Opinion: Economics, not politics, changing coal industry

Thomas Power and Donovan Power say market forces, not politics, are shaping the future of the coal-fired generating units at the Colstrip power plant.

By Thomas Power and Donovan Powers

A recent spate of political ads on TV show the Montana Republican party blaming potential job losses at Colstrip and a downturn in coal production in Montana on Gov. Steve Bullock and the Democratic Party in general.

Since we have spent an inordinate amount of time looking at coal issues over the past decade and more, we feel some responsibility to try to respond to this issue so that others will not be misled by blatant coal industry propaganda.

The most basic part of this debate is that the coal industry has been in a slump both domestically and internationally for years. Most of the largest coal companies in the United Stated and most of the major coal companies mining in Wyoming and Montana have had to declare bankruptcy within the last year.

The coal port proposals that were going to reinvigorate Montana coal production have all but gone away as Asia, and specifically China, cut back their coal imports as their economic growth slowed. China, like the rest of the industrialized world, is also worried about its greenhouse gas and other toxic emissions associated with coal-fired power generation. The Montana coal industry can no longer look to Asia as a way to offset shrinking domestic coal markets.

This has nothing to do with who will be our next governor or our next congress-person.

In the context of the U.S. electric market, the four coal-fired generators at Colstrip will see limited demand for their electricity going forward. That is partially due to the fact that Colstrip 1 and 2 are no longer efficient electric generators. Not only are they too costly to retrofit to meet impending pollution control standards, they also produce electricity that is too expensive for the market to want to buy.

Add to this an ever shrinking market for coal-fired electricity now that Washington, Oregon, and California no longer want Montana coal-fired electricity, and you again have a market that will not support past production levels of Montana coal and Montana coal-fired electricity.

The United States as a whole has been moving toward natural gas and renewable sources of electricity since the turn of the new century. With the decline in the cost of building natural-gas-fueled electric generators, the increase in their fuel efficiency, and the glut of natural gas that has driven down prices, electric utilities long ago stopped investing in new coal-fired generators, overwhelmingly favoring natural gas over coal.

Natural gas has been competitive with coal on a dollar-per-megawatt-hour basis for the last several years, especially when it comes to less efficient coal-fired generators such as Colstrip 1 and 2. This is a market reality and not something that was put together by the Democrats.

The same economic forces that allowed for the creation of Colstrip (EPA emissions regulations favoring low-sulfur Montana coal) are now tightening to favor other, still cleaner sources of electricity. This will lead to lower greenhouse gas emissions (less global warming), cleaner air, longer life expectancy, and a much smaller environmental footprint.

The Colstrip electrical generators are largely owned by out-of-state companies (NorthWestern Energy, headquartered in Sioux Falls, S.D., owns a minority share of only Colstrip unit 4) that will make rational economic decisions with regard to the future of the Colstrip generators. If their operation is profitable, then they will continue to operate.

Colstrip 1 and 2 are slated to be decommissioned by 2022 because the owners (Talen Energy and Puget Sound Energy) decided that the energy costs were too high and the emissions from those units were too great, requiring costly retrofits to operate. Meanwhile units 3 and 4 will continue to operate because they are more efficient and they can compete in the current market.

Unless the Republicans of Montana can force China to start buying Montana coal, or they can put the cheap and abundant natural gas genie back in the bottle, their efforts at election-time political misdirection will do nothing to boost coal-fired generation and coal production in Montana. As major cheerleaders for relying on market forces, one would expect to see Montana Republicans enthusiastically embracing the energy market changes that are forcing painful adjustments in the Colstrip area.

This opinion originally appeared on Last Best News.

Thomas Michael Power is the principal in Power Consulting Inc. and a research professor and professor emeritus in the Economics Department at the University of Montana, where he has been a researcher, teacher and administrator for over 40 years. He received his undergraduate degree in physics from Lehigh University and his M.A. and Ph.D. in economics from Princeton University.

Donovan S. Power received his undergraduate degree in Geosciences at the University of Montana and his M.S. in geology from the University of Washington. He has been the principal scientist at Power Consulting Inc. for the past eight years.