Marshall Steam Station, just 30 miles from Charlotte, North Carolina, was the most efficient coal-fired power plant in the United States when it opened in 1966, and maintained its position as best in class until 1974.

The 2,000MW plant is a small part of Duke Energy’s 58,200MW fleet of electric power capacity,
which serves seven million customers in the Carolinas, Florida, Indiana, Kentucky and Ohio.

US utilities like Duke Energy, which dates back to the early 19th century, are undergoing profound transformation at a pace last seen in the electric power industry in 1882 when Thomas Edison first fired the burners at Pearl Street Station in Manhattan.

After its controversial merger with Progress Energy in July, Duke Energy is now the largest electric utility company in the US, and has expanded its service territory into Florida.

Duke Energy’s scale gives the Charlotte-based utility an opportunity to redefine its relationship with consumers and shape an industry-wide transition to lower carbon electricity generation, such as combined cycle natural gas plants and new nuclear.

Its forward-thinking leadership and advocacy for controls on carbon emissions under chief executive, Jim Rogers, also put Duke at the political heart of the “coal wars” currently raging in the United States.

Duke Energy’s pre-merger fleet was 40.7% coal-fired, 12.9% nuclear, 28.1% oil and gas-fired. Nuclear and coal-based generation sources comprise approximately 88% of its generation last year, a profile that is set to change as the Environmental Protection Agency’s pollution regulations put unprecedented pressure on America’s coal fleet.

Despite Billions Spent on Cleanup, Many Dirty Plants Remain

Some of Duke Energy’s coal fleet dates back to the early 20th century. After its merger with Progress Energy, Duke now has to plan for the retirement of about 5,400MW of older coal generation by 2015. The newly merged company has slated more than 3,260MW for retirement from the Carolinas alone.

On the day of my visit to Marshall, a large smokestack puffs out a rapidly rising thick white plume of water vapor from scrubbers that reduce sulfur dioxide and mercury. All the Duke Energy coal fired plants that will remain in service after 2015 will have scrubbers and three quarters of them will also have Selective Catalytic Reduction (SCR) equipment to reduce nitrogen oxide emissions like those also installed at Marshall.

Installation of pollution controls at Marshall made economic sense for Duke Energy. Scrubbers to remove SO2 were installed in 2007, and had a co-benefit of around 60% reduction in mercury. SCRs followed in 2008/9 and the two technologies combined reduce mercury emissions by up to 98%, according to Duke estimates.

Duke’s pre-merger 16.2% coal-fired fleet was 58% scrubbed. By 2015, that proportion will rise to 74%.

In addition, Duke has invested approximately $7 billion in four key generation fleet modernization projects with approximately 2,700MW.

But two-thirds of coal power stations in the US do not have scrubbers and state of the art pollution controls are not always economically viable for the 110GW of coal-fired power plants that began operating between 1940 and 1969.

Dan Riedinger, spokesman for the Edison Electric Institute, said: “It’s not like we can go to Home Depot and buy a gutter or air conditioner that is going to work in any house. Every power plant is configured differently, they’re different sizes and the ability to meet certain emissions standards depends on how the power plant is set up.”

After Marshall’s SO2 scrubbers were installed in 2007, EPA data shows that emissions dropped from 111,658 tonnes in 1997 to 3,853 tonnes in 2011.

But some of Duke’s other plants have struggled to clean up. Duke’s 1,124MW Walter C Beckjordan Station in Ohio topped last year’s table for SO2, with 57,308 tonnes. Overall, Duke ranked 55th this year in the Toxic 100 index of most polluting companies run by the Political Economy Research Institute University of Massachusetts Amherst, just one place below miner Rio Tinto.

Power plant regulation began in 1974 and is now reaching fever pitch in the United States. Regulation of criteria pollutants from the 5,800 operational plants in the US is no longer just a compliance burden for electric power generators.

Regulation has become a politically charged topic under the administration of Barack Obama who promised to make new coal-fired power stations too expensive to build before he was elected president.

Three rules on air pollution are in particular contention between regulators and generators.
In March, EPA proposed a Carbon Pollution Standard for New Power Plants that would set national carbon pollution emission limits for power plants built in the future. EPA is currently reviewing more than 2 million public comments on the proposed rule.

“Utilities are under an obligation to serve to keep the lights on period.” – Riedinger, EEI

In December 2011, EPA issued the Utility MACT Mercury and Air Toxics Standards (UMACT), a rule to reduce emissions of toxic air pollutants from new and existing coal- and oil-fired electric steam generating units. The agency expects to complete the rulemaking by March 2013.

Last July, EPA finalized the Cross-State Air Pollution Rule (CSAPR), an extension of the Clean Air Interstate Rule (CAIR) introduced under the Bush administration in 2005 that aimed to reduce the airborne transfer of harmful power plant emissions in downwind states. CSAPR requires a total of 28 states to reduce SO2 and NOX emissions.

But in the same week as my visit to Marshall in August, the US Court of Appeals in DC ordered the EPA to review the rule. The original legal challenge against the EPA rule was brought by the owners of the 1960s-vintage Homer City coal-fired power station in Pennsylvania, which produced a unit-combined volume of 79,204 tonnes of SO2 in 2011 – more than Duke’s Walter C Beckjordan Station in Ohio.

Duke spokesman, Tom Williams, said that despite the inevitable retirements, the company would plan for compliance rather than challenge EPA regulations.

“We’re not going to fight EPA rules because it’s too hard to change course. We’re already below EPA targets [on most rules?],” he said.

“But are we the angels that are eager to go beyond compliance? I can’t say that that’s the case because we’re incented to do it. If the market brings us there, that’s great and it often happens.”

Regulations such as UMACT and CSAPR could result in the unplanned retirement of 49GW of coal-fired capacity through 2020, according to data from the US Energy Information Administration. The EIA anticipates 9,000MW of coal unit retirements this year alone.

Critics including the American Legislative Exchange Council (ALEC) and the National Mining Association have warned that a “train wreck” lies ahead that would risk reliability of the grid and send electricity costs soaring.

The Edison Electric Institute has estimated that new EPA regulations would cause the unplanned retirement of up to 59GW of the 315GW of coal-fired electric capacity by 2105, at a cost of between $85 billion and $129 billion.

“Our industry is cyclical in nature,” said Riedinger. “We tend to build in investor cycles and even though demand is down, the economy is still run on electricity. The sector is investing around $80bn each year but that amount could increase as much as 20-30% depending on what some of the other EPA regulations look like and there’s no guarantee of 100% cost recovery by any means.

“Utilities are under an obligation to serve to keep the lights on period. Electricity in that regard is a unique and vital commodity. People generally think about it only when it’s not there.”

Next year, rules on water-cooling intakes will see further retirement of fossil-fuelled power stations that use open sources of water to condense steam.

Regulations are a Challenge, but Natural Gas Prices Could be a Bigger One

EPA regulations are not forcing coal retirements on their own, however. On the day of my visit to Marshall, Williams said he had never seen the coal stack so high – a sign that low natural gas prices were having an impact on the plant’s burn rate.

The switch from coal to gas is happening thanks to supplies of cheap unconventional gas that has kept prices hovering around $2 per mmbtu.

In 2000, coal fired electricity accounted for 52% of generation. But last year, that figure had fallen to 42% of US electricity, versus 25% for natural gas.

But king coal is about to be toppled even without much help from EPA regulations.

In July, the US EIA recorded a historic event in the utility industry when electricity generated from natural gas had equalled that of coal for the first time, with each fuel providing 32% of total generation.

Increased natural gas generation has also helped the US reach a 20-year low in carbon emissions without the power generation sector trying very hard. Lower demand because of economic slowdown in the US has helped reduce domestic demand – Duke’s carbon emissions dropped from 100.8m tonnes in 2007 to 91m tonnes last year.

But structural changes in its energy portfolio have also contributed. Dan River Steam Station is a symbol of Duke’s shift from coal to gas. The 276MW power station in Rockingham County, North Carolina, began generating electricity from coal in 1949.

But all three coal units were retired in 2012 and will be the new home of a state of the art 620-megawatt combined cycle natural gas facility scheduled to start generating electricity later this year.

Williams said that this conversion to gas generation at a coal-fired power station sites is preferable where possible. But he said that the industry would be in trouble if it switched too far to natural gas because suppliers do not offer long-term fuel contracts that would really be a gamechanger in the industry.

Concerns over volatility and long-term trends and supplies mean utilities will continue to keep their energy portfolios diverse.

Paul W Bledsoe, senior adviser at the Bipartisan Policy Center in Washington, DC, said: “Low natural gas prices have pushed gas dispatch ahead of coal this year and are more important than EPA rules in impacting coal generation. Companies with significant gas-fired capacity, like Duke, appear generally well positioned for the new market conditions, as well as EPA regulations.”