CO2 Emissions Limits Likely To Drive Up Electricity Prices

  • Date: 02/06/14

The new federal limits on greenhouse-gas emissions are likely to drive up electricity prices in some parts of the country as power companies close coal-fired generating plants.

But utilities that have power supplies that don’t emit as much carbon dioxide—nuclear, natural-gas and renewable energy including wind and solar—will probably benefit, analysts say.

Coal producers are likely to be hit hardest under new carbon limits, which the Obama administration is proposing Monday as part of its effort to fight climate change.

Losers also will include electric companies that burn lots of coal, such as American Electric Power Co. of Columbus, Ohio; Atlanta-based Southern Co., and NRG Energy Inc., which serves the northeast and Texas.

Likely winners include companies that pump natural gas and those that use it as their primary fuel, including Houston-based Calpine Corp. Companies that operate nuclear plants that generate little carbon but have been expensive to run, such as Chicago-based Exelon Corp. , hope that their aging plants will become more competitive.

The new rules are “bad for coal and the coal fired fleet,” said Hugh Wynne, an analyst at Sanford Bernstein in New York. “The guys who win are the ones who don’t emit any CO2 because they’re watching everyone else’s costs go up and they’re incurring no increase.”

Utility executives say it is unclear how much it will cost them and their customers to comply with the proposed regulation, which the government will formally unveil Monday.

“You have to be worried about the costs to the consumer and the effect it would have on the economy,” said Nick Akins, chief executive of American Electric Power.

The U.S. Chamber of Commerce predicted that the rules could force the closure of 114,000 megawatts of coal plants over the next 16 years and lead to electricity-price increases for consumers of $17 billion a year over that period. But groups that favor carbon restrictions, such as the Natural Resources Defense Council, have forecast the regulations will result in lower electricity prices.

Electric generation accounts for almost a third of greenhouse gases emitted in the U.S., according to the Environmental Protection Agency. It says three-quarters of the power industry’s carbon emissions come from coal-fired plants.

Coal use has declined compared with a decade ago but the fuel still produced 39% of the nation’s electricity in 2013, according to federal tallies. Plants fired by natural gas produced about 27%, nuclear plants 19%, and renewables including hydro, wind, solar and produced 13%.

Depending on how stringent carbon regulations prove to be, utilities could cut their use of coal by as much as 85%, to 123 million short tons, by 2030 according to a forecast by the U.S. Energy Information Administration. Utilities’ use of natural gas could grow by nearly 50% in the same stretch, to as much as 12.5 trillion cubic feet.

Though the E.P.A. is designing the new rules, each state will be able to decide how to cut emissions. States with the highest emissions, such as Texas, Florida and Pennsylvania, face bigger challenges than states with the lowest emissions, such as Vermont, Idaho and Maine.

Coal-burning states tend to have lower electricity prices; residents of Texas, the biggest emitter, pay about 11.7 cents per kilowatt-hour, according to federal data, while residents of the lowest emitter, Vermont, pay 17.4 cents.

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