Sustainable Energy Transitioner

While the price of coal in the US is far below the records hit last week in Europe around $165 per ton, they are hitting records within their markets. On average, US coal prices have doubled since last year at this time. I would like to explore the implications of such cost escalation for utilities especially in determining the average price of electricity domestically.

First, I’d like to go over a few of the fundamentals of our electricity system. The US consumes more electricity than any other country at more than 4,000 TWhs from a capacity of ~1 TW. Almost half of our electricity is generated from coal combustion, with natural gas, nuclear, and hydro generating most other electricity at 21%, 19%, and 6%, respectively. The remainder is a mix of wind, biomass, geothermal, and a small fraction of solar. In 2007, the national average price of electricity increased 2.7% to 9.14 cents per kWh. The price of electricity varies greatly by state, with 2006 data showing a range of 4.92 cents per kWh in Idaho and over 20 cents per kWh in Hawaii. Many of the states with cheaper electricity have larger shares of coal-fired plants. So, the doubling of coal’s cost could lift electricity prices high enough to make wind power competitive even if federal subsidies are cut. For instance, if fuel costs make up 20% of the cost of electricity in West Virginia electricity (which went for ~5 cents in 2006), then a doubling of the price of coal will increase the cost of electricity by 20% to ~6 cents. With some more back-of-the-envelope estimation, another doubling to ~$200 per ton coal would increase the price to 8 cents per kWh, $400 coal translates into 12 cents, and $800 coal would make electricity 20 cents. The higher coal price could open the US market to wind and even solar on a very large scale without further innovation.

But the abundance of US coal makes $800 per ton seem improbable. Yet continued tightness in Asian and European supply could bring $200 per ton Appalachian coal to the US within a year as more coal is exported to those markets. A resulting 8-cent per kWh price for coal electricity could spur huge growth in wind and give solar PV (which is currently 21 cents per kWh) a fighting chance in the years ahead, as long as the industry keeps its rapid efficiency progress moving forward. For American consumers, electricity prices may rise as much as 50% or so in the case of $200 per ton coal. But just like in the transportation scene, more efficiency in appliances can help us weather such a change without huge cost increases. It's important to recognize this potential scenario as we aim to help renewables pick up the fossil fuel slack.