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Companies Are Benefiting as Utilities Move from Coal-to-Gas

When Duke Energy broke ground on a new 1,640 megawatt combined-cycle natural gas plant in Citrus County, Florida, it signified a new start — a new beginning for both the utility and the industry in which it has been a part. Indeed, it’s all part of the massive wave from coal-to-gas in a move that will certainly reduce emissions and which has — for now — been just as cheap for consumers.

Throughout the nation’s industrial age, coal had been the primary fuel and the one that helped build the United States. But in recent years, it has fallen out of favor for a number of reasons: strict environmental controls coupled with the availability of newer fuels and technologies that are cleaner. And one of those fuels is unconventional natural gas that comes in the form of shale gas.

“These investments help us to establish a gas platform to add to our very large electric platform,” says Steve Young, chief financial officer for Duke Energy, in an interview. “I see it as decreasing our risk as it is broadening our portfolio.”

But is it good for corporate America? It is reducing carbon footprints while keeping energy overhead low and providing a reliable flow of electricity.

Specifically, in 1980 Duke had generated 70 percent of its megawatt hours from coal. But that is now at 30 percent and within 15 years, it will be substantially less, Young says. Natural gas will be replacing that generation in most cases while in the other instances, it will be utility-scale solar that the company either generates itself or contracts to buy from alternate solar developers.

In 2015, more than 18,000 megawatts of coal-fired generation had been retired in the United States, which has been more than in the past and which tended to be older units that were considered too expensive to retrofit. The U.S. Energy Information Administration also reported that 30 percent of those retirements were because of the mercury rule enacted by the Obama administration, which is now getting tested in the courts. The amount of coal that had been retired last year came to nearly 5 percent of the existing coal fleet, it adds.

Natural gas-fired electric generation is replacing most of that. In April of last year, natural gas surpassed coal for the first time ever and generated the preponderance of this country’s electricity, the agency said. It kept the lead for most of 2015. Altogether, natural gas and coal each represent about 34 percent of the nation’s electricity mix, although natural gas is expected to keep rising at coal’s expense.

As for the $2 billion Florida-based combined cycle plant, it will come online in stages and beginning in 2018. It is replacing two coal units built 50 years ago.

Beyond that facility, Duke has also just received approval to build a combined-cycle natural gas plant in Ashville, N.C. That $1 billion unit will be comprised of two 280-megawatts units that will replace one 376-megawatt coal plant. The natural gas facility should be operational in 2020, which is when the coal plant would be retired.

The benefits? Sulfur dioxide levels will fall by 99 percent while nitrogen oxide emissions will be reduced by 45 percent. Meantime, mercury emissions will be cut to nominal levels while carbon dioxide releases will fall by 60 percent.

“We comply aggressively and early to these regs,” says CFO Young. “We are steadily retiring less efficient coal: 6,000 megawatts are already gone and by 2020, another 3,000 megawatts will be gone. The majority of it has been and will be replaced by natural gas.”

For those coal units that remain operational, Young adds that Duke has invested $7.5 billion into such technologies as scrubbers to minimize sulfur dioxide and nitrogen dioxide emissions tied to acid rain and smog.

But he sees the convergence of vertically-integrated electric utilities and regulated natural gas suppliers as a logical step for his company, given the environmental challenges and the economic opportunities. To that end, Duke is buying neighboring Piedmont Natural Gas, a local distribution company that is regulated and that delivers gas to homes and businesses.

It’s also a step that other utilities think is logical: Atlanta-based Southern Co. is purchasing AGL Resources that is also in Atlanta, a local distribution company. And in July 2015, electric provider Black Hills Corp. agreed to buy natural gas distributor SourceGas Holdings for $1.74 billion.

At the same time, Duke has filed an application with the Federal Energy Regulatory Commission to build the Atlantic Coast Pipeline, which is a $5 billion investment in which it will have a 40 percent stake. If approved, it would move gas through the Carolinas and into Virginia and West Virginia.

Likewise, in May 2015, Duke Energy announced it will invest $225 million in Florida’s Sabal Trail gas pipeline that will be used to fuel the company’s growing fleet of Florida power plants.

“Duke has a lot of exciting investments as we develop these platforms, says CFO Young. “We are embracing these changes and we see them as opportunities.”

For energy and environmental managers, it means cleaner and cost effective options. That is the reason, as Duke likes to say, it is making this transition.

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One thought on “Companies Are Benefiting as Utilities Move from Coal-to-Gas

  1. While coal to gas power plants may be being temporarily beneficial, both economically and environmentally, 25+ years from now they’ll probably be obsolete due to increased use of renewable energy generation.

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