.007 per kilowatt-hour, the Trump administration could save tens of thousands of coal mining jobs and create tens of thousands of new jobs across the industrial pellet supply chain. 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 US.  And, as a byproduct, the U.S. lowers the carbon impact of the coal generation sector.

Using pellet fuel in PC power plants around the world consumed about 14 million metric tons of pellets in 2016. Most nations import their pellet fuel (the majority is imported from the U.S. and Canada) as a part of their carbon reduction policies.  It is a proven, low-cost solution for that purpose. For the pellet fuel producer nations, of which the U.S. is the leader, it is an important major industry that supports tens of thousands of jobs.

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 our nation’s coal-fired generation fleet, a fleet that currently is, and could continue to be, the backbone of a secure and reliable power grid.


Author: William Strauss
President, FutureMetrics
williamstrauss@futuremetrics.com
207 824-6702