Natural Gas Is on a Roll, Executive Declares

Source: ERIC LIPTON, New York Times • Posted: Friday, April 27, 2012

A “perfect storm” of economic and regulatory factors is driving major United States utilities to rapidly switch from coal to natural gas as an electric power source, the top executive of one of the nation’s largest utilities said on Thursday.

Bloomberg NewsNicholas K. Akins, chief executive of the Ohio-based utility AEP.

Nicholas K. Akins, chief executive of Ohio-based AEP, said the company plans to retire 5 of its 25 coal-burning plants and shut down coal-powered units at other plants it owns in a shift that collectively means the elimination of about 5,000 megawatts of capacity. The result will be that by 2020, only about half of the power AEP produces will come from coal, down from about 67 percent last year.

The surge in domestic production of cheap natural gas, largely yielded by the rise of the controversial technique of forcing gas out of shale through hydraulic fracturing, has been a big factor in this shift. A series of new environmental regulations and pressure from environmentalists are also leading major utilities to either shut down older plants or spend billions of dollars to upgrade them.

Mr. Akins estimated that AEP alone would have to spend about $300 billion through the end of the decade to expand natural gas power generation capacity or retrofit older coal-fueled plants so they can meet new environmental standards — investments that it is asking regulators to allow it to pass on to its customers, at least in part, which total five million accounts in 11 states.

Renewable energy is expected to contribute a larger share of power to AEP’s mix by 2025, Mr. Akins said, but perhaps not as much as expected because of a decline in federal subsidies and continuing repercussions from the bankruptcy of Solyndra, the California solar manufacturer that collapsed last year despite receiving a $535 million federal loan guarantee.

And the once-anticipated nuclear power renaissance will probably not materialize, he added, in view of the Fukushima disaster in Japan last year.

Domestically, coal mining will be the hardest hit by this historic shift, he said. Last year alone, the amount of electricity produced by AEP’s gas-powered plants jumped 24 percent, with most of that resulting from a drop in production at coal plants.

“Our industry is in the midst of an extraordinary period of transformation and investment which will affect how we produce and delivery electricity — and what you pay for it — for decades to come,” Mr. Akins said in his remarks before the United States Chamber of Commerce,

At the Southern Company, another major coal-burning utility, natural gas is now responsible for 46 percent of its electricity, up from 16 percent four years ago. That translates into about 45 million tons of coal slated to be burned this year by Southern, down from 80 million tons in 2007, Southern’s chief executive, Tom Fanning, said in his own remarks on the topic on Wednesday.

Mr. Akins said he was somewhat concerned that the nation may end up too reliant on natural gas, particularly given the history of price volatility of natural gas. The price has dropped from $10.8 per thousand cubic feet at the wellhead as of July 2008 to $2.89 as of January.